Straits Asia Resources Limited

Transcription

1 Straits Asia Resources Limited Straits Asia Resources Limited Prospectus dated October (Registered by the Monetary Authority of Singapore on 26 October 2006) Straits Asia Resources Limited (incorporated with limited liability in the Republic of Singapore on June 10, 1995) (Registration Number: R) Offering in respect of 320,000,000 Offering Shares (subject to the Over-allotment Option) Minimum size of the Singapore Public Offer: 14,000,000 Offering Shares Maximum Offering Price: S$0.72 per Offering Share This document is important. If you are in any doubt as to the action you should take, you should consult your legal, financial, tax or other professional advisor. This is the initial public offering of our ordinary shares ( Shares ). Straits Resources Limited, through its subsidiary Straits Bulk and Industrial Pty Ltd (the Selling Shareholder ), is making an offering of 320,000,000 Shares (the Offering Shares ) for purchase by investors at the Offering Price (as defined below) (the Combined Offering ). The Combined Offering consists of (i) an international placement (the International Offering ) to investors, including institutional and other investors in Singapore, outside the United States in reliance on Regulation S under the United States Securities Act of 1933, as amended (the U.S. Securities Act ), and in the United States only to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act and (ii) an offering to the public in Singapore (the Singapore Public Offer ). The minimum size of the Singapore Public Offer is 14,000,000 Offering Shares. We will not receive any proceeds from the sale of the Offering Shares by the Selling Shareholder. Investors applying for Offering Shares by way of Application Forms or Electronic Applications (both referred to in Terms, Conditions and Procedures for Application and Acceptance for the Offering Shares under the Singapore Public Offer described below) under the Singapore Public Offer will pay the maximum offering price of S$0.72 per Offering Share (the Maximum Offering Price ). The International Offering will be fully underwritten by Macquarie Securities (Singapore) Pte Limited, acting as the Sole Global Coordinator, Bookrunner and Underwriter (the Global Coordinator ) at the Offering Price, if the Offering Price is agreed between the Global Coordinator, us and the Selling Shareholder. Prior to the Combined Offering, there has been no public market for our Shares. We have applied to the Singapore Exchange Securities Trading Limited (the SGX-ST ) for permission to list all our issued Shares, including the Offering Shares, the new Shares (the Option Shares ) which may be issued upon the exercise of the options that may be granted under the Straits Employee Share Option Plan (as defined below) and the new Shares (the Plan Shares ) which may be issued pursuant to the Straits Executive Acquisition Plan (as defined below) and the Additional Shares (as defined below), if any, to be transferred upon the exercise of the Over-allotment Option (as defined below) on the Main Board of the SGX-ST. Such permission will be granted when we have been admitted to the Official List of the SGX-ST. Acceptance of applications for our Offering Shares will be conditional upon, among other factors, permission being granted to deal in and for quotation of all our issued Shares, including the Offering Shares, the Option Shares and the Plan Shares. Moneys paid in respect of any application accepted will be returned, at each investor s own risk, without interest or any share of revenue or other benefit arising therefrom and without any right or claim against us, the Selling Shareholder or the Global Coordinator, if the Combined Offering is not completed because the said permission is not granted or for any other reason. We have received a letter of eligibility from the SGX-ST for the listing and quotation of our Shares, the Offering Shares, the Option Shares and the Plan Shares in accordance with our application to the SGX-ST. The SGX-ST assumes no responsibility for the correctness of any statements or opinions made or reports contained in this offering document (the Prospectus ). Our eligibility to list and admission to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Combined Offering, us, our subsidiaries, our Shares, the Straits Employee Share Option Plan or the Straits Executive Share Acquisition Plan. A copy of this Prospectus has been lodged with and registered by the Monetary Authority of Singapore (the Authority ) on September 29, 2006 and October 26, 2006, respectively. The Authority assumes no responsibility for the contents of this Prospectus. Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act, Chapter 289 of Singapore (the Securities and Futures Act ), or any other legal or regulatory requirements, have been complied with. The Authority has not in any way considered the merits of our Shares being offered or in respect of which an invitation is made for investment. No Shares shall be allocated on the basis of this Prospectus later than six months after the date of registration of this Prospectus by the Authority. See Risk Factors herein for a discussion of certain factors to be considered in connection with an investment in our Shares. The Selling Shareholder has granted Macquarie Securities (Singapore) Pte Limited an over-allotment option (the Over-allotment Option ) exercisable by it in full or in part on one or more occasions no later than the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST and (ii) the date when Macquarie Securities (Singapore) Pte Limited has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action, to purchase up to an aggregate of 48,000,000 Shares (representing not more than 15% of the total Offering Shares) (the Additional Shares ) at the Offering Price, solely to cover the over-allotment of the Offering Shares, if any. The Offering Shares have not been and will not be registered under the U.S. Securities Act and are being offered and sold in the United States only to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act. Prospective purchasers are hereby notified that the sellers of the Offering Shares may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. The Offering Shares are not transferable except in accordance with the restrictions described under Transfer Restrictions. The Maximum Offering Price of S$0.72 is payable in full on application under the Singapore Public Offer and is subject to refund if and to the extent that the Offering Price is less than the Maximum Offering Price. Investors in the International Offering are required to pay the Offering Price. In addition, investors for the International Offering may be required to pay a brokerage fee of up to 1.0% of the Offering Price in connection with their purchase of Offering Shares. See Plan of Distribution. The Offering Price will be determined following a book-building process by agreement between the Global Coordinator, the Selling Shareholder and us on a date currently expected to be October 31, 2006 (the Price Determination Date ), which is subject to change. If for any reason the Offering Price is not agreed between the Global Coordinator, the Selling Shareholder and us, the Combined Offering will not proceed. Notice of the Offering Price, if agreed, will be published in one or more major Singapore newspapers, such as The Straits Times, The Business Times or Lianhe Zaobao, not later than two calendar days after the Price Determination Date. References in this Prospectus to hereof, herein or this offering document should be construed as being references to this Prospectus. Issue Manager Macquarie Securities (Asia) Pte Limited Sole Global Coordinator, Bookrunner and Underwriter Macquarie Securities (Singapore) Pte Limited Sub-underwriters BNP Paribas Peregrine (Singapore) Ltd CIMB-GK Securities Pte. Ltd.

2 About Straits Asia Resources Limited Straits Asia Resources is headquartered in Singapore. We have been operating in Southeast Asia for over nine years and members of our management team have conducted business in this region since the 1970s. We are primarily engaged in thermal coal mining on Sebuku Island, South Kalimantan, Indonesia. We have been recognized by Barlow Jonker as one of the lowest cost thermal coal producers in the world (1). We are a subsidiary of Straits Resources Limited, a diversified resources company listed on the Australian Stock Exchange. Our Business We are primarily engaged in thermal coal mining on Sebuku Island, South Kalimantan, Indonesia. We commenced operations at our Sebuku mine in 1997 and we hold the rights from the Indonesian Government to mine for coal in our Sebuku concession area until We believe we have a good working relationship with the Indonesian Government and the local communities on Sebuku Island, which we have built up over more than a decade. We produced approximately 3.0 million tonnes of coal in 2005, approximately 850 thousand tonnes of coal in the first three months of 2006 and approximately 1.6 million tonnes of coal in the first six months of We plan to increase our production to approximately 3.5 million tonnes of coal in 2006 and to approximately 4.0 million tonnes of coal in We estimate that, as of May 31, 2006, our coal resources totaled approximately 73.3 million tonnes, of which our coal reserves comprised approximately 28.3 million tonnes. Our policy is to maintain sufficient reserves to support a rolling five year life of mine plan. We believe our coal reserves of 28.3 million tonnes are sufficient to support our current five year life of mine plan with our expected production increase to approximately 4.0 million tonnes in In addition to coal mining, we are developing complementary commodities marketing and resources infrastructure businesses. We are also actively exploring opportunities for new business, investments and acquisitions in the natural resources and mineral and metal extractive industries, primarily in the Asia-Pacific region. Our Customers and Markets FY2005 Sales Volumes by Country of Delivery 14.9% 16.8% 7.7% 2.5% 18.3% 39.9% Japan Malaysia Hong Kong India South Korea Belgium Barlow Jonker World Thermal Coal Import Demand (2) (Million tonnes) We export a substantial portion of Sebuku coal to power generation companies, primarily in Japan, Malaysia, Hong Kong, India and South Korea. According to Barlow Jonker (1), Indonesia was the world s largest exporter of thermal coal in 2005, and Asia accounted for the world s highest thermal coal import demand in We believe that the proximity of Sebuku to our primary markets provides us with a competitive advantage P F F ( P denotes provisional, F denotes forecast) F Other Regions Other Asia North Asia (1) Barlow Jonker is a private and independent coal consultancy specializing in coal market analysis, mine valuation and strategic business advice. The information quoted from Barlow Jonker has not been verified by the Company or the Selling Shareholder. The Company and the Selling Shareholder have included such information in its proper form and context in this Prospectus. Barlow Jonker has not consented to the inclusion of the above information for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. (2) North Asia and Other Asia represent the amounts appearing in the World Thermal Coal Import Demand table on page 103 of this Prospectus. Other Regions represents all other regions apart from North Asia and Other Asia appearing in that table.

3 Our Business Strategy Our strategy is to grow upon the foundation of being one of the industry s most efficient and cost competitive thermal coal producers. In the medium to long-term, we also seek to develop our Group into an Asia-Pacific focused, diversified resources group of companies with the ability to explore and develop opportunities in other selected mining projects, as well as to provide integrated procurement, marketing and infrastructure services to third party resource companies. Our business strategy entails the following: Maximize efficiency and cost competitiveness of our mining operations. We intend to further improve our operational efficiency and cost competitiveness by undertaking initiatives to improve transportation and logistics infrastructure and mining techniques and achieve cost efficiencies. Achieve high production levels and handling capacity. To satisfy increasing demand for Sebuku coal, we are developing mining and production plans to increase Sebuku coal production to approximately 4.0 million tonnes in We also intend to undertake a feasibility study into the possibility of increasing our production to up to 6.0 million tonnes per annum over the next few years to the extent we have sufficient coal reserves available to do so. Maximize long-term potential of the Sebuku concession area. We will continue to invest in exploration activities to maximize the long-term potential of the Sebuku concession area. Expand our bulk commodities marketing and resource infrastructure development businesses. We intend to increase the amount of these services we provide to third party customers. Our long-term goal is to develop our bulk commodities marketing and resource infrastructure development operations as a separate business and revenue generating units for our Group. Develop into a diversified, Asia-Pacific focused resources company. In addition to our Sebuku coal mining operations, we have the expertise to provide technical and commercial services to the Straits Resources Group for the management of its Mt. Muro gold mine. We intend to actively explore other business opportunities within the Asia-Pacific region in order to enhance our revenue growth, operations and profitability.

4 Our Competitive Strengths We believe we have the following key competitive strengths: One of the lowest-cost thermal coal producers in the world. We believe that we are one of the lowest cost producers of thermal coal in the world, due to the favorable geographic and geological conditions of the Sebuku mine. Strong customer base. We sell a large proportion of our coal directly to end-users that are power generation companies in Asia. A large proportion of our customers purchase our coal under long-term contracts with prices which are typically fixed over 12-month periods. Major coal reserves at the Sebuku mine to support our future growth plans. As of May 31, 2006, we had 28.3 million tonnes of coal reserves, which we believe is adequate to support our planned increase in our production to approximately 4.0 million tonnes per annum by 2007 and our current five year life of mine plan. We also have reported 45.0 million tonnes of additional coal resources, which are not part of our coal reserves. Ability to leverage the expertise and experience of Straits Resources. In seeking opportunities to grow our business into new Asian countries and new resource ventures, we are able to leverage Straits Resources experience in advancing exploratory, greenfield and brownfield resource projects. Experienced management and operations team focused on the Asia-Pacific region. We have Directors, management and operations personnel with extensive experience in the coal mining, commodities marketing and resource infrastructure development industries, as well as extensive experience working in Asia. Some of our key executives have more than 30 years of business experience in Singapore and Asia. Dividend Policy Our Board of Directors intention, subject to the approval of our Shareholders at a general meeting, the financial performance and financial condition of our Group, and such other factors our Directors deem appropriate (including but not limited to the factors described in this Prospectus), is to: pay an annual dividend for the year ending December 31, 2007 of approximately 60% of our Company s distributable profits for the year ending December 31, 2007; and maintain dividend levels to the extent permitted by our overall objective of maximizing shareholder value over the long-term.

5 Overview of Financial Performance Sales Revenue (US$m) Adjusted EBITDA (US$m) Profit (Loss) for the period (US$m) (1.501) H H H H H H 2006 Singapore Kalimantan Sebuku Jakarta Perth (SRL)

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7 TABLE OF CONTENTS Introduction Page Notice to Investors... 2 Special Note Regarding Forward-Looking Statements... 5 Market and Industry Information... 6 Presentation of Financial Information... 7 CorporateInformation... 8 Glossary of Defined Terms and Conventions.. 10 Summary StraitsAsiaGroup TheCombinedOffering IndicativeTimetable Summary Financial Information and Operating Data Risk Factors Financial Information Use of Proceeds Dividend Policy Exchange Rate Information Capitalization and Indebtedness Dilution Selected Financial Information and Operating Data Unaudited Pro Forma Financial Information.. 60 Management s Discussion and Analysis of Financial Condition and Results of Operations. 62 Corporate and Business Information Reorganization of Our Group The Coal Mining Industry Business Description of Principal Agreements and Indebtedness Regulation of the Indonesian Coal Mining Industry Management and Corporate Governance Page ShareCapital Interested Person Transactions and Conflicts ofinterests Principal and Selling Shareholders The Share Offering Description of Our Shares Clearance and Settlement Taxation PlanofDistribution Transfer Restrictions Other Matters AvailableInformation Enforcement of Civil Liabilities Legal Matters Independent Public Accountants Independent Mining Consultant General and Statutory Information Coal Reserve and Resource Reporting Summary of Certain Differences Between SFRSandU.S.GAAP Glossary of Technical Terms Financial Statements Index to Consolidated Financial Statements (and Consolidated Financial Statements)... F-1 Appendices Appendix A Independent Technical Review of the Sebuku Mine and Infrastructure... A-1 Appendix B Rules of the Straits Employee ShareOptionPlan... B-1 Appendix C Rules of the Straits Executive Share Acquisition Plan.... C-1 Appendix D Letter from KPMG Corporate Finance to the Independent Directors dated October 26, 2006 in respect of the Shareholders Mandate for Interested Person Transaction... D-1 Appendix E Terms, Conditions and Procedures for Application and Acceptance for the Offering Shares under the Singapore PublicOffer... E-1 1

8 NOTICE TO INVESTORS This offering document is confidential. You are authorized to use this offering document solely for the purpose of considering the purchase of the Offering Shares. We have provided the information contained in this offering document and have also relied on other identified sources contained in this offering document. To the extent permitted by applicable law, we, the Selling Shareholder and the initial purchaser make no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing in this offering document is, or shall be relied upon as, a promise or representation by us, the Selling Shareholder or the initial purchaser. You may not reproduce or distribute this offering document for any purpose other than considering an investment in our Shares. By accepting delivery of this offering document, you are hereby deemed to agree to these terms. No person is authorized to give any information or to make any representation not contained in this offering document and any information or representation not so contained must not be relied upon as having been authorized by or on behalf of us, the Selling Shareholder or the initial purchaser. Neither the delivery of this offering document nor any offer, sale or transfer made hereunder shall under any circumstances imply that the information herein or therein is correct as of any date subsequent to the date hereof or thereof, or constitute a representation that there has been no change or development reasonably likely to involve a material adverse change in the affairs, conditions and prospects of us, our Selling Shareholder or our Shares since the date hereof. Where such changes occur and are material or are required to be disclosed by law, the SGX-ST or any other regulatory or supervisory body or agency, we will make an announcement of the same to the SGX-ST and, if required, issue and lodge an amendment to this offering document or a supplementary offering document or a replacement offering document pursuant to Section 240 or, as the case may be, Section 241 of the Securities and Futures Act, and take immediate steps to comply with these Sections. Investors should take notice of such announcements or offering documents and upon release of such announcements and offering documents will be deemed to have notice of such changes. To the extent permitted by applicable law, no representation, warranty or covenant, express or implied, is made by us, the Selling Shareholder, the initial purchaser or any of our or their affiliates, directors, officers, employees, agents, representatives or advisors as to the accuracy or completeness of the information contained herein, and nothing contained in this offering document is, or shall be relied upon as, a promise, representation or covenant by us, the Selling Shareholder, the initial purchaser or our or their affiliates, directors, officers, employees, agents, representatives or advisors. This offering document summarizes certain material documents and other information, and we, the Selling Shareholder and the initial purchaser refer you to them for a more complete understanding of what we discuss in this offering document. In making an investment decision, you must rely on your own examination of us, the transaction structure and the terms of the Combined Offering, including the merits and the risks involved. Neither we, the Selling Shareholder, the initial purchaser nor any of our or their affiliates, directors, officers, employees, agents, representatives or advisors, are making any representation to you regarding the legality of an investment in our Shares by you under any investment or similar laws or regulations. You should not consider any information in this offering document to be legal, business or tax advice. You should consult your own professional advisors as to the legal, business, financial, tax or related aspects of an investment in our Shares. The distribution of this offering document and the offering, purchase, sale or transfer of our Shares in certain jurisdictions may be restricted by law. We, the Selling Shareholder and the initial purchaser require persons into whose possession this offering document comes to inform themselves about and to observe any such restrictions at their own expense and without liability to us, the Selling Shareholder or the initial purchaser. This offering document does not constitute an offer of, or an invitation to purchase, any of our Shares in any jurisdiction in which such offer or invitation would be unlawful. Persons to whom a copy of this offering document has been issued shall not circulate to any other person, reproduce or otherwise distribute this offering document or any information herein for any purpose whatsoever nor permit or cause the same to occur. 2

9 We report our coal reserves and resources in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004 Edition) (the 2004 JORC Code ), published by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australasian Institute of Geoscientists and Minerals Council of Australia. For more information regarding our coal reserve and resource reporting, see Coal Reserve and Resource Reporting. The standards of the 2004 JORC Code substantially comply with those required by the U.S. Securities and Exchange Commission. However, the U.S. Securities and Exchange Commission does not recognize coal resources or permit their use in documents filed with it unless such estimates are required to be disclosed by foreign or state law. For a discussion of the differences between the reporting requirements of the 2004 JORC Code and the standards promulgated by the U.S. Securities and Exchange Commission and cautionary notes regarding the interpretation of our coal resource amounts included in this offering document, see Coal Reserve and Resource Reporting Reserve Reporting Requirements of the U.S. Securities and Exchange Commission and Cautionary Note to Investors Concerning Estimates of Measured, Indicated and Inferred Resources. In connection with the Combined Offering, Macquarie Securities (Singapore) Pte Limited may over-allot or effect transactions that stabilize or maintain the market price of our Shares at levels above those that would otherwise prevail in the open market. Such transactions may be effected on the SGX-ST and in other jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulations including the Securities and Futures Act and any regulations thereunder. Stabilizing, if commenced, may be discontinued at any time and shall not be effected after the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST or (ii) the date when Macquarie Securities (Singapore) Pte Ltd has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action. In connection with the Combined Offering, the Selling Shareholder has granted Macquarie Securities (Singapore) Pte Limited the Over-allotment Option exercisable by it in full or in part on one or more occasions no later than the earlier of (i) the date falling 30 days from the the commencement of trading of the Shares on the SGX-ST or (ii) the date when Macquarie Securities (Singapore) Pte Limited has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action, to purchase up to an aggregate of 48,000,000 Shares (representing not more than 15% of the total Offering Shares) at the Offering Price, solely to cover the over-allotment of the Offering Shares, if any. NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES We are furnishing this offering document on a confidential basis in connection with an offering exempt from registration under the U.S. Securities Act and applicable state securities laws solely for the purpose of enabling prospective investors to consider the purchase of the Offering Shares. We have provided the information contained in this offering document and have also relied on other identified sources contained in this offering document. No representation or warranty, express or implied, is made by the initial purchaser or by its U.S. selling agent as to the accuracy or completeness of such information, and nothing contained in this offering document is, or shall be relied upon as, a promise or representation by the initial purchaser or such agents or consultants. Any reproduction or distribution of this offering document, in whole or in part, and any disclosure of its contents or use of any information herein is prohibited, except to the extent such information is otherwise publicly available. The Offering Shares are subject to restrictions on transferability and resale and may not be transferred or resold in the United States or to U.S. persons (as defined in Regulation S promulgated under the U.S. Securities Act), except as permitted under the U.S. Securities Act and applicable state securities laws pursuant to registration or an exemption from registration under the U.S. Securities Act. You 3

10 should be aware that you may be required to bear the risk of an investment in the Offering Shares for an indefinite period of time. See Transfer Restrictions for more information on these restrictions. The Offering Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission or any state or foreign securities commission or regulatory authority. The foregoing authorities have not confirmed the accuracy or determined the adequacy of this offering document. Any representation to the contrary is a criminal offense in the United States. In addition, until the date 40 days after the commencement of the Combined Offering, an offer or sale of the Offering Shares within the United States by a dealer (whether or not participating in the Combined Offering) may violate the registration requirements of the U.S. Securities Act, if such offer or sale is made otherwise than in accordance with Rule 144A. INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE Pursuant to U.S. Internal Revenue Service Circular 230, we hereby inform you that the description and opinion set forth herein with respect to U.S. federal tax issues were not intended or written to be used, and such description and opinion cannot be used by any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the U.S. Internal Revenue Code. Such description and opinion were written to support the marketing of the Offering Shares and are limited to the U.S. federal tax issues described herein. It is possible that additional issues may exist that could affect the U.S. federal tax treatment of an investment in the Offering Shares, or the matters that are the subject of the description and opinion noted herein, and this description does not consider or provide any conclusions with respect to any such additional issues. Taxpayers should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B ( RSA 421-B ) OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO PROSPECTIVE INVESTORS IN INDONESIA This offering document may not be distributed or passed on within Indonesia or to persons who are citizens of Indonesia (wherever they are domiciled or located) or entities or residents in Indonesia. The Offering Shares may not be offered or sold, directly or indirectly, within Indonesia or to Indonesian citizens (wherever they are domiciled or located), entities or residents in a manner which constitutes a public offering of the Offering Shares under the laws and regulations of Indonesia. 4

11 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This offering document contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to: our strategy, plans, objectives or goals, including those related to our products and operations; future economic performance; the coal mining industry, including future prices, demand and supply of coal; and assumptions underlying such statements. Forward-looking statements that may be made by us from time to time (but that are not included in this offering document) may also include projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios. The words anticipate, believe, could, estimate, expect, intend, may, plan, seek, will, would and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements. These forward-looking statements reflect our current view with respect to future events and are not a guarantee of future performance. You should be aware that a number of important factors could cause our actual results to differ materially from the strategies, plans, objectives, expectations, estimates, and intentions expressed in such forward-looking statements. These factors include: changes or volatility in inflation, interest rates and foreign exchange rates; the price of coal, including factors influencing the price of coal, such as regional and global supply and demand; the effects of, and changes in, the regulatory policy of the Government relating to the coal mining industry and generally; the effects of competition in the geographic and business areas in which we conduct our operations; the effects of changes in laws, regulations, taxation or accounting standards or practices; our ability to maintain or increase our market share for our coal product while controlling expenses; reductions of purchases by major customers; our ability to attract and retain new customers for the commodity marketing and infrastructure development businesses we are developing; acquisitions, divestments and various business opportunities that we may pursue; technological changes that affect the extraction, preparation, processing, shipping or combustion of coal; industrialization and economic growth in emerging markets such as China and India; estimates of reserves and resources, our ability to convert coal resources into coal reserves and to replace depleted coal reserves with additional coal resources and reserves and statements regarding anticipated future exploitation and feasibility study results; the effects of international political events on our businesses; and the success at managing the risks of the aforementioned factors. This list of important factors is not exhaustive. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed elsewhere in Risk Factors, Management s Discussion and Analysis of Finance Condition and Results of Operation and The Coal Mining Industry. When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the 5

12 political, economic, social and legal environment in which we operate. These forward-looking statements speak only as of the date on which they are made. Accordingly, we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise, save as may be required by applicable law. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. Accordingly, you should not place undue reliance on any forward-looking statements. MARKET AND INDUSTRY INFORMATION Certain market data, industry forecasts and data relating to Indonesia used throughout this offering document have been obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information is not guaranteed. Similarly, while we believe these industry forecasts and market research to be reliable, we have not independently verified this information and do not make any representation as to its accuracy. The information on the annual production of coal in Indonesia from 2001 to 2005 and the statements comparing us with other Indonesian coal producers in terms of coal production and export sales volumes for 2005 are based on information regarding coal production in, and exports from, Indonesia prepared by the Indonesian Ministry of Energy and Mineral Resources. The Indonesian Ministry of Energy and Mineral Resources has not given its consent to the inclusion of such information attributable to them in this offering document and is therefore not liable for such information under Sections 253 and 254 of the Securities and Futures Act. While we and the Selling Shareholder have taken reasonable action to ensure that the information attributed to the Indonesian Ministry of Energy and Mineral Resources in this offering document are reproduced in their proper form and context, neither we nor the Selling Shareholder have conducted an independent review of the information or verified its accuracy. In this offering document we have included various statistical data relating to the coal mining operations and non-gaap performance measures, such as Adjusted EBITDA, and cash production cost per tonne of production volume. The manner in which these data are calculated is described in this offering document. You should note, however, that other companies in the coal mining industry may calculate and present these data in a different manner and, therefore, you should use caution in comparing our data with data presented by other companies, as the data may not be directly comparable. We derived certain facts and statistics in this offering document relating to the coal industry in Indonesia from various publicly-available industry, government and research publications. This document includes industry data and forecasts that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Barlow Jonker Pty Ltd. ( Barlow Jonker ) was the primary source of third-party industry data and forecasts. Barlow Jonker is a private and independent coal consultancy specializing in coal market analysis, mine valuation and strategic business advice. Barlow Jonker has not given its consent to the inclusion of such information attributable to them in this offering document and is therefore not liable for such information under Sections 253 and 254 of the Securities and Futures Act. We and the Selling Shareholder have taken reasonable action to ensure that the facts and statistical data relating to the coal industry in Indonesia used in this offering document have been extracted from these sources in their proper form and context. However, we and the Selling Shareholder have not verified the accuracy of the information extracted nor have we or the Selling Shareholder obtained the specific consent of these sources for the inclusion of such information in this offering document unless otherwise specified. Our Directors are also not aware of any disclaimers made by these sources in relation to reliance on such information. 6

13 PRESENTATION OF FINANCIAL INFORMATION We prepare our consolidated financial statements in accordance with Singapore Financial Reporting Standards ( SFRS ), which differ in certain respects from generally accepted accounting principles in certain other countries. This offering document contains our audited consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005, and our unaudited consolidated financial statements as of and for the three months ended March 31, 2005 and 2006, each of which has been prepared in accordance with Singapore Financial Reporting Standards ( SFRS ). Except for our discussion of recent developments contained in Management s Discussion and Analysis of Financial Condition and Results of Operation Recent Developments, we have prepared our operational data contained in this offering document based on the financial information contained in those financial statements and with respect to the periods covered by those financial statements. We have also included our unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2005 and 2006 in this offering document on which we base our discussion of recent developments contained in Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments. Our results for the three-month period ended March 31, 2006 and for the six-month period ended June 30, 2006 should not be considered indicative of the actual results we may achieve for the full year SFRS differs in certain respects from generally accepted accounting principles in certain other countries. For a narrative discussion of certain differences between SFRS and generally accepted accounting principles in the United States ( U.S. GAAP ), see Summary of Certain Differences Between SFRS and U.S. GAAP included elsewhere in this offering document. We maintain our accounts and publish our financial statements in U.S. dollars. This offering document contains conversions of certain amounts into Singapore dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, we have made all conversions of U.S. dollars to Singapore dollars at the rate of US$1.00=S$1.58, the noon buying rate in New York City for cable transfers announced by the Federal Reserve Bank (the Noon Buying Rate ) on June 30, We do not represent that the U.S. dollar or Singapore dollar amounts referred to herein could have been or could be converted into Singapore dollars at this rate, at any particular rate or at all. See Exchange Rate Information for certain historical information on the exchange rate between Singapore dollars and U.S. dollars. Fluctuations in the exchange rates between the Singapore dollar and the U.S. dollar will affect the U.S. dollar equivalent of the Singapore dollar price of our Shares on the SGX-ST and any cash dividend paid by us in Singapore dollars. 7

14 CORPORATE INFORMATION Board of Directors : Milan Jerkovic (Chairman, Non-Executive Director) Alvin David Toms (Chief Executive Officer) Ong Chui Chat (Executive Director) Martin David Purvis (Executive Director) Dr Chua Yong Hai (Deputy Chairman, Independent Director) Han Eng Juan (Independent Director) Company Secretary : Ng Lai Ying, FCIS Registered Office and Principal Place of Business Company Registration Number Share Registrar and Transfer Agent Sole Global Coordinator, Bookrunner and Underwriter : 80 Robinson Road #22-04, Singapore : R : Lim Associates (Pte) Limited 10 Collyer Quay #19-08 Ocean Building Singapore : Macquarie Securities (Singapore) Pte Limited 23 Church Street #11-11 Capital Square Singapore Issue Manager : Macquarie Securities (Asia) Pte Limited 23 Church Street #11-11 Capital Square Singapore Initial Purchaser : Macquarie Securities (Singapore) Pte Limited 23 Church Street #11-11 Capital Square Singapore Sub-underwriters : BNP Paribas Peregrine (Singapore) Ltd 20 Collyer Quay #08-01 Tung Centre Singapore CIMB-GK Securities Pte. Ltd. 50 Raffles Place #19-00 Singapore Land Tower Singapore Legal Advisors to the Company and the Selling Shareholder as to Singapore law : Venture Law LLC 50 Raffles Place #31-01 Singapore Land Tower Singapore

15 Legal Advisors to the Company and the Selling Shareholder as to United States federal and New York law and English law Legal Advisors to the Company and the Selling Shareholder as to Indonesian law Legal Advisors to the Issue Manager and Global Coordinator as to Singapore law Legal Advisors to the Issue Manager and Global Coordinator as to United States federal and New York law and English law Auditors and Reporting Auditors : White & Case LLP 50 Raffles Place #30-00 Singapore Land Tower Singapore : Makes & Partners Menara Batavia, 7th Floor, JL. K.H. Mas Mansyur Kav. 126, Jakarta Indonesia : WongPartnership One George Street #20-01 Singapore : Allen & Overy 9th Floor Three Exchange Square Central Hong Kong : PricewaterhouseCoopers Certified Public Accountants 8 Cross Street #17-00 PWC Building Singapore Principal Banker : Bayerische Hypo-Und Vereinsbank AG, Singapore Branch 30 Cecil Street #25-01 Prudential Tower Singapore Receiving Banker : DBS Bank Ltd 6 Shenton Way DBS Building Tower One Singapore Selling Shareholder : Straits Bulk and Industrial Pty Ltd Level 1, 35 Ventnor Avenue West Perth 6005, Western Australia Independent Financial Adviser Independent Mining Consultant : KPMG Corporate Finance Pte Ltd 16 Raffles Quay #22-00 Hong Leong Building Singapore : John T. Boyd Company (Australia) Pty. Ltd. Level Eagle Street Brisbane, QLD 4000 Australia 9

16 GLOSSARY OF DEFINED TERMS AND CONVENTIONS Definitions Unless the context otherwise requires, the following terms in this offering document have the following meanings: Entities Arapa or Arapa Leasing : Arapa Leasing Pte Ltd, one of our Singapore subsidiaries BCS or Bahari Cakrawala Sebuku : PT Bahari Cakrawala Sebuku, one of our Indonesian operating subsidiaries BUMA : PT Bukit Makmur Mandiri Utama Indo Straits or PTIS : PT Indo Straits, one of our Indonesian operating subsidiaries LCI : PT Leighton Contractors Indonesia our Company, the Company, Straits Asia, or the company our Group, we, us, our, the Group or the Straits Asia Group our subsidiaries or its subsidiaries : Straits Asia Resources Limited : The Company and its subsidiaries taken as a whole : The subsidiaries of our Company: namely, Straits Gold Holdings Pte Limited, Straits Global Trading Pte Ltd, Straits Energy Trading Pte Ltd, Straits Marine & Infrastructure Pte Ltd, PT Bahari Cakrawala Sebuku, Reyka Wahana Digdjaya Pte Ltd, PT Reyka Wahana Digdjaya, Sebuku Investments Limited, PT Straits Consultancy Services, Arapa Leasing Pte Ltd and PT Indo Straits. See General and Statutory Information Our Subsidairies for details of our subsidiaries. Mitra : PT Mitra Bahtera Segarasejati Selling Shareholder : Straits Bulk and Industrial Pty. Ltd. SET : Straits Energy Trading Pte. Ltd. SGH : Straits Gold Holdings Pte Limited SIL : Sebuku Investments Limited SMI : Straits Marine & Infrastructure Pte. Ltd. Straits Global Trading : Straits Global Trading Pte. Ltd. Straits Resources or SRL : Straits Resources Limited, our ultimate holding company Straits Resources Group : Straits Resources Limited and its subsidiaries, including Straits Asia and the members of the Straits Asia Group PT IMK : PT Indo Muro Kencana PT SCS : PT Straits Consultancy Services RWD : PT Reyka Wahana Digdjaya RWDP : Reyka Wahana Digdjaya Pte. Ltd. 10

17 Whim Creek : Straits (Whim Creek) Pty. Ltd. Xanadu : Xanadu Mines Ltd General Acquisitions : The acquisition of Arapa Leasing Pte Ltd and PTIS by the Company, and the purchase of a 10% equity interest in Xanadu by the Company. Associate : In relation to a corporation, means: (a) in a case where the corporation is a Substantial Shareholder or Controlling Shareholder, its related corporation, related entity, associated company or associated entity; or (b) in any other case: (i) a director or an equivalent person; (ii) a Controlling Shareholder of the corporation; (iii) a subsidiary, a subsidiary entity, an associated company, or an associated entity of the corporation; or (iv) a subsidiary, a subsidiary entity, an associated company, or an associated entity of the Controlling Shareholder of the corporation In relation to an individual, means: (a) his immediate family (his spouse, child, adopted child, step-child, sibling, step-brother, step-sister, parent or step parent); (b) a trustee of any trust of which the individual or any member of his immediate family is a beneficiary or, where the trust is a discretionary trust, a discretionary object, when the trustee acts in that capacity; or (c) any corporation in which he and his immediate family together (whether directly or indirectly) have interests in voting shares of an aggregate of not less than 30% of the votes attached to all voting shares Board or Board of Directors : The board of Directors of our Company CDP : The Central Depository (Pte) Limited Coal Cooperation Contract : The Coal Mining Coorperation Contract entered into between the Government and BCS on August 15, 1994, as amended, supplemented or modified from time to time control : The capacity to dominate decision making, directly or indirectly, in relation to financial and operating policies Controlling Shareholder : In relation to a corporation, a person who: (a) in fact exercises control over the corporation; or (b) holds, directly or indirectly, 15% or more of the nominal amount of all the voting shares in a corporation, unless the SGX-ST determines otherwise 11

18 Directors : Directors of our Company as at the date of this offering document Executive Officers : Executive officers of our Company as at the date of this offering document Indonesia : The Republic of Indonesia Indonesian Government or the Government : The Government of Indonesia initial purchaser : Macquarie Securities (Singapore) Pte Limited Latest Practicable Date : September 15, 2006 Listing Date : The date on which our Company is admitted to the Official List of the SGX-ST Listing Manual : The Listing Manual of the SGX-ST Market Day : A day on which the SGX-ST is open for trading in securities Offering Price : The offering price for each Offering Share which will be determined following a book building process by agreement among the Global Coordinator, Selling Shareholder and our Company Reorganization : The reorganization of our Group as further described in Reorganization of our Group securities account : The securities account maintained by a depositor of securities with CDP Shares : Ordinary shares in the capital of our Company Shareholder : Registered holder of Shares Singapore : The Republic of Singapore Singapore Companies Act : Companies Act, Chapter 50 of Singapore Sole Global Coordinator or Global Coordinator : Macquarie Securities (Singapore) Pte Limited Subdivision : Subdivision of one ordinary share in our share capital into 30 ordinary shares subsidiary : A company in which shares of an amount exceeding 50% of its paid-up capital are held directly or indirectly by a company Substantial Shareholder : A person who has an interest or interests in one or more voting Shares in our Company, and the total votes attached to that Share or those Shares, is not less than 5% of the total votes attached to all the voting Shares in our Company United States or U.S. : The United States of America You or your : Potential investors or purchasers of our Shares 12

19 Currency Australian dollars and A$ : The lawful currency of Australia Indonesian Rupiah and Rp. : The lawful currency of Indonesia Singapore dollars and S$ : The lawful currency of Singapore U.S. dollars, US$ and $ : The lawful currency of the United States The terms depositor, depository agent and depository register shall have the meanings ascribed to them respectively in Section 130A of the Singapore Companies Act. The terms associated company, associated entity, controlling interest-holder, related corporation, related entity and subsidiary entity shall have the meanings ascribed to them respectively in the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations The term business trust has the meaning ascribed to it in Section 2 of the Business Trusts Act, Chapter 31A of Singapore. Please refer to Glossary of Technical Terms for definitions of technical and coal mining related terms used in this offering document. Certain Conventions Unless we indicate otherwise, all information in this offering document assumes that the Over-allotment Option is not exercised, the Offering Price of our Offering Shares is S$0.72, which is the Maximum Offering Price, and does not take into account any changes in shareholding which may arise as a result of any Shares lent or re-delivered pursuant to the share lending agreement described in Plan of Distribution Share Lending Agreement and that no Offering Shares have been re-allocated between the International Offering and the Singapore Public Offer. In this offering document, references to production or sales, as measured in tonnes, refer to the total amount of coal produced or sold by us, including amounts attributable to the Indonesian Government s entitlement to 13.5% of our total coal production under the terms of the Coal Cooperation Contract between us and the Indonesian Government. For a description of the Government s entitlement, see Description of Principal Agreements and Indebtedness Coal Cooperation Contract. Unless otherwise indicated, references to the handling capacity and capacity of each of our existing coal chain and machinery refer to the coal handling or throughput capacity of our existing coal chain and machinery in gross tonnes per year based upon nameplate capacity notified to us by our equipment suppliers or estimates by us. Statements about us or the Shares in this offering document, including statements regarding our production, production costs, sales, sales prices, financial condition, results of operations, prospects and expansion plans, supersede any press release or other public statement made prior to the date of this offering document by us or any of our officers, directors, shareholders or affiliates, regarding matters covered in this offering document. Words importing the singular include, where applicable, the plural and vice versa and words importing the masculine gender include, where applicable, the feminine and neuter gender. Any reference in this offering document to any legislation or enactment refers to the legislation or enactment as amended or re-enacted unless the context otherwise requires. Any reference to a time of day in this offering document refers to Singapore time unless otherwise stated. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ. 13

20 SUMMARY This summary may not contain all of the information that may be important to you. You should read this entire offering document, including our financial statements and related notes included elsewhere in this offering document and the Risk Factors beginning on page 31 of this offering document, before making an investment decision. Our Business Straits Asia Group We aim to be one of Asia-Pacific s leading resource development and mining groups. The holding company for our Group, Straits Asia Resources, is headquartered in Singapore. We have been recognized by Barlow Jonker as one of the lowest cost thermal coal producers in the world, (1) and we export our coal for use by a limited number of utilities and industrial users, principally in Asia. We have been operating in Southeast Asia for over nine years and members of our management team have conducted business in this region since the 1970s. We are a subsidiary of Straits Resources Limited, a diversified resources company listed on the Australian Stock Exchange. In addition to coal mining, we are developing complementary commodities marketing and resources infrastructure businesses. We are primarily engaged in thermal coal mining on Sebuku Island, South Kalimantan, Indonesia through our Indonesian subsidiary company, Bahari Cakrawala Sebuku. Bahari Cakrawala Sebuku mines thermal coal, which we sell to the markets by entering into offtake agreements. We commenced operations at our Sebuku mine in 1997 and we hold the rights from the Indonesian Government to mine for coal in our Sebuku concession area until We believe we have a good working relationship with the Indonesian Government and the local communities on Sebuku Island, which we have built up over more than a decade. We produced approximately 3.0 million tonnes of coal in 2005, approximately 850 thousand tonnes of coal in the first three months of 2006 (the First Quarter 2006 ) and approximately 1.6 million tonnes of coal in the first six months of 2006 (the First Half 2006 ). We plan to increase our production to approximately 3.5 million tonnes of coal in 2006 and to approximately 4.0 million tonnes of coal in We estimate that, as of May 31, 2006, our coal resources totaled approximately 73.3 million tonnes, of which our coal reserves comprised approximately 28.3 million tonnes. Our policy is to maintain sufficient reserves to support a rolling five year life of mine plan. We convert coal resources we have discovered through our exploration activities into reserves for our life of mine plan, to the extent we are able to determine that these resources can become legally and economically recoverable, through a process of mine planning, undertaking a detailed study of the additional capital expenditure required to mine additional reserves, conducting additional geological sampling to increase the level of confidence in identifying the reserves, computer modelling of the potential mining areas, analyzing various cost and revenue assumptions related to the extraction and sale of the coal, obtaining any government or other approvals necessary to mine in the areas where the resources are located and recruiting sufficient operating personnel. We believe our coal reserves of approximately 28.3 million tonnes are sufficient to support our current five year life of mine plan with our expected production increase to approximately 4.0 million tonnes in According to Barlow Jonker (1), Indonesia was the world s largest exporter of thermal coal in We export a substantial portion of Sebuku coal to power generation companies, primarily in Japan, Malaysia, Hong Kong, India and South Korea. According to Barlow Jonker (1), Asia accounted for the world s highest thermal coal import demand in The proximity of Sebuku to our primary markets in Asia reduces the cost of transporting Sebuku coal, which we believe provides us with a competitive advantage over competing thermal coal exports from Australia and South Africa. (1) The above information is quoted from Barlow Jonker Pty Ltd. and has not been verified by us or the Selling Shareholder. We and the Selling Shareholder have included such information in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above information for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. 14

21 Other mining operations also include the provision of technical and commercial services through our Indonesian subsidiary company, PT SCS, to the Straits Resources Group for the management of its gold mine at Mt. Muro in Indonesia. We conduct commodities marketing activities through our subsidiary, Straits Global Trading, in Singapore. Straits Global Trading markets, sells and trades bulk commodities, metal and mineral products, and procures mining plant equipment, consumables and chemical reagents from international suppliers, primarily for companies within the Straits Resources Group. Through Straits Global Trading, we currently market coal, copper, gold and silver, and we intend to focus the future growth of this business on the bulk commodities sector of the market. We also intend to seek third party customers for these services. Straits Global Trading was awarded the Global Trader Programme status under the Singapore government s Global Trader Programme which entitles us to various business incentives and benefits. We conduct our resources infrastructure development operations through our subsidiary, SMI, and its subsidiaries. SMI is engaged in the procurement of equipment and machinery, and the development of infrastructure projects such as barging, power generation and supply, transportation and logistics, as well as marine construction services for other members of the Straits Resources Group. Our business plan for our resources infrastructure development operations is to expand these activities within the Straits Resources Group and with third parties. We are also actively exploring opportunities for new business, investments and acquisitions in the natural resources and mineral and metal extractive industries, primarily in the Asia-Pacific region. Our Recent Results of Operations In 2005, we had sales revenues of US$159.2 million and profit after income tax of US$44.4 million. In the First Quarter 2006, we had sales revenues of US$62.9 million and profit after income tax of US$14.8 million. In the First Half 2006, we had sales revenues of US$147.6 million and profit after income tax of US$26.5 million. For a further discussion on our sales revenues and profit after income tax, see Management s Discussion and Analysis of Financial Condition and Results of Operations. Our Relationship with Straits Resources We are a subsidiary of Straits Resources Limited, a diversified resources company listed on the Australian Stock Exchange. Our priority is to develop a diversified and integrated mining, resources and commodities marketing business focused on the Asia-Pacific region. We have entered into a Co-operation Agreement with Straits Resources under which we will cooperate in the identification of business opportunities and foster and encourage the development of opportunities to utilize existing synergies and our respective operational and technical expertise. Our Competitive Strengths We believe we have the following key competitive strengths: One of the lowest-cost thermal coal producers in the world. We believe that we are one of the lowest cost producers of thermal coal in the world, due to the favorable geographic and geological conditions of the Sebuku mine including our relatively low strip ratio and low coal production and transportation costs, our use of an experienced Indonesian mining contractor with a competitive cost structure and the location of Sebuku in a Government-approved special economic zone. Strong customer base. We sell a large proportion of our coal directly to end-users that are power generation companies in Asia. According to Barlow Jonker, Asia was the region which had the world s highest demand for thermal coal exports in A large proportion of our customers purchase our coal under long-term contracts with prices which are typically fixed over 12-month 15

22 periods. We generally do not supply coal to the spot market. With our strong customer base, all of our targeted production volumes for 2006 have already been committed to existing contracts. Major coal reserves at the Sebuku mine to support our future growth plans. As of May 31, 2006, we had approximately 28.3 million tonnes of coal reserves, which we believe is adequate to support our planned increase in our production to approximately 4.0 million tonnes per annum by 2007 and our current five year life of mine plan. We also have reported 45.0 million tonnes of additional coal resources which are not part of our coal reserves. These coal resources provide us with the opportunity to explore the feasibility of extending the life of mine of the Sebuku mine and to increase production further, subject to our ability to convert these coal resources into reserves that are legally and economically recoverable. Ability to leverage the expertise and experience of Straits Resources. In seeking opportunities to grow our business into new Asian countries and new resource ventures, we are able to leverage Straits Resources experience in advancing exploratory, greenfield and brownfield resource projects through to full-production and profitability. Experienced management and operations team focused on the Asia-Pacific region. We have Directors, management and operations personnel with extensive experience in the coal mining, commodities marketing and resource infrastructure development industries, as well as extensive experience working in Asia. Some of our key executives have more than 30 years of business experience in Singapore and Asia. Our Business Strategy Our strategy is to grow upon the foundation of being one of the industry s most efficient and cost competitive thermal coal producers, with a mining operation focused on sustainable growth in production and handling capacity while maximizing the long-term potential of the Sebuku concession area. In the medium to long-term, we also seek to develop our Group into an Asia-Pacific focused, diversified resources group of companies with the ability to explore and develop opportunities in other selected mining projects, as well as to provide integrated procurement, marketing and infrastructure services to third party resource companies. Our business strategy entails the following: Maximize efficiency and cost competitiveness of our mining operations. We intend to further improve our operational efficiency and cost competitiveness by undertaking initiatives to improve transportation and logistics infrastructure and mining techniques and achieve cost efficiencies. As part of this strategy, we are undertaking feasibility studies of the costs and benefits of installing an overland conveyor belt between our coal processing plant and our barge port facility and constructing a coal-fired power plant. We believe that these projects, if we decide to undertake them and they become operational, will reduce our dependence on diesel fuel purchases and result in cost savings for our Sebuku mining operations. Achieve high production levels and handling capacity. To satisfy increasing demand for Sebuku coal, we are developing mining and production plans to increase Sebuku coal production to approximately 4.0 million tonnes in We also intend to undertake a feasibility study into the possibility of increasing our production to up to 6.0 million tonnes per annum over the next few years to the extent we have sufficient coal reserves available to do so. Maximize long-term potential of the Sebuku concession area. We will continue to invest in exploration activities to maximize the long-term potential of the Sebuku concession area. Our work is focused on converting existing resources into reserves in the Tanah Putih area, as well as exploring for new resources in other parts of our Sebuku concession area. In addition, we are conducting a more general review of the areas adjacent to our concession area as we believe that the potential to expand our foothold on prospective ground exists, subject to our acquiring the necessary concession rights. 16

23 Expand our bulk commodities marketing and resource infrastructure development businesses. We intend to increase the amount of these services we provide to third party customers. Our long-term goal is to develop our bulk commodities marketing and resource infrastructure development operations into separate business and revenue generating units for our Group. Develop into a diversified, Asia-Pacific focused resources company. In addition to our Sebuku coal mining operations, we have the expertise to provide technical and commercial services to the Straits Resources Group for the management of its Mt. Muro gold mine. We intend to actively explore other business opportunities within the Asia-Pacific region in order to enhance our revenue growth, operations and profitability. Corporate Information Our registered office and principal place of business is at 80 Robinson Road #22-04, Singapore and our telephone number is and facsimile number is You can also obtain more information about our Group on our website Information on our website and on the website of Straits Resources (and any of its associated websites) does not constitute a part of this offering document. 17

24 The Combined Offering Issuer... Selling Shareholder... The Combined Offering... The International Offering.... StraitsAsiaResources Limited, a company incorporated with limited liability under the laws of the Republic of Singapore. Straits Bulk and Industrial Pty Ltd, a wholly-owned subsidiary of Straits Resources Limited. For further information regarding the Selling Shareholder, see Principal and Selling Shareholders Selling Shareholder. TheSelling Shareholder is offering 320,000,000 Offering Shares in the International Offering and the Singapore Public Offer (subject to the Over-allotment Option). The Offering Shares will comprise 34.8% of our post-offering issued and outstanding share capital after the completion of the Combined Offering. The completion of the Singapore Public Offer and the International Offering are each conditional upon the completion of the other. Concurrently with the Singapore Public Offer, the Selling Shareholder is offering the Offering Shares outside the United States to non-u.s. persons (including institutional and other investors in Singapore not purchasing Offering Shares in the Singapore Public Offer) in reliance on Regulation S under the U.S. Securities Act and other applicable laws, and within the United States only to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act, through the initial purchaser. The Offering Shares have not been and will not be registered under the U.S. Securities Act and, subject to certain exceptions, may not be offered or sold within the United States or to or for the account or benefit of, U.S. persons (as defined in Regulation S). If for any reason, the Offering Price is not agreed between the Selling Shareholder, the Global Coordinator and us, the International Offering will not proceed. The Singapore Public Offer... Concurrently with the International Offering, the Selling Shareholder is offering the Offering Shares in an initial public offering in Singapore. The minimum size of the Singapore Public Offer is 14,000,000 Offering Shares. The Singapore Public Offer will be underwritten by the Global Coordinator at the Offering Price, if the Offering Price is agreed among the Global Coordinator, the Selling Shareholder and us. 18

25 Re-allocation... Price Determination... The Offering Shares may be re-allocated between the International Offering and the Singapore Public Offer in the event of excess applications in one and a deficit of applications in the other. TheOfferingPricewillbedetermined following a bookbuilding process by agreement between the Global Coordinator, the Selling Shareholder and us on October 31, 2006 (the Price Determination Date ), which date is subject to change. Among the factors that will be taken into account in determining the Offering Price are the demand for the Offering Shares and the prevailing conditions in the securities markets. If, for any reason, the Offering Price is not agreed among the Global Coordinator, the Selling Shareholder and us, the Combined Offering will not proceed. In respect of applications made under the Singapore Public Offer, all application monies will be refunded (without interest or any share of revenue or other benefit arising therefrom) to all applicants, at their own risk (provided that such refunds are made in accordance with and subject to the procedures set out under Terms, Conditions and Procedures for Application for the Offering Shares under the Singapore Public Offer in Appendix E of this offering document) and without any right or claim against us, the Selling Shareholder or the initial purchaser. Notice of the Offering Price will be published in one or more of the major Singapore newspapers, such as The Straits Times, The Business Times or Lianhe Zaobao, not more than two calendar days after the Price Determination Date. Maximum Offering Price.... The Maximum Offering Price is S$0.72 per Offering Share. Investors applying in the Singapore Public Offer are required to pay the Maximum Offering Price, subject to refund if and to the extent that the Offering Price is less than the Maximum Offering Price. All refunds shall be without interest or any share of revenue or other benefit arising therefrom. Investors applying in the International Offering are required to pay the Offering Price set forth in the final offering memorandum. 19

26 Use of Proceeds... Over-allotment Option... Stabilization... Purchasers of the Offering Shares may be required to pay brokerage (and if so required, such brokerage will be up to 1.0% of the Offering Price). Based on the Maximum Offering Price of S$0.72 per Offering Share, we estimate that the aggregate net proceeds to the Selling Shareholder from the Combined Offering, after deducting commissions and other estimated expenses, will be approximately S$252.0 million (US$159.5 million), if the Over-allotment Option is exercised in full. We will not receive any proceeds from the Combined Offering or from the sale of our Shares by the Selling Shareholder pursuant to the exercise of the Over-allotment Option. See Use of Proceeds. In connection with the Combined Offering, the Selling Shareholder has granted the Global Coordinator the Over-allotment Option exercisable by the Global Coordinator in full or in part on one or more occasions no later than the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST, and (ii) the date when the Global Coordinator has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action, to purchase up to an aggregate of 48,000,000 Shares (representing not more than 15% of the total Offering Shares), at the Offering Price, solely to cover the overallotment of the Offering Shares, if any. In connection with the Combined Offering, the Global Coordinator may over-allot or effect transactions that stabilize or maintain the market price of our Shares at levels above those that would otherwise prevail in the open market. Such transactions may be effected on the SGX-ST and in other jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulations. Such transactions, if commenced, may be discontinued at any time and shall not be effected after the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST, or (ii) the date when the Global Coordinator has bought, on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action. 20

27 Lock-up... Wehave agreed with the Global Coordinator, subject to certain exceptions set out in the Plan of Distribution Restrictions on Disposals and Issues of Shares, that we will not, without the prior written consent of the Global Coordinator, issue, offer, sell, pledge, transfer or otherwise dispose of any Shares for a period of six months from the date of our admission to the Official List of the SGX-ST ( Listing Date ). During this period, we will not undertake any capital markets fund-raising activities. The Selling Shareholder has agreed with the Global Coordinator that it will not, subject to certain exceptions set out in the Plan of Distribution Restrictions on Disposals and Issues of Shares, issue, offer, sell, pledge, transfer or otherwise dispose of any Shares for a period of six months from the Listing Date (the First Six-month Period ). The Selling Shareholder has further agreed with the Global Coordinator that it will not, without the prior written consent of the Global Coordinator, for six months from the First Six-month Period, issue, offer, sell, pledge, transfer or otherwise dispose of any Shares. Straits Resources has agreed with the Global Coordinator that it will not, subject to certain exceptions set out in the Plan of Distribution Restrictions on Disposals and Issues of Shares, issue, offer, sell, pledge, transfer or otherwise dispose of any shares of the Selling Shareholder ( SBIL Shares ) during the First Six-month Period. Straits Resources has further agreed with the Global Coordinator, that it will not, without the prior written consent of the Global Coordinator, for six months from the First Six-month Period, issue, offer, sell, pledge, transfer or otherwise dispose of any SBIL Shares. Payment and Settlement... TheSelling Shareholder expects to receive payment for all the Offering Shares under the Combined Offering on or about November 3, Delivery of the global share certificates representing the Offering Shares to the CDP for deposit into the securities accounts of the relevant purchasers is expected to be made on or about November 3,

28 Dividends... Owners of our Shares will be entitled to receive any dividends our Board of Directors may declare and our Shareholders may approve from time to time. The policy of our Board of Directors is, subject to the financial performance and financial condition of our Group and such other factors as our Directors deem appropriate, to: pay an annual dividend for the year ending December 31, 2007 of approximately 60% of our Company s distributable profits for the year ending December 31, 2007; and maintain dividend levels to the extent permitted by our overall objective of maximizing shareholder value over the long-term. We anticipate that any dividends that we pay in respect of our Shares will be payable in U.S. dollars. We expect Shareholders whose Shares are held through CDP will receive their dividends in Singapore dollars, which we expect to convert from US dollars at the prevailing exchange rate at the time of conversion. See Dividend Policy for a further description of our dividend policy. Share Capital.... Listing of our Shares... Trading on the SGX-ST... Transfer Restrictions... Wehave a share capital of S$50,219,700, consisting of 920,765,220 Shares, all of which were issued and paid-up prior to the closing of the Combined Offering. PriortotheCombined Offering, there has been no public market for our Shares. We have applied to the SGX-ST for permission to list all our issued Shares, the Offering Shares, the Option Shares, the Plan Shares and the Additional Shares, if any, on the Main Board of the SGX-ST. Such permission will be granted when we have been admitted to the Official List of the SGX-ST. Acceptance of applications for the Offering Shares will be conditional upon, among other things, permission being granted by the SGX-ST to deal in and for the quotation of our Shares. We have not applied to any other exchange to list our Shares. Weexpect our Shares to commence trading on a ready basis at or about 9.00 a.m. on November 3, See Indicative Timetable. Our Shares will, upon their sale, listing and quotation on the SGX-ST, be traded on the SGX-ST under the book-entry settlement system of CDP. Dealing in and quotation of our Shares will be in Singapore dollars. Our Shares will be traded in board lots of 1,000 Shares. The Offering Shares will be subject to certain transfer restrictions described in Transfer Restrictions. 22

29 Application Procedures in Singapore for the Singapore Public Offer... Investors in Singapore must follow the application procedures set out under Terms, Conditions and Procedures for Application and Acceptance for the Offering Shares under the Singapore Public Offer in Appendix E of this offering document. Applications must be paid for in Singapore dollars. The minimum initial application is for 1,000 Shares. An applicant may apply for a larger number of Shares in integral multiples of 1,000 Shares. Risk Factors... For a discussion of certain factors that should be considered in evaluating an investment in the Shares, see Risk Factors. 23

30 Indicative Timetable An indicative timetable for trading in our Shares is set out below for your reference: Date and time (Singapore) October 26, 2006, 7.00 p.m... October 31, 2006, noon... October 31, 2006, noon... October 31, November 1, November 3, 2006, 9.00 a.m... November 8, Event Opening date and time for the Singapore Public Offer ClosingdateandtimefortheInternational Offering ClosingdateandtimefortheSingapore Public Offer PriceDetermination Date Balloting of applications in the Singapore Public Offer, if necessary. Commence returning or refunding of application monies to unsuccessful or partially successful applicants and commence returning or refunding of application monies to successful applicants for the amount paid in excess of the Offering Price if necessary. Commence trading on a ready basis Settlement date for all trades done on a ready basis on November 3, 2006 The above timetable is indicative only and is subject to change at our and the Selling Shareholder s discretion, with the agreement of the Global Coordinator. The above timetable and procedures may also be subject to such modifications as the SGX-ST may in its discretion decide, including the date of commencement of trading on a ready basis. It assumes that the closing date of the Singapore Public Offer is October 31, 2006, the date of our admission to the Official List of the SGX-ST is November 3, 2006, and compliance with the SGX-ST s shareholding spread requirement. All dates and times referred to above are Singapore dates and times. We and the Selling Shareholder, with the agreement of the Global Coordinator, may at our discretion, subject to all applicable laws and the regulations and the rules of the SGX-ST, agree to extend or shorten the Singapore Public Offer period. In the event of the extension or shortening of the Singapore Public Offer period, we will publicly announce the same: through a SGXNET announcement to be posted on the Internet at the SGX-ST website and in one or more major newspapers, such as The Straits Times, The Business Times or Lianhe Zaobao. Investors should consult the SGX-ST announcement on the ready listing date on the Internet at the SGX-ST website and in one or more major Singapore newspapers, or check with their brokers on the date on which trading on a ready basis will commence. We and the Selling Shareholder will provide details and results of the Singapore Public Offer through SGXNET and in one or more major Singapore newspapers, such as The Straits Times, The Business Times or Lianhe Zaobao. 24

31 We and the Selling Shareholder reserve the right to reject or accept, in whole or in part, or to scale down or ballot any application for the Offering Shares, without assigning any reason therefore. In deciding the basis of allocation, due consideration will be given to the desirability of allocating the Offering Shares to a reasonable number of applicants with a view to establishing an adequate market for our Shares. In respect of an application made under the Singapore Public Offer that is rejected, the full amount of the application monies will be refunded (without interest or any share of revenue or other benefit arising therefrom) to the applicant, at the applicant s own risk within 24 hours after the balloting of applications (provided that such refunds are made in accordance with the procedures set out under Terms, Conditions and Procedures for Application and Acceptance for the Offering Shares under the Singapore Public Offer in Appendix E of this offering document) and without any right or claim against us, the Selling Shareholder or the Global Coordinator. In respect of an application made under the Singapore Public Offer that is accepted in full or in part only, any balance of the application monies (including the excess monies arising from the difference between the Offering Price and the Maximum Offering Price should the Offering Price be lower than the Maximum Offering Price) will be refunded (without interest or any share of revenue or other benefit arising therefrom) to the applicant, at his own risk, within 14 Market Days after the close of the Singapore Public Offer (provided that such refunds are made in accordance with the procedures set out under Terms, Conditions and Procedures for Application and Acceptance for the Offering Shares under the Singapore Public Offer in Appendix E of this offering document) and without any right or claim against us, the Selling Shareholder and the Global Coordinator. If the Combined Offering does not proceed for any reason, the full amount of application monies (without interest or any share of revenue or other benefit arising therefrom) will be returned within three Market Days after the Singapore Public Offer is discontinued. 25

32 Summary Financial Information and Operating Data Our Company was incorporated on June 10, In September 2006, through a series of related transactions described in Reorganization of Our Group, certain subsidiaries of Straits Resources were consolidated in our Company as the holding company for our Group. See Reorganization of Our Group and Management s Discussion and Analysis of Financial Condition and Results of Operations. The Reorganization of our Group was a business combination of entities under common control and has been accounted for using the pooling of interest method. The pooling of interest method measures the assets acquired and liabilities assumed at their carrying amounts determined in accordance with SFRS immediately prior to the Reorganization. The audited consolidated financial statements incorporating the consolidated income statements, the consolidated balance sheet and the consolidated cashflow statements are reported as if the structure of the Group, excluding the effect of the Acquisitions, had been in existence throughout the periods presented and the assets and liabilities had been brought into our Group at their existing carrying amounts. All significant intra-group transactions and balances have been eliminated on consolidation. These audited consolidated financial statements do not reflect the adjustment for the subsequent exchange of cash consideration for the acquisition of the 100% interest in Straits Global Trading, SGH, SET and SMI as described in Reorganization of Our Group, which will be adjusted for at the date of the acquisition. The following table sets forth our summary historical consolidated financial and operating data, in each case for the periods and as of the dates indicated. You should read the following summary consolidated financial data in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations and our historical financial statements and the related notes included elsewhere in this offering document. Our financial statements are reported in U.S. dollars and presented in accordance with SFRS. SFRS differs in certain respects from U.S. GAAP. For a discussion of certain differences between SFRS and U.S. GAAP, see Summary of Certain Differences between SFRS and U.S. GAAP. The summary historical consolidated balance sheet data as of December 31, 2003, 2004 and 2005 and summary historical consolidated income statement and cashflow data for the years ended December 31, 2003, 2004 and 2005 set forth below have been derived from, and should be read in conjunction with, our audited consolidated financial statements, including the notes thereto, included elsewhere in this offering document. The summary historical consolidated balance sheet data as of March 31, 2006 and the summary historical consolidated income statement and cashflow data for the three-month periods ended March 31, 2005 and 2006 set forth below have been derived from our unaudited interim consolidated financial statements, including the notes thereto, included elsewhere in this offering document. Except for our discussion of recent developments contained in Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments, we have prepared our operational data contained in this offering document based on the financial information contained in those financial statements and with respect to the periods covered by those financial statements. The summary historical consolidated balance sheet data as of June 30, 2006 and the summary historical consolidated income statement and cashflow data for the six-month periods ended June 30, 2005 and 2006, set forth below have been derived from our unaudited interim condensed consolidated financial statements, including the notes thereto, included elsewhere in this document and are discussed in Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments. The information for interim periods is unaudited, but, in our opinion, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition at such dates and our results of operations for such periods. Our results for the three-month period ended March 31, 2006 and for the six-month period ended June 30, 2006 should not be considered indicative of the actual results we may achieve for the full year See Unaudited Pro Forma Financial Information for a summary of our unaudited consolidated financial information adjusted on a pro forma basis to reflect our Acquisitions and Reorganization as if they had occurred on December 31, 2005 and March 31, 2006, respectively, for our unaudited pro 26

33 forma consolidated balance sheets as of those dates and on January 1, 2005 for our unaudited pro forma consolidated income statements for the year ended December 31, 2005 and the three months period ended March 31, Solely for the convenience of the reader, we have translated the U.S. dollar amounts in the table below into Singapore dollars using the exchange rate of US$1.00=S$1.58 for the amounts as of, and for the year ended, December 31, 2005, and for the amounts as of, and for the three months ended, March 31, 2006, giving effect to rounding where applicable. For additional information regarding our convenience translations in this offering document, see Presentation of Financial Information. Year Ended December 31, Three Months Ended March 31, US$ US$ US$ S$ US$ US$ S$ (in thousands, except for per share amounts) Consolidated Income Statement Data: Sales revenue ,657 74, , ,508 22,526 62,944 99,452 Gross profit ,213 59,102 93,381 9,871 18,472 29,186 Profit (loss) before income tax (1,373) 23,663 53,797 84,999 8,920 17,598 27,805 Profit (loss) for the period (1,501) 17,108 44,359 70,087 7,012 14,816 23,409 Earnings per share: Basic earnings per share (cents) (0.20) Diluted earnings per share (cents) (0.20) As of December 31, As of March 31, US$ US$ US$ S$ US$ S$ (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents ,579 16,012 10,704 16,912 20,087 31,737 Trade and other receivables ,312 10,711 27,225 43,016 27,422 43,327 Mine properties ,791 13,920 12,410 19,608 11,892 18,789 Property, plant and equipment ,178 2,314 5,224 8,254 11,395 18,004 Total assets ,719 50,487 66, ,428 80, ,253 Current liabilities ,695 25,697 33,679 53,213 41,193 65,085 Non-current liabilities ,496 3,354 2,814 4,446 7,430 11,739 Total liabilities ,191 29,051 36,493 57,659 48,623 76,824 Total equity ,528 21,436 29,601 46,770 31,917 50,429 Year Ended December 31, Three Months Ended March 31, US$ US$ US$ S$ US$ US$ S$ (in thousands) Consolidated Cash Flow Data: Net cash inflow (outflow) from operating activities ,085 18,734 44,072 69,634 (132) 19,463 30,751 Net cash outflow from investing activities..... (665) (1,033) (4,259) (6,729) (216) (6,661) (10,524) Net cash outflow from financing activities..... (4,808) (6,268) (45,121) (71,291) (4,823) (3,419) (5,402) Cash and cash equivalents (end of period).... 4,579 16,012 10,704 16,912 10,841 20,087 31,737 27

34 Year Ended December 31, Three Months Ended March 31, Other Financial Data: US$ US$ US$ S$ US$ US$ S$ (in thousands) Adjusted EBITDA (1) ,383 27,220 56,760 89,681 9,713 18,537 29,288 Year Ended December 31, Three Months Ended March 31, Operating Data: Coal mined (in thousands of tonnes) ,146 2,862 3, Coal processed (in thousands of tonnes) (2).... 2,241 2,814 3, Production volume (in thousands of tonnes) (3).. 1,964 2,558 3, Process yield (in percentages) (4) Sales volume (in thousands of tonnes) ,991 2,654 2, Overburden removed (in thousands of bcm)... 6,071 10,026 12,459 1,752 3,618 Strip ratio (bcm of overburden/tonne of coal mined) Cash production costs (in thousands of U.S. dollars) (5) ,299 46,880 60,462 10,931 20,021 (1) We calculate our Adjusted EBITDA by adding depreciation and amortization, interest expense and certain other expenses to, and subtracting interest income from, our profit before income tax as calculated under SFRS. Adjusted EBITDA is not a standard measure under SFRS or U.S. GAAP. Adjusted EBITDA is a widely used financial indicator of a company s ability to service and incur debt. Adjusted EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of its operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. Adjusted EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating Adjusted EBITDA, we believe that investors should consider, among other things, the components of Adjusted EBITDA such as revenues and operating expenses and the amount by which Adjusted EBITDA exceeds capital expenditures and other charges. We have included Adjusted EBITDA because we believe Adjusted EBITDA is a useful supplement to cash flow data as a measure of our historical performance and our ability to generate cash from operations to cover debt service and taxes. Adjusted EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare our Adjusted EBITDA to Adjusted EBITDA presented by other companies because not all companies use the same definition. For a reconciliation of Adjusted EBITDA to our profit (loss) after income tax, see Management s Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures. (2) Amount of coal delivered to our coal processing plant for processing for crushing and washing. (3) Amount of coal which has been processed and delivered to the barge port for loading or storage at the barge port stockpile. (4) Process yield is calculated as the percentage (in terms of tonnage) of the amount of product coal to processed coal. (5) We calculate cash production costs as the cash operating costs reflected in our cost of sales coal. The cash production costs can be derived from our cost of sales coal by subtracting depreciation and amortization charges expensed to cost of sales coal, adding back the cash costs capitalized as deferred mining and then adding (subtracting) from this amount the increase (decrease) in inventory levels for the period. Cash outlays which are specifically excluded from cash production costs are the purchase of property, plant and equipment as well as capital expenditures associated with mine development. 28

35 Six Months Ended June 30, US$ US$ S$ (in thousands, except for per share amounts) Consolidated Income Statement Data: Sales revenue... 53, , ,247 Grossprofit... 23,109 33,604 53,094 Profitbeforeincometax... 20,457 30,917 48,849 Profitfortheperiod... 16,626 26,475 41,831 Earnings per share: Basicearningspershare(cents) Dilutedearningspershare(cents) As of December 31, As of June 30, US$ US$ S$ (in thousands) Consolidated Balance Sheet Data: Cashandcashequivalents... 10,704 20,813 32,885 Tradeandotherreceivables... 27,225 36,636 57,885 Mine properties... 12,410 11,558 18,262 Property, plant and equipment.... 5,224 13,505 21,338 Totalassets... 66,094 89, ,952 Current liabilities ,679 46,070 72,791 Non-current liabilities... 2,814 2,564 4,051 Total liabilities... 36,493 48,634 76,842 Net assets/total equity... 29,601 40,576 64,110 Six Months Ended June 30, US$ US$ S$ (in thousands) Consolidated Cash Flow Data: Net cash inflow from operating activities... 7,628 20,191 31,902 Net cash outflow from investing activities... (595) (7,986) (12,618) Net cash outflow from financing activities... (14,215) (2,096) (3,312) Cashandcashequivalents(endofperiod)... 8,830 20,813 32,885 Six Months Ended June 30, Other Financial Data: US$ US$ S$ (in thousands) Adjusted EBITDA (1)... 21,855 32,474 51,309 29

36 Six Months Ended June 30, Operating Data: Coal mined (in thousands of tonnes)... 1,557 1,856 Coal processed (in thousands of tonnes) (2)... 1,536 1,923 Production volume (in thousands of tonnes) (3)... 1,323 1,641 Process yield (in percentages) (4) Sales volume (in thousands of tonnes)... 1,349 1,752 Overburden removed (in thousands of bcm)... 4,748 7,347 Strip ratio (bcm of overburden/tonne of coal mined) Cash production costs (in thousands of U.S. dollars) (5)... 27,980 43,856 (1) We calculate our Adjusted EBITDA by adding depreciation and amortization, interest expense, and certain other expenses to, and subtracting interest income from, our profit before income tax as calculated under SFRS. Adjusted EBITDA is not a standard measure under SFRS or U.S. GAAP. Adjusted EBITDA is a widely used financial indicator of a company s ability to service and incur debt. Adjusted EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of its operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. Adjusted EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating Adjusted EBITDA, we believe that investors should consider, among other things, the components of Adjusted EBITDA such as revenues and operating expenses and the amount by which Adjusted EBITDA exceeds capital expenditures and other charges. We have included Adjusted EBITDA because we believe Adjusted EBITDA is a useful supplement to cash flow data as a measure of our historical performance and our ability to generate cash from operations to cover debt service and taxes. Adjusted EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare our Adjusted EBITDA to Adjusted EBITDA presented by other companies because not all companies use the same definition. For a reconciliation of Adjusted EBITDA to our profit (loss) after income tax, see Management Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures. (2) Amount of coal delivered to our coal processing plant for processing for crushing and washing. (3) Amount of coal which has been processed and delivered to the barge port for loading or storage at the barge port stockpile. (4) Process yield is calculated as the percentage (in tonnes) of the amount of product coal to processed coal. (5) We calculate cash production costs as the cash operating costs reflected in our cost of sales coal. The cash production costs can be derived from cost of sales coal by subtracting depreciation and amortization charges expensed to cost of sales coal, adding back the cash costs capitalized as deferred mining and then adding (subtracting) from this amount the increase (decrease) in inventory levels for the period. Cash outlays which are specifically excluded from cash production costs are the purchase of property, plant and equipment as well as capital expenditures associated with mine development. 30

37 RISK FACTORS An investment in our Shares is subject to significant risks. You should carefully consider all of the information in this offering document and, in particular, the risks described below before deciding to invest in our Shares. The following describes some of the significant risks that could affect us and the value of our Shares. Additionally, some risks may be unknown to us and other risks, currently believed to be immaterial, could turn out to be material. All of these could materially and adversely affect our business, financial condition, results of operations and prospects. The market price of our Shares could decline due to any of these risks and you may lose all or part of your investment. This offering document also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this offering document. Risks Related to Our Business Our operations are dependent on our ability to obtain, maintain and renew licenses and approvals and maintain our mining concession from the Government and other relevant government authorities We require various licenses and approvals from the central Government and regional governments to operate our businesses. These licenses include general corporate, mining, capital investment, manpower, environmental, land utilization and other licenses. We must renew our licenses and approvals as they expire, as well as obtain new licenses and approvals when required. We cannot assure you that the Government (whether at the central Government or regional government level) will issue or renew the licenses or approvals we require in the timeframe we anticipate or at all. A loss of, or failure to obtain or renew, any significant license or approval we require to conduct our business and operations could materially and adversely affect our business, financial condition, results of operations and prospects. Our most significant license related to our coal mining operations is our coal mining concession granted by the Government under our Coal Cooperation Contract with the Government. For a description of our Coal Cooperation Contract, see Description of Principal Agreements and Indebtedness Coal Cooperation Contract. Our rights to mine coal in our mining concession area at Sebuku depend on our ability to satisfy our contractual obligations under that agreement, including the payment of fees and taxes stipulated within that agreement to the Government and the satisfaction of certain mining, environmental, labor and employment, health and safety requirements. If we are not able to satisfy our contractual obligations under our Coal Cooperation Contract, that agreement could be terminated or our rights under that agreement could be restricted, which would prevent us from mining coal within our concession area at Sebuku and materially and adversely affect our business, financial condition, results of operations and prospects. We derive substantially all of our cash flows and operating profit from, and substantially all of our assets and mining operations are concentrated at, one mine We derive substantially all of our cash flows and operating profit from the sale of our coal produced at, and shipped from, and substantially all of our assets and mining operations are located at, our sole operating mine, the Sebuku mine. Any significant operational or other difficulties in the mining, processing, transport or shipping of coal, or damage to our buildings, machinery, equipment, spare parts, raw materials or other assets and property, at the Sebuku mine, whether as a result of fire, flooding, earthquake, failure of the Tanah Putih pit bund wall during an extreme tidal surge, labor disputes, mechanical breakdown, vandalism, land rights disputes or other causes, would materially and adversely affect our business, financial condition, results of operations and prospects. 31

38 We depend on key contractors and the loss of, or significant reduction in, any of their services may materially and adversely affect our results of operations We conduct all of our mining operations through a single mining contractor, BUMA, a single coal processing plant operator, LCI, and a single barging contractor, Mitra, under long-term operating agreements. Under our operating agreement with BUMA, BUMA is responsible for providing substantially all plant, equipment, facilities, services, materials, supplies and labor and management required for the operation and maintenance of the designated mining areas at the Sebuku mine. Under our operating agreement with LCI, LCI is responsible for providing substantially all services, materials, supplies and labor and management required for the operation and maintenance of our coal processing plant. Under our operating agreement with Mitra, Mitra is responsible for providing the barges, services, materials, supplies and labor and management required to conduct the barging services at our barge port facility. Any significant failure by any of our contractors to comply with its obligations under our operating agreement with it (whether as a result of financial or operational difficulties or otherwise), any termination or significant breach of our operating agreements by any of our contractors or any failure by us or any of our contractors to renew our operating agreement with it when it expires (and we are unable to find a satisfactory replacement contractor) could materially and adversely affect our business, financial condition, results of operations and prospects. Under the terms of our Coal Cooperation Contract, we are subject to a number of requirements and obligations, including, but not limited to, certain operational, environmental, labor and employment and health and safety obligations. The activities of our contractors have a material impact on our ability to comply with those requirements and obligations. Because we have contracted the performance of many aspects of our Sebuku operations to our contractors, we are subject to the risk of those requirements and obligations not being fulfilled due to actions by or failures of our contractors. If we are unable to comply with our requirements and obligations under our Coal Cooperation Contract due to the actions or failures of our contractors, and if we do not have any recourse against our contractors whose action or failure caused our loss, our business, financial condition, results of operations and prospects would be materially and adversely affected. We depend on key pieces of plant, equipment and machinery to conduct our coal mining operations Our coal mining operations at the Sebuku mine depend on key pieces of plant, equipment and machinery, including a fleet of earthmoving and ancilliary equipment, coal crushing and washing plants, barge loading conveyors and equipment, coal trans-shipment and shiploading equipment and general minesite infrastructure and equipment. Any significant damage to, failure of, or operational difficulties with, the key components of our coal chain or coal mining operations could have a material adverse effect on our business, financial condition, results of operations and prospects. Labor is an important component of our business, and our financial condition and results of operations could be adversely affected if we or our contractors fail to maintain satisfactory labor relations Coal mining is a labor-intensive industry and we and our contractors employ a significant amount of labor. Laws permitting the forming of labor unions, combined with weak economic conditions, have resulted, and may continue to result, in labor unrest and activism in Indonesia. In 2000, the Government issued a labor regulation allowing employees to form unions without employer intervention. In addition, a new labor law took effect on March 25, 2003, which, among other things, increased the amount of severance, service and compensation payments to terminated employees. Any significant labor dispute or labor action that we or our contractors experience could have a material adverse effect on our business, financial condition, results of operations and prospects. 32

39 The loss of, or significant reduction in purchases by, our major customers could adversely affect our revenues We make all of our coal sales to fourteen customers. In 2005 and the First Quarter 2006, we derived approximately 63% and 58%, respectively, of our total sales volumes from sales to our major customers. For details of our sales to our major customers, see Business Coal Mining Major Customers. As of September 30, 2006, our coal supply agreements had remaining terms ranging from two to 60 months. We intend to discuss the extension of existing agreements or execution of new agreements with those and other customers as they near expiration. If we are not able to extend or renew our coal supply agreements with our key customers, or enter into alternative agreements with other customers, on volume, pricing and other terms, which are at least as favorable as our existing terms, we could experience a material and adverse effect on our business, financial condition, results of operations and prospects. Various factors could cause us to be unable to deliver coal at the contracted specifications or quantity to our customers, which could materially and adversely affect our sales and customer relationships. Most of our coal supply agreements contain provisions requiring us to deliver coal conforming to certain specifications which include calorific value, moisture content, sulfur content, ash content, grindability and ash fusion temperature. If we are unable to deliver coal which conforms to these specifications due to variations in the quality of coal within the coal seams or for any other reason, our customers may require price adjustments, reject deliveries or terminate their coal supply agreements in the event of a material breach. We may not be able to deliver the agreed quantity of coal to our customers under our coal supply agreements with them because of adverse weather, equipment and machinery failures and operational difficulties, difficulties in acquiring essential machinery, equipment and spare parts, labor disputes or variations in the quantity of coal within the coal seams. Any failure by us to satisfy our contractual obligations could result in customers initiating claims against us or could otherwise materially and adversely affect our business reputation, our customer relationships and our business, financial condition, results of operations and prospects. Our ability to operate efficiently and effectively could be impaired if we lose key personnel or if we are unable to attract and retain skilled personnel We manage our businesses with a number of key personnel and skilled workers and the loss of any of those key personnel or skilled workers could have an adverse effect on us. We and our mining and other contractors use skilled workers to operate key pieces of machinery and equipment, including excavators, coal hauling trucks, our coal processing plant and our barge port. We cannot assure you that our key personnel and skilled workers will continue to be employed by us, that our mining and other contractors skilled workers will continue to be employed by them or that we or our mining and other contractors will be able to attract and retain essential qualified or skilled personnel in the future. Any inability by us, our mining contractor or our other contractors to attract, recruit, train and/or retain key personnel or skilled workers could adversely affect our business, financial condition, results of operations and prospects. Our mining operations may be adversely affected by operational and environmental risks and natural disasters Our mining and processing of coal and delivery of that coal to our customers are subject to a variety of potentially severe operating risks, including the risk of fire, explosions, embargos, accidents, labor disputes, piracy, failure of the Tanah Putih pit bund wall during an extreme tidal surge and mine and highwall collapses, as well as environmental risks including unexpected adverse geological conditions, environmental hazards, natural disasters, adverse weather and other natural phenomena. If any of these operating risks occurs, we and our customers could incur substantial losses. Those losses may involve or arise from serious personal injury or loss of life, severe damage to or destruction of property and equipment, pollution, destruction of natural resources or other environmental damage, cleanup 33

40 responsibilities, regulatory investigation and penalties and suspension of operations. Our customers that experience those losses in their maritime operations may elect to purchase coal from other coal suppliers not subject to these risks. If any of these operating and environmental risks materialize, we could experience a material and adverse effect on our business, financial condition, results of operations and prospects. In accordance with industry practice, we maintain insurance against some, but not all, of the risks described above and we cannot assure you that our insurance will be adequate to cover all losses or liabilities that may arise. Also, we cannot predict the continued availability of insurance at premium levels that are not prohibitively expensive. We and our contractors face risks in implementing our expansion program and we may not be able to achieve our targeted production levels We intend to expand our coal production from approximately 3.0 million tonnes in 2005 to approximately 3.5 million tonnes in 2006 and to approximately 4.0 million tonnes in To increase our coal handling capacity, we are discussing with our mining contractor an increase in mining at the Sebuku mine, building a new haul road between the Tanah Putih pit and our coal processing plant, improving our barging facilities and upgrading our barge loading port. Our mining contractor, BUMA, is responsible for obtaining and installing any additional equipment and hiring any additional employees required for it to increase its production capacity to comply with our expansion plans and its contractual obligations. We may not be able to increase production as a result of many factors, including: the failure of our mining contractor to agree on the amount of coal we would like it to produce in future periods; the failure or inability to construct the required supporting infrastructure, such as haul roads, processing plants and barging and port facilities or the failure of equipment and machinery implemented to increase production to perform according to specifications or our expectations; difficulties encountered by us or our mining and other contractors in obtaining or financing the purchase of machinery, equipment and spare parts required to increase production, such as coal hauling trucks, excavators and tires for such equipment, due to capacity and supply constraints in the world steel and rubber markets and high global demand for those materials and other mining equipment; the failure of any one of our mining and other contractors to fulfill its contractual obligations to produce the agreed upon amount of coal in the timeframe we anticipate or at all, whether as a result of its inability to obtain required financing on acceptable terms or at all, to recruit a sufficient number of qualified and skilled workers or utilize them effectively, to secure necessary approvals or other reasons, which would require us to make alternative arrangements, cause delays and potentially increase the costs of our expansion plans; insufficient amount of reserves; unforeseen conditions or developments that could substantially delay our planned expansion, including adverse weather conditions (such as heavy rainfall and forest fires); and our failure to obtain Governmental approval required to be obtained before we increase our production capacity. If any of the factors above occurs we may not be able to expand our operations and achieve our planned production levels, which could materially and adversely affect our business, financial condition, results of operations and prospects. 34

41 Our business may be adversely affected in the medium to long-term if we are unable to continue to discover or acquire additional coal resources that are converted into reserves Because the amount of coal in our reserves declines as we mine our coal, our future success and growth in the medium to long-term will depend, in part, on our ability to discover or acquire additional coal resources and to convert those coal resources into reserves. We are currently undertaking an extensive exploration program to discover new coal resources and to convert additional resources into reserves within our concession area at Sebuku. For a discussion of the process for converting coal resources into reserves, see Business Coal Mining Coal Reserves and Resources. Our current exploration program may not discover significant new coal resources for conversion into reserves beyond our existing resource and reserve base. In addition, we may not in the future be successful in converting our existing or future coal resources into significant additional coal reserves. If we are unable to replace our coal reserves as they are depleted with new coal reserves, whether through our exploration program or the acquisition of new mines, it could have a material adverse effect on our future financial condition, future results of operations and on our prospects. Mining activities in the forestry areas within our concession area are governed by Indonesian forestry laws and we require Government forestry permits and licenses to mine in these areas and will require Government approval to redesignate conserved forest areas in our concession into production forest areas Our Coal Cooperation Contract grants us sole and exclusive rights for the exploration and exploitation of coal deposits in our designated concession area in Sebuku Island. We require various licenses and permits from the Government to conduct mining within our concession area, including licenses and permits from the Indonesian Ministry of Forestry related to mining in forest areas. For a discussion of the Indonesian forestry laws and how they apply to mining operations, see Regulation of the Indonesian Coal Mining Industry Forestry Regulation. Government Approval to Redesignate Conserved Forest Areas in Our Concession into Production Forest Areas. Of the 73.3 million tonnes of our coal resources, we have converted approximately 28.3 million tonnes into reserves. Of the remaining 45.0 million tonnes of our coal resources that have not been converted into reserves, 34.4 million tonnes are located in a mangrove forest area which has been designated as conserved forest by the Government under prevailing Indonesian forestry laws and regulations. Under these laws and regulations generally, open-pit mining activities are restricted in areas that have been designated as conserved forest areas. In order to convert those resources in the conserved forest areas to reserves and be able to mine those areas, we will be required to have those conserved forest areas reclassified as production forest areas by the Ministry of Forestry. For a description of the approval process for a redesignation of these areas, see Regulation of the Indonesian Coal Mining Industry Forestry Regulation. We cannot assure you that we will be successful in receiving this approval in a timely manner or at all. If we are unable to successfully have these conserved forest areas reclassified as production forest areas in which mining activities are permitted, we would be unable to convert those coal resources into reserves and they would remain inaccessible to mining by us, which could materially and adversely affect our business, financial condition, results of operations and prospects. Government Permits and Licenses to Mine in Production Forest Areas in Our Concession. Permits and licenses from the Ministry of Forestry are required to conduct mining activities in production forest areas. We have received permits and licenses with respect to the production forest areas included in our concession, and have entered into an agreement with the Ministry of Forestry, which governs the conduct of our mining activities in those production forest areas. Our agreement with the Ministry of Forestry was valid until October 12, However, in January 2004, the Ministry of Forestry provided us with a written in-principle approval for the extension of this agreement for an additional five years. We have not yet received the executed extension from the Ministry of Forestry. Should our current permits and licenses and agreement be terminated, or not renewed upon expiry, for any reason, we 35

42 may not be able to legally access the coal resources in the production forest areas covered by that license, which could, in turn, materially and adversely affect our business, financial condition, results of operations and prospects. We are required to comply with extensive environmental laws and regulations in our mining operations, and changes in those laws and regulations or their interpretation or implementation, or unanticipated environmental effects from our operations, could require us to incur new or increased costs Our mining operations involve water use, relocation of overburden, acid water generation from our mining areas and production of emissions from our coal crushing and screening plants, coal washing plants and power plant, any of which could adversely affect the environment if not properly controlled and managed. We are subject to Indonesian environmental and health and safety laws, regulations and other legal requirements enacted or adopted by the central Government and regional governments. These laws govern aspects of our mining operations, such as the discharge of substances into the air and water, the management and disposal of hazardous substances and wastes, site cleanup, groundwater quality and availability, plant and wildlife protection and the reclamation, rehabilitation and restoration of mining properties after mining is completed. The costs associated with complying with these laws and our own environmental standards and procedures impact our production costs. In addition, if we do not comply with those laws, the Government regulators may impose financial penalties against us, we may be required to disrupt or cease our operations, or, in the event we do not comply with those laws in any material way, the Government regulators may order the suspension or revocation of our licenses and permits. In addition, the requirements for compliance and remediation under existing Indonesian laws and regulations may be materially increased by the creation of new laws or regulations or changes in the interpretation or implementation of existing laws and regulations. Compliance with more onerous legal and regulatory requirements may increase our associated costs, which may, in turn, have a material adverse effect on our business, financial condition, results of operations and prospects. We have significant ongoing mine reclamation and rehabilitation obligations The Government establishes operational, reclamation and closure standards for all aspects of surface mining. We have developed mine reclamation and rehabilitation strategies based on the geological characteristics of the Sebuku mine. Under the terms of our Coal Cooperation Contract, we are responsible to the Government for the reclamation and rehabilitation of all areas being mined within our concession area. Our mine reclamation and rehabilitation liabilities can change significantly if our actual costs vary from our assumptions or if Governmental regulations change. Any significant unanticipated increase in our reclamation and rehabilitation costs could materially and adversely affect our business, financial condition, results of operation and prospects. We are subject to commodity price risk for fuel, which is a significant component of our coal production costs Fuel costs comprise a significant portion of our production costs. Our mining contractor, BUMA, purchases fuel from PT Pertamina ( Pertamina ), Indonesia s state-owned petroleum supply company, the prices of which are based on international market prices. Under our operating agreement with BUMA, BUMA is responsible for paying its own fuel costs. However, we have agreed to make adjustments to the contractor fees we pay BUMA to compensate it for increases in fuel prices above a set price per liter calculated according to a fixed rise and fall adjustment formula provided by the operating agreement. As we will have to make additional contractor fee payments to BUMA in the event that fuel prices increase, any major increases in the price of fuel will increase our coal production costs. 36

43 Global oil prices have increased significantly in the last year and, as a result, our production costs attributable to fuel have increased. We have not historically hedged, and currently do not hedge, our fuel price risk. Any further significant increases in the price of fuel would cause a corresponding increase in our production costs in future periods and could have a material adverse effect on our business, financial condition, results of operations and prospects. We face counterparty risks, including risks of payment default or failure to accept delivery by third party purchasers of our other commodities, in our commodities trading operations Through our commodities marketing operations, we have entered into contracts to purchase gold, silver and copper from other Straits Resources Group members and concurrently enter into contracts to sell those commodities to third party purchasers. For a description of the manner and terms of these sales, see Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Business, Results of Operations and Financial Condition Other Commodities Sales of Other Commodities and Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions. If the Straits Resources Group seller of the commodity were to fail to deliver the commodity at the agreed time and according to the agreed specifications, we may be required to obtain an alternative shipment of that commodity to fulfill our delivery obligations to the third party purchaser and the price we may be required to pay for that alternative shipment may be higher than that we would have paid to the Straits Resources Group member. If the third party purchaser were to fail to accept delivery of the commodity at the agreed time or to make payment for the commodity according to the terms of our sale contract with it, we may be required to sell that commodity in the spot markets to fulfill our payment obligations to the Straits Resources Group member, and the price we may receive for that sale may be less than that we would have received from the third party purchaser. If either party to these contracts were to default in its obligations to us and we were unable to complete the transaction on terms as favorable as those under the original arrangements with the defaulting party, we could suffer a material adverse effect on our business, financial condition, results of operations or prospects. Our controlling shareholder, Straits Resources, and other members of the Straits Resources Group may have interests that are different from those of our Group and our other shareholders Through the Selling Shareholder, we are controlled by Straits Resources, an Australian company publicly-listed on the Australian Stock Exchange Limited. Following the completion of the Combined Offering, we expect that Straits Resources will own approximately 64.6% of our outstanding Shares, or 59.4% if the Over-allotment Option is exercised in full. Four members, or a majority, of our Board of Directors are also members of Straits Resources Board of Directors. Accordingly, Straits Resources will continue to control our business policies and affairs, including the composition of our Board of Directors and our management. Straits Resources will also continue to control any action at our Company requiring the approval of our Shareholders, such as the power to elect our Directors, the adoption of amendments to our Articles of Association or the approval of a merger or sale of substantially all of our assets. Control of a majority of our Shares by Straits Resources could delay, defer or prevent a change in control of our Company and could make some transactions more difficult or impossible to complete without the support of Straits Resources. Straits Resources has other subsidiaries outside our Group, including companies operating gold and silver mining within Indonesia and copper mining within Australia, and may take actions that favor the interests of those other members of the Straits Resources Group outside our Group over the interests of any or all of the entities within our Group, which could have an adverse effect on our business, financial condition, results of operations and prospects. We intend to address any potential conflicts of interest which may arise from Straits Resources being our principal Shareholder in the manner set out under Management and Corporate Governance Conflicts of Interest Mitigation and in accordance with the continuing listing requirements of the SGX-ST in relation to interested person transactions. 37

44 We may be unable to successfully develop our bulk commodities marketing and infrastructure development business as planned One of our business strategies is to develop our commodities marketing and infrastructure development businesses as separate revenue generating units within our Group. Coal is the only bulk commodity that we are marketing. The other products which we are marketing are metals such as gold, silver and copper purchased from other Straits Group operations. In addition, we only have a small number of third party customers in these businesses other than the members of the Straits Resources Group. The key challenges we face in our growth strategy for our bulk commodities marketing and resource infrastructure development businesses include: our ability to develop the expertise required to successfully engage in the trading of bulk commodities other than coal and the requirement that we develop and implement additional procedures and practices to enable us to engage in such trading on an appropriate scale; our ability to develop a reputation for offering quality commodities marketing and infrastructure development services in the Asian markets for these services; our ability to attract and retain third party customers for these services; the potential competition we would face from companies offering similar services in the markets we have targeted for entry which is dependent, in part, upon the number, size, operating history, geographic scope, expertise, reputation and financial resources of those competitors; and unexpected changes in regulatory environments, including potentially adverse changes in tax regulations, and political, social and economic instability in the countries in which we intend to offer and conduct these new businesses. In addition, we may have to incur substantial expenditures to develop these businesses, and the expenditures we incur to develop these businesses may exceed our sales from these businesses for some time. Any of the above could have an adverse effect on the success of our growth strategy for our commodities marketing and infrastructure development businesses and, consequently, adversely affect our business, financial condition, results of operations and prospects. We may be unable to exploit opportunities to acquire or invest in new businesses and diversify our operations As part of our business strategy, we intend to actively explore acquisitions of, and investment opportunities in, companies and assets engaged in natural resource development and mineral and metal extraction in the Asia-Pacific region that we believe will enhance our revenue growth, operations and profitability. Our ability to grow successfully and profitably through acquisitions and investments will depend on numerous factors, including the availability of suitable acquisition or investment targets, competition for those acquisitions and investments, particularly from those companies with larger and more geographically diverse operations and greater financial resources than us, the ability of the companies we acquire or invest in to perform operationally or financially in the manner we expect, our ability to successfully integrate and operate our acquisitions and investments, the availability of expertise and financial resources for us to successfully manage our acquisitions and investments on a regional scale, the availability of financing from internal or external sources for us to make those acquisitions and investments and the legal, regulatory, social, political and economic factors which prevail in the markets where those opportunities may exist. As a result of any of these factors, we may be unable to grow our new businesses or investments in the manner we expect and may lose all or a substantial portion of our investments in those businesses, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Our future acquisitions and investments, if any, may require us to use significant amounts of cash, undertake potentially dilutive issuances of equity securities, record amortization expenses related to goodwill and other intangible assets or incur substantial amounts of indebtedness, each of which could adversely affect our business, financial condition, results of operations and prospects. 38

45 Risks Relating to the Coal Mining Industry Coal mining is subject to unexpected disruptions and factors beyond our control which could adversely affect our operating and financial performance Our coal mining operations are subject to various events and operating conditions that could disrupt the production, loading and transportation of coal at or from the Sebuku mine for varying lengths of time. These events and conditions include: adverse weather and natural disasters, including heavy rains, floods, earthquakes and abnormal high tides; unexpected equipment failures and maintenance problems of equipment and machinery owned by us and by our mining and other contractors; failure to obtain key equipment, materials and supplies, such as fuel and spare parts (including tires); variations in coal seams thickness, the amount and type of rock and soil (overburden) overlying the coal seam and other discrepancies to our geological models; delays or disruptions in our coal chain or shipments of our coal from the Sebuku mine; increases in the cost of shipping and other forms of transportation; changes in geological conditions and geotechnical instability of the highwall of our mining pits; accidents which may result in pollution or other environmental damage and which may cause the Government to issue temporary or permanent instructions requiring us to cease operations at the Sebuku mine; disruptions caused by members of the local community; and failure of our reserve estimates to be proven correct. Any of the events or conditions above could materially and adversely affect our business, financial condition, results of operations and prospects. Coal prices are cyclical and subject to significant fluctuations, and any significant decline in the prices we receive for our coal could materially and adversely affect our business, financial condition, results of operations and prospects Our revenues and profitability are highly dependent on the prices we receive for our coal. Prices for our coal are based upon or affected by global coal prices, which tend to be cyclical and subject to significant fluctuations. Prices for our coal are also affected by a variety of other factors over which we have no control, including weather, distribution problems and labor disputes. The world coal markets are sensitive to changes in demand due to patterns of demand and consumption of coal from the electricity generation industry and other industries for which coal is the principal fuel and changes in the world economy and changes in supply resulting from coal mining capacity and output levels. Most of our coal supply agreements with terms longer than one year contain provisions that require the parties to adjust the sales prices on an annual basis. Since we are required to renegotiate the price at which we sell our coal under these multiple year coal supply agreements on an annual basis, we are subject to greater price volatility over the terms of those coal supply agreements than if we had agreed to a fixed selling price for the entire term of the agreement. Demand for Coal. The coal consumption patterns of the electricity generation, steel and cement industries are affected by the demand for these customers products, local environmental and other governmental regulations, technological developments and the price and availability of competing coal and alternative fuel supplies. All of these demand driven factors can have a significant impact on selling prices for our coal. 39

46 Recent increases in world coal prices are partly attributable to the sustained high levels of economic growth and development in China, India and other parts of Asia. High economic growth in China has led the Chinese government to restrict exports of coal, while permitting increased imports of coal. Distribution problems affecting Australia s Newcastle and Dalrymple Bay coal ports and South Africa s Richards Bay Coal Terminal have also contributed to higher world coal prices in 2004, the first half of 2005, and the First Quarter Improved distribution of Australian and South African coal, an economic downturn in China, India or Asia in general or a change in Chinese government policy restricting coal exports could reduce world coal prices from current levels. Supply of Coal. During the past 20 years, a growing world coal market and increased demand for coal worldwide has attracted new investors to the coal industry, spurred the development of new mines and expansion of existing mines in various countries, including Indonesia, China, Australia, South Africa and Colombia, and resulted in added production capacity throughout the industry worldwide. These developments have led to increased competition and lower coal prices before the beginning of The significant increases in coal prices which have occurred since early 2003 could encourage the development of expanded capacity by new or existing international coal producers. Any oversupply of coal in the world markets could reduce world coal prices in the future and the prices we receive for our coal sales under new coal supply agreements. Fluctuations in world coal prices will affect our results of operations and cash flows. Extended or substantial price declines for our coal could also materially and adversely affect our business, financial condition, results of operations and prospects. Coal markets are highly competitive and are affected by factors beyond our control Most of our sales of coal have been, and we expect will continue to be, export sales. We compete with both domestic Indonesian coal producers and foreign coal producers (primarily from Australia and South Africa) for sales in the world coal markets. We compete with other coal producers primarily on the basis of price, coal quality, transportation cost and reliability of supply. Demand for our coal by our principal customers is affected by the price of alternative energy sources, including nuclear energy, natural gas, oil and renewable energy sources, such as hydroelectric power. Generally, the competitiveness of our coal products compared with the coal products of our competitors and alternative fuel supplies is evaluated on a delivered cost per heating value unit basis. Factors that directly influence production costs of coal producers include geological characteristics of their coal (including seam thickness), strip ratios, depth of underground reserves, transportation costs and labor availability and cost. Because world coal prices are denominated in U.S. dollars, our competitors are also affected by the relative rates of exchange between the U.S. dollar and their home currency. Our inability to maintain our competitive position as a result of these or other factors could have a material adverse effect on our business, financial condition, results of operations and prospects. Fluctuations in transportation costs and disruptions in transportation could adversely affect the demand for our coal and increase competition from coal producers in other parts of Asia and the world Transportation costs, which represent a significant portion of the total cost of coal purchased by our customers, is an important factor in our customers purchasing decisions. Under the terms of most of our coal supply agreements, the customer is responsible for paying transportation costs. Since the beginning of 2003, freight costs for the transport of products, including coal, have increased significantly worldwide. Further increases in transportation costs could make coal a less competitive source of energy or could make our operations less competitive than other sources of coal. 40

47 Significant decreases in transportation costs, or the absence of disruptions in coal transportation systems, could result in increased competition from coal producers in other parts of Asia, Australia and South Africa. Decreases in freight rates and the availability of other modes of coal transportation from certain parts of the world may give our competitors from other areas of the world a pricing advantage over us, depending on their proximity to the target market. We depend upon ships to deliver coal to our customers. While our customers typically arrange and pay for transportation of coal from our ship loading points to the point of use, disruption of these transportation services because of weather-related problems, distribution problems, labor disputes, lock-outs or other events could temporarily restrict our ability to supply coal to our customers or could result in demurrage claims by shipowners for loading delays. Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations and prospects. Our reported coal resources and legally and economically recoverable coal reserves are only estimates of the actual amounts of resources and reserves in our concession and are based on various key assumptions which may change In determining the feasibility of developing and operating our mines, we use estimates of coal resources and reserves that are made by our qualified internal personnel and, in most cases, reviewed by an independent mining consultant. These coal resources and reserves are estimated based on assumptions which may require revision based upon actual production experience, operating costs, world coal prices and other factors. Estimations of coal resources or reserves made as of a certain date may change significantly in the future when new information becomes available and the key assumptions underlying those estimates change. The coal resource estimates we have included in this offering document are only estimates of the size of the coal deposits located within our concession area which we have discovered through our exploration activities and which we have not yet mined. The coal reserve estimates we have included in this offering document are only estimates of the coal deposits that can be economically and legally recovered. The classification of reserves as either proved or probable carries a different level of confidence. Probable reserves carry a higher risk, are generally believed to be less likely to be recovered and are estimated with a lower level of confidence than proved reserves, whereas proved reserves carry a lower risk, are generally believed to be more likely to be recovered and are estimated with a higher level of confidence than probable reserves. Estimations of the quantities and value of recoverable and marketable coal reserves and of coal resources, by their nature, cannot be made with complete certainty due to incomplete information, the necessity to make various assumptions, and the existence of factors beyond our control. When estimating our resources, we make assumptions about geological conditions to estimate the size and characteristics of the coal deposits which we have discovered through our exploratory drilling and drill hole sampling. When calculating our reserves estimates, we make assumptions about: geological conditions; historical production from the mining area compared with production from other producing areas; the effects of regulations, approvals, licenses and taxes by governmental agencies; future prices; and future operating costs. 41

48 Actual factors may vary considerably from the assumptions that we used in estimating our resources and reserves and our actual resources and recoverable and marketable reserves and our actual production, costs, revenues and expenditures related to our reserves may vary materially from our estimates. Our exploration activities may not result in the discovery of additional coal deposits that can be mined profitably. Our coal seams and formations we encounter may differ from those we have predicted by past drilling, sampling and other examination and exploration activities. Long-term market prices may be less favorable than we have assumed. We may have to incur significant increases in capital expenditure or operating costs to mine the identified coal reserve. Our actual coal mined may differ in quality and specification from our original estimates and our customer requirements. We may be required to procure additional government licenses or approvals to mine in certain areas. For any of these reasons, our reported estimates of our coal resources and reserves may not be an accurate indication of the amount of coal that we can economically produce from the Sebuku mine, and may not be an accurate indication of our business prospects over time. Any significant reduction in the volumes and grades of the coal reserves we recover from that which we have estimated could have a material adverse effect on our business, financial condition, results of operations and prospects. Long-term demand for coal as a source of fuel may be affected by the relative commercial, social and political attractiveness of alternative sources of fuel Coal contains impurities, including sulfur, mercury, chlorine and other elements and compounds, many of which are released into the air when coal is burned. Stricter environmental regulations of emissions from coal-fired electricity generation plants and other industrial plants could increase the costs of using coal relative to the costs of using alternative fuel sources, which may potentially reduce the commercial attractiveness of coal. Stricter regulations could make coal a less attractive fuel alternative in the planning and building of electricity generation plants in the future, thereby reducing demand for coal, which could materially and adversely affect our business, financial condition, results of operations and prospects. International legislation or treaties could lead to a reduction in consumption of coal as a source of fuel globally. Indonesia and more than 160 other nations are signatories to the 1992 Framework Convention on Global Climate Change, which is intended to limit or capture emissions of greenhouse gases, such as carbon dioxide. In December 1988, in Kyoto, Japan, the signatories to the convention established a potentially binding set of emissions targets for developed nations. The specific emissions targets vary from country to country. The enactment of the Kyoto Protocol or other comprehensive legislation focusing on greenhouse gas emissions could have the effect of restricting the use of coal in our primary markets. Other efforts to reduce emissions of greenhouse gases and initiatives in various countries to encourage the use of natural gas also may affect the use of coal as an energy source and could have a material adverse effect on our business, financial condition, results of operations and prospects. Risks Relating to the Countries in Which We Operate Indonesia Substantially all of our property and assets and mining operations are located in Indonesia. As a result, future political, economic, legal and social conditions in Indonesia, as well as certain actions and policies the Government may, or may not, take or adopt could have a material adverse effect on our business, financial condition, results of operations and prospects. The interpretation and implementation of legislation on regional governance in Indonesia is uncertain and may adversely affect our businesses, financial condition, results of operation and prospects Regional autonomy laws and regulations have changed the regulatory environment for mining companies in Indonesia by decentralizing certain regulatory and other powers from the central Government to regional governments, thereby creating uncertainty for mining companies. These 42

49 uncertainties include the validity, scope, interpretation and application of the Mining Law resulting from the implementation of the regional autonomy laws, a lack of implementing regulations on regional autonomy and a lack of government infrastructure with minerals sector experience at some regional government levels. We cannot clearly ascertain the impact of the regional autonomy laws on the powers of the Ministry of Energy and Mineral Resources and the regional governments for the grant, renewal and extension of contracts of work (including our Coal Cooperation Contract) and other mining, exploration and production licenses and approvals, and on the supervision of mining, exploration and production activities. Moreover, limited precedent or other guidance exists on the interpretation and implementation of the regional autonomy laws and regulations. This uncertainty has increased the risks, and may increase the costs, involved in mining activities in Indonesia. The regional governments where our concessions are located could adopt regulations or decrees, or interpret or implement the regional autonomy laws or regulations in a manner that conflicts with our rights under our Coal Cooperation Contract or otherwise adversely affects our operations. Any new regulations, and the interpretation and implementation of those new regulations, may differ materially from the legislative and regulatory framework of the Mining Law and its current interpretation and implementation. We may also face conflicting claims between the central Government and regional governments regarding jurisdiction over our operations. We may face claims by regional governments, including, among others, claims for participating interests in our mining operations, new or increased local taxes or additional concessions. In addition, the Ministry of Energy and Mineral Resources has proposed a new draft law on mineral and coal mining to be submitted to the Indonesian House of Representatives for consideration. The draft mining law addresses the regulation of the mineral and coal mining industries among the Government, the provincial governments and the regency governments. For further information regarding the draft mining law, see Regulation of the Indonesian Coal Mining Industry Draft Mineral and Coal Mining Law. Although the draft mining law states that it would not affect any existing coal contracts of work, we cannot assure you that the draft mining law will be presented to the House of Representatives in its present form, that significant changes or amendments will not be made to it prior to passage, that it will be adopted into law or that it will not affect our Coal Cooperation Contract in a manner which is adverse to our interests. It may be difficult to enforce arbitral awards against the Government in Indonesian courts. Our Coal Cooperation Contract requires us to submit disputes with the Government to an Arbitration Council in Indonesia formed and assigned to settle disputes according to the rules of the Indonesian National Arbitration Agency. The Indonesian Arbitration Council is required to consist of one arbiter appointed by each party and a referee who is required to be appointed by the two arbiters. If we obtain an arbitral award from the Arbitration Council against the Government relating to a dispute under our Coal Cooperation Contract, we may face difficulties enforcing any such arbitral award against the Government in Indonesia. In addition, our Coal Cooperation Contract does not provide for arbitration outside Indonesia or under any set of international rules. In recent years, Government officials and others in Indonesia have questioned the validity of mining contracts entered into by the Government prior to October We cannot assure you that Government officials or others will not challenge the validity of our Coal Cooperation Contract for political or other reasons, terminate our Coal Cooperation Contract through nationalization of our operations or other means or continue to comply with the terms of our Coal Cooperation Contract. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. 43

50 Our operations are affected by changes in Indonesian Government laws and regulations Our operations in Indonesia are regulated by the laws and regulations of Indonesia, including those relating to the mining, marketing and transportation of coal, labor, environmental, safety and taxation matters. We may be adversely affected by changes in these laws and regulations and in Governmental policies and practices. For instance, on October 11, 2005, the Minister of Finance issued Minister of Finance Regulation No. 95/PMK.02/2005 regarding a levy for coal exports, under which coal exports of companies operating in Indonesia, including our coal exports, are subject to a 5.0% levy. This change in Indonesian tax law increased our cost of goods sold for our coal products from the time we began paying the levy in the early part of 2006 until the Indonesian Government stopped collecting the levy in September 2006 in response to a ruling by the Indonesian Supreme Court. On July 21, 2006, the Indonesian Supreme Court issued a ruling invalidating this new coal export levy and ordering the Indonesian Government to revoke it. However, the Indonesian Government may file a request to the Supreme Court that the Court re-examine this ruling. See Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Indonesian Supreme Court Ruling Invalidating the Coal Levy Regulations. Our operations may be adversely affected by, and the costs of our compliance with Indonesian laws and regulations may be materially increased by, the passage of new laws, adoption of new regulations or changes to, or in the interpretation or implementation of, existing laws and regulations which, in turn, could have a material adverse effect on our business, financial condition, results of operations and prospects. Political and social instability in Indonesia may adversely affect us Since the collapse of President Soeharto s regime in 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesia s changing political landscape. These events have resulted in political instability, as well as general social and civil unrest on certain occasions in the past few years. For example, since 2000, thousands of Indonesians have participated in demonstrations in Jakarta and other Indonesian cities both for and against the Government and Government officials, as well as in response to specific issues, including fuel tariff increases, privatization of state assets, anti-corruption measures, decentralization and provincial autonomy, actions of former Government officials and their family members and the American-led military campaigns in Afghanistan and Iraq. Although these demonstrations were generally peaceful, some have turned violent. Political and related social developments in Indonesia have been unpredictable in the past, and we cannot assure you that social or civil disturbances will not occur in the future and on a wider scale, or that any such disturbances will not, directly or indirectly, have a material adverse effect on our business, financial condition, results of operations and prospects. Terrorist activities in Indonesia could destabilize the country, thereby adversely affecting our business Since 2002, several bombing incidents have taken place in Indonesia, most significantly in Bali in October 2002 and October 2005, and further terrorist acts may occur in the future. Terrorist acts could destabilize Indonesia and increase internal divisions within the Government as it evaluates responses to that instability and unrest. Violent acts arising from, and leading to, instability and unrest have in the past had, and may continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 44

51 Domestic, regional or global economic changes may adversely affect our business The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in Indonesia by, among other effects, currency depreciation, negative economic growth, high interest rates, social unrest and extraordinary political developments. These conditions had a material adverse effect on many Indonesian businesses, primarily those relying on domestic customers and those whose sales were predominantly denominated in Indonesian Rupiah and costs were denominated in U.S. dollars or based on U.S. dollar prices. The economic crisis resulted in the failure of many Indonesian companies, through inability or otherwise, to repay their debts when due. Many Indonesian companies have not fully recovered from the economic crisis, and many such companies are still in the process of restructuring their debt obligations or are engaged in disputes arising from defaults under their debt obligations. Another economic downturn in Indonesia could lead to additional defaults by Indonesian borrowers and could have a material adverse effect on our business, financial condition, results of operations and prospects. A loss of investor confidence in the financial systems of emerging and other markets, or other factors, may cause increased volatility in the Indonesian financial markets and a slowdown in economic growth or negative economic growth in Indonesia. Any such increased volatility or slowdown or negative growth could have a material adverse effect on our business, financial condition, results of operations and prospects. The recent outbreak, and any future outbreaks, of avian influenza or other contagious diseases may adversely affect Indonesia s economy and our business, financial condition, results of operations and prospects Since late 2003, a number of countries in Asia, including Indonesia, as well as countries in other parts of the world, have experienced outbreaks of the highly pathogenic H5N1 strain of avian influenza. These outbreaks severely affected the poultry and related industries and resulted in the death or culling of large stocks of poultry. In addition, Thailand and Vietnam reported cases of bird-to-human transmission of avian influenza resulting in numerous human deaths. The World Health Organization reported the first probable case of human-to-human transmission of avian influenza in Thailand in September In 2005 and 2006, Indonesia experienced a resurgence of poultry outbreaks and human cases and many other countries in Asia reported their first human cases. Investigations are continuing on possible cases of human-to-human transmission in Indonesia and Vietnam. The World Health Organization and other agencies continue to issue warnings on a potential avian influenza pandemic if there is sustained human-to-human transmission. In 2003, Taiwan, China, Singapore and other countries experienced an outbreak of Severe Acute Respiratory Syndrome ( SARS ), which adversely affected the economies of many countries in Asia, including Indonesia. The avian influenza outbreak and any future widespread outbreak of avian influenza, SARS or other contagious diseases could adversely affect the Indonesian economy and economic activity in the region. Any present or future outbreak of avian influenza, SARS or other contagious diseases could have a material adverse effect on our business, financial condition, results of operations and prospects. Singapore Singapore law may not protect shareholders as extensively as other jurisdictions Our corporate affairs are governed by our Memorandum and Articles of Association, by the laws governing corporations incorporated in Singapore and, upon listing of our Shares on the SGX-ST, the Listing Manual of the SGX-ST. The rights of our Shareholders and the responsibilities of our management and the members of our Board of Directors under Singapore law may be different from those applicable to a company incorporated in another jurisdiction. Generally, principal shareholders of Singapore companies that are publicly listed in Singapore do not have fiduciary duties to minority 45

52 shareholders. Our public shareholders may have more difficulty in protecting their interests in connection with actions taken by our management, members of our Board of Directors or our principal shareholders than they would as shareholders of a company incorporated in another jurisdiction. See Description of Our Shares Minority Rights. We are incorporated in Singapore and it may not be possible for investors to effect service of process, including certain judgments, on us within the United States We are incorporated in Singapore. A substantial portion of assets are located in Indonesia and most of our Directors reside in Australia or Singapore. As a result, it may not be possible for investors to effect service of process, including judgments, on us or these persons within the United States, or to enforce against us or such persons, judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws or the securities laws of any state within the United States, or upon other bases. In particular, you should be aware that judgments of United States courts based upon the civil liability provisions of the federal securities laws of the United States are not enforceable in Singapore courts and there is doubt as to whether Singapore courts will enter judgments in original actions brought in Singapore courts based solely upon the civil liability provisions of the federal securities laws of the United States. As a result, Shareholders would be required to pursue claims against us or such persons in Singapore courts. The Singapore securities market is relatively small and may cause the market price of our Shares to be more volatile The SGX-ST is relatively small and may be more volatile than stock exchanges in the United States and certain other countries. As at June 30, 2006, there were 514 companies listed on the Main Board of the SGX-ST and 177 companies quoted on the SGX-ST Dealing and Automated Quotation System, and the aggregate market capitalization of the listed equity securities of these companies was approximately S$466.2 billion. This may cause the market price of our Shares to fluctuate more than that of securities listed on larger global stock exchanges. Singapore Financial Reporting Standards differ from U.S. GAAP We prepare our financial statements under SFRS, which differ from U.S. GAAP. As a result, our financial statements and reported earnings could be significantly different from those that would be reported under U.S. GAAP. This offering document does not contain a reconciliation of our financial statements to U.S. GAAP, and we cannot assure you that a reconciliation of our financial statements to U.S. GAAP would not reveal material differences. For a summary of certain principal differences between SFRS and U.S. GAAP that may be applicable to our Group, see Summary of Certain Differences Between SFRS and U.S. GAAP. Risks Relating to Ownership of Our Shares The sale or possible sale of Shares by us or our Substantial Shareholders in the future could adversely affect the price of our Shares We have 920,765,220 issued Shares which will remain unchanged following the Combined Offering. Of these Shares, 595,215,220 Shares, or 64.6%, will be held by our Substantial Shareholders (assuming the Over-allotment Option is not exercised), following the Combined Offering. The Shares will be traded on the Main Board of the SGX-ST, without restriction. For a period of six months after the Listing Date, or the Lock-Up Period, our Substantial Shareholders are restricted from selling their Shares, and may for the subsequent six months after the Lock-up Period, sell their shares with the consent of the Global Coordinator. See Plan of Distribution Restrictions on Disposals and Issues of Shares. We will be able to issue new Shares six months after the Listing Date and the Substantial Shareholders will be 46

53 able to sell their Shares one year after the Listing Date. The issuance or sale or possible issuance or sale of Shares in the future by us or our Substantial Shareholders could adversely affect the price of our Shares. There has been no prior public market for our Shares Before the Combined Offering, there was no public market for our Shares. While we have applied to have our Shares listed on the Main Board of the SGX-ST, we cannot assure you that an active public market for our Shares will develop. The Offering Price of the Offering Shares will be determined by agreement between us, the Selling Shareholder and the Global Coordinator and may not be indicative of prices that will prevail in the trading market. You may not be able to resell your Shares at a price that is attractive to you. The trading price of our Shares could be subject to fluctuations in response to variations in our results of operations, changes in general economic conditions, changes in accounting principles or other developments affecting us, our customers or our competitors, changes in financial estimates by securities analysts, the operating and stock price performance of other companies and other events or factors, many of which are beyond our control. Volatility in the price of our Shares may be caused by factors outside of our control or may be unrelated or disproportionate to our operating results. You will suffer immediate dilution and may experience further dilution in the value of your Shares The Maximum Offering Price represents a premium of 929% to our Group s net tangible asset value per Share, taking into account the Group s net tangible asset value as at June 30, 2006, and the Group s issued share capital of 920,765,220 Shares as at the date of this offering document. Dilution created by the Combined Offering represents the amount by which the Offering Price paid by the purchasers of the Offering Shares exceeds the net tangible asset value per Share after the Combined Offering. Since the Offering Price per Offering Share exceeds the net tangible assets per Share immediately after the Combined Offering, there is an immediate and substantial dilution in the liquidation value per Share for investors who participate in the Combined Offering. If we were liquidated based on the net tangible assets immediately following the Combined Offering, each Shareholder who participated in the Combined Offering would receive less than the Offering Price. See Dilution for a further discussion on the extent to which purchasers of our Shares will experience dilution. Overseas Shareholders may not be able to participate in future rights offerings or certain other equity issues by us, or provide funding to us If we offer or cause to be offered to Shareholders rights to subscribe for additional Shares or any right of any other nature, we will have discretion as to the procedure to be followed in making such rights available to Shareholders or in disposing of such rights for the benefit of such holders and making the net proceeds available to such Shareholders. We may not offer such rights to Shareholders having an address in a jurisdiction outside Singapore. For instance, we will not offer such rights to Shareholders having an address in the United States unless: if a registration statement under the U.S. Securities Act is required in order for us to offer such rights to holders and sell the securities represented by such rights, a registration statement is in effect; or the offering and sale of such rights or the underlying securities to such holders are exempt from registration under the provisions of the U.S. Securities Act. We have no obligation to prepare or file any registration statement. Accordingly, Shareholders having an address in the United States or outside Singapore may be unable to participate in rights offerings and may experience a dilution in their shareholdings as a result. 47

54 We may not be able to pay dividends Our ability to declare dividends in relation to our Shares will depend on our future financial performance, which, in turn, depends on successfully implementing our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and selling prices of our products, and other factors specific to our industry or specific projects, many of which are beyond our control. The receipt of dividends from our Indonesian operating subsidiaries may also be adversely affected by the passage of new laws, adoption of new regulations or changes to, or in the interpretation or implementation of, existing laws and regulations and other events beyond our control. See Dividend Policy for a discussion of our dividend policy. Any depreciation in the value of the Singapore dollar could adversely affect the equivalent in other currencies of the value of the Shares in Singapore dollars and of any gains or losses realized by investors on a sale of our Shares Transactions in our Shares on the SGX-ST will be settled in Singapore dollars. Fluctuations in the exchange rate between the Singapore dollar and other currencies will affect the equivalent in other currencies of the Singapore dollar price of Shares on the SGX-ST and the Singapore dollar amount of any gains or losses realized by investors on a sale of our Shares. Any dividends we pay in respect of our Shares will be payable in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and other currencies, including the Singapore dollar, will affect the equivalent in other currencies of the U.S. dollar amount of any dividends distributed by us. See Exchange Rate Information for information regarding fluctuations in the value of the Singapore dollar relative to the U.S. dollar. 48

55 USE OF PROCEEDS Proceeds Based on the Maximum Offering Price, we estimate that the aggregate net proceeds the Selling Shareholder will receive from the Combined Offering will be approximately S$218.5 million (US$138.3 million), after deducting underwriting and placement commissions and other estimated transaction expenses payable in relation to the Combined Offering, which we estimate will be approximately S$11.9 million (US$7.5 million). If the Over-allotment Option is exercised in full, the aggregate net proceeds the Selling Shareholder will receive from the Combined Offering will be approximately S$252.0 million (US$159.5 million), after the payment of underwriting and placement commissions and other estimated transaction expenses payable in relation to the Combined Offering, which we estimate will be approximately S$13.0 million (US$8.2 million), based on the Maximum Offering Price. Our Company will not receive any proceeds from the Combined Offering as all the proceeds from the Combined Offering will be received by the Selling Shareholder. In the opinion of the Directors, no minimum amount must be raised by the Combined Offering. Expenses We estimate that, based on circumstances known to us as at the date of this offering document, which may change, all the expenses in connection with the Combined Offering, including the underwriting and placement commission and the application for listing and all other incidental expenses relating to the Combined Offering which will be paid by the Selling Shareholder, will be approximately S$13.0 million (US$8.2 million), the breakdown of which is set out below: S$ in millions (2) As a percentage of the proceeds from the Combined Offering (2) Underwriting and placement commission (1) % Professional and accounting fees % Marketing and advertising expenses % Other Combined Offering related expenses % Total (2) % (1) The underwriting and placement commission is, on a per Offering Share basis, 2.2 Singapore cents. (2) Assuming the Over-allotment Option is exercised in full. Purchasers of the Offering Shares may be required to pay brokerage (and if so required, such brokerage will be up to 1.0% of the Offering Price), stamp duties and other similar charges in accordance with the laws and practices of the country of purchase, in addition to the Offering Price, as applicable. For each Singapore dollar of the proceeds from the Combined Offering that will be raised, assuming that the Over-allotment Option is exercised in full, approximately S$0.05 will be used to pay for expenses incurred in connection with the Combined Offering. 49

56 DIVIDEND POLICY In preparation for the Combined Offering, our Board of Directors has considered the general principles that it intends to apply when recommending dividends for approval by our Shareholders or when declaring any interim dividends after completion of the Combined Offering. Our Board of Directors intention, subject to the approval of our Shareholders at a general meeting, the financial performance and financial condition of our Group, and such other factors our Directors deem appropriate (including but not limited to the factors below), is to: pay an annual dividend for the year ending December 31, 2007 of approximately 60% of our Company s distributable profits for the year ending December 31, 2007; and maintain dividend levels to the extent permitted by our overall objective of maximizing shareholder value over the long-term. In considering the level of dividend payments, if any, our Board of Directors intends to take into account various factors, including: the level of our cash, debt-to-equity ratio, return on equity and retained earnings; our results for, and our financial condition at the end of, the year in respect of which the dividend is to be paid and our expected financial performance; our projected levels of capital expenditure and other investment plans; the dividend yield of companies operating in similar industries globally; restrictions on payment of the dividends that may be imposed on us by any of our financing arrangements; and such other factors our Directors deem appropriate. Our Board of Directors may change our dividend policy after completion of the Combined Offering as a result of changes in our financial performance or financial condition or otherwise. Therefore, we cannot assure you that we will pay any dividends in the future. Any dividends we declare must be approved by an ordinary resolution of our Shareholders at an annual general meeting. We are not permitted to pay dividends in excess of the amount recommended by our Board of Directors. Our Board of Directors may, without the approval of our Shareholders, also declare an interim dividend. If we pay an annual dividend in respect of a financial year, our Company will generally pay the dividend in the second quarter of the following financial year. If we pay an interim dividend in respect of a financial year, our Company will generally pay the interim in the third quarter of the current financial year. In 2004, 2005 and for the period from January 1, 2006 up to the Latest Practicable Date, our Group paid aggregate dividends of US$3.2 million, US$36.2 million and US$21.5 million, respectively. In 2005, our Company paid dividends of US$4.5 million. Our Company did not pay any dividends in 2003 and We must pay all dividends out of our distributable profits. To the extent that we declare dividends, we anticipate that they will be paid in U.S. dollars. We expect Shareholders whose Shares are held through CDP will receive their dividends from our Company in Singapore dollars. The Company intends to make the necessary arrangements to convert the dividends in U.S. dollars into the Singapore dollar equivalent at the prevailing exchange rate obtained by the Company on each relevant date for onward distribution to CDP, and CDP s onward distribution to the entitled Shareholders. Neither our Company nor CDP will be liable for any loss whatsoever arising from the conversion of the dividend entitlement of Shareholders holding their Shares through CDP from U.S. dollars into the Singapore dollar equivalent. For a description of the declaration and payment of dividends by our Company, see 50

57 General and Statutory Information Articles of Association. Fluctuations in the exchange rates between the Singapore dollar and the U.S. dollar will affect the Singapore dollar equivalent of any cash dividend paid by us in U.S. dollars. See Exchange Rate Information and Risk Factors Risks Relating to Ownership of Our Shares Any depreciation in the value of the Singapore dollar could adversely affect the equivalent in other currencies of the value of the Shares in Singapore dollars and of any gains or losses realized by investors on a sale of our Shares. Dividends in respect of Shares will not generally be subject to Singapore withholding tax. See Taxation Singapore Taxation Income Tax Dividend Distributions for a description of Singapore taxation on dividends. Our Company is a holding company that depends upon the receipt of dividends and management fees from its subsidiaries to pay dividends on its Shares. Most of our distributable profits available for distribution as dividends on our Shares are derived from our Indonesian operating subsidiaries. As a result, the equivalent of any dividends or other management fees we receive from our Indonesian subsidiaries in Indonesian Rupiah, U.S. dollars or other foreign currencies will be affected by changes in the exchange rates between the Singapore dollar and those foreign currencies. 51

58 EXCHANGE RATE INFORMATION The following table sets out, for the periods indicated, information concerning the exchange rates between Singapore dollars and US dollars based on the Noon Buying Rate, rounded to two decimal places: At Period End Average for the Period Low High (Singapore dollars per U.S. dollar) :... January February March April May June July August Source: Federal Reserve Bank of New York The Noon Buying Rates are quoted by the Federal Reserve Bank of New York and have not been verified by our Company or the Selling Shareholder. We and the Selling Shareholder have included the Noon Buying Rates in their proper form and context in this offering document. The Federal Reserve Bank of New York has not consented to the inclusion of the above Noon Buying Rates for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. On the Latest Practicable Date, the Noon Buying Rate between U.S. dollars and Singapore dollars was US$1.00 = S$1.58. There are no exchange control restrictions in Singapore. No representation is made that any Singapore dollar amounts could have been, or could be, converted into U.S. dollars at the above rates or at any other certain rate. Fluctuations in the exchange rates between the Singapore dollar and the U.S. dollar will affect the U.S. dollar equivalent of the Singapore dollar price of our Shares on the SGX-ST and the Singapore dollar equivalent of any cash dividend paid by us in U.S. dollars. 52

59 CAPITALIZATION AND INDEBTEDNESS The following table shows our consolidated long-term debt (including current maturities) and capitalization as of August 31, You should read this table in conjunction with: our unaudited consolidated financial statements, the related notes and the other financial information contained elsewhere in this offering document; and the sections in this offering document entitled Management s Discussion and Analysis of Financial Condition and Results of Operations and Selected Financial Information and Operating Data. As of August 31, 2006 Actual US$ S$ (2) in thousands Long-term debt: Current maturities on long-term debt... 2,600 4,108 Long-dated maturities on long-term debt... 1,883 2,975 4,483 7,083 Equity: Share capital and share premium... 33,058 52,232 Other reserves... (13,227) (20,899) Retainedearnings... 16,707 26,397 Total shareholders equity... 36,538 57,730 Total capitalization and indebtedness (1)... 41,021 64,813 (1) Except as disclosed in Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Liabilities and Indebtedness, there has been no material change in our capitalization and indebtedness since August 31, (2) Solely for the convenience of the reader, we have translated the U.S. dollar amounts in the table above into Singapore dollars using the exchange rate of US1.00=S$1.58, giving effect to rounding where applicable. For additional information regarding our convenience translations in this document, see Presentation of Financial Information. As at the Latest Practical Date, we had no unutilized credit lines. Our indebtedness, as at the Latest Practicable Date, was approximately US$4.3 million comprising a secured and guaranteed long-term facility obtained from Australia and New Zealand Banking Group Limited in January For a detailed discussion of our indebtedness, see Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Liabilities and Indebtedness and Description of Principal Agreements and Indebtedness Facility Agreement with ANZ. 53

60 DILUTION Dilution created by the Combined Offering refers to the amount by which the Offering Price paid by the purchasers of the Offering Shares exceeds the net tangible asset value per Share after the Combined Offering. Since the Offering Price per Offering Share exceeds the net tangible assets per Share immediately after the Combined Offering, there will be an immediate and substantial dilution in the liquidation value per Share for investors who participate in the Combined Offering. If we were liquidated based on the net tangible assets immediately following the Combined Offering, each Shareholder who participated in the Combined Offering would receive less than the Offering Price. For a discussion on the risk of dilution, see Risk Factors Risks Relating to Ownership of our Shares You will suffer immediate dilution and may experience further dilution in the value of your Shares. We have determined the net tangible asset value per Share by subtracting our total liabilities from the total asset value of our assets and dividing the difference by the number of Shares outstanding. Our net tangible asset value per Share, based on our unaudited net tangible asset value of US$40.6 million as at June 30, 2006, and our issued share capital of 920,765,220 Shares as at the date of this offering document, was US$0.04 or S$0.07 ( NTA per Share ). The Maximum Offering Price of S$0.72 (or approximately US$0.46) per Offering Share, represents a premium of 929% to our NTA per Share. Accordingly, there will be dilution in the net tangible asset value of S$0.65 or US$0.41 per Share to new investors in the Combined Offering. The following table illustrates the per Share dilution described above: Maximum Offering Price per Share... NTA per Share... Dilution in net tangible asset value per Share to new investors... S$0.07 S$0.72 S$0.65 The following table summarizes the total number of Shares (before the Subdivision) acquired by our Directors and Substantial Shareholders during the three years prior to the date of this offering document, the total consideration paid by them and the effective cash cost per Share to them. The following table also sets out the total number of Shares to be acquired by our new investors in the Combined Offering, the total consideration to be paid and the effective cash cost per Share to them based on the Maximum Offering Price. Except as disclosed in the table below and other than as disclosed in Management and Corporate Governance Transfer of Shares to Executives and Employees, no Shares in our Company have been acquired by any of our Directors or Substantial Shareholders or any of their associates at any time during the three years before the date of lodgment of this offering document. Number of Shares Acquired Total Consideration (S$) Effective Cash Cost per Share (S$) Directors Milan Jerkovic... Alvin David Toms.... Ong Chui Chat... Martin David Purvis... Dr Chua Yong Hai... Han Eng Juan... Substantial Shareholders Straits Bulk and Industrial Pty Ltd... 30,692,174 53,644, (1) Straits Resources Limited.... Gerald Alain Denis Keet.... New Public Investors ,000, ,400, (1) Rounded to the nearest S$0.01 per share. 54

61 SELECTED FINANCIAL INFORMATION AND OPERATING DATA Our Company was incorporated on June 10, In September 2006, through a series of related transactions described in Reorganization of our Group, certain subsidiaries of Straits Resources were consolidated in our Company as the holding company for our Group. See Reorganization of Our Group and Management s Discussion and Analysis of Financial Condition and Results of Operations. The Reorganization of our Group was a business combination of entities under common control and has been accounted for using the pooling of interest method. The pooling of interest method measures the assets acquired and liabilities assumed at their carrying amounts determined in accordance with SFRS immediately prior to the Reorganization. The audited consolidated financial statements incorporating the consolidated income statements, the consolidated balance sheet and the consolidated cashflow statements are reported as if the structure of the Group, excluding the effect of the Acquisitions, had been in existence throughout the periods presented and the assets and liabilities have been brought into our Group at their existing carrying amounts. All significant intra-group transactions and balances have been eliminated on consolidation. These audited consolidated financial statements do not reflect the adjustment for the subsequent exchange of cash consideration for the acquisition of the 100% interest in Straits Global Trading, SGH, SET and SMI as described in Reorganization of Our Group, which will be adjusted for at the date of the acquisition. The following table sets forth our selected historical consolidated financial and operating data, in each case for the periods and as of the dates indicated. You should read the following selected consolidated financial data in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations, and our historical financial statements and the related notes included elsewhere in this offering document. Our financial statements are reported in U.S. dollars and presented in accordance with SFRS. SFRS differs in certain respects from U.S. GAAP. For a discussion of certain differences between SFRS and U.S. GAAP, see Summary of Certain Differences between SFRS and U.S. GAAP. The selected historical consolidated balance sheet data as of December 31, 2003, 2004 and 2005 and selected historical consolidated income statement data for the years ended December 31, 2003, 2004 and 2005 set forth below have been derived from, and should be read in conjunction with, our audited consolidated financial statements, including the notes thereto, included elsewhere in this offering document. The selected historical consolidated balance sheet data as of March 31, 2006 and the selected historical consolidated income statement data for the three-month periods ended March 31, 2005 and 2006 set forth below have been derived from our unaudited interim consolidated financial statements, including the notes thereto, included elsewhere in this offering document. Except for our discussion of recent developments contained in Management s Discussion and Analsis of Financial Condition and Results of Operations Recent Developments, we have prepared our operational data contained in this offering document based on the financial information contained in those financial statements and with respect to the periods covered by those financial statements. The selected historical consolidated balance sheet data as of June 30, 2006 and the selected historical consolidated income statement data for the six-month periods ended June 30, 2005 and 2006 set below have been derived from our unaudited interim condensed consolidated financial statements, including the notes thereto, included elsewhere in this offering document and are discussed in Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments. The information for interim periods is unaudited, but, in our opinion, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition at such dates and our results of operations for such periods. Our results for the three-month period ended March 31, 2006 and for the six-month period ended June 30, 2006 should not be considered indicative of the actual results for the full year See Unaudited Pro Forma Financial Information for a summary of our unaudited consolidated financial information adjusted on a pro forma basis to reflect our Acquisitions and Reorganization as if 55

62 they had occurred on December 31, 2005 and March 31, 2006, respectively, for our unaudited pro forma consolidated balance sheets as of those dates and on January 1, 2005 for our unaudited pro forma consolidated income statements for the year ended December 31, 2005 and the three-month period ended March 31, Solely for the convenience of the reader, we have translated the U.S. dollar amounts in the table below into Singapore dollars using the exchange rates of US$1.00=S$1.58 for the amounts as of, and for the year ended, December 31, 2005, and for the three months ended March 31, 2006, giving effect to rounding where applicable. For additional information regarding our convenience translations in this offering document, see Presentation of Financial Information. Year Ended December 31, Three Months Ended March 31, US$ US$ US$ S$ US$ US$ S$ (in thousands, except for per share amounts) Consolidated Income Statement Data: Sales revenue... 43,657 74, , ,508 22,526 62,944 99,452 Cost of sales of goods.... (43,438) (47,558) (100,080) (158,126) (12,655) (44,472) (70,266) Grossprofit ,213 59,102 93,382 9,871 18,472 29,186 Other revenue from ordinary activities ,996 3, Othergain(loss) (116) (183) Expenses: Other expenses from ordinary activities: Marketing and distribution.. (201) (224) (3,735) (5,901) (191) (643) (1,016) Corporate expense... (1,433) (3,724) (3,261) (5,152) (964) (639) (1,010) Finance costs... (580) (174) (189) (299) (5) (104) (164) Profit (loss) before income tax.. (1,373) 23,663 53,797 85,001 8,920 17,598 27,805 Income tax expense.... (128) (6,555) (9,438) (14,912) (1,908) (2,782) (4,396) Profit (loss) for the year/period.. (1,501) 17,108 44,359 70,089 7,012 14,816 23,409 Profit (loss) attributable to minority interest... (21) 2,139 Profit (loss) attributable to equity holder of company.... (1,480) 14,969 44,359 70,087 7,012 14,816 23,409 Profit (loss) for the year/period.. (1,501) 17,108 44,359 70,087 7,012 14,816 23,409 Earnings per share: Basic earnings per share (cents). (0.20) Diluted earnings per share (cents)... (0.20) Average number of outstanding shares...736,399, ,399, ,407, ,407, ,369, ,765, ,765,220 As of December 31, As of March 31, US$ US$ US$ S$ US$ S$ (in thousands) Consolidated Balance Sheet Data: Cashandcashequivalents... 4,579 16,012 10,704 16,912 20,087 31,737 Tradeandotherreceivables... 2,312 10,711 27,225 43,015 27,422 43,327 Mine properties ,791 13,920 12,410 19,608 11,892 18,789 Property, plant and equipment... 2,178 2,314 5,224 8,254 11,395 18,004 Totalassets... 29,719 50,487 66, ,429 80, ,253 Current liabilities... 19,695 25,697 33,679 53,213 41,193 65,085 Non-current liabilities... 2,496 3,354 2,814 4,446 7,430 11,739 Total liabilities ,191 29,051 36,493 57,659 48,623 76,824 Net Assets/Total equity... 7,528 21,436 29,601 46,770 31,917 50,429 56

63 Year Ended December 31, Three Months Ended March 31, US$ US$ US$ S$ US$ US$ S$ (in thousands) Consolidated Cash Flow Data: Net cash inflow (outflow) from operating activities... 6,085 18,734 44,072 69,634 (132) 19,463 30,752 Net cash outflow from investing activities.. (665) (1,033) (4,259) (6,729) (216) (6,661) (10,524) Net cash outflow from financing activities.. (4,808) (6,268) (45,121) (71,291) (4,823) (3,419) (5,402) Cash and cash equivalents (end of period)... 4,579 16,012 10,704 16,912 10,841 20,087 31,737 Year Ended December 31, Three Months Ended March 31, US$ US$ US$ S$ US$ US$ S$ (in thousands except for financial ratios and percentages) Other Financial Data: Adjusted EBITDA (1)... 1,383 27,220 56,760 89,681 9,713 18,537 29,288 Year Ended December 31, Three Months Ended March 31, Operating Data: Coal mined (in thousands of tonnes).. 2,146 2,862 3, Coal processed (in thousands of tonnes) (2)... 2,241 2,814 3, Production volume (in thousands of tonnes) (3)... 1,964 2,558 3, Process yield (in percentages) (4) Sales volume (in thousands of tonnes). 1,991 2,654 2, Overburden removed (in thousands of bcm)... 6,071 10,026 12,459 1,752 3,618 Strip ratio (bcm of overburden/tonne of coal mined) Cash production costs (in thousands of U.S. dollars) (5)... 40,299 46,880 60,462 10,931 20,021 (1) We calculate our Adjusted EBITDA by adding depreciation and amortization, interest expense, and certain other expenses to, and subtracting interest income from, our profit before income tax as calculated under SFRS. Adjusted EBITDA is not a standard measure under SFRS or U.S. GAAP. Adjusted EBITDA is a widely used financial indicator of a company s ability to service and incur debt. Adjusted EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of its operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. Adjusted EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating Adjusted EBITDA, we believe that investors should consider, among other things, the components of Adjusted EBITDA such as revenues and operating expenses and the amount by which Adjusted EBITDA exceeds capital expenditures and other charges. We have included Adjusted EBITDA because we believe Adjusted EBITDA is a useful supplement to cash flow data as a measure of our historical performance and our ability to generate cash from operations to cover debt service and taxes. Adjusted EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare our Adjusted EBITDA to Adjusted EBITDA presented by other companies because not all companies use the same definition. For a reconciliation of Adjusted EBITDA to our profit (loss) after income tax, see Management Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures. (2) Amount of coal delivered to our coal processing plant for processing for crushing and washing. (3) Amount of coal which has been processed and delivered to the barge port for loading or storage at the barge port stockpile. (4) Process yield is calculated as the percentage (in tonnes) of the amount of product coal to processed coal. (5) We calculate cash production costs as the cash operating costs reflected in our cost of sales coal. The cash production costs can be derived from cost of sales coal by subtracting depreciation and amortization charges expensed to cost of sales coal, adding back the cash costs capitalized as deferred mining and then adding (subtracting) from this amount the increase (decrease) in inventory levels for the period. Cash outlays which are specifically excluded from cash production costs are the purchase of property, plant and equipment as well as capital expenditures associated with mine development. 57

64 Six Months Ended June 30, US$ US$ S$ (in thousands, except for per share amounts) Consolidated Income Statement Data: Sales revenue... 53, , ,247 Cost of sales of goods... (30,145) (114,021) (180,153) Grossprofit... 23,109 33,604 53,094 Other revenue from ordinary activities ,087 1,718 Othergain Expenses: Other expenses from ordinary activities: Marketing and distribution... (612) (2,305) (3,642) Corporate expense... (2,759) (1,402) (2,215) Finance costs... (17) (203) (321) Profitbeforeincometax... 20,457 30,917 48,849 Income tax expense... (3,831) (4,442) (7,018) Profitfortheperiod... 16,626 26,475 41,831 Earnings per share: Basicearningspershare(cents) Dilutedearningspershare(cents) Average number of outstanding shares ,900, ,765, ,765,220 As of December 31, As of June 30, US$ US$ S$ (in thousands) Consolidated Balance Sheet Data: Cashandcashequivalents... 10,704 20,813 32,885 Tradeandotherreceivables... 27,225 36,636 57,885 Mine properties... 12,410 11,558 18,262 Property, plant and equipment.... 5,224 13,505 21,338 Totalassets... 66,094 89, ,952 Current liabilities ,679 46,070 72,791 Non-current liabilities... 2,814 2,564 4,051 Total liabilities... 36,493 48,634 76,842 Net assets/total equity... 29,601 40,576 64,110 Six Months Ended June 30, US$ US$ S$ (in thousands) Consolidated Cash Flow Data: Net cash inflow from operating activities... 7,628 20,191 31,902 Net cash outflow from investing activities... (595) (7,986) (12,618) Net cash outflow from financing activities... (14,215) (2,096) (3,312) Cashandcashequivalents(endofperiod)... 8,830 20,813 32,885 Six Months Ended June 30, Other Financial Data: US$ US$ S$ (in thousands) Adjusted EBITDA (1)... 21,855 32,474 51,309 58

65 Six Months Ended June 30, Operating Data: Coal mined (in thousands of tonnes)... 1,557 1,856 Coal processed (in thousands of tonnes) (2)... 1,536 1,923 Production volume (in thousands of tonnes) (3)... 1,323 1,641 Process yield (in percentages) (4) Sales volume (in thousands of tonnes)... 1,349 1,752 Overburden removed (in thousands of bcm)... 4,748 7,347 Strip ratio (bcm of overburden/tonne of coal mined) Cash production costs (in thousands of U.S. dollars) (5)... 27,980 43,856 (1) We calculate our Adjusted EBITDA by adding depreciation and amortization, interest expense, and certain other expenses to, and subtracting interest income from, our profit before income tax as calculated under SFRS. Adjusted EBITDA is not a standard measure under SFRS or U.S. GAAP. Adjusted EBITDA is a widely used financial indicator of a company s ability to service and incur debt. Adjusted EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of its operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. Adjusted EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating Adjusted EBITDA, we believe that investors should consider, among other things, the components of Adjusted EBITDA such as revenues and operating expenses and the amount by which Adjusted EBITDA exceeds capital expenditures and other charges. We have included Adjusted EBITDA because we believe Adjusted EBITDA is a useful supplement to cash flow data as a measure of our historical performance and our ability to generate cash from operations to cover debt service and taxes. Adjusted EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare our Adjusted EBITDA to Adjusted EBITDA presented by other companies because not all companies use the same definition. For a reconciliation of Adjusted EBITDA to our profit (loss) after income tax, see Management Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures. (2) Amount of coal delivered to our coal processing plant for processing for crushing and washing. (3) Amount of coal which has been processed and delivered to the barge port for loading or storage at the barge port stockpile. (4) Process yield is calculated as the percentage (in tonnes) of the amount of product coal to processed coal. (5) We calculate cash production costs as the cash operating costs reflected in our cost of sales coal. The cash production costs can be derived from cost of sales coal by subtracting depreciation and amortization charges expensed to cost of sales coal, adding back the cash costs capitalized as deferred mining and then adding (subtracting) from this amount the increase (decrease) in inventory levels for the period. Cash outlays which are specifically excluded from cash production costs are the purchase of property, plant and equipment as well as capital expenditures associated with mine development. 59

66 UNAUDITED PRO FORMA FINANCIAL INFORMATION We have prepared and presented our unaudited pro forma financial statements based on our unaudited historical consolidated financial statements as of, and for the year ended, December 31, 2005 and as of, and for the three-month period ended March 31, 2006, to illustrate the effect of the Acquisitions and the Reorganization as described in Reorganization of Our Group, as if the Acquisitions and the Reorganization had occurred on December 31, 2005 and March 31, 2006, respectively, for our unaudited pro forma consolidated balance sheets as of those dates and on January 1, 2005 for our unaudited pro forma consolidated income statements for the year ended December 31, 2005 and the three-month period ended March 31, The following tables present our pro forma income statement data for the year ended December 31, 2005 and for the three-month period ended March 31, 2006, our pro forma cashflow statement for the year ended December 31, 2005 and for the three-month period ended March 31, 2006 and the pro forma balance sheet data as at December 31, 2005 and March 31, This pro forma financial information has been derived from, and should be read in conjunction with, our pro forma financial statements and the related notes thereto included elsewhere in this offering document, and the auditor s report regarding the examination of our pro forma financial statements. We have prepared and presented our unaudited pro forma financial information based on our historical financial statements to illustrate the effect of the Acquisitions and the Reorganization as described in Reorganization of Our Group and in accordance with the procedures and adjustments described in Note 4 (Basis of Preparation and Compilation of the Pro Forma Financial Statements of the Group) of the notes to our pro forma financial statements. In preparing our unaudited pro forma financial information, we have made a number of assumptions and adjustments. Consequently, this financial information is not necessarily indicative of the results of operations that we would have realized if our Group had existed during all fiscal periods presented or the results of operations that we will realize in the future. The audited financial statements of the companies within our Group used in the preparation of the pro forma financial information have been prepared in accordance with SFRS. For a discussion of certain significant differences between SFRS and U.S. GAAP, see Summary of Certain Differences between SFRS and U.S. GAAP. The following unaudited pro forma financial information has not been prepared or presented in compliance with the published guidelines of Article 11 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission for the preparation and presentation of pro forma financial information. As a result, U.S. investors should not rely on the pro forma financial information included in this offering document. Solely for the convenience of the reader, we have translated the U.S. dollar amounts in the table below into Singapore dollars using the exchange rates of US$1.00= S$1.58 for the amounts as of, and for the year ended, December 31, 2005, and for the three months ended March 31, 2006, giving effect to rounding where applicable. For additional information regarding our convenience translations in this offering document, see Presentation of Financial Information. 60

67 Year Ended December 31, 2005 Three Months Ended March 31, 2006 US$ S$ US$ S$ (in thousands, except for per share amounts) Pro forma Income Statement Data: Sales revenue , ,911 64, ,424 Cost of sales of goods... (105,052) (165,982) (46,010) (72,696) Grossprofit... 62,613 98,929 18,815 29,728 Other revenue from ordinary activities.... 1,996 3, Other income (expense)... (397) (627) Expenses: Other expenses from ordinary activities: Marketinganddistribution... (3,850) (6,083) (676) (1,068) Administrative expense... (4,386) (6,930) (870) (1,375) Finance costs... (189) (299) (104) (164) Profit before income tax... 55,787 88,144 17,646 27,881 Income tax expense.... (10,106) (15,967) (2,764) (4,367) Profitfortheperiod... 45,681 72,177 14,882 23,514 Profit attributable to equity holder of company. 45,681 72,177 14,882 23,514 Profitfortheyear/period... 45,681 72,177 14,882 23,514 Earnings per share: Basic earnings per share (cents) Diluted earnings per share (cents) Average number of outstanding shares ,407, ,407, ,765, ,765,220 Year Ended December 31, 2005 Three Months Ended March 31, 2006 US$ S$ US$ S$ (in thousands) Pro forma Balance Sheet Data: Cash and cash equivalents... 4,669 7,377 14,513 22,931 Trade and other receivables... 29,950 47,321 29,755 47,013 Mine properties... 12,410 19,608 11,892 18,789 Property, plant and equipment... 6,906 10,911 12,753 20,150 Total assets... 61,485 97,146 75, ,734 Current liabilities... 33,549 53,007 40,667 64,254 Non-current liabilities... 2,996 4,734 7,627 12,051 Total liabilities... 36,545 57,741 48,294 76,305 Totalequity... 24,940 39,405 27,487 43,429 Year Ended December 31, 2005 Three Months Ended March 31, 2006 US$ S$ US$ S$ (in thousands) Pro forma Cash Flow Data: Net cash inflow from operating activities... 47,313 74,755 19,546 30,883 Net cash outflow from investing activities... (11,749) (18,563) (12,656) (19,996) Net cash outflow from financing activities... (47,098) (74,415) (3,081) (4,868) Cash and cash equivalents (end of year/ period)... 4,478 7,075 14,513 22,931 61

68 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our Company was incorporated on June 10, In September 2006, through a series of related transactions described in Reorganization of our Group, certain subsidiaries of Straits Resources were consolidated into our Company as the holding company for our Group. See Reorganization of Our Group and Selected Financial Information and Other Data. The reorganization of our Group was a business combination of entities under common control and has been accounted for using the pooling of interest method. The pooling of interest method measures the assets acquired and liabilities assumed at their carrying amounts determined in accordance with SFRS immediately prior to the reorganization. The following discussion and analysis and our consolidated financial statements have been prepared as if the current structure of the Group had been in existence for all periods presented and the assets and liabilities have been brought into our Group at their existing carrying amounts. All significant intra-group transactions and balances have been eliminated on consolidation. You should read the following discussion of our business, financial condition and results of operations in conjunction with Selected Financial Information and Operating Data, and our historical consolidated financial statements and the related notes included elsewhere in this offering document. In general, the financial results discussed below relate to our historical consolidated financial data. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors such as those set forth under Risk Factors and elsewhere in this offering document. Our consolidated financial statements are reported in U.S. dollars and have been prepared in accordance with SFRS, which may differ in certain significant respects from generally accepted accounting principles in other countries. For a discussion of certain differences between SFRS and U.S. GAAP, as applicable to our financial statements, see Summary of Certain Differences between SFRS and U.S. GAAP. Overview Prior to mid-2005, we derived substantially all of our revenue from the sale of thermal coal. In mid-2005, we began to derive revenue from sales of gold and silver bullion and copper that we purchase from other members of the Straits Resources Group and from management, logistics and agency services we render to other members of the Straits Resources Group. In 2003, 2004 and 2005, we had sales revenue of US$43.7 million, US$74.8 million and US$159.2 million, respectively, of which our coal sales revenue comprised all of our sales revenue in 2003 and 2004 and US$118.1 million, or 74.2%, of our sales revenue in In the the First Quarter 2006, we had sales revenue of US$62.9 million, compared to sales revenue of US$22.5 million in the first three months of 2005 (the First Quarter 2005 ). In the First Quarter 2006, our coal sales revenue comprised US$37.6 million, or 59.7%, of our sales revenue, compared to US$21.5 million, or 95.4%, of our sales revenue in the First Quarter We have rights under a 30-year concession from the Government until 2027 to mine coal within a concession area of 5,871 hectares located on Sebuku Island off the Southeast coast of Kalimantan in Indonesia. Our concession is located on the southwestern portion of Sebuku Island. Under the terms of our Coal Cooperation Contract, the Government is entitled to 13.5% of our coal production which we sell on the Government s behalf and pay the cash proceeds to the Government less certain expenses and fees. In 2003, 2004, 2005 and the First Quarter 2006, we produced approximately 2.0 million tonnes, 2.6 million tonnes, 3.0 million tonnes and 850 thousand tonnes of coal, respectively, and we sold approximately 2.0 million tonnes, 2.7 million tonnes, 2.9 million tonnes and 880 thousand tonnes of coal, respectively. Our customers for our coal are primarily power generation companies located in Asia. We intend to expand our coal production to approximately 3.5 million tonnes in 2006 and to approximately 4.0 million tonnes in In 2005 and the First Quarter 2006, through our commodities marketing operations, we sold to third party customers approximately 12,143 gold equivalent ounces 62

69 and 8,841 gold equivalent ounces, respectively, of gold and silver bullion, and 7,772 tonnes and 3,477 tonnes, respectively, of copper we had purchased from other members of the Straits Resources Group. All of our sales are priced and paid in U.S. dollars, and a substantial portion of our cost of sales and operating expenses are denominated and payable in U.S. dollars, or are based on U.S. dollardenominated prices. Factors Affecting Our Business, Results of Operations and Financial Condition Our business and historical financial condition and results of operations have been affected by a number of important factors which we believe will continue to affect our financial condition and results of operations in the future. These factors include the following: Coal Mining Production and Expansion Our coal sales revenue for Sebuku Coal is based primarily on the amount of coal we produce and sell to our customers within each period and on the prices we receive for that coal. Our coal production volumes are dependent primarily on the ability of our mining contractor, BUMA, to achieve our production targets within the constraints set by the overall coal handling capacity of the machinery, equipment and facilities owned and operated by us and our contractors. We set production targets and plans based on our coal reserve estimates, which we update periodically, and prevailing global coal market conditions. We typically maintain a life of mine production plan of at least five years. In 2005, we increased our coal production to approximately 3.0 million tonnes from approximately 2.6 million tonnes in 2004 and approximately 2.0 million tonnes in 2003 through increased mining by our mining contractor. We expect to increase our coal production to approximately 3.5 million tonnes in 2006 and to approximately 4.0 million tonnes in As of May 31, 2006, we had proved and probable recoverable coal reserves of approximately 28.3 million tonnes which, we believe is adequate to support a life of mine plan for the Sebuku mine for five years. For further information regarding our coal reserves and the uncertainties regarding these estimates, see Appendix A Independent Technical Review of the Sebuku Mine and Infrastructure and Risk Factors Risks Relating to the Coal Mining Industry Our reported coal resources and legally and economically recoverable coal reserves are only estimates of the actual amounts of resources and reserves in our concession and are based on various key assumptions which may change. Global Coal Prices; Coal Supply Agreements Fluctuations in global coal prices have affected, and will continue to affect, our production plans, results of operations and cash flows from operating activities. Prices for our coal are based on global coal prices, which tend to be cyclical and subject to significant fluctuations. As a commodity product, global coal prices depend principally on the supply and demand dynamics of the world coal export markets. These markets are highly competitive and are sensitive to changes in mining output (including the opening and closing of new mines, the discovery of new deposits and the expansion of operations at existing mines), the demands of coal end-users (such as electricity generation plants and industrial facilities), and global economic changes, all of which have significantly affected and will continue to affect, our selling prices for our coal and, therefore, our results of operations and cash flows. For more information on global coal market prices, see The Coal Mining Industry. We reduce our exposure to short-term fluctuations and volatility in global coal prices by entering into long-term coal supply agreements with our customers under which we fix the prices paid by those customers for periods of at least twelve months and by staggering our coal supply agreements throughout the year. Our policy is to enter into coal supply agreements for substantially all of our anticipated coal production. We generally sell only a small quantity of coal on a spot basis as trial shipments to potential new customers. Although we believe that our long-term coal supply agreements with our customers have provided greater stability and predictability to our revenue streams and cash 63

70 flows from operating activities, our sales made under our long-term coal supply agreements have in the past been, and in the future may be, made below prevailing market prices at the time of the sale. As a result of our policy of setting prices for at least twelve months under our long-term coal supply contracts, changes in our coal sales revenue and our average realized prices for our coal generally lag increases or decreases in global coal price fluctuations across periods. Productivity and Efficiency of Coal Chain In addition to the sales prices we receive for our coal, our level of unit costs for producing, processing and transporting coal from the pit to the barge port is a one of the key determinants of our operating profitability. Our unit costs are affected by the level of productivity and efficiency of our coal chain, which includes our coal mining and processing operations, logistics and transportation of the coal from mine to port and from the port to the customers ships. For our operations, our and our contractors ability to extract and transport coal as quickly and cost effectively as possible from the mine to our customers ships determine our productivity and efficiency. Factors that affect our level of productivity and efficiency include mining techniques which address specific geological features of the Sebuku mine, labor productivity, design and quality of infrastructure, such as roads, the system for loading coal onto our customers ships and the ability to innovate in improving mine design, logistics and infrastructure. Treatment of Coal Sales for the Government Under the terms of our Coal Cooperation Contract with the Indonesian Government, the Government is entitled to 13.5% of our coal production. Rather than deliver coal to the Government, we market and sell the Government s coal entitlement on its behalf and pay the Government the cash proceeds of those coal sales less certain charges. Our coal sales revenue includes the proceeds of our sales of the Government s entitlement. We deduct the amount of those sales from the Government s entitlement, less the barging costs and marketing and administrative fees which we are permitted to deduct under our agreement with the Government, as an expense under cost of goods sold. As a result of these deductions, the cash amounts we pay to the Government are less than 13.5% of our coal sales revenue. Sales and Freight Expenses We sell coal to our customers primarily under FOB delivery terms. When we sell coal to a customer on an FOB basis, the customer is responsible for the payment of the freight and insurance expenses related to the shipment and we record the sales amount net of these expenses. From time to time, we sell coal to certain end-user customers under CIF or C&F terms and may continue to do so from time to time in the future. When we sell coal to a customer on CIF or C&F terms, we include the cost of freight and insurance, as the case may be, in the sales amount we record for determining our coal sales revenue and record the freight and insurance costs as part of our marketing and distribution expenses. Although we have historically made only a small amount of sales on a CIF or C&F basis, any increase in the percentage of the sales we make to customers on a CIF or C&F basis in the future will result in an increase in the amount of freight and insurance costs included in our coal sales revenue and a corresponding increase in our marketing and distribution expenses. Contractor Expenses We conduct the major components of our coal mining, processing and transport operations through BUMA, our mining contractor, LCI, our coal processing contractor, and Mitra, our barging contractor. Because our contractors are responsible for providing substantially all of the equipment, machinery, supplies and labor necessary to run their operations, we are not required to make significant capital expenditures for those operations. We do not expect to make significant capital expenditures or that we will require significant working capital for our planned future production expansion at the Sebuku mine. For a description of our future planned coal production expansion, see Factors Affecting Our Business, Results of Operations and Financial Condition Coal Mining Production and Expansion and Business Coal Mining Expansion Plans. 64

71 The mining contractor fees we pay to BUMA are affected, in part, by the strip ratio BUMA faces when mining areas during the relevant period. A strip ratio is the number of bank cubic meters of overburden (rock and soil) that must be removed to access and extract one tonne of coal. Mining in areas with higher strip ratios require our mining contractor to remove higher amounts of overburden to access coal for mining, resulting in higher contractor fees and, therefore, higher production costs. When our mining contractor mines in areas with lower strip ratios, it is required to remove less overburden and receives less contractor fees, lowering our production costs. As we mine new areas in the Sebuku concession, our strip ratio will vary depending on the geological characteristics of the coal seams mined at the Sebuku concession. Our average strip ratios in 2005 and the First Quarter 2006 were approximately 3.49 and 3.77, respectively. We anticipate our average strip ratio will be relatively constant around these levels for the foreseeable future. Our cost of sales for our coal mining operations attributable to our mining contractor, as a percentage of our total cost of sales for our coal mining operations, have fluctuated and will continue to fluctuate, in part, based on the strip ratios experienced by our mining contractor to mine coal at the Sebuku mine. Cost of Fuel Fuel costs comprise a significant portion of our expenses. Under our operating agreement with BUMA, we have agreed to adjust upwards or downwards the fees we pay BUMA in line with variations in fuel costs it must pay. As a result, we have assumed the risks and benefits of changes in fuel prices during the term of the operating agreement with BUMA. Prior to July 2005, Pertamina, Indonesia s state-owned petroleum supply company, sold fuel to us and to BUMA at subsidized prices. The amount of the subsidy and the amount of fuel we could buy at subsidized prices was limited by Pertamina before July However, in July 2005, Pertamina discontinued selling fuel at subsidized prices. As a result of these changes in the fuel subsidy program from 2003 to 2005, our fuel costs for our own consumption and our mining contractor fees increased significantly between 2003 and mid-2005 compared to historical averages. We have not historically and do not currently hedge our exposure to fuel price risk. Coal Export Levy In October 2005, the Government adopted a new regulation imposing a 5% levy on exports of coal from Indonesia. This export levy is in addition to the Government royalties we are required to pay the Government under our Coal Cooperation Contract. The new coal export levy is calculated on coal shipments based on a formula that takes into account the tonnage of coal shipped and an export reference price issued by the Indonesian Ministry of Trade on a monthly basis. Since we began paying this export levy in February 2006, we have included the amount of the export levy in our coal sales revenue and have deducted the amount of the levy as a cost of goods sold. In the First Quarter 2006, we paid US$0.8 million in export levies to the Government. On July 21, 2006, the Indonesian Supreme Court issued a ruling invalidating this new coal export levy and ordering the Indonesian Government to revoke it. However, the Indonesian Government may file a request to the Supreme Court that the Court re-examine this ruling. See -Recent Developments- Indonesian Supreme Court Ruling Invalidating the Coal Levy Regulations. Seasonality Our coal mining operations at the Sebuku mine are affected by changes in weather conditions, particularly heavy rains which typically occur from October to April. For a description of the risks we face from adverse weather conditions, see Business Coal Mining Coal Mine Planning; Coal Processing and Transport Effect of Weather and Forest Fires. We seek to mitigate the effects of the rains by increasing production during the dry season, managing our mine drainage systems, working on a number of mining faces concurrently and carefully managing our coal stockpiles. We also attempt to sustain our mining production levels during the rainy season by mining satellite pits with relatively low strip ratios during those months. Nevertheless, our results of operations fluctuate from fiscal quarter to 65

72 fiscal quarter due, in part, to the effects of the rainy season. In particular, seasonality has historically caused our operating results for our coal operations for the fiscal quarters which cover the typical dry season (from May to September) at our coal operations to be better than the operating results for the fiscal quarters which cover the typical rainy season (from October to April). Order Book As of March 31, 2006, our remaining expected production of 2.6 million tonnes for the remaining nine months had been committed for sale to our customers under existing coal supply agreements. Other Commodities Sales of Other Commodities In mid-2004, we established our commodities trading business through Straits Global Trading in Singapore and, in mid-2005, we began purchasing gold and silver bullion, and copper from other members of the Straits Resources Group for sale to third party customers. We record the sale of these commodities to these third party customers and the agency fees we receive from the other Straits Resources Group members as sales revenue and record the purchase price we pay the other Straits Resources Group members as cost of goods sold. We sell these other commodities to third party customers primarily on CIF delivery terms. When we record these sales, we include the freight and insurance costs in the sales amount we record for determining our other commodities sales revenue and record the freight and insurance costs as part of our marketing and distribution expenses. Since we act as principal in these transactions between the Straits Resources Group member seller and third party purchaser, we face counterparty risk in the event that either the Straits Resources Group member fails to deliver the sale product to the third party customer or the third party customer fails to take delivery or pay us the purchase price. For a discussion of this risk, see Risk Factors Risks Relating to Our Business We face counterparty risks, including risks of payment default or failure to accept delivery by third party purchasers of our other commodities, in our commodities trading operations. Gold and Silver Purchased from PT IMK. Since August 2005, we have purchased from PT IMK gold and silver produced at its Mt. Muro mining operations in Indonesia, which we on-sell to third party customers. PT IMK is a member of the Straits Resources Group which is not part of our Group. We have also been providing to PT IMK various marketing-related services, such as logistics support and assistance, sales administration as well as delivery and logistics documentation. We and PT IMK determine the purchase price for the gold or silver by reference to the spot price for gold or silver on the date of sale. Contemporaneously with the purchase of these products, we enter into contracts to sell the gold or silver to third parties at the same price at which we purchase them from PT IMK, adjusted to cover the freight and handling costs incurred by us for collection and delivery of the products to third party customers. In consideration of the provision of marketing-related services, we charge PT IMK a marketing fee of 2% of the sale price under the contracts between us and the third party customers. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Marketing Services to and Purchases of Gold and Silver from PT IMK. Copper Purchased from Whim Creek. Since June 2005, we have purchased copper from the Straits Resources Group s mine at Whim Creek, Australia. We have agreed to purchase the lesser of 50,000 metric tonnes of copper and the total output of Whim Creek s copper operations in Australia between May 2005 and June We and Whim Creek determine the price of purchases for copper of a prescribed quality by reference to a commercial benchmark; namely, the relevant Official London Metal Exchange Copper Grade Cash Settlement ( LME ) quotation. We and Whim Creek negotiate the price for all other copper not conforming to the contractually agreed quality at the time of purchase, 66

73 depending on the purity level of the copper being purchased. In January 2006, we entered into a sales and agency agreement with Whim Creek, whereby Whim Creek appointed us as its agent to, among other things, market and facilitate the sale of Whim Creek s products. Contemporaneously with the purchase of copper from Whim Creek, we enter into contracts to sell the copper to third parties on the same pricing terms at which we purchase them from Whim Creek. In consideration of the marketing and agency services we provide to Whim Creek, we receive a monthly agency fee of US$20,000. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Marketing Services to and Purchases of Copper from Whim Creek. We intend to focus the growth of our commodities marketing business on the bulk commodities sector of the market. In 2003, 2004, 2005 and the First Quarter 2006, the only bulk commodity that we marketed was coal. We aim to expand this to include third party customers and other bulk commodities. Notwithstanding our focus on bulk commodities, we expect to continue acting as a marketing and distribution agent for products produced by Straits Resources Group companies, given that the customer relationships have already been established by Straits Global Trading for purchases of their products. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions. Sales of Mine Consumables Since March 2005, we have purchased mine consumables, such as machinery and other materials required in connection with the operation of the Mt. Muro gold mine, from third party international suppliers for sale to PT IMK. We charge PT IMK a fee of 2% of the purchase price for the mine consumables we onsell to it. We record the purchase price and fee we receive from PT IMK as sales revenue of other commodities and we record the purchase price we pay to the third party supplier as a cost of goods sold. The fees we earned on mine consumables sales to PT IMK in 2005 and the First Quarter 2006 were insignificant to our revenue during those periods. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Procurement Services to PT IMK and other subsidiaries of SRL. Provision of Technical, Commercial and Procurement Services We provide technical and commercial services to PT IMK in respect of its Mt. Muro gold mining operations in Indonesia under a technical services agreement and a commercial services agreement we entered into in January The technical services we provide to PT IMK cover mine planning and scheduling, geological modeling, reviewing the operations of the processing plant, operating strategy, project construction, exploration and other technical support, expertise and assistance as may be agreed from time to time. The commercial services we provide to PT IMK include accounting services, bookkeeping, banking services, internal and external reporting, taxation advice and compliance, procurement of goods and services, contracts, information technology and communication services, human resource advice and compliance, payroll services, logistics and administrative services, among others. In consideration of these technical and commercial services, we receive management fees based on the estimated man hours provided by us over the year and averaged on a monthly basis. The initial monthly fee for the provision of technical services was US$51,000 per month and for commercial services was US$62,000 per month. Thereafter, the monthly fees are subject to review from time to time and varied to accurately reflect the man hours provided. We also provide procurement services to PT IMK for which we earn a fee of 2% of the procurement price representing the cost of the machinery or materials purchased. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Procurement Services to PT IMK and other subsidiaries of SRL. 67

74 Preferential Tax Treatment through Global Trader Programme Status In August 2004, our Singapore subsidiary, Straits Global Trading, was awarded Global Trader Programme status under the Singapore government s Global Trader Programme. Our Global Trader Programme status allows us to pay a preferential tax rate of 10% on income we record in Singapore. This preferential rate is less than the typical Singapore corporate tax rate of 20%. The Global Trader Programme status has been granted to us for a period of five years from June 1, 2004 to May 31, 2009, after which we will need to apply for a renewal should we wish to continue enjoying the Global Trader Programme status. We are required to satisfy minimum sales, local expenditures and local employment levels at our Singapore operations to maintain our Global Trader Programme status. Minority Interest In 2003 and 2004, a portion of our profit (loss) after tax was attributable to minority interests in our Indonesian subsidiary, Bahari Cakrawala Sebuku. The profit (loss) after tax attributable to minority interests in 2003 was a loss of US$21 thousand and in 2004 was a profit of US$2.1 million. Critical Accounting Policies We have prepared our financial statements contained elsewhere in this offering document in accordance with SFRS. Note 3 of the notes to our financial statements includes a summary of the significant accounting policies and methods we used in preparing these financial statements. Preparation of our financial statements required our management to make estimates and judgments that affect the reported amount of our assets, liabilities, revenue and expenses as well as the disclosure of our contingent assets and liabilities. Our actual results may differ significantly under different assumptions or conditions. The accounting policies that we believe are the most critical to a full understanding and evaluation of our reported financial results include the following: Revenue Recognition We recognize sales revenue from sales of coal and other commodities when title to that product passes to the customer, and: the product is in a form suitable for delivery and no further processing is required; the quantity and quality of the product can be determined with reasonable accuracy; the product has been dispatched to the customer and is no longer under our physical control; and the selling price of the product can be determined with reasonable accuracy. Under the terms of our Coal Cooperation Contract, until title to the coal passes to us and then to the customer, title remains with the Indonesian Government. Our sales revenue from our coal sales comprises our total sales revenue for coal net of quality claims and customer adjustments, but includes the proceeds of our sales of the Government s entitlement and the amount of the 5% export levy. We recognize revenue from our management, agency and logistics services over the period in which we render those services by reference to the completion of the specific transaction on the basis of the actual amount of services provided as a proportion of the total services to be performed as part of the transaction. Inventory; Production Costs We value our coal inventories at our ROM stockpile and barge port stockpile at the lower of cost and net realizable value. We determine cost by taking the weighted average of production costs attributable to our inventories. Our total production costs include mining costs, coal processing costs and depreciation and amortization. Costs attributable to our inventories affect the value of our inventories 68

75 recorded in our balance sheet and the amount of our costs of sales, and, consequently, our profit and profit after tax, recorded in our income statement. In determining the net realizable value of our coal inventories, we estimate the price at which we believe that we could sell our coal in the global coal markets at the time the determination is made less the estimated costs of completing the sale. We base this estimate on prevailing market price data and our known contract selling prices. In our experience, we have valued our coal inventories at cost because our determinations of the net realizable value of our coal inventories have exceeded the costs of those inventories. Amortization of Deferred Expenditures We have capitalized certain mining costs, principally those that relate to the stripping of overburden and to economically recoverable coal reserves, and included those under mine properties in our balance sheet as deferred mining. We defer these costs or record these costs as a cost of production so that each tonne of coal mined bears the average costs of overburden removal per tonne of coal, as determined by the strip ratio derived from our current pit design, and we allocate to that tonne of coal the related variable contract mining costs specific to the production area from which that coal is mined. Our management periodically assesses the strip ratio and the remaining life of the mine to ensure that the carrying value and rate of deferral is appropriate. Management s Use of Estimates Our financial statements have been prepared in accordance with SFRS. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Note 4 of the notes to our financial statements includes a discussion of the critical accounting estimates and judgments we make in preparing our financial statements. We base our estimates and assumptions on historical experience and our knowledge of relevant facts and circumstances at that time. We continually evaluate these estimates and judgments, and actual results may differ from these estimates under different assumptions. Our most important estimates and assumptions relate to: the amount of expenditure required to undertake restoration, rehabilitation and dismantling; the recoverable amount of assets for determining impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties; and the provision for income taxes. We believe that the estimates and assumptions we use in determining those amounts are reasonable. Segment and Geographic Data Our Group operates in two business segments: Coal and Other Commodities. The Coal segment consists of exploration, development, mining and marketing of coal. The Other Commodities segment consists of our purchases and sales of gold and silver bullion and copper from other members of the Straits Resources Group. We also record other income from ordinary activities which are primarily management, logistics and agency fees received from Straits Resources Group companies outside our Group. 69

76 The following table sets forth our consolidated sales revenue, costs of sales, capital expenditures, depreciation and amortization and total assets by our two business segments and our consolidated sales revenue by geographic region: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands, except percentages) Segment data: Sales revenue: Coal , % 74, % 118, % 21, % 37, % Other commodities , % 1, % 25, % Total , % 74, % 159, % 22, % 62, % Costs of sales: Coal (43,438) 100.0% (47,558) 100.0% (61,279) 61.2% (11,773) 93.0% (21,791) 49.0% Other commodities.... (38,801) 38.8% (882) 7.0% (22,681) 51.0% Total (43,438) 100.0% (47,558) 100.0% (100,080) 100.0% (12,655) 100.0% (44,472) 100.0% Gross profit: Coal % 27, % 56, % 9, % 15, % Other commodities.... 2, % % 2, % Total % 27, % 59, % 9, % 18, % Capital expenditures: Coal % % 4, % % 1, % Other commodities.... Unallocated % 7 0.2% 5, % Total % 1, % 4, % % 6, % Depreciation and amortization: Coal , % 3, % 2, % % % Other commodities.... Unallocated % % Total , % 3, % 2, % % % As of December 31, As of March (US$ in thousands, except percentages) Total assets: Coal , % 36, % 41, % 47, % Other commodities.... 9, % 9, % Unallocated , % 13, % 14, % 23, % Total , % 50, % 66, % 80, % The Group s two business segments operate principally in the geographic region of Asia. 70

77 Our Results of Operations and Financial Condition Sales Revenue Coal Sales Revenue Our coal sales revenue includes the proceeds of our sales of the Government s coal entitlement, and the new export levy which has recently been adopted by the Government. The following table sets forth information about our coal production volumes, coal sales volumes and coal sales revenue for the periods indicated: Year Ended December 31, Three Months Ended March 31, Sales volume (in thousands of tonnes). 1,991 2,654 2, Production volume (in thousands of tonnes).... 1,964 2,558 3, Coal sales revenue (in thousands of U.S.dollars)... 43,657 74, ,147 21,479 37,583 Other Commodities Sales Revenue Our sales revenue from our Other Commodities segment comprises our total sales revenue from sales of gold and silver bullion and copper we purchase from other Straits Resources Group companies, as well as sales of mine consumables sold to other members of the Strait Resources Group. We commenced selling these other commodities purchased from the other Straits Resources Group companies in June 2005 and began selling these mine consumables purchased from third party suppliers to the other Straits Resources Group members in March Therefore, we have only recorded sales revenue from our Other Commodities segment in 2005, which was US$41.0 million, in the First Quarter 2005, which was US$1.0 million, and in the First Quarter 2006, which was US$25.4 million. In 2005 and the First Quarter 2006, we sold to third party customers approximately 12,143 gold equivalent ounces and 8,841 gold equivalent ounces, respectively, of gold and silver bullion, and 7,772 tonnes and 3,477 tonnes, respectively, of copper we had purchased from other members of the Straits Resources Group. Other Revenue from Ordinary Activities Our other revenue from ordinary activities comprises our unallocated other revenue from ordinary activities, which includes management fees and agency and consultancy fees from our services we perform for PT IMK, a member of the Straits Resources Group which is not a member of our Group. For a description of these services, see Factors Affecting Our Business, Results of Operations and Financial Condition Provision of Technical, Commercial and Procurement Services. Beginning with the third quarter of 2006, we will begin reporting revenue from the consultancy, management and advisory fees paid by third party customers to Indo Straits, which we acquired on June 30, Cost of Sales Coal Our cost of sales for our Coal segment comprises our production costs for our coal operations at the Sebuku mine, adjusted for increases and decreases in coal inventories. Our costs of sales for our Coal segment include: mining costs, which consist of fees paid to our mining contractor in relation to excavating coal and overburden from the Sebuku mine, geological survey and mine exploration and planning costs, grade control expenses and salaries and benefits of our mine supervisors; 71

78 coal processing costs, which consist of fees paid to our coal processing plant operator in relation to managing and operating our coal processing plant, laboratory expenses, mining contractor fees incurred to transport coal from the pit to port and expenses to maintain and operate our port stockpile; site support costs, which consist of wages for our workers stationed at our concession area and in Balikpapan, Indonesia, mine reclamation and rehabilitation expenses, travel costs for our workers, on-site office supplies, aircraft, insurance premiums and miscellaneous costs related to our supply of support services to our staff, contractors and the communities surrounding our concession area, including health, safety and equipment maintenance and environmental costs; barging and handling costs, which consist of fees paid to our barging contractor, shipping administration costs, barging costs, port charges, ocean freight costs and other shipping operational costs; depreciation and amortization deductions related to the depreciation of our fixed assets, amortization of deferred exploration and development expenditures and amortization of mine properties; royalties paid to the Government, which are calculated based on 13.5% of coal sales revenue, and are the payments required to satisfy the Government s production entitlement under our Coal Cooperation Contract. For purposes of this calculation, we calculate coal sales revenue based on realized revenue minus barging costs and marketing and administrative fees; the 5% coal export levy paid to the Government; and value-added taxes we pay. We adjust our production costs by an amount attributable to any increase or decrease in our coal inventories to reflect only our costs attributable to coal actually sold during the relevant period. Our mining costs (including contract mining fees) vary as the strip ratios of our mining operations vary. Higher strip ratios require our mining contractor to remove higher amounts of overburden to access coal for mining, resulting in higher contract mining fees and, consequently, higher production costs per tonne of coal produced. When strip ratios decrease, our contract mining fees and production costs per tonne of coal produced decrease. The following table shows the breakdown of our cost of sales for our Coal segment and each item as a percentage of our total cost of sales for our Coal segment for the periods: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands, except percentages) Mining , % 14, % 26, % 3, % 8, % Coal processing , % 8, % 10, % 2, % 2, % Site support , % 6, % 6, % 1, % 1, % Barging and handling.... 4, % 6, % 7, % 1, % 2, % Depreciation and amortization , % 3, % 2, % % % Government royalties.... 5, % 7, % 9, % 2, % 3, % Export levy % Value-added tax , % % % % % Increase (decrease) in coal inventories % % (2,023) (3.3)% % % Totalcostofsalesfor coal , % 47, % 61, % 11, % 21, % 72

79 Other Commodities Our cost of sales for our Other Commodities segment comprises the purchase price we have paid for purchasing gold and silver bullion and copper from, and mine consumables from third party suppliers for, other members of the Straits Resources Group. We commenced purchasing these other commodities in June 2005 and these mine consumables in March Therefore, we have only recorded cost of sales for our Other Commodities segment in 2005, which was US$38.8 million, in the First Quarter 2005, which was US$882 thousand, and in the First Quarter 2006, which was US$22.7 million. Other Expenses from Ordinary Activities Our other expenses from ordinary activities comprise: marketing and distribution expense, which includes freight costs, freight procurement costs, dispatch and demurrage; corporate expense, which includes salaries and benefits of administrative staff, directors fees, bank fees, administrative travel expenses and corporate management fees paid to Straits Resources; and finance costs, which include bank charges, interest expense and other borrowing costs. The following table shows the breakdown of our other expenses from ordinary activities and each item as a percentage of our total other expenses from ordinary activities for the periods indicated: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands, except percentages) Marketing and distribution expense % % 3, % % % Corporate expense , , , Finance costs Total other expenses from ordinary activities. 2, % 4, % 7, % 1, % 1, % 73

80 Results of Operations The following table shows the breakdown of our results of operations and each item as a percentage of our total revenue for the periods indicated: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands, except percentages) Sales Revenue , % 74, % 159, % 22, % 62, % Cost of Sales (43,438) (99.5) (47,558) (63.6) (100,080) (62.9) (12,655) (56.2) (44,472) (70.7) Gross profit , , , , Other revenue from ordinary activities , Other gains (losses) (116) (0.1) Expenses: Marketing and distribution expense.. (201) (0.5) (224) (0.3) (3,735) (2.3) (191) (0.8) (643) (1.0) Corporate expense.... (1,433) (3.3) (3,724) (5.0) (3,261) (2.0) (964) (4.3) (639) (1.0) Finance costs (580) (1.3) (174) (0.3) (189) (0.1) (5) (104) (0.2) Profit (loss) before income tax (1,373) (3.1) 23, , , , Income tax expense... (128) (0.3) (6,555) (8.8) (9,438) (5.9) (1,908) (8.5) (2,782) (4.4) Profit (loss) after income tax (1,501) (3.4) 17, , , , Attributable to: Equity holders of the company (1,480) 14,969 44,359 7,012 14,816 Minority interest (21) 2,139 Profit (loss) after income tax (1,501) 17,108 44,359 7,012 14,816 First Quarter 2006 Compared to First Quarter 2005 Revenue. Our sales revenue increased 179.4% to US$62.9 million in the First Quarter 2006 from US$22.5 million in the First Quarter 2005, primarily as a result of a significant increase in our coal sales revenue and the inclusion of sales revenue from our Other Commodities segment through our commodities trading operations which we began in March Sales Revenue-Coal. Our coal sales revenue increased 75.0% to US$37.6 million in the First Quarter 2006 from US$21.5 million in the First Quarter 2005, primarily due to a 37.1% increase in coal sales volumes from 642 thousand tonnes in the First Quarter 2005 to 880 thousand tonnes in the First Quarter 2006 and a 27.7% increase in the average realized selling price for our coal between those two periods. Our coal sales volumes increased in the First Quarter 2006, in part, due to an increase in our production of coal from 626 thousand tonnes in the First Quarter 2005 to 850 thousand tonnes in the First Quarter 2006 and the use of inventories built up at the end of 2005 in the First Quarter 2006 for increased sales. The increase in our production in the First Quarter 2006 compared to the First Quarter 2005 reflects our management s production expansion program and the increased throughput capacity resulting from the installation of a second bypass circuit at our coal processing plant in mid Our average realized sales price per tonne of coal increased in the First Quarter 2006 compared to the First Quarter 2005 primarily due to higher global coal prices. 74

81 Sales Revenue-Other Commodities. Our sales of mine consumables to, and other commodities on behalf of, members of the Straits Resources Group outside our Group increased from US$1.0 million in the First Quarter 2005 to US$25.4 million in the First Quarter The principal contributors to our sales of other commodities in the First Quarter 2006 were our sales of copper we purchased from the Straits Resources Group s copper mine in Whim Creek, Australia and the sale of gold and silver bullion purchased from the Straits Resources Group s mine in Mt. Muro, Indonesia. Cost of Sales. Our total cost of sales increased 251.4% to US$44.5 million in the First Quarter 2006 from US$12.7 million in the First Quarter Our total cost of sales, as a percentage of our revenue, increased to 70.7% in the First Quarter 2006 from 56.2% in the First Quarter Cost of Sales-Coal. Our cost of coal sales increased 85.3% to US$21.8 million in the First Quarter 2006 from US$11.8 million in the First Quarter 2005, primarily as a result of increases in mining costs, coal processing costs, site support costs, barging and handling and royalties paid to the Government. Our cost of coal sales as a percentage of our coal sales revenue was 58.1% in the First Quarter 2006, compared to 54.8% in the First Quarter Mining. Our mining costs increased 133.4% from US$3.6 million in the First Quarter 2005 to US$8.4 million in the First Quarter 2006 primarily due to higher mining contractors fees resulting from increased production of coal, the higher strip ratio experienced by our mining contractor and higher fuel cost adjustments to the contractor fees. In July 2005, the Indonesian Government lifted all price subsidies on fuel which resulted in significantly higher fuel cost adjustments in our contract mining fees. In addition, in the First Quarter 2005, our mining contractor experienced a lower-than-average strip ratio since it was mining in areas with shallower coal. Coal Processing. Our coal processing costs increased 23.6% from US$2.3 million in the First Quarter 2005 to US$2.8 million in the First Quarter 2006 primarily due to the increased amount of coal our coal processing operator processed, higher fuel costs to run our coal processing plant resulting from higher fuel unit costs and the expansion of our coal processing plant with the addition of the second bypass circuit in the second half of 2005 and higher fees we paid to our coal processing contractor to process and wash the higher volume of coal. Site Support. Our site support costs increased 45.4% from US$1.3 million in the First Quarter 2005 to US$1.9 million in the First Quarter 2006 primarily due to additional hiring of employees, particularly expatriates, to operate the Sebuku mine and increases in employee salaries. Barging and Handling. Our barging and handling costs increased 78.8% from US$1.6 million in the First Quarter 2005 to US$2.9 million in the First Quarter 2006 primarily due to increased barging of coal to customers ships and increases in fuel costs attributable to barging and handling. Depreciation and Amortization. Our depreciation and amortization increased 8.3% from US$0.8 million in the First Quarter 2005 to US$0.9 million in the First Quarter Our depreciation of plant and equipment increased from US$180 thousand in the First Quarter 2005 to US$315 thousand in the First Quarter 2006, while our amortization of mine properties decreased from US$638 thousand in the First Quarter 2005 to US$571 thousand in the First Quarter The depreciation of plant and equipment increased in the First Quarter 2006 because we undertook improvements to our barge port and added the second bypass circuit to our coal processing plant in mid-2005 on which were able to record additional depreciation in the First Quarter 2006 which was partially offset by lower depreciation rates resulting from increased production and processing rates. The amount of amortization of mine properties decreased in the First Quarter 2006 because we increased the amount of our reserves between the two periods and extended the life of the Sebuku mine. Royalties Due to the Government. Royalties due to the Government increased 52.0% from US$2.0 million in the First Quarter 2005 to US$3.1 million in the First Quarter 2006 in line with increased coal sales in the First Quarter

82 Export levy. In the First Quarter 2006, the amount of levy payable on our coal exports during that period was US$0.8 million. Since the export levy was adopted by the Government in October 2005, we were not required to pay any export levy in the First Quarter This coal levy was invalidated by the Indonesian Supreme Court in July For a discussion on this coal levy, see Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Indonesian Supreme Court Ruling Invalidating the Coal Levy Regulations. Value-added Tax. In the First Quarter 2006, we recorded US$44 thousand in value-added taxes, compared to US$64 thousand in the First Quarter Decrease (Increase) in Coal Inventories. To determine our cost of sales for a particular fiscal period, we adjust our production costs during the relevant period by the production costs associated with changes in inventories of coal during that period. By the end of the First Quarter 2006, we had decreased our inventories to meet our customers requirements and, therefore, increased our costs of sales by the US$0.9 million attributable to that decrease in inventories. In the First Quarter 2005, we decreased our inventories to meet contractual obligations and increased our cost of sales by US$19 thousand. Cost of Sales-Other Commodities. Our cost of other commodity sales was US$22.7 million in the First Quarter 2006, representing 89.3% of our sales revenue for other commodities during that period, and US$882 thousand in the First Quarter 2005, representing 84.2% of our sales revenue for other commodities sales during that period. In the First Quarter 2005, our other commodities cost of sales represented the cost of purchasing mine consumables for resale to PT IMK. Gross Profit. Our gross profit was US$18.5 million in the First Quarter 2006 compared to US$9.9 million in the First Quarter As a percentage of our sales revenue, our gross profit was 29.3% in the First Quarter 2006 compared to 43.8% in the First Quarter 2005, primarily as a result of a significant increase in our coal costs of sales and the costs of purchasing commodities for our commodities trading operations which we began in March Gross Profit-Coal. Our gross profit from our coal sales was US$15.8 million in the First Quarter 2006 compared to US$9.7 million in the First Quarter As a percentage of our coal sales revenue, our gross profit from our coal sales decreased to 41.9% in the First Quarter 2006 from 45.2% in the First Quarter 2005 as a result of the increases in our cost of coal sales in the First Quarter 2006 exceeding the increases in our coal sales revenue during the same period. Gross Profit-Other Commodities. Our gross profit from our other commodities sales was US$2.7 million in the First Quarter 2006 compared to US$165 thousand in the First Quarter As a percentage of our other commodities sales revenue, our gross profit from our other commodities sales decreased to 10.7% in the First Quarter 2006 from 15.8% in the First Quarter 2005 as a result of the increases in our cost of other commodity sales in the First Quarter 2006 exceeding the increases in our other commodity sales revenue during the same period. Other Revenue from Ordinary Activities. Our other revenue from ordinary activities was US$469 thousand in the First Quarter 2006 compared to US$193 thousand in the First Quarter Our revenue from ordinary activities in the First Quarter 2006 resulted primarily from management and agency fees charged to PT IMK for management services performed by us on its behalf. Our revenue from ordinary activities in the First Quarter 2005 was derived from logistics services we performed for PT IMK. Other Gains (Losses). Our other gains (losses) was a gain of US$43 thousand in the First Quarter 2006 compared to a gain of US$16 thousand in the First Quarter These amounts represent interest income on bank deposits which was partially offset by foreign exchange losses. We experienced foreign exchange losses in the First Quarter 2005 and First Quarter 2006 primarily due to the effect of the appreciation of the Indonesian Rupiah and the Singapore dollar against the U.S. dollar on the value of our cash deposits, receivables and payables in these non-u.s. dollar currencies. 76

83 Other Expenses from Ordinary Activities. Our other expenses from ordinary activities increased 19.5% to US$1.4 million in the First Quarter 2006 from US$1.2 million in the First Quarter 2005, primarily due to a significant increase in marketing and distribution expense. Marketing and Distribution Expense. Our marketing and distribution expense increased 236.6% in the First Quarter 2006, from US$191 thousand in the First Quarter 2005 to US$643 thousand in the First Quarter 2006, primarily due to higher freight costs in line with increased sales of coal during the period and the expansion of our commodities trading operations through Straits Global Trading in Singapore. Corporate Expense. Our corporate expense decreased 33.7% from US$964 thousand in the First Quarter 2005 to US$639 thousand in the First Quarter Our corporate expense was higher in the First Quarter 2005 than the First Quarter 2006 due to non-recurring expenses related to the establishment of our commodities trading and other operations in Singapore during the First Quarter Finance Costs. Our finance costs increased to US$104 thousand in the First Quarter 2006 from US$5 thousand in the First Quarter 2005, primarily due to the US$5.0 million structured finance facility from ANZ Bank Singapore (the ANZ Bank Facility ) on which we began to pay interest in the First Quarter Profit Before Income Tax. Our profit before income tax increased 97.3% to US$17.6 million in the First Quarter 2006 from US$8.9 million in the First Quarter As a percentage of our revenue, our profit before income tax decreased to 27.9% in the First Quarter 2006 from 39.6% in the First Quarter Income Tax Expense. Our income tax expense increased 45.8% to US$2.8 million in the First Quarter 2006 from US$1.9 million in the First Quarter 2005 primarily due to the increase in our profit before income tax. As a percentage of profit before income tax, our income tax expense decreased to 15.8% in the First Quarter 2006 from 21.4% in the First Quarter A portion of this decrease in our effective tax rate in the First Quarter 2006 reflects the preferential tax status we received in June 2005 for our other commodity sales through Straits Global in Singapore under the Global Trader Programme. Profit After Income Tax. Our profit after income tax increased 111.3% to US$14.8 million in the First Quarter 2006 from US$7.0 million in the First Quarter As a percentage of our revenue, our profit after income tax decreased to 23.5% in the First Quarter 2006 from 31.1% in the First Quarter Compared to 2004 Revenue. Our sales revenue increased 112.9% to US$159.2 million in 2005 from US$74.8 million in 2004, primarily as a result of a significant increase in our coal sales revenue and the inclusion of sales revenue from our Other Commodities segment through our commodities trading operations which we began in March Sales Revenue-Coal. Our coal sales revenue increased 58.0% to US$118.1 million in 2005 from US$74.8 million in 2004, primarily due to a 9.7% increase in coal sales volumes from 2.7 million tonnes in 2004 to 2.9 million tonnes in 2005 and a 44.0% increase in the average realized selling price for our coal. Our coal sales volumes increased in 2005, in part, due to an increase in our production of coal from 2.6 million tonnes in 2004 to 3.0 million tonnes in 2005 in line with our decision to increase our production. We increased our production in 2005 despite experiencing low equipment availability in BUMA s fleet and higher rainfall than usual during the rainy season in the early part of 2005 by working with BUMA on equipment availability in the second half of 2005 and by mining in satellite pits with low strip ratio coal to reduce the difficulties of mining during the rainy season. In 2004, we focused our mining on the Kanibungan Pit until it was mined-out at the end of 2004 and, in 2005, shifted most of the production to the Tanah Putih Pit. Our average realized sales price per tonne of coal increased in 2005 compared 2004 due primarily to higher global coal prices. 77

84 Sales Revenue-Other Commodities. Our sales of mine consumables to, and other commodities on behalf of, other members of the Straits Resources Group aggregated US$41.0 million in We began selling these commodities in June 2005 and mine consumables in March Therefore, we did not record any other commodities sales in The principle contributors to our sales of other commodities in 2005 were our sales of copper we purchased from the Straits Resources Group s Whim Creek copper mine and gold bullion we purchased from the Straits Resources Group s Mt. Muro mine. Cost of Sales. Our total cost of sales increased 110.4% to US$100.1 million in 2005 from US$47.6 million in Our total cost of sales, as a percentage of our revenue, decreased to 62.9% in 2005 from 63.6% in Cost of Sales-Coal. Our cost of coal sales increased 28.9% to US$61.3 million in 2005 from US$47.6 million in 2004, primarily as a result of increases in mining costs, coal processing costs and royalties paid to the Government. Our cost of coal sales as a percentage of our coal sales revenue was 51.8% in 2005, compared to 63.6% in Mining Costs. Our mining costs increased 86.1% from US$14.2 million in 2004 to US$26.5 million in 2005 primarily due to increased production, which resulted in higher contractor fees, and upward adjustments in contractor fees due to fuel cost increases resulting from the lifting of subsidies by the Government in July 2005 and increased global oil prices. In 2005, the strip ratio experienced by our mining contractor remained relatively constant to what it experienced in Coal Processing Costs. Our coal processing costs increased 17.9% from US$8.7 million in 2004 to US$10.3 million in 2005 primarily due to increased production levels and higher fuel costs attributable to our coal processing operations. We also installed a second, stand alone crushing line suitable for coal that does not require washing, meaning that washed coal and bypass coal are produced simultaneously with an increase in overall capacity of our coal processing plant. This equipment installation in mid-2005 resulted in higher coal processing costs for us in Our contractor fees for our coal processing contractor increased in 2005 compared to 2004 due to increased processing of coal by it even though we renegotiated the terms of our coal processing contract which resulted in a lower per unit fee for our coal processing contractor. Site Support. Our site support costs decreased 3.0% from US$6.6 million in 2004 to US$6.4 million in In 2005, we changed aircraft operators to one with more economical rates and shifted some employees to our office in Balikpapan, Indonesia, which offset increases in employee salaries. Barging and Handling Costs. Our barging and handling costs increased 6.4% from US$6.6 million in 2004 to US$7.1 million in 2005 primarily due to higher rental costs for equipment and our need to hire extra craneage services because of higher coal production. Depreciation and Amortization. Our depreciation and amortization decreased 14.7% from US$3.4 million in 2004 to US$2.9 million in Our depreciation of plant and equipment increased from US$770 thousand in 2004 to US$1.1 million in 2005, while our amortization of mine properties decreased from US$2.7 million in 2004 to US$1.8 million in These depreciation amounts increased in 2005 because we undertook improvements to our barge port and added the second bypass circuit to our coal processing plant in mid-2005 on which we were able to record additional depreciation in 2005, which was partially offset by lower depreciation rates resulting from increased production and processing rates in The amount of amortization of mine properties decreased in 2005 as a result of an increase in the amount of our reserves. Royalties Due to the Government. Royalties due to the Government increased 30.4% from US$7.7 million in 2004 to US$10.0 million in 2005 primarily due to increased coal sales. Value-added Tax. Our value-added taxes remained relatively constant at US$206 thousand in 2005 compared to US$203 thousand in

85 Decrease (Increase) in Coal Inventories. In 2005, we increased our inventories in order to meet expected increasing demand for coal from our customers in the first quarter 2006, thereby decreasing our costs of sales in 2005 by the US$2.0 million attributable to that increase in inventories. In 2004, we decreased our inventories slightly to meet contractual obligations and increased our cost of sales in 2004 by US$36 thousand. Cost of Sales-Other Commodities. Our cost of other commodity sales was US$38.8 million in 2005, representing 94.6% of our other commodities sales revenue. We began selling these commodities in June 2005 and the mine consumables in March Therefore, we did not record any costs of other commodity sales in Gross Profit. Our gross profit was US$59.1 million in 2005 compared to US$27.2 million in As a percentage of our sales revenue, our gross profit was 37.1% in 2005 compared to 36.4% in Gross Profit-Coal. Our gross profit from our coal sales was US$56.9 million in 2005 compared to US$27.2 million in As a percentage of our coal sales revenue, our gross profit from our coal sales increased to 48.1% in 2005 from 36.4% in 2004 principally a result of the increases in our coal sales revenue in 2005 exceeding the increase in our cost of coal sales during the same period. Gross Profit-Other Commodities. Our gross profit from our other commodities sales was US$2.2 million in 2005 and, as a percentage of our other commodities sales revenue, was 5.4%. Other Revenue from Ordinary Activities. Our other revenue from ordinary activities increased 341.6% to US$2.0 million in 2005 from US$452 thousand in 2004, primarily from higher management fees for technical and commercial services and new logistics services fees we received from PT IMK in 2005 compared to the management fees for technical and commercial services we received from IMK in These technical and commercial services were provided by PT SCS to PT IMK since 2004 and the arrangements were formalized in a contract in January Other Gains (Losses). Our other gains (losses) was a loss of US$116 thousand in 2005 compared to a gain of US$120 thousand in The other loss in 2005 represented foreign exchange losses which were partially offset by interest income on bank deposits. In 2004, our other gain was a combination of foreign exchange gains and interest income on bank deposits. We experienced foreign exchange losses in 2005 and foreign exchange gains in 2004 primarily due to the effect of the appreciation in 2005 and depreciation in 2004 of the Indonesian Rupiah and, in 2005, the depreciation of the Singapore dollar against the U.S. dollar on the value of our cash deposits, receivables and payables in these non-u.s. dollar currencies. Other Expenses from Ordinary Activities. Our other expenses from ordinary activities increased 74.3% to US$7.2 million in 2005 from US$4.1 million in 2004, primarily due to a significant increase in marketing and distribution expenses. Marketing and Distribution Expense. Our marketing and distribution expense increased significantly in 2005, from US$224 thousand in 2004 to US$3.7 million in 2005, primarily due to higher freight costs and freight procurement costs in 2005 in line with higher coal sales volumes and the establishment of our commodities trading operations through Straits Global Trading in Singapore. Corporate Expense. Our corporate expense decreased 10.8% in 2005, from US$3.7 million in 2004 to US$3.3 million in Our corporate expense in 2004 included a write off of a bad debt of US$362 thousand. In 2005, we paid higher corporate management fees to Straits Resources and incurred higher administrative staff costs and travel expenses than in These corporate management fees were paid to Straits Resources for the provision of technical and corporate services to BCS. Finance Costs. Our finance costs increased 8.6% in 2005, from US$174 thousand in 2004 to US$189 thousand in

86 Profit Before Income Tax. Our profit before income tax increased 127.0% to US$53.8 million in 2005 from US$23.7 million in As a percentage of our revenue, our profit before income tax increased to 33.8% in 2005 from 31.6% in Income Tax Expense. Our income tax expense increased 44.0% to US$9.4 million in 2005 from US$6.6 million in 2004 primarily due to the increase in our profit before income tax. As a percentage of profit before income tax, our income tax expense decreased to 17.5% in 2005 from 27.7% in A portion of the decrease in our effective tax rate in 2005 compared to 2004 reflects the preferential tax status we received in June 2005 for our other commodity sales through Straits Global in Singapore under the Global Trader Programme and the tax impact of non-tax deductible costs in In addition, in 2004, we utilized tax loss carryforwards we recorded based on our loss before income tax in prior years. Profit after Income Tax. Our profit after income tax increased 159.3% to US$44.4 million in 2005 from US$17.1 million in As a percentage of our revenue, our profit after income tax increased to 27.9% in 2005 from 22.9% in Profit attributable to Minority Interest. Our profit attributable to minority interest was US$2.1 million in We did not record any profit attributable to minority interest in 2005 because we completed the effective acquisition of the minority interest in our Indonesian subsidiary, Bahari Cakrawala Sebuku, in January Compared to 2003 Revenue. Our sales revenue increased 71.3% to US$74.8 million in 2004 from US$43.7 million in This significant increase in our sales revenue was due to a 33.3% increase in coal sales volumes from 2.0 million tonnes in 2003 to 2.7 million tonnes in 2004 and a 28.5% increase in the average realized selling price for our coal. Our coal sales volumes increased in 2004, in part, due to an increase in our production of coal from 2.0 million tonnes in 2003 to 2.6 million tonnes in 2004 and the use of coal inventories built up at the end of 2003 for sales in In 2003, our production was slightly adversely affected by a change in our mining contractor from LCI to BUMA in August 2003 which required a transition time for BUMA to mobilize its equipment and works and achieve full production. In early 2004, our mining operations were adversely affected by a blockade of the Sebuku mine by non-governmental community activists. Despite a shutdown of the Sebuku mine for seven days, we were able to increase our production rates in the remainder of the year in order to increase our production greater than that we achieved in In 2003 and 2004, we focused our mining on the Kanibungan Pit until it was mined out at the end of Our average realized sales price per tonne of coal increased in 2004 compared 2003 primarily due to higher global coal prices. In 2003, global coal prices were suppressed by strong supply of export coal from China to the Asian markets. This situation began to shift in the second half of 2003 as supply from China was constrained and prices began to rise. In 2004, we entered into long-term supply agreements with major power utility companies in Japan, South Korea and Hong Kong, in addition to our existing long-term relationship with a major Malaysian consumer. Cost of Sales. Our total cost of sales increased 9.5% to US$47.6 million in 2004 from US$43.4 million in Our total cost of sales, as a percentage of our revenue, decreased to 63.6% in 2004 from 99.5% in All of our costs of sales in 2004 and 2003 were attributable to our coal operations. Our cost of coal sales increased primarily as a result of increases in coal processing costs, site support costs, barging and handling costs, depreciation and amortization and royalties due to the Government. Mining Costs. Our mining costs decreased 3.8% from US$14.8 million in 2003 to US$14.2 million in 2004 primarily due to a reduction in mining contractor fees resulting from our change of mining contractor from LCI to BUMA, which offered more competitive per unit mining rates. This decrease was partially offset by higher production rates achieved by both mining contractors in 2004 and a higher strip ratio experienced by our mining contractors during the year. We mined in areas with higher strips ratios in 2004 because global coal prices had increased, making it economically beneficial to do so. 80

87 Coal Processing Costs. Our coal processing costs increased 17.3% from US$7.4 million in 2003 to US$8.7 million in 2004 primarily due to increased production levels. However, our increased coal processing costs in 2004 were partially offset by lower levels of coal washed and processed and the installation of a coal bypass unit which allowed more throughput. Site Support Costs. Our site support costs increased 17.0% from US$5.7 million in 2003 to US$6.6 million in 2004 primarily due to an increase in community and social development expenditures in 2004 as we paid for construction of a mosque and a local community hall and for new roads and road improvements. Barging and Handling Costs. Our barging and handling costs increased 56.6% from US$4.2 million in 2003 to US$6.6 million in 2004 primarily due to handling of higher amounts of coal. In 2004, we had higher equipment rental costs and floating craneage costs because new equipment was introduced at our barge port in Depreciation and Amortization. Our depreciation and amortization increased 56.8% from US$2.2 million in 2003 to US$3.4 million in Our depreciation of plant and equipment increased from US$542 thousand in 2003 to US$770 thousand in 2004, while our amortization of mine properties increased from US$1.6 million in 2003 to US$2.7 million in In 2004, we increased our provisions for mine reclamation and rehabilitation costs in line with our increased production rates and, as a result, increased the amortization of our mine properties. Royalties Due to the Government. Royalties due to the Government increased 47.6% from US$5.2 million in 2003 to US$7.7 million in 2004 primarily due to increased coal sales. Value-added Tax. In 2004, we recorded an expense of US$204 thousand in value-added taxes, compared to US$3.0 million in In 2004, we received an exemption from the requirement to make VAT payments on certain purchases of goods and services for the Sebuku mine. For more information regarding this VAT exemption, see Taxes Value-Added Taxes. Decrease (Increase) in Coal Inventories. In 2003 and 2004, we decreased our inventories to meet contractual obligations and increased our cost of sales in 2003 by US$949 thousand and in 2004 by US$36 thousand. Gross Profit. Our gross profit was US$27.2 million in 2004 compared to US$0.2 million in As a percentage of our revenue, our gross profit increased to 36.4% in 2004 from 0.5% in 2003 principally as a result of the significant increase in our sales revenue in 2004 exceeding the increase in our cost of sales during the same period. Other Revenue from Ordinary Activities. Our other revenue from ordinary activities was US$452 thousand in This amount was a management fee we charged to the Straits Group s Mt. Muro gold and silver mine for services we performed for it. We did not record any other revenue from ordinary activities in Other Gains. Our other gain was US$120 thousand in 2004 compared to US$622 thousand in 2003, which comprised primarily foreign exchange gains and interest income in both 2004 and We experienced foreign exchange gains in 2003 and 2004 primarily due to the effect of the appreciation of the Indonesian Rupiah in 2003 and the depreciation of the Indonesian Rupiah against the U.S. dollar in 2004 on the value of our cash deposits, receivables and payables in Indonesian Rupiah. Other Expenses from Ordinary Activities. Our other expenses from ordinary activities increased 86.2% to US$4.1 million in 2004 from US$2.2 million in 2003, primarily due to a significant increase in corporate expenses. 81

88 Marketing and Distribution Expense. Our marketing and distribution expense increased 11.4% in 2004, from US$201 thousand in 2003 to US$224 thousand in 2004, primarily due to higher freight costs and in line with increased coal sales volumes. Corporate Expense. Our corporate expense increased 159.9% in 2004, from US$1.4 million in 2003 to US$3.7 million in 2004, primarily due to the expansion of our subsidiary, PT SCS, commencing operations in 2004 to provide administrative services to PT IMK and our administrative office in Jakarta. Finance Costs. Our finance costs decreased 70.0% in 2004, from US$580 thousand in 2003 to US$174 thousand in 2004 since we repaid all of our bank borrowings in Profit (Loss) Before Income Tax. Our profit (loss) before income tax was a profit of US$23.7 million in 2004 compared to a loss of US$1.4 million in 2003, principally as a result of an increase in sales revenue in Income Tax Expense. Our income tax expense increased significantly to US$6.6 million in 2004 from US$0.1 million in In 2003, we recorded tax loss carryforwards which we utilized in Profit (Loss) After Income Tax. Our profit (loss) after income tax was a profit of US$17.1 million in 2004 compared to a loss of US$1.5 million in 2003, principally as a result of an increase in sales revenue in Profit (Loss) Attributable to Minority Interest. In 2004, US$2.1 million of our profit after income tax of US$17.1 million was attributable to the interest of the minority shareholder in our Indonesian subsidiary Bahari Cakrawala Sebuku, and, in 2003, US$21 thousand of our loss after income tax of US$1.5 million was attributable to that shareholder s minority interest in Bahari Cakrawala Sebuku. Liquidity and Capital Resources Historically, our principal sources of liquidity have been cash from operations from our sales of coal to our customers and, in the First Quarter 2006, bank borrowings. Our principal uses of cash have historically been payments to our mining and other contractors, payment of Government royalties, capital expenditures, payment of taxes and dividend payments. 82

89 Net Cash Flows The following table sets forth information regarding our statement of cash flows for the periods presented: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands) Cash flows from (used in) operating activities: Receipts from customers... 46,874 69, ,002 19,728 59,001 Payments to suppliers and employees.. (40,655) (51,996) (98,659) (15,485) (35,352) Interest received Interestpaid... (149) (31) (57) (5) (104) Income taxes paid (9,316) (4,400) (4,133) Net cash inflow from (outflow) operating activities... 6,085 18,734 44,072 (132) 19,463 Cash flows from investing activities: Payments for property, plant and equipment... (155) (906) (3,993) (214) (6,486) Payments for exploration expenditure... (510) (127) (266) (2) (175) Net cash outflows used in investing activities... (665) (1,033) (4,259) (216) (6,661) Cash flows from financing activities: Repayment of borrowings.... (5,000) (66) Proceeds of borrowings... 5,000 Proceeds from issues of shares and other equity securities... 6 Loans from (loans to) related parties (1,269) (4,671) 252 (393) Loans from (loans to) non-related parties... (999) (4,256) (1,875) 4,540 Restricted cash (800) Dividends paid to shareholders... (3,200) (36,200) (3,200) (12,500) Net cash outflows used in financing activities... (4,808) (6,268) (45,121) (4,823) (3,419) Net increase (decrease) in cash and cash equivalents ,433 (5,308) (5,171) 9,383 Cash and cash equivalents at the beginning of the period... 3,967 4,579 16,012 16,012 10,704 Cash and cash equivalents at the end of theperiod... 4,579 16,012 10,704 10,841 20,087 Net Cash Inflows from Operating Activities. Our cash flows from operating activities consist of cash receipts from customers, payments to suppliers and employees, receipt of interest income, interest payments, income tax payments and Government royalty payments. In the First Quarter 2006, our net cash inflow from operating activities was US$19.5 million, consisting of cash received from customers of US$59.0 million and receipt of interest income of US$51 thousand, which was offset by payments to suppliers and employees of US$35.4 million, interest payments of US$104 thousand and income tax payments of US$4.1 million. At the end of the First Quarter 2006, our trade and other current receivables remained relatively constant at $27.4 million compared to US$27.2 million at the end of Our trade and other payables increased in the First Quarter 2006 from US$25.7 million at the end of 2005 to US$34.2 million at the end of the First Quarter 2006, primarily due to the accrual of higher contractor fees in line with higher production rates. 83

90 In 2005, our net cash inflow from operating activities was US$44.1 million, consisting of cash received from customers of US$152.0 million and interest income of US$102 thousand, which was offset by payments to suppliers and employees of US$98.7 million, interest payments of US$57 thousand and income tax payments of US$9.3 million. In 2005, our trade and other current receivables increased from $10.7 million at the end of 2004 to US$27.2 million at the end of 2005, in line with our increased coal sales and commencement of our other commodities trading business in Our trade and other payables increased in 2005 from US$18.2 million at the end of 2004 to US$25.7 million at the end of 2005, primarily due to the accrual of higher contractor fees in line with higher production rates and the accrual of payables at the end of 2005 for the purchase equipment to be resold to PT IMK through our commodities trading operations. In 2004, our net cash inflow from operating activities was US$18.7 million, consisting of cash received from customers of US$69.8 million, interest income of US$60 thousand and a tax refund of US$859 thousand, which was offset by payments to suppliers and employees of US$52.0 million and interest payments of US$31 thousand. In 2004, our trade and other current receivables increased from $2.3 million at the end of 2003 to US$10.7 million at the end of 2004, in line with our increased coal sales in Our trade and other payables remained relatively constant at the end of 2004, at US$18.2 million, compared to the end of 2003, at US$17.8 million. In 2003, our net cash inflow from operating activities was US$6.1 million, consisting of cash received from customers of US$46.9 million and interest income of US$15 thousand, which was offset by payments to suppliers and employees of US$40.7 million and interest payments of US$149 thousand. We did not make any income tax payments in Net Cash Outflows from Investing Activities. In 2003, 2004, 2005 and the First Quarter 2006, our net cash outflows from investing activities consisted principally of our capital expenditures for fixed assets and mine development expenditures. Our net cash outflows from investing activities were US$665 thousand in 2003, US$1.0 million in 2004, US$4.3 million in 2005 and US$6.7 million in the First Quarter For a description of our capital expenditures, see - Capital Expenditures. Net Cash Outflows from Financing Activities. In the First Quarter 2006, our net cash outflows from financing activities totaled US$3.4 million which related to inflows of US$4.5 million being repayment by a supplier of a loan we made to it in 2005 and net external borrowings under the ANZ Bank Facility of US$4.9 million. These inflows were more than offset by additional loans to PT IMK of US$393 thousand and dividends payments to Straits Resources of US$12.5 million. In 2005, our net cash outflow from financing activities totaled US$45.1 million which related to US$36.2 million we paid as a dividend to Straits Resources and net loans of US$4.7 million we made to PT IMK, a related party, to support its working capital requirements, and loans of US$4.3 million to an equipment supplier, a non-related party, an advance purchase price for equipment for our coal processing plant and US$6 thousand from the issuance of shares. In 2004, our net cash outflow from financing activities totaled US$6.3 million which related to US$3.2 million we paid as a dividend to our shareholders, loans of US$1.0 million we made to an equipment supplier, a non-related party, as an advance purchase price for equipment for our coal processing plant net loans of US$1.3 million we made to Straits Resources and PT IMK, related parties, and the transfer of US$800 thousand in cash and cash equivalents which were transferred to a restricted bank account at Standard Chartered Bank, Singapore branch, as security for the issuance of performance guarantees for tenders for coal supply agreements. In 2003, our net cash outflow from financing activities totaled US$4.8 million which related to a US$5.0 million repayment of borrowings we made under our then existing bank facility, which was partially offset by the receipt of US$179 thousand from Straits Resources, a related party, in shareholder loans and a transfer of US$13 thousand from a restricted bank account to an unrestricted bank account. 84

91 Liabilities and Indebtedness Our total liabilities were US$48.6 million as of March 31, 2006 and US$36.5 million as of December 31, 2005, and consisted principally of trade and other payables of US$34.2 million and US$25.7 million, respectively, and current income tax liabilities of US$4.6 million and US$6.0 million, respectively. As of March 31, 2006, our total liabilities also included US$4.5 million in long-term borrowings and US$0.4 million in current maturities under the ANZ Bank Facility. As of December 31, 2005, we did not have any interest bearing borrowings from commercial banks outstanding. For a description of the ANZ Bank Facility, see Description of Principal Agreements and Indebtedness Facility Agreement with ANZ. Cash and Cash Equivalents As of March 31, 2006, we had aggregate cash and cash equivalents of US$20.1 million, compared with US$10.7 million as of December 31, 2005, US$16.0 million as of December 31, 2004 and US$4.6 million as of December 31, Other Financial Resources We expect that our primary sources of liquidity will be cash from operations and bank debt. On July 27, 2006, we agreed to a term sheet for a US$50 million credit facility with Bayerische Hypo-Und Vereinsbank AG, Singapore Branch ( HVB ). Subsequently, in September 2006, we entered into a facility agreement with HVB in respect of a revolving facility of US$50 million. For a discussion of this credit facility, see Recent Developments Other Financial Resources. If we draw down this loan, we anticipate we will use the proceeds for various capital expenditure projects, including projects for which we are currently conducting feasibility and engineering studies, including investments in additional shiploading infrastructure and equipment, a coal-fired power plant and the installation of an overland conveyor from our coal processing plant to our barge port. For a discussion of these feasibility studies, see Capital Expenditures and Business Coal Mining Expansion Plans. We may also incur additional indebtedness to finance, in part, future expansion projects, acquisitions or investments we may undertake. We believe that our working capital is sufficient for our current requirements. Depending on our capital requirements, any contractual restrictions applicable to us, market conditions and other factors, we may raise additional funds through debt or equity offerings or the sale or other disposition of our Shares, subject to the restrictions on disposal and issues of shares as described in Plan of Distribution Restrictions on Disposals and Issues of Shares. Capital Expenditures We incurred capital expenditures of US$6.7 million in the First Quarter 2006, US$4.3 million in 2005, US$1.0 million in 2004 and US$0.7 million in The majority of our capital expenditures incurred in 2003 were for mine infrastructure and development works and land compensation. In 2004 we incurred most of our capital expenditures for an upgrade of our barge loading jetty. In 2005, our capital expenditures primarily related to the acquisition of a new barge and a second coal crushing circuit, the remaining payment for the purchase of our coal crushing plant from LCI under the Boot Contract (for details see Description of Principal Agreements and Indebtedness Coal Preparation and Handling Facilities Contract with LCI ), the purchase of the barge port from LCI, the purchase of a drilling rig and light vehicles and land compensation. As at Latest Practicable Date, we intend to incur approximately US$9.1 million in capital expenditures in 2006 of which we had incurred US$6.7 million in the First Quarter 2006, primarily for new shiploading infrastructure and equipment. We intend to incur US$1.7 million, which we expect to fund from our internal resources for new shiploading infrastructure and equipment, further port upgrade works, completion of the shiploading infrastructure and equipment, completion of the project shortening the haul road between the Tanah Putih pit and our barge port and other miscellaneous heavy maintenance work. In addition, we intend to drawn down US$0.7 million from the HVB Facility to purchase a power station which we intend to lease to PT IMK. See Description of Principal Agreements and Indebtedness Facility Agreement with HVB for further details of the HVB Facility. 85

92 As of March 31, 2006, we were not committed to make any capital expenditures during the period from April 1, 2006 to March 31, 2007 but were committed to make US$1.0 million in capital expenditures during the period from April 1, 2007 to March 31, See note 27(a) of the notes to our financial statements. We expect to fund this commitment using our internal resources. We have not allocated any funds for capital expenditures for However, we are conducting feasibility and engineering studies on several capital expenditure projects. We are considering the purchase and installation of a coal-fired power plant and a overland conveyor from our coal processing plant to our barge port. We may undertake additional feasibility studies for other projects, including expansion of our coal processing plant, further upgrades to our barge port, an investment in additional shiploading infrastructure and equipment and an additional power station module. However, these studies are preliminary and subject to the availability of financing, and we may decide not to proceed with any or all of these projects. For a discussion of these feasibility studies, see Business Coal Mining Expansion Plans. We do not expect to incur significant capital expenditures for our planned production increases to approximately 4.0 million tonnes per year attributable to the mining activities of our mining contractor, coal processing contractor or barging contractor. Contractual Obligations and Commitments Operating Lease Obligations As of March 31, 2006, we were obligated under operating leases for lease payments of US$0.1 million during the period from April 1, 2006 to March 31, 2007 and US$0.2 million during the period from April 1, 2007 to March 31, See note 28(b) of the notes to our financial statements. Outstanding Payments of the Government Entitlement As of March 31, 2006, we were US$5.4 million in arrears for the payment of royalties to the Government. We have paid these outstanding amounts to the Government. Contingent Liabilities Contingent Liability to the Government We have a contingent liability of approximately US$2.0 million as of December 31, 2005 and March 31, 2006 relating to a potential claim from the Government in respect of our Coal Cooperation Agreement. Our management believes that this claim is unlikely to arise given our current arrangements with the Government. For further information regarding this contingent liability, see note 28 of the notes to our annual financial statements and note 29 of the notes to our financial statements for the three-month periods ended March 31, 2005 and Coal Export Levy Payments On October 11, 2005, the Government adopted a new regulation imposing a 5% levy on exports of coal from Indonesia based on an export reference price issued by the Indonesian Ministry of Trade on a monthly basis. The Government did not request payment of the duty prior to February 2006, when we began paying the levy. We have a contingent liability of US$1.5 million as of March 31, 2006 in respect of the unpaid levy from December 31, 2005 to February On July 21, 2006, the Indonesian Supreme Court issued a ruling invalidating this new coal export levy and ordering the Indonesian Government to revoke it. However, the Indonesian Government may file a request to the Supreme Court to request that the Court re-examine this ruling. See Recent Developments Indonesian Supreme Court Ruling Invalidating the Coal Levy Regulations. 86

93 Off-Balance Sheet Arrangements We have various contractual obligations, some of which are required to be recorded as liabilities in our consolidated financial statements, including our indebtedness incurred under the ANZ Bank Facility. Others, namely purchase obligations and obligations under our operating agreements with our contractors, are not generally required to be recognized as liabilities on our balance sheet. We have certain additional commitments and contingencies discussed in Liquidity and Capital Resources Capital Expenditures, Contractual Obligations and Commitments and Contingent Liabilities that are not recorded on our consolidated balance sheet but may result in future cash requirements. We do not have any other off-balance sheet arrangements that we believe have or are reasonably likely to have a current or future material effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Taxes Income Tax Expense In 2003, 2004, 2005 and the First Quarter 2006, our total income tax expense was US$0.1 million, US$6.6 million, US$9.4 million and US$2.8 million, respectively. We calculate our income tax expense by (i) applying the applicable Singapore tax rate to our profit from continuing operations before income tax expense, (ii) adding the tax effect of amounts which are not deductible in calculating taxable income, (iii) subtracting income which is subject to certain tax incentives in Singapore and (iv) adjusting those amounts by the difference in overseas tax rates and for provisions and benefits in prior years. Value-Added Taxes In 2004, we received an exemption from the requirement to make VAT payments to the Government on purchases of goods and services for the Sebuku mine under a special program for VAT exemption for operations in remote locations of Indonesia. This special VAT exemption is valid until the end of our concession period in 2027 under our Coal Cooperation Contract. In order to be entitled to the VAT exemption for the purchase of goods or services, we have to apply to the Government to approve each contract with our suppliers for which we want to be entitled to the exemption. The application approval process takes a lengthy period of time. We typically seek VAT exemption for purchases under our major contracts with our suppliers. To the extent we purchase goods and services under contracts which has not been pre-approved for the exemption by the Government, we are required to pay VAT on those purchases. Singapore Tax Concession under Global Trader Programme Status In August 2004, our subsidiary, Straits Global Trading, was granted Global Trader Programme status in Singapore, effective June 1, Under this incentive, we are entitled to a concessionary tax rate of 10% on profits we earn from eligible trading activities made through Straits Global Trading for a five year period from June 1, 2004 to May 31, The validity of our Global Trader Programme status is contingent on our continuing to satisfy certain minimum sales, local expenditures and employment levels. Derivative Products and Hedging Policies We have not entered into any swaps or other derivatives products, but may do so in the future. However, we do not intend to enter into derivative transactions for arbitrage or speculative purposes. Our derivative activities are subject to the risk management policies adopted by the Board of Directors of Straits Resources which apply to it and its subsidiaries, including us. The Board of Directors of Straits Resources are involved in risk management and strategic planning and oversee the process that the Straits Resources Group management has in place to identity risks and consider the extent and types of risk that are acceptable for the Straits Resources Group to bear. As a subsidiary of Straits Resources, we adhere to the risk management policies of Straits Resources. Our Board of Directors 87

94 intends to review the risk management policies of Straits Resources to determine the appropriateness of those policies to the operations of the Straits Asia Group and may adopt new or additional risk management policies specifically for our Group in the future. If we enter into any hedging transactions, we intend to first (a) seek the approval of our Board of Directors and (b) put in place adequate risk management procedures which must be reviewed and approved by the Audit Committee. Market Risk Disclosures Our business activities subject us to risks associated with fluctuations in commodity prices and interest rates and, to a lesser extent, foreign exchange rates. Foreign Exchange Risk All of our sales are priced and paid in U.S. dollars. Most of our cost of sales and other expenses, including capital expenditures, are denominated and paid in U.S. dollars. However, we have certain costs and expenses which are denominated in Indonesian Rupiah, such as wages for our own workers at the Sebuku mine, and in Singapore dollars and Australian dollars, such as wages for some of our expatriate workers. To the extent that our costs and expenses are denominated in currencies other than the U.S. dollar, we are exposed to foreign exchange risk. We have not entered into swap or other arrangements to hedge against foreign exchange risks in our operations. However, we may do so in the future. Commodity Price Risk In our coal mining operations, we face commodity price risk because coal is a commodity product bought and sold on the world markets. Prices for our coal are based on global coal prices, which tend to be highly cyclical and subject to significant fluctuations. As a commodity product, global coal prices are principally dependent on the supply and demand dynamics of coal in the world export market. We do not engage in trading coal derivative contracts and do not intend to do so. We have not entered into coal pricing derivative arrangements to hedge our exposure to fluctuations in the price of coal, but may do so in the future. We also face commodity price risk in our purchases of fuel necessary to run our coal mining operations. We do not engage in any hedging activities related to the price of fuel. However, we may do so in the future. We have structured our sales of gold and silver from Straits Resources Group s Mt. Muro mine and of copper from Whim Creek so that we sell the gold, silver or copper we purchase to the third party customer at the same price or on the same pricing terms as we pay for it. We typically receive payment from the third party customer before delivery of the commodity to it and before we make payment to the relevant Straits Group member, and we charge the relevant Straits Resources Group member either a set monthly agency fee, in the case of copper sales, or an agency fee calculated as a percentage of the sale price of the commodity to the third party customer, in the case of gold and silver sales. As a result of these changes to our arrangements, we have mitigated our exposure to commodity price risk for fluctuations in market prices of the gold, silver or copper we sell to third party customers on behalf of the Straits Resources Group. Interest Rate Risk We are exposed to fluctuations in interest rates because our U.S. dollar indebtedness under the ANZ Bank Facility is floating rate debt. As of March 31, 2006, we had US$4.9 million in outstanding debt under the ANZ Bank Facility. The interest rate under this facility is based on the prevailing Singapore interbank offer rate plus a margin. For a description of the ANZ Bank Facility, see Description of Principal Agreements and Indebtedness-Facility Agreement with ANZ. 88

95 Effects of Inflation We do not consider inflation in Indonesia, where substantially all of our coal mining operations are currently located, or in Singapore, where substantially all of our commodities trading operations are located, to have had a material impact on our results of operations. Inflation in Indonesia would adversely affect our profit after income tax expense and cash flows to the extent we were unable to increase our revenues from coal sales to cover any increases in our costs and expenses resulting from inflation. New Accounting Standards and SFRS Interpretations New accounting standards and SRFS interpretations have been published that are mandatory for accounting periods beginning on or after January 1, Our assessment of those standards and interpretations that are relevant to our financial statements is set out below: SFRS 19 (Amendment) Employee Benefits The amendment to SFRS 19 (Employee Benefits) introduces the option of an alternative recognition approach for actuarial gains and losses, and may impose additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. This amendment also adds new disclosure requirements. Since we do not intend to change our accounting policy adopted for recognition of actuarial gains and losses and do not participate in any multi-employer plans, adoption of this amendment will only impact the format and extent of disclosures presented in our accounts, if material. We will apply this amendment from annual reporting periods beginning January 1, SFRS 106 Exploration for and Evaluation of Mineral Resources We have adopted SFRS 106 (Exploration for and Evaluation of Mineral Resources) prior to its stated effective date. For a discussion of this accounting policy, see note 3(e) of the notes to our annual financial statements. The adoption of SFRS 106 did not result in substantial changes to our accounting policy. INT SFRS 104 Determining Whether an Arrangement Contains a Lease INT SFRS 104 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement, and requires an assessment of whether (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use the specified asset or assets. We are assessing the impact of INT SFRS 104 on our operations. SFRS 107 Financial Instruments: Disclosures and Complementary Amendment to SFRS 1 Presentation of Financial Statements Capital Disclosures SFRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. SFRS 107 replaces SFRS 30 (Disclosures in the Financial Statements of Banks and Similar Financial Institutions) and the disclosure requirements in SFRS 32 (Financial Instruments: Disclosure and Presentation). It is applicable to all entities that report under SRFS. The amendment to SFRS 1 introduces disclosures about the level of an entity s capital and how it manages capital. We have assessed the impact of SFRS 107 and the amendment to SFRS 1 and have concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of SFRS 1. We will apply SFRS 107 and the amendment to SFRS 1 to our financial statements from annual reporting periods beginning January 1,

96 Non-GAAP Financial Measures Adjusted EBITDA refers to our profit before income tax before the following items: interest income/expense; foreign exchange rate gain/loss; and depreciation and amortization. Adjusted EBITDA is not a standard measure under either SFRS or U.S. GAAP. As the mining business is capital intensive, capital expenditure requirements and levels of debt and interest expenses may have a significant impact on the income before income tax of companies with similar operating results. We use Adjusted EBITDA in addition to our profit before income tax because profit before income tax includes many accounting items associated with capital expenditures, such as depreciation and amortization, as well as non-operating items, such as interest income, interest expense, foreign exchange gains and losses and certain other expenses. These accounting items may vary between companies depending on the method of accounting adopted by each company. You should not consider our definition of Adjusted EBITDA in isolation or construe it as an alternative to profit before income tax, or as an indicator of operating performance or any other standard measure under SFRS or U.S. GAAP. The following table reconciles our profit before income tax expense under SFRS to our definition of Adjusted EBITDA for the periods indicated: For the Year Ended December 31, For the Three Months Ended March 31, (US$ in thousands) AdjustedEBITDA... 1,383 27,220 56,760 9,713 18,537 Adjustments: Depreciation and amortization... (2,191) (3,443) (2,876) (818) (886) Interest expense... (167) (31) (57) (5) (104) Interest income Other charges... (413) (143) (132) Profit (loss) before income tax.... (1,373) 23,663 53,797 8,920 17,598 Recent Developments Our historical consolidated balance sheet data as of June 30, 2006 and the summary historical consolidated income statement and cash flow data for the six-month periods ended June 30, 2005 (the First Half 2005 ) and 2006 set forth below have been derived from our unaudited interim consolidated financial statements. The information for these periods is unaudited, but, in our opinion, reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition at such dates and our results of operations for such periods. Our results for the First Half 2006 should not be considered indicative of our actual results for the full year We produced approximately 850 thousand tonnes, 791 thousand tonnes and 859 thousand tonnes of coal in the first, second and third quarters of 2006, respectively. Our coal sales volumes were approximately 880 thousand tonnes, 872 thousand tonnes and 733 thousand tonnes in the first, second and third quarters of 2006, respectively. In June 2006, we entered into agreements to acquire Indo Straits and Arapa Leasing. For more information about our Acquisitions of Indo Straits and Arapa Leasing, see Reorganization of Our Group and Unaudited Pro Forma Financial Information. Our unaudited consolidated balance sheet data as of June 30, 2006 below includes the effect of our acquisitions of Indo Straits and Arapa Leasing as of that date. 90

97 Solely for the convenience of the reader, we have translated the U.S. dollar amounts as of, and for the six months ended, June 30, 2006, in the table below into Singapore dollars using the exchange rate of US$1.00=S$1.58, giving effect to rounding where applicable. For additional information regarding our convenience translations in this offering document, see Presentation of Financial Information. Six Months Ended June 30, US$ US$ S$ (in thousands, except for per share amounts) Consolidated Income Statement Data: Sales revenue... 53, , ,247 Cost of sales of goods... (30,145) (114,021) (180,153) Grossprofit... 23,109 33,604 53,094 Other revenue from ordinary activities ,087 1,718 Othergain Expenses: Other expenses from ordinary activities: Marketing and distribution... (612) (2,305) (3,642) Corporate expense... (2,759) (1,402) (2,215) Finance costs... (17) (203) (321) Profitbeforeincometax... 20,457 30,917 48,849 Income tax expense... (3,831) (4,442) (7,018) Profitfortheperiod... 16,626 26,475 41,831 Earnings per share: Basicearningspershare(cents) Dilutedearningspershare(cents) Average number of outstanding shares ,900, ,765, ,765,220 As of December 31, As of June 30, US$ US$ S$ (in thousands) Consolidated Balance Sheet Data: Cashandcashequivalents... 10,704 20,813 32,885 Tradeandotherreceivables... 27,225 36,636 57,885 Mine properties... 12,410 11,558 18,262 Property, plant and equipment.... 5,224 13,505 21,338 Totalassets... 66,094 89, ,952 Current liabilities ,679 46,070 72,791 Non-current liabilities... 2,814 2,564 4,051 Total liabilities... 36,493 48,634 76,842 Net assets/total equity... 29,601 40,576 64,110 Six Months Ended June 30, US$ US$ S$ (in thousands) Consolidated Cash Flow Data: Net cash inflow from operating activities... 7,628 20,191 31,902 Net cash outflow from investing activities... (595) (7,986) (12,618) Net cash outflow from financing activities... (14,215) (2,096) (3,312) Cashandcashequivalents(endofperiod)... 8,830 20,813 32,885 91

98 Six Months Ended June 30, Other Financial Data: US$ US$ S$ (in thousands) Adjusted EBITDA (1)... 21,855 32,474 51,309 Six Months Ended June 30, Operating Data: Coal mined (in thousands of tonnes)... 1,557 1,856 Coal processed (in thousands of tonnes) (2)... 1,536 1,923 Production volume (in thousands of tonnes) (3)... 1,323 1,641 Process yield (in percentages) (4) Sales volume (in thousands of tonnes)... 1,349 1,752 Overburden removed (in thousands of bcm)... 4,748 7,347 Strip ratio (bcm of overburden/tonne of coal mined) Cash production costs (in thousands of U.S. dollars) (5)... 27,980 43,856 (1) We calculate our Adjusted EBITDA by adding depreciation and amortization, interest expense, and certain other expenses to, and subtracting interest income from, our profit before income tax as calculated under SFRS. Adjusted EBITDA is not a standard measure under SFRS or U.S. GAAP. Adjusted EBITDA is a widely used financial indicator of a company s ability to service and incur debt. Adjusted EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of its operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. Adjusted EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating Adjusted EBITDA, we believe that investors should consider, among other things, the components of Adjusted EBITDA such as revenues and operating expenses and the amount by which Adjusted EBITDA exceeds capital expenditures and other charges. We have included Adjusted EBITDA because we believe Adjusted EBITDA is a useful supplement to cash flow data as a measure of our historical performance and our ability to generate cash from operations to cover debt service and taxes. Adjusted EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare our Adjusted EBITDA to Adjusted EBITDA presented by other companies because not all companies use the same definition. For a reconciliation of Adjusted EBITDA to our profit (loss) after income tax, see Management Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures. (2) Amount of coal delivered to our coal processing plant for processing for crushing and washing. (3) Amount of coal which has been processed and delivered to the barge port for loading or storage at the barge port stockpile. (4) Process yield is calculated as the percentage (in tonnes) of the amount of product coal to processed coal. (5) We calculate cash production costs as the cash operating costs reflected in our cost of sales coal. The cash production costs can be derived from cost of sales coal by subtracting depreciation and amortization charges expensed to cost of sales coal, adding back the cash costs capitalized as deferred mining and then adding (subtracting) from this amount the increase (decrease) in inventory levels for the period. Cash outlays which are specifically excluded from cash production costs are the purchase of property, plant and equipment as well as capital expenditures associated with mine development. Results of Operations First Half 2006 Compared to First Half 2005 Revenue. Our sales revenue increased 176.9% to US$147.6 million in the First Half 2006 from US$53.3 million in the First Half 2005, primarily as a result of a significant increase in our coal sales revenue and the significantly higher sales revenue from our Other Commodities segment through our commodities trading operations which we began in March Sales Revenue-Coal. Our coal sales revenue increased 50.6% to US$74.7 million in the First Half 2006 from US$49.6 million in the First Half 2005, primarily due to a 28.6% increase in coal sales volumes from 1.4 million tonnes in the First Half 2005 to 1.8 million tonnes in the First Half 2006 and a 16.0% increase in the average realized selling price for our coal between those two periods. We were able to increase our coal sales volumes in the First Half 2006 due to the continued strong demand for our coal, combined with an increase in our production of coal from 1.3 million tonnes in the First Half 2005 to 1.6 million tonnes in the First Half 2006 and the use of a portion of our inventory to satisfy our customers requirements. The increase in our production in the First Half 2006 compared to the First Half

99 reflects our management s production expansion program and the increased throughput capacity resulting from the installation of a second bypass circuit at our coal processing plant in mid Sales Revenue-Other Commodities. Our sales ofmine consumables to, and other commodities on behalf of, members of the Straits Resources Group outside our Group increased from US$3.7 million in the First Half 2005 to US$72.9 million in the First Half The principal contributors to our sales of other commodities in the First Half 2006 were our sales of copper we purchased from the Straits Resources Group s copper mine in Whim Creek, Australia and the sale of gold and silver bullion purchased from the Straits Resources Group s Mt. Muro mine in Indonesia. In the First Half 2006, through our commodities trading operations, we sold to third party customers approximately 7,627 tonnes of copper we had purchased from other members of the Straits Resources Group, compared to 310 tonnes in the First Half In the First Half 2006, we sold to third party customers approximately 25,236 gold equivalent ounces of gold and silver bullion we had purchased from other members of the Straits Resources Group. We did not sell any gold or silver through our commodities trading operations in the First Half Cost of Sales. Our total cost of sales increased 278.7% to US$114.0 million in the First Half 2006 from US$30.1 million in the First Half Our total cost of sales, as a percentage of our revenue, increased to 77.2% in the First Half 2006 from 56.6% in the First Half 2005, primarily as a result of a significant increase in our coal costs of sales and the costs of purchasing commodities for our commodities trading operations which we began in March Cost of Sales-Coal. Our cost of coal sales increased 63.3% to US$44.1 million in the First Half 2006 from US$27.0 million in the First Half 2005, primarily as a result of increases in mining costs, coal processing costs and royalties paid to the Government, the inclusion of payments of the new coal export levy and a decrease in our inventory levels. Our mining costs increased due to higher contractor fees resulting from higher coal production, an increase in the average strip ratio and upward adjustments in the contract mining fees we paid our mining contractor due to higher fuel costs. Our coal processing costs increased primarily due to higher coal production and fuel costs. Royalties due to the Government increased in line with increased sales in the First Half We were also required to begin paying the new coal export levy in the First Half 2006 after its adoption by the Government at the end of Our cost of coal sales as a percentage of our coal sales revenue was 59.1% in the First Half 2006, compared to 54.5% in the First Half Cost of Sales-Other Commodities. Our cost of other commodity sales was US$69.9 million in the First Half 2006, representing 95.9% of our sales revenue for other commodities during that period, and US$3.1 million in the First Half 2005, representing 84% of our sales revenue for other commodities sales during that period. In the First Half 2005, our other commodities cost of sales represented the cost of purchasing mine consumables for resale to IMK and the cost of copper product purchased from Straits Resources Group s Whim Creek mine. Gross Profit. Our gross profit was US$33.6 million in the First Half 2006 compared to US$23.1 million in the First Half As a percentage of our sales revenue, our gross profit was 22.8% in the First Half 2006 compared to 43.4% in the First Half Our gross profit margin decreased in the First Half 2006 compared to the First Half 2005 primarily as a result of the effect of our commodities trading operations, which typically experiences a lower gross profit margin than our coal operations. Gross Profit-Coal. Our gross profit from our coal sales was US$30.6 million in the First Half 2006 compared to US$22.6 million in the First Half As a percentage of our coal sales revenue, our gross profit from our coal sales was 41.0% in the First Half 2006 compared to 45.6% in the First Half

100 Gross Profit-Other Commodities. Our gross profit from our other commodities sales was US$3.0 million in the First Half 2006 compared to US$0.6 million in the First Half As a percentage of our other commodities sales revenue, our gross profit from our other commodities sales was 4.1% in the First Half 2006 compared to 16.2% in the First Half Other Revenue from Ordinary Activities. Our other revenue from ordinary activities was US$1.1 million in the First Half 2006 compared to US$684 thousand in the First Half Our revenue from ordinary activities in the First Half 2006 resulted primarily from management and agency fees charged to the Mt. Muro mine and management fees charged to the Whim Creek mine for management services performed by us on their behalf. We derived our revenue from ordinary activities in the First Half 2005 from logistics services we performed for the Mt. Muro mine. Other Gains. Our other gains were US$136 thousand in the First Half 2006 compared to US$52 thousand in the First Half These amounts represent interest income on bank deposits and foreign exchange gains. We experienced foreign exchange gains in the First Half 2006 primarily due to the effect of the depreciation of the Indonesian Rupiah and the Singapore dollar against the U.S. dollar on the value of our cash deposits, receivables and payables in these non-u.s. dollar currencies. Other Expenses from Ordinary Activities. Our other expenses from ordinary activities increased 15.4% to US$3.9 million in the First Half 2006 from US$3.4 million in the First Half 2005, primarily due to a significant increase in marketing and distribution expense which was partially offset by a decrease in corporate expense. Marketing and Distribution Expense. Our marketing and distribution expense increased 276.6% in the First Half 2006, from US$612 thousand in the First Half 2005 to US$2.3 million in the First Half 2006, primarily due to higher freight costs in line with increased sales of coal during the period and the expansion of our commodities trading operations through Straits Global Trading in Singapore. Corporate Expense. Our corporate expense decreased 50.0% from US$2.8 million in the First Half 2005 to US$1.4 million in the First Half Our corporate expense was higher in the First Half 2005 than the First Half 2006 due to non-recurring expenses related to the establishment of our commodities trading and other operations in Singapore during the First Half Finance Costs. Our finance costs increased to US$203 thousand in the First Half 2006 from US$17 thousand in the First Half 2005, primarily due to the ANZ Bank Facility on which we began to pay interest in the First Half Profit Before Income Tax. Our profit before income tax increased 50.7% to US$30.9 million in the First Half 2006 from US$20.5 million in the First Half As a percentage of our revenue, our profit before income tax decreased to 20.9% in the First Half 2006 from 38.4% in the First Half Income Tax Expense. Our income tax expense increased 15.8% to US$4.4 million in the First Half 2006 from US$3.8 million in the First Half 2005 primarily due to the increase in our profit before income tax. As a percentage of profit before income tax, our income tax expense decreased to 14.4% in the First Half 2006 from 18.7% in the First Half A portion of this decrease in our effective tax rate in the First Half 2006 reflects the preferential tax status we receive for our other commodity sales through Straits Global Trading in Singapore under the Global Trader Programme. Profit After Income Tax. Our profit after income tax increased 59.6% to US$26.5 million in the First Half 2006 from US$16.6 million in the First Half As a percentage of our revenue, our profit after income tax decreased to 17.9% in the First Half 2006 from 31.2% in the First Half

101 Liquidity and Capital Resources As at the Latest Practicable Date, our cash and cash equivalents amounted to approximately US$12.9 million and we did not have any other material unused sources of liquidity. Our capital expenditures in the First Half 2006 and for the period July 1, 2006 up to the Latest Practicable Date, was US$7.5 million and US$0.4 million, respectively. Net Cash Inflows from Operating Activities. In the First Half 2006, our net cash inflow from operating activities was US$20.2 million, consisting of cash received from customers of US$135.8 million and receipt of interest income of US$60 thousand, which was partially offset by payments to suppliers and employees of US$112.0 million, interest payments of US$203 thousand and income tax payments of US$3.5 million. At the end of the First Half 2006, our trade and other current receivables were $36.6 million compared to US$27.2 million at the end of Our trade and other payables also increased in the First Half 2006, from US$25.7 million at the end of 2005 to US$32.0 million at the end of the First Half 2006, primarily due to the accrual of higher contractor fees in line with higher production rates and the increase in our commodities trading operations. Net Cash Outflows from Investing Activities. In the First Half 2006, our net cash outflows from investing activities consisted principally of our capital expenditures for fixed assets, mine development expenditures and payments for investments in Xanadu. Our net cash outflows from investing activities were US$8.0 million in the First Half 2006, which comprised of US$7.6 million for capital expenditures for fixed assets, US$735 thousand for mine development expenditures and US$521 thousand for investments, which were partially offset by receipt of cash of US$818 thousand upon acquisition of Indo Straits and Arapa Leasing on June 30, Net Cash Outflows from Financing Activities. In the First Half 2006, our net cash outflows from financing activities totaled US$2.1 million which related to outflows of US$341 thousand being loans we made to a supplier and dividend payments to Straits Resources of US$15.5 million, which were partially offset by repayment of loans of US$3.9 million by Straits Resources Group entities and of US$5.0 million by unrelated entities and by net external borrowings under the ANZ Bank Facility of US$4.8 million. Liabilities and Indebtedness. Our total liabilities were US$48.6 million as of June 30, 2006 and consisted principally of trade and other payables of US$32.0 million, current income tax liabilities of US$6.8 million, borrowings under the ANZ Bank Facility of US$4.8 million, other non-interest bearing borrowings of US$1.5 million, deferred tax liabilities of US$1.4 million and provisions for other liabilities and other charges of US$2.1 million. Cash and Cash Equivalents. As of June 30, 2006, we had aggregate cash and cash equivalents of US$20.8 million, compared with US$10.7 million as of December 31, Other Financial Resources. We entered into a revolving facility agreement dated September 27, 2006 with Bayerische Hypo-Und Vereinsbank AG, Singapore Branch ( HVB ) under which HVB granted to us a revolving facility of US$50.0 million (the HVB Facility ). We intend to use the HVB Facility to repay a portion of our existing Group debts, to fund capital expenditure in respect of the Sebuku Coal project, to purchase a power station which we intend to lease to PT IMK and to obtain performance bonds. For a detailed discussion on the HVB Facility, see Description of Principal Agreements and Indebtedness Facility Agreement with HVB. 95

102 Capital Expenditures. We incurred capital expenditures of US$7.5 million in the First Half As at the Latest Practicable Date, we intend to incur approximately US$9.1 million in capital expenditures in 2006 of which we had incurred US$7.5 million in the First Half 2006, primarily for new shiploading infrastructure and equipment. We intend to incur the remaining US$1.6 million for further port upgrade works, completion of the shiploading infrastructure and equipment, commencement of a power station project for the Mt. Muro mine which we intend to lease to PT IMK, completion of the project shortening of the haul road between the Tanah Putih pit and our barge port and other miscellaneous heavy maintenance work. Indonesian Supreme Court Ruling Invalidating the Coal Levy Regulations On July 21, 2006, the Indonesian Supreme Court issued a ruling in a case brought by the Indonesian Coal Mining Association ( ICMA ) in early 2006 against the Minister of Finance challenging the validity of the Ministry of Finance regulations on the coal export levy issued on October 11, 2005 and December 23, In its ruling, the Supreme Court held that the coal export levy regulations were contrary to a higher level of prevailing Indonesian laws and regulations because the levy imposed double taxation on coal through both a royalty and an export levy on the same goods and, therefore, held that the regulations were void. The Supreme Court also stated that coal companies previously subject to the coal export levy were no longer obliged to pay that levy. However, the Supreme Court denied the ICMA s request that the court rule that the Government be required to refund the amount of levy that had been paid by the coal companies under those export levy regulations from the date of issuance until the ruling was issued. On September 13, 2006, the Minister of Finance sent a letter to the Director General of Custom and Duty informing the Directorate General of Custom and Duty of the Supreme Court ruling and instructing it not to assess the coal levy during the process of the revocation of the two regulations. On the same date, the Directorate General of Custom and Duty issued Circular Letter No. SE-28/BC/2006 on Coal Export Levy which states that, from September 13, 2006, no export levy will be applied on coal exports. Based on this Circular Letter from the Directorate General of Custom and Duty, we have discontinued paying the coal export levy from September 13, Although the Supreme Court ruling declared the export levy regulations invalid and void, we expect that we will not be entitled to any refund for the coal export levy amounts we paid from February 2006 through August The Minister of Finance may file a request to the Supreme Court that the court re-examine this ruling. If the Minister of Finance does so, and the ruling is reversed on re-examination, we may be obligated to begin paying the export levy again and to pay the Ministry of Finance for the amount of the coal export levy we did not pay during the re-examination process. However, we are not aware of any announcement by the Ministry of Finance of the actions it intends to take in response to this Supreme Court ruling, including whether it intends to file a request for re-examination of the ruling. 96

103 REORGANIZATION OF OUR GROUP In anticipation of the Combined Offering, our Company undertook a reorganization exercise (the Reorganization ) to rationalize and streamline our corporate structure, under which our Company became the holding company for substantially all of the coal mining, commodities marketing and infrastructure development operations of the Straits Resources Group. Our Reorganization was completed in September The structure of our Group prior to the Reorganization was as follows: Straits Sebuku Pte Ltd 100% 80% 100% 99% (2) Reyka Wahana Digdjaya Pte Ltd Sebuku Investments Limited PT Straits Consultancy Services 100% (1) PT Bahari Cakrawala Sebuku 20% PT Reyka Wahana Digdjaya (1) We have 100% effective interest in PT Reyka Wahana Digdjaya, through ownership and contractual arrangements with the minority shareholder, pursuant to which we are entitled to exercise all the rights attaching to the minority shares, including the right to vote on the shares, to transfer or sell the shares and to receive dividends. (2) The remaining 1% is held by our Director, Milan Jerkovic. The details of our Reorganization are as follows: (a) Pursuant to a Share Purchase Agreement dated June 30, 2006 between SMI and Gerald Alain Denis Keet (a substantial shareholder of Straits Resources Limited)(the Arapa Agreement ), and a Share Sale and Purchase Agreement dated June 30, 2006 between Arapa Leasing and PT Tiyandi Utama Mandiri (the PTIS Agreement ), we acquired 95% of the issued share capital in Indo Straits as follows: in accordance with the Arapa Agreement, we acquired from Gerald Alain Denis Keet, through SMI, all the issued and paid up shares of Arapa Leasing, comprising 100,000 ordinary shares, for a cash consideration of A$6.0 million (or US$4.4 million, based on an exchange rate of A$1.00=US$0.734). At the time of the acquisition, Arapa Leasing was the beneficial owner of 80% of the shares in Indo Straits; and in accordance with the PTIS Agreement, we acquired from PT Tiyandi Utama Mandiri, through Arapa Leasing, 15% of the shares in Indo Straits, comprising 150 shares, for a cash consideration of A$0.75 million (or US$0.55 million, based on an exchange rate of A$1.00=US$0.734). 97

104 The aggregate consideration of A$6.75 million for the transfer of the shares in Arapa Leasing to SMI and for the transfer of the shares in Indo Straits to Arapa Leasing was determined based on arm s length negotiations on normal commercial terms, with reference to the net book asset value of Indo Straits as at June 30, As a result of the transfer of shares under the Arapa Agreement and the PTIS Agreement, Arapa Leasing became the registered owner of 95% of the issued shares in Indo Straits. PT Tiyandi Utama Mandiri continues to hold the remaining 5% of the shares in Indo Straits. (1) (b) In September 2006, our Company acquired from the Selling Shareholder the entire issued and paid up shares held by the Selling Shareholder in Straits Global Trading, SET, SGH, and SMI (the Sale Shares ), for an aggregate cash consideration of approximately US$7.75 million. The consideration for the transfer of the Sale Shares to our Company was determined based on the net book asset values of each of Straits Global Trading, SET, SGH and SMI as at August 31, In September 2006, in satisfaction of the consideration for the transfer of the Sale Shares, the Selling Shareholder transferred to our Company 10,000 ordinary shares in Straits Global Trading, and two ordinary shares in each of SET, SGH and SMI, respectively. As a result of the transfer of the Sale Shares, our Company owned, through the acquisition of SET, an indirect 10% shareholding interest in Xanadu Mines Ltd. The structure of our Group immediately following the Reorganization was as follows: Straits Asia Resources Limited 100% 100% 100% 100% Straits Energy Trading Pte Ltd (3) Straits Global Trading Pte Ltd (3) Straits Gold Holdings Pte Ltd (3) Straits Marine & Infrastructure Pte Ltd (3) 10% 100% 80% 100% 99% (4) 100% Xanadu Mines Ltd Reyka Wahana Digdjaya Pte Ltd (3) Sebuku Investments Limited (3) PT Straits Consultancy Services (3) Arapa Leasing Pte Ltd 100% (2) 100% (1) PT Bahari Cakrawala Sebuku (3) 20% PT Reyka Wahana Digdjaya PT Indo Straits (1) We have 100% effective interest in Indo Straits, through ownership and contractual arrangements with the minority shareholder, pursuant to which Arapa Leasing is entitled to exercise all rights attaching to the minority shares, including the right to vote on the shares, to transfer or sell the shares, to pledge the shares as security and to receive dividends. (2) We have 100% effective interest in PT Reyka Wahana Digdjaya, through ownership and contractual arrangements with the minority shareholder, pursuant to which we are entitled to exercise all the rights attaching to minority shares, including the right to vote on the shares, to transfer or sell the shares and to receive dividends. (3) Pursuant to a security interest created under the HVB facility agreement refer to Facility Agreement with HVB on page 146 of the Prospectus. We created a charge over the shares of these companies, as well as specific charges over the shares of BCS, Straits Global Trading, SIL and RWD. For further details of the security provided by us in respect of the HVB facility, see Description of Principal Agreements and Indebtedness Facility Agreement with HVB. (4) The remaining 1% is held by our Director, Milan Jerkovic. 98

105 THE COAL MINING INDUSTRY In this section, we have included data relating to the coal mining industry, both internationally and within Indonesia, and other statistics, including information relating to us and our competitors relative positions in the global and Indonesian coal mining industries. This information is based on industry publications, published sources, other publicly available information and the beliefs of their management. We believe that the sources used are reliable. However, we cannot ensure the accuracy of the information, and we have not independently verified this information. Background Coal is primarily used in electricity generation and in steel production. Fuel costs are the largest component in electricity generation, making the use of coal advantageous because of its relatively low cost compared with other fuels such as oil and natural gas. As the price of coal has historically been lower than the price of crude oil, coal is generally considered the cheapest fossil fuel on a contained heat basis. Other advantages of coal include stable supply from a wide range of geographic locations, easy and safe storage, and ease of transportation by rail or ship. These factors have led to a dependence on coal by the electricity-generating industry, especially by regulated utilities in energyimporting countries. Moreover, with increasing demand for electricity and increased competition, utilities have generally increased the use of coal-burning power stations, instead of substituting these with more expensive power stations fuelled by oil and natural gas. Coal Characteristics Coal is characterized by its use as either steam coal or metallurgical coal. Steam coal, also referred to as steaming coal or thermal coal, is used by electricity generators and by industrial facilities to produce steam, electricity or both. Metallurgical coal describes various grades of coal used in the steel making process. There are four types of coal by geological composition: lignite, sub-bituminous, bituminous and anthracite. We mine and produce only bituminous coal at the Sebuku mine. Each has characteristics that make it more or less suitable for different uses. Energy content and sulfur content are two of the most important coal characteristics and help to determine the best use of particular types of coal, as well as being used to determine the price of different qualities of coal. Energy Content The energy content of coal is commonly measured as the heat released on complete combustion in air or oxygen, expressed as the amount of heat (measured in kilocalories) per unit weight of coal (measured in kilograms) or kcal/kg. Bituminous coal is a soft black coal with an energy content generally higher and a moisture content generally lower than sub-bituminous coal and is the type most commonly used for electricity generation. Bituminous coal is used for utility and industrial steam purpose, and includes metallurgical coal, a feedstock for coke, which is used in steel production. Sub-bituminous coal is a black coal most commonly used by electricity generators and some industrial consumers. Generally, coal with higher energy content commands a premium in price. 99

106 Sulfur Content Coal combustion produces sulfur dioxide, the amount of which varies depending on the chemical composition and the concentration of sulfur in the coal. The term low-sulfur coal is generally used when refering to coal with a sulfur content of 1% or less by weight. Sub-bituminous coal typically has a lower sulfur content than bituminous coal. All other characteristics being equal, coal with lower sulfur content is considered to be of a higher quality as electricity generators worldwide have increasingly become subject to various regulatory restrictions intended to reduce sulfur dioxide emissions. However, higher-sulfur coal can be burned by electricity plants equipped with sulfur-reduction technology, which employs a scrubbing process to reduce sulfur dioxide emissions. Other Characteristics Ash is the inorganic residue remaining after the combustion of coal. As with sulfur content, ash content may vary from seam to seam. Ash content is an important characteristic of coal because electricitygenerating plants must handle and dispose of ash following combustion. Coal with lower ash content is considered to be of a higher quality than coal with higher ash content. Ash fusion temperature is the temperature of initial deformation of ash fusion samples measured in a reducing atmosphere. Ash fusion temperature (or cone melt down test) has been used as the basis for evaluating the melting and slagging behaviour of coal ash. Coal with higher ash fusion temperature has been associated with cleaner burning characteristics and is considered to be an attractive quality as it helps to reduce slagging and fouling in combustion burners. The moisture content of coal varies by the type of coal, the region where it is mined and the location of coal within a seam. In general, high moisture content decreases the energy content and increases the weight of the coal, thereby making it more expensive to transport. Moisture content in coal, as sold, can range from approximately 5% to 30% of the coal s weight. Coal with lower moisture content is considered to be of a higher quality than coal with higher moisture content. Mining Methods Coal is mined using surface or underground methods. The most appropriate mining technique for a coal resource is determined by coal seam characteristics such as location and recoverable reserve base. Drill hole data is used initially to define the size, depth and quality of the coal reserve area before committing to a specific extraction method. It is generally easier to mine coal seams that are thick and located close to the surface than deep seams. Typically, coal mining operations will begin at the part of the coal seam that is easiest and most economical to mine. As a seam is mined, it generally becomes more difficult and expensive to mine because the seam may become thinner or may protrude more deeply into the earth, requiring removal of more material over the seam, known as the overburden. In the coal mining industry, the ratio of overburden to mineable coal is referred to as the strip ratio. Once the raw coal is mined, it is crushed and often washed in preparation plants where the product consistency and energy content are improved. This process involves crushing the coal to the required size, removing impurities and, where necessary, blending it with other coal to match customer specifications. Surface Mining Surface mining techniques generally are used when the coal seam is less than 80 meters below the surface, although operations of up to 250 meters below the surface have been carried out economically. During surface mining operations, topsoil and rock overburden are removed to expose the coal and facilitate its extraction, and are either replaced in the excavation or relocated to external waste emplacements. Heavy duty mechanical excavators are used for the removal of overburden and coal, which is sometimes fractured by blasting to assist the digging process. 100

107 In a surface mine the coal is extracted from a seam that is relatively close to the surface of the ground by removing the soil or rock that lies on top of the coal deposit. There are two main types of surface mining: strip mining and open pit mining. Strip mining allows miners to dig down into a coal seam and expose it while piling overburden alongside or backfilled into the hole. If piles of overburden accumulate alongside, they must be carefully monitored as they are susceptible to slides or movement due to settling and heavy rain. Though these piles may be quite large, strip mines are not extremely deep and the digging moves in horizontal patterns following the coal seam. This snake-like motion of digging may affect many hectares of land but, as all material except the coal is kept piled alongside, it can be filled back in after the coal has all been removed. Strip mining is favored in areas where coal seams are close to the surface. Open pit mining is the second type of surface mining and it is similar to strip mining. Strip mines are usually in use for a short time, but pit mines may continue to extract coal for many years. A pit mine generally is much larger and deeper and is usually stationary, unlike a strip mine. The pit gets deeper as coal is removed and in order to prevent cave-in of the sides, it must also get wider. Pit mines may start quite small but can grow to cover a few kilometers after years of mining. We use open pit mining in all of our current mining operations at the Sebuku mine. Underground Mining Underground mining operations are used when the coal seam is too deep to permit surface mining, or where there are surface ownership or environmental restrictions. Access to the coal seam is achieved either through an inclined roadway when the coal seam is relatively shallow, or by a vertical shaft for deeper mines. There are two principal methods of underground mechanized coal mining: room-andpillar and longwall. In the room-and-pillar method, the coal is cut in a series of parallel roads and cross-cuts called rooms leaving columns or pillars of coal to support the roof. The coal is cut using machines called continuous miners, which excavate a square-shaped roadway and gather the coal from within the coal seam and deliver it to a second machine called a shuttle car which takes the coal to a belt conveyor system for transportation to the surface. As soon as the coal has been gathered, the roof over the excavated area is bolted for support. The longwall method of mining involves the sequential and complete removal of rectangular shaped panels of coal. The extraction panels are first created by excavating a pair of parallel tunnels called gateroads, spaced 150 to 250 meters apart. When the gateroads have been driven their planned distance (i.e., 1,000 to 2,500 meters), they are joined together by a cross-cut at right angles in order to block out the panel. This cross-cut forms the new coal face, or longwall, from which the technique derives its name. We do not currently use underground mining methods however, we may study the feasibility of using underground mining techniques for any new areas where mine designs have not yet been prepared. Coal Prices The price of coal has primarily been influenced by prevailing coal supply and demand and market outlook. In addition, different qualities of thermal coal have different energy content, sulfur content and ash content, affecting the price of that specific brand or quality of internationally traded coal. Ocean freight costs also influence general coal demand, with coal suppliers closer to end-user markets becoming preferred suppliers for those markets. We believe that, in the last three years, cost of alternative fuels for power generation has started to affect the pricing of coal in the world coal markets. The pricing differential between coal and alternative fuels has caused electricity generators to consider coal as one fuel source when planning capacity expansions, thereby increasing world demand for coal. In addition, we believe that global coal producers and sellers have referenced the high cost of alternative fuels to negotiate for higher prices, rather than to compete on price with other coal producers and sellers to satisfy customer demand. 101

108 The Barlow Jonker Index is an indicator of the spot price of thermal coal in the Asian market. It reflects the spot price for a prompt FOB contract for thermal coal loaded at Newcastle, New South Wales, Australia. Newcastle is the world s largest export coal loading facility and Newcastle coal is the reference coal in the Asian thermal coal market. Export coal is generally sold on an FOB basis at the loading port with producers paying transport costs to, and loading costs at, the discharge port. The prices used historically, and those used each week in determining the Barlow Jonker Index, are based on actual shipments of thermal coal or an average market price determined through consultation with traders and shippers. The coal specifications used as a reference are thermal coal having energy content of 6,700 kcal/kg, a maximum ash content of 15%, a maximum sulfur content of 0.8% and minimum volatile matter content of 30%, all measured on an air-dried basis. According to the Barlow Jonker Index, the price of internationally traded thermal coal has risen significantly since May The combined effects of the high prices of alternative fuels (such as oil and gas), coal production disruptions, port congestion and the reduced coal supply from China have pushed Asia-Pacific spot coal prices higher. As of June 30, 2006, the Barlow Jonker Spot coal price was US$52.20 per tonne. Over the preceding twelve months, the highest price was US$53.50 and the lowest price was US$ Barlow Jonker Spot Price Coal (US$ per tonne; 6,322 kcal/kg gar) Price Per Tonne USD Sep-97 Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Date Source: Barlow Jonker Pty Ltd. The above prices are quoted from Barlow Jonker Pty Ltd. and have not been verified by our Company or the Selling Shareholder. We and the Selling Shareholder have included such prices in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above prices for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. 102

109 Thermal Export Coal Market Trends The following tables presents the volume of imports and exports of thermal coal by country and region for the periods indicated: Seaborne Thermal Coal Export Supply (million tonnes) (provisional) (forecast) (forecast) (forecast) Country Australia Canada China Colombia Indonesia Poland Russia South Africa USA Venezuela Others (1) Total Supply Source: Barlow Jonker Pty Ltd. (1) Others includes Myanmar, North Korea, Norway, Thailand, Ukraine, United Kingdom and Vietnam. The above quantities are quoted from Barlow Jonker Pty Ltd. and have not been verified by our Company. We have included such quantities in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above quantities for the purposes of Section 249 of the Securities and Futures Act, and is not liable for the above quantities under Sections 253 and 254 of the Securities and Futures Act. World Thermal Coal Import Demand (million tonnes) (provisional) (forecast) (forecast) (forecast) Region EU 15 (1) Middle East & Africa (2) North America (3) North Asia (4) Other Asia (5) Other Europe (6) Pacific (7) South & Central America (8) Total Demand Source: Barlow Jonker Pty Ltd. The above quantities and the paragraph immediately following the footnotes below are quoted from Barlow Jonker Pty Ltd. and have not been verified by our Company or the Selling Shareholder. We and the Selling Shareholder have included such quantities in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above quantities for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. (1) EU 15 region comprises Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK. (2) Middle East and Africa comprises Israel, Morocco, South Africa, Turkey and other Africa. (3) North America comprises Canada, Mexico and the US. (4) North Asia region comprises China, Hong Kong, Japan, Korea and Taiwan. (5) Other Asia region comprises Bangladesh, India, Indonesia, Malaysia, North Korea, Pakistan, Philippines, Thailand and Vietnam. 103

110 (6) Other Europe region comprises Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Iceland, Latvia, Lithuania, Malta, Norway, Poland, Romania, Russia, Slovakia, Slovenia, Switzerland and Ukraine. (7) Pacific region comprises Australia, Fiji, New Caledonia and New Zealand. (8) South & Central America region comprises Argentina, Brazil, Chile, Costa Rica, Dominican Republic, Guatemala, Honduras, Panama, Peru, Puerto Rico and other Carribean. According to Barlow Jonker, Indonesia is currently the world s largest exporter of thermal coal and is expected to remain one of the largest exporters over the medium term. According to Barlow Jonker, Asia is and will be the continent accounting for the largest proportion of global demand for imported thermal coal over the medium term. Asian demand for thermal coal is generally driven by industrialization and economic growth of emerging markets such as China and India. The Coal Industry in Indonesia For details of the regulation of the Indonesian coal mining industry, see Regulation of the Indonesian Coal Mining Industry. Indonesian coal is generally low in ash and sulfur, but possesses high moisture content. Indonesia s coal resources are relatively unexplored, with the majority of proved reserves located in Sumatra and Kalimantan. Export coal is primarily produced from the higher quality South and East Kalimantan coal deposits. According to the Ministry of Energy and Mineral Resources of Indonesia, approximately million tonnes of coal was produced in Indonesia in 2005, an increase of 16% compared to Indonesia s total coal production of million tonnes in In 2005, approximately 77% of production was for the export market. The following table presents the number of tonnes produced in Indonesia for the periods indicated: Production (millions of tonnes) Source: Ministry of Energy and Mineral Resources of Indonesia. The above production quantities and the paragraph immediately preceding the the table are quoted from the Ministry of Energy and Mineral Resources of Indonesia and have not been verified by our Company or the Selling Shareholder. We and the Selling Shareholder have included such information in its proper form and context in this offering document. The Ministry of Energy and Mineral Resources of Indonesia has not consented to the inclusion of the above information for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. 104

111 The coal export industry in Indonesia is based on contracts of works granted by the Government, a system first introduced to attract foreign investment. See Regulation of the Indonesian Coal Mining Industry Coal Coorperation Agreements. Major foreign investors in Indonesia initially included international mining companies such as Rio Tinto Plc, BHP Billiton Plc and British Petroleum Plc. The seven largest coal mining companies in Indonesia accounted for approximately 77.8% of total Indonesian coal production in 2005, according to statistics from Indonesia s Directorate of Coal Resources. The following table presents details of the largest coal mining companies and their percentage shares of coal production in Indonesia in 2005: Production Share of Production (millions of tonnes) PT Kaltim Prima Coal % PT Adaro % PT Kideco Jaya Agung % PT Arutmin Indonesia % PT Berau Coal % PT Tambang Batubara Bukit Asam Tbk % PT Indominco Mandiri % Others % Total % Source: Ministry of Energy and Mineral Resources of Indonesia. The preceding paragraph and the above table are quoted from Indonesia s Directorate of Coal Resources and the Ministry of Energy and Mineral Resources of Indonesia, respectively and have not been verified by our Company or the Selling Shareholder. We and the Selling Shareholder have included such information in its proper form and context in this offering document. The Indonesian Directorate of Coal Resources and the Ministry of Energy and Mineral Resources of Indonesia have not consented to the inclusion of such information for the purposes of Section 249 of the Securities and Futures Act, and are not liable for the above information under Sections 253 and 254 of the Securities and Futures Act. 105

112 BUSINESS Overview We aim to be one of Asia-Pacific s leading resource development and mining groups. The holding company for our Group, Straits Asia Resources, is headquartered in Singapore. We have been recognized by Barlow Jonker as one of the lowest cost thermal coal producers in the world (1), and we export our coal for use by a limited number of utilities and industrial users, principally in Asia. We have been operating in Southeast Asia for over nine years and members of our management team have conducted business in this region since the 1970s. We are a subsidiary of Straits Resources Limited, a diversified resources company listed on the Australian Stock Exchange. We operate through four complementary businesses: coal mining, commodities marketing, resources infrastructure development and new businesses. Coal Mining. We are primarily engaged in surface open cut mining of thermal coal from our mine located on Sebuku Island, approximately 30 km off the southeastern coast of Kalimantan, Indonesia through our Indonesian subsidiary company, Bahari Cakrawala Sebuku. Bahari Cakrawala Sebuku mines thermal coal, which we sell to the markets by entering into offtake agreements. Through Bahari Cakrawala Sebuku, we hold rights from the Indonesian Government to mine for coal in our Sebuku concession area of 5,871 hectares until Our concession area contains a multi-seam deposit of coal. We commenced coal mining operations at our Sebuku mine in December 1997, and made our first shipment of coal in January We believe we have a good working relationship with the Indonesian Government and the local communities on Sebuku Island built up over more than a decade. We produce and sell a medium volatile bituminous coal of mid-range calorific value, relatively low ash, low-to-moderate sulfur content and relatively low moisture. We mine our coal through a mining contractor, BUMA, under a three-year mining contract that expires in September We produced approximately 3.0 million tonnes of coal in 2005 and approximately 850 thousand tonnes of coal in the First Quarter In the First Half 2006, we produced approximately 1.6 million tonnes of coal. We estimate that, as of May 31, 2006, our coal resources totaled approximately 73.3 million tonnes, of which our proved and probable recoverable coal reserves totaled approximately 28.3 million tonnes, and of which our proved and probable marketable reserves totaled approximately 24.3 million tonnes. Under our current business plan for the Sebuku mine, we intend to expand our production of coal to approximately 3.5 million tonnes in 2006 and 4.0 million tonnes in Our mining areas at the Sebuku operations are located in close proximity to our coal preparation plant, as well as our coal barging facilities. We process and transport our coal by barge for transshipment to our customers ships through other contractors. The proximity of our mining pit to our barge loading facilities, and the promixity of our mining areas to our primary coal markets in Asia, reduces the cost of transporting our coal from the mining pit to our customer, which we believe provides us with a competitive advantage over our principal competitors in Australia and South Africa. Due to the close proximity of our mining areas to our barging facility, and the relatively low strip ratio of our mine, we believe we are one of the lowest cost thermal coal producers in the world in terms of cost per tonne of coal produced. We market a substantial portion of the Sebuku coal for use by a small number of utilities and industrial users, primarily in Japan, Malaysia, Hong Kong, India, Europe and South Korea. All of our export sales are priced, invoiced and paid in U.S. dollars. We made approximately 76% and 87% of our coal sales volumes during 2005 and the First Quarter 2006, respectively, under coal supply agreements which had remaining terms of one year or longer. (1) The above information is quoted from Barlow Jonker Pty Ltd. and has not been verified by us or the Selling Shareholder. We and the Selling Shareholder have included such information in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above qualities for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. 106

113 Other mining operations also include the provision of technical and commercial services, though our Indonesian subsidiary PT Straits Consultancy Services, to the Straits Resources Group for the management of its gold mine at Mt. Muro in Indonesia. Commodities Marketing. We conduct our commodities marketing operations primarily through our subsidiary Straits Global Trading, in Singapore. Straits Global Trading markets, sells and trades metal and mineral products, and procures mining plant equipment, consumables and chemical reagents from international suppliers, primarily for companies within the Straits Resources Group. Through Straits Global Trading, we currently market coal, copper, gold and silver and we intend to expand this range in the near future. We also intend to seek third party customers for these services. Straits Global Trading currently holds Global Trader Programme status under the Singapore government s Global Trader Programme which entitles us to various business incentives and benefits. In mid-2004, we established our commodities marketing business in Singapore to manage the marketing and trading of metal and mineral products. In 2005 and the First Half 2006, we arranged the sale of all of the gold and silver produced by Straits Resources at its Mt. Muro mine in Indonesia and all of the copper cathode produced by Straits Resources at its Whim Creek mine in Australia. For these services to the Straits Resources Group, we currently charge an agency fee. We intend to focus the growth of our commodities marketing business on the bulk commodities sector of the market. In 2003, 2004, 2005 and in 2006 up to and including the Latest Practicable Date, the only bulk commodity that we marketed was coal. We aim to expand this to include third party customers and other bulk commodities. Notwithstanding our focus on bulk commodities, we expect to continue acting as a marketing and distribution agent for Straits Resources Group companies, given that the customer relationships have already been established by Straits Global Trading for purchases of their products. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions. Resources Infrastructure Development. We conduct our resources infrastructure development operations primarily through our subsidiary, SMI and its subsidiaries. SMI is engaged in the procurement of equipment and machinery for, and the development of infrastructure projects such as barging, power generation and supply, transportation and logistics, as well as marine construction services for other members of the Straits Resources Group. Our resources infrastructure development operations primarily involve the procurement of equipment and machinery for, and the development of infrastructure projects at, our Sebuku mine. Our current projects include assisting the Sebuku mine with fabricating and commissioning a new barge and studying the feasibility of a new coal-fired power plant and installation of a new overland belt conveyor between our coal processing plant and our barge port facility. Our resources infrastructure development operations are also currently assisting Mt. Muro in studying the feasibility of constructing a power plant at its gold and silver mine in Indonesia. We are currently studying the feasibility of developing a regional infrastructure development and procurement business for third party customers. In a move to expand our resource infrastructure development business, in June 2006, we acquired Indo Straits which is involved in the marine construction business and the provision of marine infrastructure development services to some coal mining companies as well as some oil and gas resource companies in Indonesia. New Businesses. We actively explore opportunities for new business, investments and acquisitions in the natural resources and mineral and metal extractive industries, primarily in the Asia-Pacific region to grow our business and diversify our revenue sources. Financial Results In 2003, 2004 and 2005, our sales revenues were US$43.7 million, US$74.8 million and US$159.2 million, respectively. In 2004 and 2005, our total profit for the year was US$17.1 million and US$44.4 million. In 2003, we suffered a total loss for the year of US$1.5 million. In the First Quarter 2006, our coal sales and other revenue was US$62.9 million, compared to US$22.5 million in the First Quarter 2005, and our total profit for the period was US$14.8 million, compared to US$7.0 million in the First Quarter In the First Half 2006, our coal sales and other revenue was US$147.6 million, compared 107

114 to US$53.3 million in the First Half 2005, and our total profit for the period was US$26.5 million, compared to US$16.6 million in the First Half Our coal sales in 2005, the First Quarter 2006 and the First Half 2006 represented 74.2%, 59.7% and 50.6% respectively, of our total sales revenue. Our Competitive Strengths We believe our principal competitive strengths include the following: One of the lowest-cost thermal coal producers in the world We believe that we are one of the lowest cost thermal coal producers in the world due to: the favorable geographic and geological conditions of the coal seams at our Sebuku mine with our relatively low strip ratio and lower coal production costs per tonne of coal mined compared to other global coal producers; our use of an experienced local mining contractor, BUMA, which operates under a more competitive cost structure than contractors based outside Indonesia; and the location of the Sebuku mine in a Government-approved special economic zone which confers on us certain special tax benefits for our operating costs, thereby reducing our overall costs. Strong customer base We believe we have a strong customer base which is characterized by the following: We sell a large proportion of our coal to power generation companies located in Asia, primarily Japan, Malaysia, Hong Kong, India and South Korea. According to Barlow Jonker (1), the Asia region accounted for the world s largest demand for thermal coal exports in We believe that demand for energy in Asia, which has been a growing economic region in the last two years, will continue to increase, and that coal, compared to alternatives such as nuclear energy, will continue to be a preferred source of energy for Asian power generation companies. We sell a large proportion of our coal to customers who enter into long-term contracts with prices typically fixed over 12-month periods. We believe that the stability of our customer base is an indication of the consistency in the specifications, quality and service level that we have been able to achieve over time. We have committed all of our expected production for 2006 to fulfilling existing contracts. We have the advantage of proximity to most of our Asia-based customers compared to coal suppliers from other countries such as Australia and South Africa. Our proximity to our Asian customers means that they typically incur lower transportation costs in obtaining coal from us compared to their Australian or South African suppliers. Major coal reserves at the Sebuku mine to support our future growth plans As of May 31, 2006, we reported estimated coal resources of approximately 73.3 million tonnes at our Sebuku concession area, of which our estimated coal reserves totaled approximately 28.3 million tonnes. We believe that our estimated coal reserves will be adequate to support our current five year life of mine plan, including our planned increase in production to approximately 4.0 million tonnes in For more information regarding our coal reserves and resources, see Coal Mining Coal Reserves and Resources and Appendix A Independent Technical Review of the Sebuku Mine and Infrastructure, prepared by John T. Boyd Company (Australia) Pty. Ltd. ( BOYD ). In addition to our coal reserves of approximately 28.3 million tonnes, we also have reported 45.0 million tonnes of coal resources which are not part of our coal reserves. These coal resources provide us with the opportunity to explore the feasibility of extending the life of mine of the Sebuku mine and to increase (1) The above information is quoted from Barlow Jonker Pty Ltd. and has not been verified by us or the Selling Shareholder. We and the Selling Shareholder have included such information in its proper form and context in this offering document. Barlow Jonker Pty Ltd. has not consented to the inclusion of the above qualities for the purposes of Section 249 of the Securities and Futures Act, and is not liable under Sections 253 and 254 of the Securities and Futures Act. 108

115 production further, subject to our ability to convert these coal resources into reserves that are legally and economically recoverable. If we are able to convert these coal resources into reserves, we could increase our coal production sustainably, which would position us to take advantage of expected growth in demand for thermal coal in Asia, as well as favorable market conditions. Given the large amount of resources we have discovered, we are focused on conducting the necessary geographical and financial analysis and obtaining the required independent certification and government approvals necessary to convert those resources into legally accessible and economically viable reserves to support an increase in our production levels. Our ability to develop all of our reported coal resources will depend, in part, on our ability to convert those resources into reserves. Our policy is to maintain sufficient reserves to support a rolling five year life of mine plan. We convert coal resources we have discovered through our exploration activities into reserves for our life of mine plan, to the extent we are able, through a process of mine planning, undertaking a detailed study of the additional capital expenditure required to mine additional reserves, conducting additional geological sampling to increase the level of confidence in identifying the reserves, computer modelling of the potential mining areas, analyzing various cost and revenue assumptions related to the extraction and sale of the coal, obtaining any government or other approvals necessary to mine in the areas where the resources are located and recruiting sufficient operating personnel. For a discussion of the difficulties involved in determining our coal reserves and converting our resources into reserves, see Coal Mining Coal Reserves and Resources and Risk Factors Risks Related to Our Business Our business may be adversely affected in the medium to long-term if we are unable to continue to discover or acquire additional coal resources that are converted into reserves and Risk Factors Risks Related to Our Business Mining Activities in the forestry areas within our concession area are governed by Indonesian forestry laws and we require Government forestry permits and licenses to mine in these areas and will require Government approval to redesignate conserved forest areas in our concession into production forest areas and Risk Factors Risks Relating to the Coal Mining Industry Our reported coal resources and legally and economically recoverable coal reserves are only estimates of the actual amounts of resources and reserves in our concession and are based on various key assumptions which may change. Ability to leverage the expertise and experience of Straits Resources Straits Resources, our controlling shareholder, is a diversified resources company with experience in advancing exploratory, greenfield and brownfield resource projects through to full-production and profitability. Straits Resources expertise covers a wide range of resources including coal, copper, gold, salt, silver and antimony. As the Asia-Pacific platform for the Straits Resources Group, our Group will be able to access the expertise and experience of our controlling shareholder as we seek opportunities to grow our business into new Asian countries and new resource ventures. Experienced management and operations team focused on the Asia-Pacific region Many of our senior management and operations personnel and members of our Board of Directors have extensive experience in the coal mining, commodities marketing and resource infrastructure development industries. In addition, many of our key personnel have been working in Asia or for companies with substantial Asian operations for a number of years. The founding shareholders of our Company commenced business in Singapore in the 1970s and have been active in the region ever since that time. We believe that the high level of experience and expertise of our key management and operational personnel will enable our Group to operate more effectively in the businesses we are pursuing. Our Business Strategy Our strategy is to grow upon the foundation of being one of the industry s most efficient and cost competitive thermal coal producers, with a mining operation focused on sustainable growth in production and handling capacity while maximizing the long-term potential of the Sebuku concession 109

116 area. In the medium to long-term, we also seek to develop our Group into an Asia-Pacific focused, diversified resources group of companies with the ability to explore and develop opportunities in other selected mining projects, as well as to provide integrated procurement, marketing and infrastructure services to third party resource companies. Our business strategy entails the following: Maximize efficiency and cost competitiveness of our mining operation We believe that we are one of the world s lowest-cost thermal coal producers. We intend to further improve our operational efficiency and cost competitiveness by undertaking initiatives to improve transportation and logistics infrastructure and mining techniques and to achieve cost efficiencies. The initiatives we are currently implementing include the building a new haul road between our mining areas and our coal processing plant and insourcing infrastructure development services. We are undertaking feasibility studies into other various cost saving initiatives, including installation of a new overland conveyor between our coal processing plant and our port stockpile and building a new coal-fired power plant to reduce our dependence on high cost diesel fuel, assuming control over the operations at our coal processing plant to reduce our contractor fees and enhancing our mud removal techniques to streamline the coal mining process. For a further description of these initiatives, see Coal Mining Expansion Plans. Achieve high production levels and handling capacity Under a mining plan prepared jointly by us and BUMA, BUMA has agreed to increase coal production at the Sebuku mine to at least 3.5 million tonnes of coal in We are negotiating with BUMA to increase mining at Sebuku to at least 4.0 million tonnes in In addition to fulfilling our existing long-term contracts, increased production would enable us to sell coal to new customers and markets with high demand for thermal coal, especially in countries such as China. In this regard, we have recorded our first sales to a Chinese customer in First Quarter We also intend to undertake a feasibility study into the possibility of increasing our production to up to 6.0 million tonnes per annum within the next few years. Among other factors, we will need to determine our ability to convert our resources into a sufficient amount of reserves which would support further expansion based on reasonable revenue and cost assumptions and our medium term outlook of the coal market and our ability to receive Government approval to redesignate certain conserved forest areas in our concession into production forest areas. For a discussion of the risks associated with our ability to convert the coal resources in those conserved forest areas into reserves and to mine in those areas, see Risk Factors Risks Related to Our Business Mining activities in the forestry areas within our concession area are governed by Indonesian forestry laws and we require Government forestry permits and licenses to mine in these areas and will require Government approval to redesignate conserved forest areas in our concession into production forest areas. We would also need to determine what additional capital expenditures and equipment and machinery purchases and modifications would be necessary to achieve any proposed higher production levels and whether financing would be available to fund these capital expenditures. Finally, we would need to engage in detailed discussions with BUMA, on an annual basis, regarding mobilizing sufficient resources, personnel and equipment to achieve any agreed increase in production. Any decision on whether or how to increase our production targets further will, accordingly, depend on the conclusions we arrive at in our feasibility study. Maximize long-term potential of the Sebuku concession area We intend to continue to invest in exploration activity to maximize the long-term potential of the Sebuku concession area. We have undertaken intense drilling programs in the Tanah Putih area and mine modelling in an effort to convert more of our reported resources to reserves. We have also carried out drilling in other parts of our concession area in an effort to identify additional resources. 110

117 Expand our bulk commodities marketing and resource infrastructure development businesses Our commodities marketing and resource infrastructure development operations primarily provide services to our coal mining operations, with our commodities marketing operations also offering marketing services to other members of the Straits Resources Group. Our long-term goal is to develop our commodities marketing and resource infrastructure development operations into separate business and revenue generating units for our Group by offering those services to third party customers. In relation to commodities marketing, while we intend to continue acting as marketing and distribution agent for Straits Resources Group companies, given that the customer relationships have already been established by Straits Global Trading for purchases of their products, we expect our primary focus going forward to be to grow our bulk commodities marketing and distribution business. We believe development of our commodities marketing and resource infrastructure operations into separate operating units will diversify our revenue sources. With this strategy in mind, we have acquired Indo Straits, which provides marine construction and infrastructure development services to various coal mining as well as oil and gas companies in Indonesia. We intend to actively explore opportunities to develop our commodities marketing and resource infrastructure planning and development services for third party customers throughout the Asia-Pacific region. Develop into a diversified, Asia Pacific-focused resources company Where suitable opportunities arise we intend to acquire or invest in companies and assets in the natural resource and mineral extractive industries in the Asia-Pacific region that we believe will enhance our revenue growth, operations and profitability. In addition to our Sebuku coal mining operations, we have the expertise to provide technical and commercial services to the Straits Resources Group for the management of its Mt. Muro gold mine, which is not part of our Group. We intend to actively explore opportunities to acquire or invest in companies in the natural resources and mineral extractive industries if suitable for our long-term growth plans. Corporate History Our Company was incorporated as a private company in Singapore on June 10, 1995, under the name of Straits Sebuku Pte Ltd, and was subsequently renamed as Straits Asia Resources Pte. Ltd. We converted into a public company on September 29, Our Company is a wholly-owned subsidiary of the Selling Shareholder, which is itself wholly-owned by Straits Resources, a listed company on the Australian Stock Exchange. Straits Resources is a diversified resources company whose business comprises three main segments: namely, the production of bulk commodities (coal), copper and gold. Following our reorganization, our Company became the holding company of our Group. For a description of our Reorganization, see Reorganization of Our Group. Our Group is primarily involved in the production of coal at our coal mining operations in Sebuku Island in South Kalimantan, Indonesia. The first exploration and drilling operations on Sebuku Island were conducted by the Indonesian Government in However, the coal resources on Sebuku Island were thought to be very small as only a single hole intersected significant coal. As a result, the Indonesian Government did not undertake any further exploration activities in the area. In 1991, after reviewing earlier, favorable mining surveys prepared by the former Dutch colonial government of Indonesia, our founding shareholders conducted shallow preliminary exploration drilling in which 82 holes were drilled to a maximum depth of 21 meters, predominantly in the southern half of our concession area. They also drilled a limited number of holes at the mining area now covered by the Tanah Putih pit. In 1994 and 1995, we undertook comprehensive drilling programs that included open hole drilling (to a maximum depth of 80 meters) and geotechnical and coal quality core drilling. As a result of this phase of drilling, the Tanah Putih West deposit was discovered and other minor coal occurrences were identified at Sarakaman, Tanah Putih South and Kanibungan West. 111

118 The history of our Group s operations and the significant historical milestones in our business development are summarized as follows: August 1994 Our subsidiary BCS and the Indonesian Government, through PT Tambang Batubara Bukit Asam (Persero) ( PTBA ) entered into our Coal Cooperation Contract August 1996 We completed the feasibility study for coal mining operations on Sebuku Island July 1997 We mobilized our first contractor, PT John Holland Constructions Indonesia, to construct the infrastructure and plant for the Sebuku mine December 1997 We commenced coal mining at the Sebuku mine January 1998 We shipped our first coal from the Sebuku mine April 2001 We commenced coal mining in the northern satellite deposits of the Sebuku Mine June 2004 We commenced commodities marketing activities through our subsidiary, Straits Global Trading in Singapore, and Straits Global Trading established itself as the sole marketing agent for Sebuku coal June 2004 Straits Global Trading received the Global Trader Programme status from the Singapore government which conferred certain tax benefits and financial incentives on it January to December 2005 We produced approximately 3.0 million tonnes of coal at the Sebuku mine March 2006 As a result of further exploration success in northern areas of Sebuku Island, we announced an increase in our coal reserves and coal resources at the Sebuku mine to approximately 20.6 million tonnes and 52.5 million tonnes, respectively, as of March 31, 2006 July 2006 We announced a further increase in our coal reserves and coal resources at the Sebuku mine to approximately 28.3 million tonnes and 73.3 million tonnes, respectively, as of May 31, 2006 Coal Mining Sebuku Mining Concession On August 15, 1994, we entered into our Coal Cooperation Contract with PTBA, a company owned by the Indonesian Government, for sole and exclusive rights for the exploration and production of coal within our designated concession area on Sebuku Island in South Kalimantan, Indonesia. In October 1997, PTBA assigned its rights and obligations under our Coal Cooperation Contract to the Indonesian Minister of Mines and Energy (renamed the Ministry of Energy and Mineral Resources) by an amendment to the Coal Cooperation Contract signed on June 27, 1997 and effective from July 1, Under the product sharing provisions of our Coal Cooperation Contract, we are entitled to 86.5% of the gross amount of coal we produce at the Sebuku concession while the remaining 13.5% is owned by the Government. Our Coal Cooperation Contract expires in Our initial concession area at Sebuku totaled approximately 18,200 hectares. From 1997 to March 2006, we relinquished approximately 12,300 hectares of the Sebuku concession area so that our current concession area covers 5,871 hectares. See Description of Principal Agreements and Indebtedness Coal Cooperation Contract for a summary of the material terms of our Coal Cooperation Contract. 112

119 Sebuku Island is 35 kilometers from north to south and is 10 kilometers wide at its widest point. Our coal mining concession area on Sebuku Island is located in the southwest of Sebuku Island. Coal seams at Sebuku Island occur within the lower part of the Eocene-aged Tanjung Formation, which is composed of low strength mudstone and shale with interbedded coal seams. The location of our Sebuku coal mine is shown in the map below. Sebuku Mine We operate one coal mine, the Sebuku mine. We have mined coal in several mining areas at the Sebuku mine since we commenced operations there in 1997, including the Kanibungan pit which we opened in 2002 and which we expect to close by the end of We currently operate one main mining pit, the Tanah Putih pit from which we obtain the majority of our coal, and a few small ancillary pits. In 2005, we obtained approximately 86% of our coal production at the Sebuku mine from the Tanah Putih pit and 14% from anciliary pits. Following commencement of our operations, we constructed all access roads and other infrastructure, such as the airfield, port facilities, water storage dams, offices, accommodation camps and new jetty. The Tanah Putih pit comprises one distinct coal deposit located in a swamp and adjacent to the mangrove covered coastline. It lies in a multi-seam coal deposit which is relatively shallow. The coal is located in a syncline, dipping to the west and continuing almost horizontally towards Pulau Laut, an island immediately to the west of Sebuku. The geology of the material overlaying the coal seams is relatively simple and consists of claystone at the bottom, a few meters of clay and a mud layer that 113

120 varies from three to fifteen meters in thickness. Excavation at the Tanah Putih pit is carried out below sea level and up to 100 meters deep. The Tanah Putih pit is protected by a wall on the seaward side constructed on the mud surface to protect the pit against potential tidal inflows of creekwater. We commenced production at the Tanah Putih pit in Since 2003, we have significantly increased the amount of coal extracted from the Tanah Putih pit due to an extension of the Tanah Putih pit to the north, south and west. A map of our coal mining concession on Sebuku is shown below. 114

121 Sebuku Coal We produce bituminous coal, which we market under a single brand, Sebuku Coal. Sebuku Coal has a mid-range calorific value and is primarily used by customers in the electricity generation industry in both developed and developing countries due to its cleaner burning characteristics, relatively low ash content and high ash fusion temperature. The ash fusion temperature of our Sebuku Coal is in excess of 1,600 degrees centigrade, which we believe compares favorably to most coal produced by other major mining operations in Indonesia. The high ash fusion temperatures and cleaner burning characteristics of Sebuku Coal are particularly attractive to our customers who operate power plants, since these characteristics of Sebuku Coal reduce slagging and fouling in our customers combustion burners, decreasing the frequency of required plant maintenance. The sulfur content of Sebuku Coal that has been mined has decreased over the past few years and now averages approximately 0.7%. The relatively low sulfur content of Sebuku Coal, as well as the low level of nitrogen emission when Sebuku Coal is burned, are favorable coal characteristics that we market to our customers in the power industry, since those coal characteristics help our customers satisfy their environmental and emissions standards. Although the calorific value of Sebuku Coal lies at the lower end of the calorific value range for bituminous coal, we believe we have been able to remain competitive against producers of higher calorific value bituminous coal by ensuring the consistency of our coal quality. Since 1998, we have maintained our coal quality in terms of calorific value, moisture, ash content and ash fusion temperature at relatively consistent levels, while the level of sulfur content in our coal has decreased. Sebuku Coal is typically a blend of coal mined from twelve separate seams and sub-seams identified at the Sebuku mine. Through our mining and processing schedule we seek to ensure that a range of in situ product coal qualities is available at all times, to achieve a consistent blended product specification. We blend the coal we have mined at the various seams to produce Sebuku Coal with consistent characteristics of calorific value and sulfur, ash and moisture contents. Occasionally, we will produce specialty coal blends or products such as lump or house coal for certain European markets. From time to time, the coal we supply may differ from specifications required by our customers and we may make adjustments to our production and testing process to accommodate specific customer requirements. The following table presents the benchmark marketing specifications of Sebuku Coal as determined on an air-dried basis ( adb ) or on an as received basis ( arb ) except as noted: Parameter Unit Typical Specification Ash... %(adb) 9.30 Sulfur... %(adb) 0.7 Calorific Value... kcal/kg (adb) 6,350 TotalMoisture... %(arb) 15 Inherent Moisture... %(adb) 9 Hardgrove Grindability Index (ASTM) Ash Fusion Temperature... C >

122 Coal Production and Sales The following table sets out our volumes of coal mined and processed, production volumes, process yield, sales volumes, overburden removed and strip ratio for Sebuku coal for the periods indicated: Year Ended December 31, Three Months Ended March 31, Coal mined (in thousands of tonnes)... 2,146 2,862 3, Coal processed (in thousands of tonnes)... 2,241 2,814 3, Production volume (in thousands of tonnes)... 1,964 2,558 3, Process yield (in percentages) (1) Sales volume (in thousands of tonnes)... 1,991 2,654 2, Overburden removed (in thousands of bcm)... 6,071 10,026 12,459 1,752 3,618 Strip ratio (bcm of overburden/tonne of coal mined) (1) Process yield is calculated as the percentage (in terms of tonnage) of the amount of product coal to processed coal. Coal Reserves and Resources We estimate that our total coal resources as of May 31, 2006 were approximately 73.3 million tonnes, of which our total available, or in situ, coal reserves were approximately 28.3 million tonnes, and of which our total proved and probable marketable coal reserves were approximately 24.3 million tonnes. Substantially all of our recoverable reserves are located at the Tanah Putih pit and have been committed to mining at this time under our five year life of mine plan. To assess the full potential of the resource base of the Sebuku concession, we have increased explorational drilling to discover additional resources and convert more resources into reserves. Our policy is to maintain sufficient coal reserves to support a rolling five year life of mine plan. We convert resources we have discovered through our exploration activities into reserves periodically so that we have sufficient reserves to support a life of mine plan of at least five years into the future based on our targeted production levels over that period. Of the 73.3 million tonnes of coal resources reported as of May 31, 2006, 59.2 million tonnes were classified as measured resources, 14.0 million tonnes were classified as indicated resources and 0.1 million tonnes were classified as inferred resources. No additional exploration drilling is required to convert these resources into reserves. In converting our coal resources into reserves, we assess the economic returns expected to be generated by mining the coal resources and, as part of this assessment, we undertake a process of revising our rolling five year life of mine plan, conducting additional geological sampling to increase the level of confidence in identifying the reserves, analyzing various revenue and cost assumptions related to the extraction and sale of the coal, studying the additional capital expenditure required to mine the additional reserves, modelling the potential mining areas through mining-related computer software, estimating the amount of reserves which are economically recoverable and obtaining any government or other approvals necessary to mine in the areas where the resources are located to make those resources legally recoverable. We are only able to convert our coal resources into reserves after we have conducted sufficient detailed exploration and mine planning works to allow the conversion and we have obtained the necessary Government and other approvals. We attempt to maintain at least a minimum rate of conversion of our existing coal resources in accordance with our policy to maintain an amount of reserves sufficient to support our anticipated production level under our rolling five year life of mine plan. Of the 73.3 million tonnes of our coal resources, we have converted approximately 28.3 million tonnes into reserves. Of the remaining 45.0 million tonnes of our coal resources which have not been converted into reserves, 34.4 million tonnes are located under a Government protected mangrove forest zone which has been designated as a conserved forest area under Indonesian forestry laws and regulations. While our Coal Cooperation Contract grants us the sole and exclusive right to mine the 116

123 areas within our designated concession area, we must obtain Government approval from the Ministry of Forestry to redesignate those parts of the conserved forest area we wish to mine to production forest areas in order to mine in this area and be able to convert the coal resources in this area into reserves. We intend to submit applications to the Ministry of Forestry seeking this approval. For a description of the approval process for a redesignation of these areas, see Regulation of the Indonesian Coal Mining Industry Forestry Regulation. We cannot assure you that we will be successful in receiving approval from the Ministry of Forestry to redesignate those conserved forest areas under which our coal resources lie into production forest areas in a timely manner or at all. For the risks associated with obtaining Government approval to mine in the conserved forest areas of our concession, see Risk Factors Risks Related to Our Business Mining activities in the forestry areas within our concession area are governed by Indonesian forestry laws and we require Government forestry permits and licenses to mine in these areas and will require Government approval to redesignate conserved forest areas in our concession into production forest areas. In converting our coal resources into reserves, we are required to make cost and revenue assumptions for determining the economics of producing and selling coal from a particular coal resource, and the amount of coal resources we can convert into reserves is dependent on these assumptions. We use an assumed sales price when calculating reserves which we derive through a detailed analysis of the base coal and coal prices that we may be able to achieve during the period taken to mine the coal. The process involved in calculating this coal price is an iterative process and we use a range of factors, including an assessment of likely future prices derived from independent experts and research houses, sensitivity of the recoverable reserves to different coal prices, review of receivable prices from existing contracts and analysis of historic coal price trends. However, our coal resources and reserves, the majority of which are located at the Tanah Putih pit, are relatively insensitive to revenue assumptions due to various factors, including the geological characteristics of the Tanah Putih pit, forestry reserve boundaries of our concession and our relatively low strip ratio and production costs. For more information on our reporting of our coal reserves and resources, see Coal Reserve and Resource Reporting and, for the risks related to our coal reserve and resources estimates, see Risk Factors Risks Related to Our Business Our business may be adversely affected in the medium to long-term if we are unable to continue to discover or acquire additional coal resources that are converted into reserves and Risk Factors Risks Relating to the Coal Mining Industry Our reported coal resources and legally and economically recoverable coal reserves are only estimates of the actual amounts of resources and reserves in our concession and are based on various key assumptions which may change. We have prepared and BOYD has reviewed our reserve and resource estimates. For a discussion of these estimates, see Appendix A Independent Technical Review of the Sebuku Mine and Infrastructure prepared by BOYD. Contract Mining Our contract miner, BUMA, performs all of our coal mining operations at the Sebuku mine. LCI, formerly known as PT John Holland Constructions Indonesia, operates the crushing and coal washing facilities at our coal processing plant while Mitra has been contracted to provide barging and transshipment services. Prior to September 2003, our mining operations were carried out by LCI. In August 2003, we replaced LCI with BUMA, and entered into a new contract with BUMA. BUMA commenced work at the Sebuku mine in late September Our mining contract with BUMA had an initial term of three years, but was extended in 2006 for an additional year to cover operations at the Sebuku mine up to September We have agreed with BUMA the terms of a further five year extension to the mining contract, pending finalization of legal documentation. For more information regarding the BUMA operating agreement, see Description of Principal Agreements and Indebtedness Operational Mining Agreement with BUMA. BUMA is a leading Indonesian contract mining company, which commenced operations in 1998 and whose major coal producing clients include PT Berau Coal, PT Adaro Indonesia and PT Kideco Jaya Agung. 117

124 Under our contract mining arrangements with BUMA, BUMA has assumed total operational responsibility for mining at the Sebuku mine and for transporting the coal to the beginning of the coal chain for a fee based upon the actual amount of coal delivered and the extraction costs incurred. BUMA s responsibilities under the mining contract include land clearing, waste removal, coal mining and transport to the ROM stockpile, removal of coarse coal from the coal preparation plant waste bin and transport of the coal product to the port stockpile. BUMA is also responsible for pit drainage and environmental controls. Under the terms of the BUMA mining contract, we take overall technical responsibility for the operations at the Sebuku mine including drilling and geology, coal quality control, planning and scheduling (production and processing), the shipping and marketing of coal and the environmental management of the Sebuku mine. In addition, we are also responsible for ancillary works, including environmental and community works. We have, in the past, rented a small auxiliary fleet of equipment, including excavators, dump trucks and fuel trucks, to carry out these functions even though we are permitted under the BUMA mining contract to utilize BUMA s machinery and equipment at agreed rates. Although we have ultimate responsibility for site activities, BUMA s site management and technical personnel are involved at all stages of the planning process. We and BUMA jointly produce three-month rolling mine plans each month taking into account short-term variations in mining conditions and our coal sales requirements. We and BUMA jointly produce a weekly plan for daily mining operations and hold daily production meetings. BUMA conducts mining at the Sekubu mine through open cut methods. BUMA operates a mixed fleet of overburden and coal haulage trucks, excavators and shovels and wheel loaders, together with auxiliary equipment such as bulldozers, graders, road compactors, water trucks, service trucks, lighting plants, pumps, crane trucks and manhauls. We believe our use of contract mining services from BUMA reduces the level of uncertainty of our coal production costs on a per tonne basis for the Sebuku mine by shifting the responsibility for providing substantially all of the equipment, materials, supplies and labor needed to conduct the mining operations from us to our mining contractor. With payments determined by a fee schedule that has been agreed in advance, we believe our arrangements with BUMA allow us to better manage our operating costs, reduce the impact of global fluctuations in the price of heavy equipment and other mining supplies, and provide us with significantly more flexibility in terms of our production rates and mine planning. Exploration Activities We operate several hand-portable drilling rigs to conduct routine detailed production drilling in advance of mining. In 2004 and 2005, we drilled a total of 262 and 416 exploration and production drill holes at the Tanah Putih area, respectively, and from January 1, 2006 to June 10, 2006, we drilled a total of 318 exploration and production drill holes. We conducted an aerial survey over Sebuku Island in early 2002, using aeromagnetics and coal seam mapping technology to assist us in identifying concealed coal deposits. The aerial survey also provided us with a digital terrain model for Sebuku Island. Based on the results of our aerial survey, in 2004, we carried out exploration drilling in the potential target areas we identified and we were able to concentrate our production drilling at the Tanah Putih and Kanibungan pits to delineate final mine design limits in advance of mining. Coal Marketing and Sales We conduct all of our marketing and sales of coal through our commodities marketing operations. For more information regarding our commodities marketing operations, see Commodities Marketing. 118

125 Coal Supply Agreements; Pricing and Payment Terms We sold almost all of our coal sales volumes in 2005 and in First Quarter 2006, respectively, under multiple shipment coal supply agreements with our customers. As of March 31, 2006, our coal supply agreements had remaining terms ranging from three to 28 months. We also sold a small portion of our sales volumes to potential new customers on a trial basis. Historically, we have not sold, and we do not expect to sell, Sebuku Coal on the spot market. We negotiate with potential customers as to the specific terms of each coal supply agreement, including the term of the agreement, the volume of coal to be sold, the quality and specifications of the coal (including calorific value and moisture, ash and sulfur content), the sales price, the point and period of delivery and other matters. A majority of our coal supply agreements include the following provisions: the quantity to be delivered each year; the sales price, normally pre-determined for a fixed period of typically 12 months, with prices for subsequent periods subject to negotiation; product specifications (including calorific value and moisture, ash and sulfur content); provisions for adjustment of the sales price for discrepancies or variations from agreed quality specifications; terms under which the agreement may be extended; and force majeure events which could excuse us or the customer from performing our or its obligations under the agreement. We often negotiate the sales prices under our coal supply agreements by reference to the Barlow Jonker Index, the Newcastle Global Coal Index or the Japan-Australia JFY Contract Price. The prices we charge for Sebuku Coal depend, in part, on the term of the agreement, volumes purchased, coal quality and other specifications (including the calorific value and moisture, ash and sulfur content), customer relationships, arrangements for freight and insurance and the customer s location. Payment and delivery terms under our coal supply agreements vary among customers, but are almost always made on FOB terms. Our customers are required to make their payments to us under our coal supply agreements by telegraphic transfer or by drafts backed by letters of credit. For most customers, either form of payment carries an obligation to pay within five to 30 business days upon delivery to the customer. Receipt of payments for shipments to European customers generally take longer than for shipments to Asian customers, due to the longer shipping time. Under our Coal Cooperation Contract, title to the coal remains with the Government until delivery of the coal to the vessel. Depending on the specific coal supply agreement and subject to the terms of the Coal Cooperation Contract, risk of loss generally passes to the customer when the coal has passed over the ship s rail, or at the point of delivery to the customer, while title to the coal generally passes to the customer upon payment. Our coal supply agreements include an early termination clause for force majeure events, a change in law that does not permit the customer to continue to use the specified grade of coal, a failure of the customer to commence commercial operations and certain other circumstances. We have not had a customer terminate a sales contract prior to the expiry date specified in the coal supply agreement. When our schedule allows, we also sell Sebuku Coal under single delivery contracts as trial shipments for potential new customers who wish to use Sebuku Coal on a trial basis at their particular facility. We believe that we have been successful in entering into long-term coal supply agreements with a majority of the coal buyers who have sampled Sebuku Coal on a trial basis, since these buyers have informed 119

126 us that they find that Sebuku Coal generally performs better in their facility when it is burned than they initially thought when reviewing the marketing benchmark specifications of Sebuku Coal prior to their trial. Our customers typically enter into coal supply agreements to secure reliable sources of coal, while we seek stability in our sources of revenue. Historically, our commitments to supply coal under our coal supply agreements in any year cover substantially all of our expected coal production for the following year. Major Customers We market coal for use by a small number of utilities and industrial users, primarily in Japan, Malaysia, Hong Kong, India and South Korea. In 2005, we made 97.5% of our coal sales by volume to Asian customers and in the three-month period ended March 31, 2006, we made all of our coal sales by volume to Asian customers. We believe we have a competitive advantage in the Asian coal markets given our close proximity to these markets compared to coal companies in other coal exporting countries, such as Australia and South Africa. The following table sets out our sales volumes (in thousands of tonnes) and our sales volumes as a percentage of our total sales volume to our customers by country of delivery for the periods indicated: Year Ended December 31, Three Months Ended March 31, (in thousands of tonnes, except percentages) Japan % 1, % 1, % % % Malaysia % % % % Hong Kong % % % % % India % % % % % South Korea % % % % % Belgium % % Indonesia % % Thailand % China % Total... 1, % 2, % 2, % % % The following table sets out our major customers in terms of sales volumes (in thousands of tonnes) and sales volumes as a percentage of the total coal sales volume for the periods indicated: Major Customers by Sales Volume Customer Sales Volume (in thousands of tonnes and percentage of total sales volume for the period) Identity Country Industry Year Ended December 31, Three Months Ended March 31, TNB Fuel Services Sdn Bhd Glencore International AG Chubu Electric Power Company Malaysia Power Generation/ Fuel Supply % % % 66 10% 0 0% Switzerland (1) Coal Trading 1,214 61% % % % % Japan Power Generation % % % % Total 1,525 77% 1,494 57% 1,820 63% % % (1) Sales made to Glencore International AG for on-sale to end-user customers located in Hong Kong and India. 120

127 In the First Quarter 2006, we did not make any coal sales to TNB Fuel Services. However, we have made sales of coal to TNB Fuel Services in the second and third quarters of In the First Quarter 2006, we sold 78 thousand tonnes, or 8.8% of our total coal sales by volume during the period, to Tosoh Corporation. In the First Quarter 2006, our coal sales by volume to our major customers listed in the table above and Tosoh Corporation comprised 67% of our total sales by volume during that period. Major Suppliers/Contractors Our mining operations at the Sebuku mine are carried out substantially by third party contractors. The following table sets out our major suppliers/contractors in terms of expenses incurred and as a percentage of our cost of sales of coal for the periods indicated. Supplier/Contractor Expenses incurred (in U.S. dollars and as a percentage of cost of sales of coal) Name Product/Service Supplied Year Ended December 31, Three Months Ended March 31, PT Bukit Makmur Mandiri Utama PT Leighton Contractors Indonesia PT Mitra Bahtera Segarasejati PT Arpeni Pratama Ocean Line PT Prasmanindo Boga Utama Intan Angkasa Airservice PT Aviastar Mandiri PT Asih Eka Abadi Contract 4,729, % 19,687, % 29,308, % 4,169, % 9,165, % Mining (1) Process Plant 5,448, % 5,678, % 6,616, % 1,564, % 1,789, % Operations (1) Barging 3,548, % 4,767, % 4,335, % 1,140, % 1,372, % Marine Cranage/ Affreightment 2,087, % 357, % 1,388, % Catering 773, % 444, % 483, % 91, % 170, % Plane Charter (2) 413, % 388, % Plane Charter 146, % 403, % 89, % 138, % Medical Staff 33, % 31, % 25, % 7, % 9, % Total 14,946, % 31,145, % 43,260, % 7,421, % 14,034, % (1) LCI was our mining contractor before being replaced by BUMA in August We paid a total of US$10,519,250 to LCI for providing mining services in the financial year ended December 31, (2) We switched the fixed wing charter contract from Intan Angkasa Airservice to PT Aviastar Mandiri in October For a further discussion of the terms of the agreements with some of these suppliers and contractors, see Description of Principal Agreements and Indebtedness. Competition The international coal markets are highly competitive. Our principal competitors in Asia include large coal producers from Australia, South Africa and China, including Rio Tinto Plc, BHP Billiton Plc, Anglo American Plc, Xstrata Plc and large state-owned companies in China. According to Barlow Jonker, in 2005, Indonesia was the largest exporter of thermal coal in the world, surpassing the exports of Australia which had previously been the world s largest thermal coal exporter. We believe we have competitive advantages over our Australian competitors when selling our Sebuku Coal to our primary end-user customers in Asia given the proximity of the Sebuku mine to these customers, our low-cost operations, the quality characteristics of Sebuku Coal and the relatively lower transportation costs to ship Sebuku Coal to the Asian markets. 121

128 We also compete against other Indonesian producers, including both the seven largest producers of export coal, and a large number of coal producers with relatively small-scale operations operating throughout Kalimantan and, to a lesser extent, Sumatra. For a list of the seven largest Indonesian producers of export coal, see The Coal Mining Industry The Coal Industry in Indonesia. We are able to compete against other Indonesian producers on the basis of several factors, including our reputation as a reliable supplier of consistent quality coal, our long-term relationships with our existing customers, and the favourable ash and high ash fusion temperature characteristics of Sebuku Coal. A number of Indonesian coal producers have increased their production of coal in recent years and have announced plans to increase their production further. Historically, we have made a small portion of our coal sales to customers in Europe. Our primary competitors for European sales are Indonesian, South African and European coal producers, such as Xstrata, Anglo American and BHP Billiton. For a discussion of the competitive risks we face in our coal mining operations, see Risk Factors Risks Relating to the Coal Mining Industry Coal markets are highly competitive and are affected by factors beyond our control. Coal Mine Planning; Coal Processing and Transport The following discussion describes how we plan and conduct our coal mining operations, and process, prepare and transport Sebuku Coal through our coal chain at the Sebuku mine. Mine Planning We prepare mine plans for the mining operations in the Sebuku mine to regulate and manage coal production. We formulate annual and quarterly mine plans on the basis of targeted levels of coal to be produced and sold each year, and refine those plans on an ongoing basis to take into account various factors such as new data, actual production rates against planned production rates, effects of weather and changes in coal prices and customer demand for our coal. These mine plans detail the areas to be mined and the areas for, and coordination of, disposal of overburden during the mining process and reclamation and rehabilitation of mined areas. Under these mine plans, we determine the amount of Sebuku Coal to be produced during the period covered by the mine plan. Although our long-term mine plans cover specified periods, we monitor and update our plans from time to time based upon changing or unanticipated circumstances at the mine, including differences between the mine plan and the actual strip ratio, the configuration of the coal seam, varying equipment and machine performance, operating costs and weather conditions. When preparing our mine plan, we closely coordinate our plan with BUMA. Coordinated preparation of our mine plans includes consultation and planning of expected coal production from the Sebuku mine and the use of the coal chain to move coal product from the coal preparation and processing area to our barging facility. Mining Process and Techniques Through BUMA, we extract the coal from our mining areas at the Sebuku mine using conventional truck-and-excavator open cut mining methods, in the following stages: Land Clearing We and BUMA begin mining in new areas with land clearing, with topsoil and waste material then removed by excavator and placed as dictated by the mine plan. We do not carry out blasting as part of our mining activities, although BUMA has indicated that blasting the waste rock may provide mining efficiencies and therefore we are considering introducing blasting. Blasting allows us to obtain crushed aggregate produced from the blasting of hard rock, which can be used for maintaining the road base 122

129 and surface conditions of our haul roads. Waste mined is either returned into in-pit dumps, moved to external waste emplacements or used for the construction of infrastructure such as mud bunds and access roads. BUMA removes the overburden from the mine using various capacity excavators and shovels as required and wheel loaders, together with auxiliary equipment such as bulldozers, graders and road compactors to support their mining activities. Overburden which is removed is loaded onto overburden trucks to be transported to the designated dumping areas. Generally, overburden and coal are removed in sequence according to a detailed mine plan designed jointly by us and BUMA to ensure our final product quality parameters are met. We are conducting studies to determine how the soft layer of mud overlaying much of the Tanah Putih pit area can be removed at a lower unit cost and at a faster rate. The current approach is to keep the mud as dry as possible through a system of two metre deep drains. The drains converge to drainage sumps for pumping of the water away from the pit area. Other techniques to accelerate this process are also under study. Coal Haulage from Pit to Coal Processing Plant After the coal is extracted from the mine, BUMA loads it using 40 to 50-tonne excavators onto coal haulage trucks and transports the coal along the haul road approximately eight kilometers long that connects our Tanah Putih mining areas to our coal preparation plant. BUMA transports the coal by 20 and 30-tonne coal hauling trucks to a ROM stockpile located in our coal preparation and processing areas, where it is either directly dumped into the crusher hopper or is stockpiled according to coal quality and processing plans. At the ROM stockpile, various stockpiles are maintained to segregate coal with specific quality characteristics in preparation for either crushing and washing, or just crushing and then blending to prepare a consistent quality coal product. Our Sebuku mine generally operates 24 hours per day, 360 days per year. The miners employed by BUMA work two shifts of 12 hours per day. Coal Preparation and Processing Coal Crushing and Washing. Our coal processing facilities comprise a ROM pad for stockpiling mined coal, two coal crushing circuits, a plant feed stockpile, a wash plant and a product bin. The second crushing circuit was commissioned in May 2005 and comprises a feed hopper and primary and secondary crushing and associated screening using locally sourced components. Coal from the mine is either stockpiled on the ROM pad for batch processing or is immediately dumped into one of the two crusher feed hoppers. The coal is crushed to a maximum size of 50 millimeters and is then directed either to the product coal bin if it is of bypass quality, or to the plant feed stockpile if it requires beneficiation by washing. Approximately 40% to 60% of ROM coal is processed as bypass coal, while the remaining is processed through a heavy medium cyclone and spirals circuit at our coal processing plant to manage ash levels. The nominal capacity of our two coal crushing plants is approximately 400 and 450 tonnes per hour, respectively. All coal processing activities at our coal crushing plant are carried out by our coal processing contractor, LCI. ROM Stockpile. We segregate our ROM stockpile pad into areas for coal from different seams with different qualities. Although the nominal design capacity of our ROM stockpile is 40,000 tonnes, we have held stocks of coal in excess of 100,000 tonnes at our ROM stockpile from time to time. Bypass Circuit. Our coal processing plant has two coal crushing circuits, one of which is configured only for bypass product, and one which may either process bypass coal or may crush coal for feeding the washplant. The bypass circuits each consist of a feed bin or hopper, a two stage crushing circuit, and a belt conveyor system to transfer the crushed coal into its designated product bin. Depending on our production plan and the availability of coal, our mining contractor, BUMA, generally dumps the coal that is mined into the hopper for processing, to maximize throughput and minimize rehandling. However, our 123

130 coal processing plant typically carries sufficient ROM stocks of various bypass and wash coals to cater for quality and blending requirements, and to enable processing to continue independent of weather conditions or short-term disruptions to coal mining or haulage. The bypass circuit at our coal processing plant typically runs for 84 hours a week on bypass product and for a further 72 hours a week processing wash coals through to the plant feed stockpile. Wash Plant. Our wash plant is a typical dense medium spirals plant designed to separate the higher density ash components of the ROM coal to produce a cleaner coal product. Our coal processing contractor, LCI, processes high-ash feed material through to the plant feed stockpile and then to the wash plant. Our wash plant employs a typical gravity separation process where the larger materials are screened out and treated in a dense medium circuit utilizing a one-meter diameter cyclone. The smaller materials are screened and cycloned out and treated in a four bank spirals circuit. Our wash plant typically runs for around 100 hours per week, with the ratio of wash and bypass production determined by our product and quality requirements. Our wash plant has a capacity of 2.5 million tonnes per annum. Generally, 50% of the coal that we extract from the Sebuku mine is treated by the wash plant, depending on the ash content of the coal. Coal Haulage to Port, Port Stockpile and Barging All processed coal from either the bypass product bin or the washed product bin is hauled by either 30-tonne Volvo FM12 or 60-tonne Volvo FH16 haulage trucks along a haulage road, which is approximately eight kilometers long, from our coal processing plant to our port stockpile located at the southern end of Sebuku Island near the barge loading facility. Our coal processing contractor, LCI, stores, blends and loads the processed coal out onto barges from our port stockpile. Although the nominal design capacity of our port stockpile is 120,000 tonnes over a four feeder reclaim system, we have achieved stock levels of more than 200,000 tonnes for short periods. To assist in the blending process with a view to producing a homogeneous coal product of consistent quality, we carefully manage our port stockpile, making use of the four variable feed rate feeders during the barge loading process. During periods of very high coal stocks or during special coal production runs for instance, for lump coal we use satellite stockpiles to either expand our stockpile capacity or to avoid contamination with our standard Sebuku Coal product. When required, we rehandle any coal stockpiled at the satellite stockpile by using a wheel loader to move the coal to the port stockpile for barge loading. We transport coal from our barge port stockpile by an overland belt conveyor and load that coal onto barges for transshipment from the Sebuku mine. We have contracted barging and stevedoring services to our barging contractor, Mitra. Coal Sampling We contract PT Geoservices (Ltd), an independent inspection, testing verification and certification company, to conduct coal sampling at our on-site laboratory for rapid analysis of geological, mining, processing and barging coal samples. The on-site results are then used for monitoring and adjusting mining, processing and blending plans. Quality results from the on-site laboratories are routinely calibrated against laboratory samples and off-site analyses. Samples used to confirm the quality of shipped coal are prepared on site by the appointed independent superintending company for that shipment, but the analysis is conducted at that superintending company s off-site laboratory. Effect of Weather and Forest Fires Our mining operations are affected by changes in weather conditions, particularly heavy rains and forest fires. Kalimantan, where our mining operations are located, has a rainy season, which usually occurs from October to April. During the rainy season, our concession area typically experiences heavy rains and occasional flooding. Heavy rains affect our operations by increasing truck cycle times, reducing the efficiency of equipment and otherwise slowing coal mining, production, processing and transport. We attempt to mitigate the effects of the rainy season by increasing production during the dry 124

131 season, carefully managing our mine drainage systems, securing sufficiently sized dewatering pumps and maintaining our haul roads to improve accessibility in poor weather conditions. In addition to heavy rainfall, forest fires occasionally affect our operations. Although forest fires have not directly affected the forests within our concession area, in the past, nearby forest fires have caused high levels of smoke at the Sebuku mine, which has occasionally disrupted flights for our and our contractors personnel to our private airstrip at our mining concession. Properties and Equipment Under the terms of our Coal Cooperation Contract, all of the property, plant and equipment we purchase for our operations within our concession area remain our property. However, we may only use our property, plant and equipment at the Sebuku mine for our mining operations carried out under our Coal Cooperation Contract. Under the terms of our Coal Cooperation Contract, we must seek the consent of the Government if we intend to use our property, plant or equipment for any other use. We have either purchased or constructed the fixed assets for our mining operations at the Sebuku mine, or have acquired them under build, own, operate and transfer contract arrangements with major contractors. Our property, equipment and assets include our belt conveyor systems, coal crushing plant, coal washing plant, power plant, coal barge loading terminal and our various offices, camps and other buildings we require for our operations at the Sebuku mine. Our mining contractor, BUMA, retains title to all of the property, machinery and equipment it purchases to conduct its contract mining operations for us, and is also responsible for the maintenance and replacement of, and insurance on, that property, machinery and equipment. Pursuant to the terms of our coal preparation and handling facilities contract with LCI, we bought the port facilities previously owned by LCI in May 2005 as well as the coal preparation facilties in June As a result, we own the port facilities and the coal processing plant, coal handling facilities, wash plant, and all other assets relating to coal preparation and handling at our Sebuku operations. Production Capacity and Utilization Rates Our coal processing facility comprises two bypass ciruits and one wash plant. The production capacity of each bypass circuit and the wash plant vary depending on whether they are measured according to absolute capacities or according to the actual bypass-to-wash occurrence. Absolute capacities refer to the production capacity of a bypass circuit, where the coal fed into coal processing plant consists entirely of bypass coal, or the production capacity of the wash plant, where the coal fed into the coal processing plant consists entirely of wash coal as the case may be. However, it is never the case where all the coal passing through our processing plant comprises solely of either bypass coal or wash coal. Instead, the coal that is processed will typically comprise a blend of both bypass coal and wash coal. As such, actual bypass-to-wash occurence refers to the actual proportion of bypass coal that had been moved through the bypass unit, to the wash coal that had been processed by the wash plant. The details of our estimated annual maximum production capacity of the two bypass circuits and the wash plant at our coal processing facilities located at Sebuku Island, computed based on (i) absolute capacities and (ii) actual bypass-to-wash occurrence for the last three years are set out in the tables below. 125

132 Capacity Based on Absolute Capacities (100% Bypass and 100% Wash) Year Ended December 31, 2003 (1) 2004 (1) 2005 (2) (in thousands of tonnes) Bypass Circuit ,427 3,427 3,427 Bypass Circuit 2 (3)... 1,338 WashPlant... 1,799 1,799 1,799 Total... 5,226 5,226 6,564 (1) We calculated the estimated production capacity for the financial years ended December 31, 2003 and December 31, 2004 based on an hourly production capacity of 500 tonnes per hour as bypass, 400 tonnes per hour as plant feed for Bypass Circuit 1 and 360 tonnes per hour plant feed with 70% yield for the wash plant, computed based on 20.4 hours a day for 350 operational days a year taking into account maintenance shutdown periods. (2) We calculated the estimated production capacity for the financial year ended December 31, 2005 based on hourly production capacity of 500 tonnes per hour as bypass, 400 tonnes per hour as plant feed for Bypass Circuit 1, 450 tonnes per hour for Bypass Circuit 2 and 360 tonnes per hour plant feed with 70% yield for the wash plant, computed based on 20.4 hours a day for 350 operational days a year taking into account maintenance shutdown periods. (3) Bypass Circuit 2 commenced operations in August 2005 after it was commissioned in May Capacity Based on Actual Bypass-to-Wash Occurrence (1) Year Ended December 31, 2003 (2) 2004 (3) 2005 (4) (in thousands of tonnes) Bypass Circuit ,657 1,862 1,058 Bypass Circuit 2 (5)... 1,338 WashPlant... 1, ,382 Total... 2,689 2,775 3,778 (1) Due to the requirement for Bypass Circuit 1 to produce plant feed, the actual capacities of Bypass Circuit 1 and the wash plant are affected by the bypass-to-wash ratios. (2) We calculated the estimated production capacity for the financial year ended December 31, 2003 based on an hourly production capacity of 500 tonnes per hour as bypass, 400 tonnes per hour as plant feed for Bypass Circuit 1 and 360 tonnes per hour plant feed with 70% yield for the wash plant, computed based on 20.4 hours a day for 350 operational days a year, and according to a bypass-to-wash ratio of 62:38. (3) We calculated the estimated production capacity for the financial year ended December 31, 2004 based on an hourly production capacity of 500 tonnes per hour as bypass, 400 tonnes per hour as plant feed for Bypass Circuit 1 and 360 tonnes per hour plant feed with 70% yield for the wash plant, computed based on 20.4 hours a day for 350 operational days a year, and according to a bypass-to-wash ratio of 67:33. (4) We calculated the estimated production capacity for the financial years ended December 31, 2005 based on an hourly production capacity of 500 tonnes per hour as bypass, 400 tonnes per hour as plant feed for Bypass Circuit 1, 450 tonnes per hour for Bypass Circuit 2 and 360 tonnes per hour plant feed with 70% yield for the wash plant, computed based on 20.4 hours a day for 350 operational days a year, and according to a bypass-to-wash ratio of 59:41. (5) Bypass Circuit 2 commenced operations in August 2005 after it was commissioned in May

133 The details of the annual throughput of our coal processing facilities for the last three financial years are as follows: Throughput Year Ended December 31, 2003 (1) 2004 (2) 2005 (3) (in thousands of tonnes) Bypass Circuit ,181 1,842 1,231 Bypass Circuit WashPlant ,244 Total... 1,918 2,744 3,001 (1) We calculated the throughput for financial year ended December 31, 2003 based on a bypass-to-wash ratio of 62:38. (2) We calculated the throughput for financial year ended December 31, 2004 based on a bypass-to-wash ratio of 67:33. (3) We calculated the throughput for financial year ended December 31, 2005 based on a bypass-to-wash ratio of 59:41 taking into account the increased capacity due to the commencement of operations of Bypass Circuit 2 in August The details of our estimated utilization rates for our coal processing facilities for the last three financial years are as follows: Year Ended December 31, 2003 (1) 2004 (2) 2005 (3) (in percentages) Bypass Circuit % 98.93% % Bypass Circuit % WashPlant % 98.80% 90.01% Total % 98.88% 79.43% (1) We calculated the utilization rate for the year ended December 31, 2003 based on the respective production capacities of Bypass Circuit 1 and the wash plant, and the corresponding throughput quantities of each of these processing facilities for 2003, according to the actual bypass-to-wash ratio of 62:38. (2) We calculated the utilization rate for the year ended December 31, 2004 based on the respective production capacities of Bypass Circuit 1 and the wash plant, and the corresponding throughput quantities of each of these processing facilities for 2004, according to the actual bypass-to-wash ratio of 67:33. (3) We calculated the utilization rate for the year ended December 31, 2005 based on the respective production capacities of Bypass Circuit 1, Bypass Circuit 2 and the wash plant, and the corresponding throughput quantities of each of these processing facilities for 2005, according to the actual bypass-to-wash ratio of 59:41. Illegal Mining Illegal mining is a common problem for several mine operators in Indonesia. Illegal mining has increased since the late 1990s as result of the difficult economic conditions in Indonesia caused by the Asian financial crisis, the decentralization of the central Government s authority and weakened control over regional activities under the Regional Autonomy Law, increased black-market demand for coal products and, since 2003, as a result of increasing market prices for coal. Mining company losses from illegal mining include reserve losses and rehabilitation costs for illegally mined areas. Although several Indonesian coal companies have been affected by illegal mining, our coal mining operations at the Sebuku mine have not been affected by illegal mining because, in part, the Sebuku mine is located on the small Sebuku Island and is relatively inaccessible to illegal miners. 127

134 Worker Health and Safety Standards We seek to minimize the risk of accidents, injuries and illness to our employees and our contractors employees by improving health and safety standards and closely monitoring our operations. We are in the process of implementing a comprehensive management system for the safe operation of the Sebuku mine, which includes safety management plans, rules, codes of practice, manuals and procedures with which our employees and our contractors employees are required to comply. We also conduct internal safety audits on a monthly and quarterly basis through our safety department to ensure that the personnel comply with this system. The Ministry of Energy and Mineral Resources also reviews our audits and conducts its own independent reviews of our health and safety efforts. We believe our emphasis on worker health and safety is demonstrated by the relatively low level of worker accidents at the Sebuku mine. We did not have any lost time injuries in 2005 or in the First Quarter In 2004, we had a lost time injury frequency rate (calculated as the number of injuries per million man hours worked) of 0.37 and a lost time injury severity rate (calculated as the number of hours lost by accidents per million man hours worked) of 3.0. Environmental Matters Bapedal, the Government agency responsible for implementing the Government s environmental regulations and policies, and local government agencies supervise our mining operations. Bapedal reports directly to the President of Indonesia and coordinates its activities with various Government agencies, including the Ministry of Energy and Mineral Resources. We are committed to environmental management of the Sebuku mine. We have implemented an environmental management system in accordance with the Government s Environmental Monitoring Plan and formulated post-mining recovery and rehabilitation plans to satisfy land designation, function and layout stipulated by the Government. We use our environmental management plan to control acid mine drainage, sediment control in runoff water from mining areas, management of hydrocarbons and waste products. We also hire third party independent environmental specialists to conduct annual environmental audits to monitor compliance with environmental standards and identify opportunities for improvement. In 2005, we undertook significant expansion works at the Sebuku mine that involved numerous new approvals and expansion of the operational footprint of the mine. Our rehabilitation works in the southern and central parts of the Sebuku mine have received positive governmental recognition as evidenced by the Sebuku mine being nominated in 2005 as a finalist for a rehabilitation award by the Department of Mines at the Ministry of Energy and Mineral Resources. Environmental Auditing We subject our mining operations at the Sebuku mine to periodic internal and external environmental audits. Our environmental and rehabilitation department conducts internal audits, and the Ministry of Energy and Mineral Resources and local governmental agencies conduct external environmental audits. Environmental teams from each mining area, who also cross-audit other mining areas within our concession area, conduct annual internal audits jointly with our mining contractor. In addition, our mining contractor conducts independent internal audits and is required under the operating agreement with us to report any environmental incidents to us. We also conduct random audit inspections and internal audits of our mining and other contractors operations approximately every six months. Mine Reclamation and Rehabilitation We have developed comprehensive mine reclamation and rehabilitation strategies for the Sebuku mine. The geological characteristics of the Sebuku mine are taken into account in developing and implementing these strategies. Most of the overburden is placed into mined out areas of the pit as mining progresses. As reclaimed areas reach their design profile, they are graded, topsoil is spread on the surface and native plants and crops are planted. Although under our mining contract with BUMA, 128

135 BUMA is responsible for mine rehabilitation works at the Sebuku mine, we retain ultimate legal responsibility for mine closure and rehabilitation of all areas mined within our concession area under our Coal Cooperation Contract with the Government. We have restored almost 300 hectares of land at the Sebuku mine since the commencement of operations in 1997 using a contemporaneous mining and rehabilitation system that, we believe, is efficient and environmentally friendly. Under this system, topsoil is stripped and stockpiled. Our practice is to maximize in-pit dumping wherever possible to minimize the total area disturbed by the mining operation. Erosion control systems, perimeter drains and water-settling ponds are installed to intercept and treat water discharged from the mining site. Topsoil is placed back onto external waste emplacements which have been graded and contoured. The topsoil is mulched, seeded with grasses and fertilized, and revegetated primarily with acacia and albizia trees. The mine and rehabilitation planning is undertaken monthly, reviewed quarterly and accompanied by detailed maps, schedules and budgets. Under normal circumstances this system allows us to mine an area and restore it within approximately three years. Social and Community Welfare Programs We and our mining and other contractors continue to employ a large local workforce, which comprised approximately 65% of the local inhabitants of Sebuku Island as of March 31, We have continued to actively engage, support and provide funds for the local villages and regional community located near the Sebuku mine. We have developed and implemented an extensive community development program with each of the local villages surrounding the Sebuku mine site, including infrastructure construction projects, educational assistance, community health programs, agricultural improvement initiatives and direct economic assistance in terms of both employment and development of local support industries to improve the living standards of the local inhabitants. We hold regular monthly meetings with senior representatives of each village to discuss progress and implementation of our community assistance programs and to address any issues, concerns or complaints that arise. We also support various local businesses by conferring preferred status on them as suppliers when we need to procure supplies for our operations. In addition we also continue supplying services and supporting infrastructure developments to local villages, such as roads, bridges, water supply systems, power generators, municipal buildings, schools, village administrative offices, refurbishments of mosques and upgrades to local markets. We provide support for local education programs, vocational training and employment associated with the coal operations. Expansion Plans A key business strategy of our Group has been, and will continue to be, the expansion of our coal mining operations and production capacity to take advantage of anticipated growth opportunities for the sale of coal in key Asian and European markets. We increased our coal production from 2.6 million tonnes in 2004 to 3.0 million tonnes in We intend to increase further our coal production to approximately 3.5 million tonnes in 2006 and to approximately 4.0 million tonnes in 2007 by, among other things, increasing mining at the Sebuku mine, building a shorter haul road between our mining area and our coal processing plant, adding barging capability and upgrading our port. Increased Mining through BUMA Under a mining plan prepared jointly by us and BUMA, BUMA has agreed to increase coal production at the Sebuku mine by producing at least 3.5 million tonnes of coal in We are negotiating with BUMA to increase mining at Sebuku to at least 4.0 million tonnes in Under the terms of our operating agreement with BUMA, BUMA is responsible for providing substantially all of the labor, supplies, materials, equipment and other capital expenditures necessary for the planned increase in their mining activities. We expect BUMA to increase its production by committing additional heavy equipment for overburden stripping and coal extraction. 129

136 Construction of New Haul Road We are constructing a new, shorter haul road between the Tanah Putih pit and our coal processing plant. We expect this road will be completed by the end of We believe this new road will increase our coal handling capacity by improving coal hauling truck cycle times at the Sebuku mine. We estimate that the capital expenditures associated with the construction of the new haul road will be approximately US$500 thousand. Additional Barge Capability We recently fabricated, and are in the process of commissioning, a new self-unloading barge to transfer coal from barges to carriers without the need of a separate floating crane. When this barge is fully operational, which we expect will occur by the end of 2006, we expect the barge to have a handling capacity of 7,500 tonnes of coal. The total capital expenditures associated with this project will be between US$5.0 million to US$6.0 million. Upgrading of our Barge Port We are upgrading our barge port from a handling capacity of approximately 1,200 tonnes of coal per hour to approximately 1,800 tonnes of coal per hour by increasing the conveyor capacity, rehabilitating the jetty structures and installing additional mooring dolphins. We expect these enhancements will increase the daily coal handling capacity of our barge port from 24,000 tonnes to 36,000 tonnes. Our committed capital expenditure incurred in 2006 for the port upgrade works is approximately US$850 thousand. Other Potential Capacity Increases In addition to our committed expansion program, we are studying the feasibility of expanding our production capacity through de-bottlenecking the coal processing plant and upgrading our port by improving coal stock pile area capacity. We have not yet decided whether to proceed with these projects. Cost Saving Initiatives As part of our strategy to reduce our operating costs and become more cost competitive, we are constructing a new, shorter haul road between the Tanah Putih pit and our coal processing plant. By reducing truck cycle times, we believe we are able to reduce the amount of diesel we use, reducing our fuel costs. We are also conducting an increasing amount of the infrastructure development services we need for the expansion of our coal mining operations internally, reducing our dependence on outside advisors and decreasing the amount of expenses we pay for advisory services. We intend to explore additional cost reduction initiatives to increase our operational efficiency and cost competitiveness. We are currently conducting feasibility studies relating to the installation of a conveyor belt between our coal processing plant and our barge port facility, and building a coal-fired power plant to reduce our dependence on diesel fuel and lower our fuel costs. We also intend to explore the assumption of control over the operations at our coal processing plant to reduce our contractor fees and enhance our mud removal techniques to streamline the coal mining process. We are in the preliminary stages of studying these initiatives and we have not committed any significant capital expenditures to any of the projects. Our decision to proceed with any of these projects will depend on our assessment of the feasibility and cost effectiveness of undertaking the project and the availability of funding and other resources for the project. 130

137 Reserve Expansion Feasibility Study We intend to undertake a feasibility study into the possibility of increasing our production gradually up to 6 million tonnes per annum over the next few years. Among other factors, the feasibility study will need to determine our ability to convert our resources into a sufficient amount of reserves which would support further expansion based on reasonable revenue and cost assumptions and considering the medium term outlook of the coal market. For more information regarding this feasibility study and the difficulties we face in converting our coal resources into reserves, see Coal Reserves and Resources. We expect to expand further our mining operations at Sebuku to the extent market opportunities arise, subject to the availability of financing and other factors making it desirable to do so. We cannot assure you that we will be able to complete our ongoing, planned or other future expansion projects under the expected cost or within the timeframe we anticipate or at all. For a discussion of the risks associated with our expansion program, see Risk Factors Risks Related to Our Business We and our contractors face risks in implementing our expansion program and we may not be able to achieve our targeted production levels. The expansion program at our coal mining operations is being managed and coordinated by our resources infrastructure development operations. Commodities Marketing We conduct our commodities marketing operations primarily through our subsidiary, Straits Global Trading, in Singapore. Straits Global Trading markets, sells and trades metal and mineral products, and procures mining plant equipment, consumables and chemical reagents from international suppliers, primarily for other companies within the Straits Resources Group. Through Straits Global Trading, we market coal, copper, gold and silver and we intend to focus on marketing bulk commodities in the future. Straits Global Trading currently holds Global Trader Programme status under the Global Trader Programme by the Singapore government which entitles us to various business incentives and benefits. For more information on these incentives and benefits, see Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Business, Results of Operations and Financial Condition Preferential Tax Treatment through Global Trader Programme Status. We are not engaged, and do not intend to develop a business, in speculative trading of commodities in daily trading markets. Rather, we sell coal and copper under long-term sale agreements, while we sell Straits Resources gold and silver on a spot basis. We do not make any trading margins on our sales of the commodities we market and sell for the Straits Resources Group. Our revenues and profits for this business are not dependent on our taking positions on movements in commodity prices. If we were to change our policy in the future to undertake speculative trading of commodities, we may be required to have this change in policy approved by our Board of Directors and to adopt risk management guidelines to be adhered to by our employees. For our sales and purchases of commodities other than coal, such as gold, silver and copper, we purchase the commodity from the other Straits Resources Group members and onsell it to third party customers. For a description of these sales, see Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Business, Results of Operations and Financial Condition Other Commodities Sales of Other Commodities and Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions. Since we act as a principal between the sale of the commodity to the third party customer and the purchase of that commodity from the other Straits Resources Group member, we bear the risk of loss and default either by the Straits Resources Group member under the terms of our purchase contract with it or by the third party customer under the terms of our sale contract with it. We have attempted to mitigate this risk by selling the commodity to the third party customer at the same price we pay for it and by typically requiring the third party customer to pay us for the commodity before we pay the other Straits 131

138 Resources Group member for it. For a discussion of the counterparty risks we face in our commodities trading operations, see Risk Factors Risks Relating to Our Business We face counterparty risks, including risks of payment default or failure to accept delivery by third party purchasers of our other commodities, in our commodities trading operations. We intend to focus the growth of our commodities marketing business on the bulk commodities sector of the market. In 2003, 2004, 2005 and in 2006 up to and including the Latest Practicable Date, the only bulk commodity that we marketed was coal. We aim to expand this to include third party customers and other bulk commodities. Notwithstanding our focus on bulk commodities, we expect to continue acting as a marketing and distribution agent for Straits Resources Group companies, given that the customer relationships have already been established by Straits Global Trading for purchases of their products. For more information regarding these arrangements, see Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions. Coal Marketing and Sales We market coal through our commodities marketing operations in Singapore, which provides us with access to both international and domestic coal marketing networks and information regarding global, regional and local trends in coal production, supply, demand and pricing. We have strived to build a reputation as a reliable and consistent supplier of quality bituminous coal, while remaining flexible to customer requirements. Maintaining reliability and consistency is important to our business as we believe it differentiates us from our competitors in the global coal markets. Notwithstanding the slightly lower heating value of our coal as compared to typical Australian coal, we believe the lower ash content and high ash fusion temperature of Sebuku Coal, as well as our comparative advantage in terms of lower freight costs to Asian markets, places us in a competitive advantage over Australian producers. See Coal Mining Coal Supply Agreements; Pricing and Payment Terms for information on our coal supply agreements with our customers. Gold and Silver Marketing and Sales Our commodities marketing operations provide marketing services in respect of the sale of gold and silver produced by Straits Resources from PT IMK s Mt. Muro mine and manages the logistics and transport of both the doré produced at the mine site, and the gold and silver bullion produced from that doré at the Government s precious metals refinery in Jakarta. We make all of these sales on a spot basis for each shipment. Under the terms of our typical spot contract, we receive the payment within 48 hours of delivering the bullion to the buyer. We do not receive any margin on the sale of the Mt. Muro gold or silver bullion to third party buyers. Rather, under our sales arrangements with PT IMK for the sale of Mt. Muro gold and silver, we receive an agency fee from PT IMK calculated as a percentage of the sales revenue received by PT IMK. For further information regarding these purchases and sales of gold and silver, see Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Business, Results of Operations and Financial Condition Other Commodities Sales of Other Commodities Gold and Silver Purchased from PT IMK and Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Marketing Services to and Purchases of Gold and Silver from PT IMK. Copper Marketing and Sales Our commodities marketing operations also manage the marketing and sales of copper cathode produced at Straits Resources Whim Creek copper mine in Australia. All Whim Creek copper produced is committed for sale to an international commodity trader under a five-year contract with pricing based on the London Metals Exchange Index plus a contracted premium per tonne. We sell Whim Creek s copper product which is warehoused in Perth, Australia, and immediately invoice those sales following inspection at the warehouse which currently occurs twice monthly. We do not receive any margin on the sale of Whim Creek copper. Rather, under our current agency arrangement with Straits Resources for the sale of Whim Creek copper, we receive a fixed agency fee from Whim Creek on the basis of market 132

139 rates for the supply of similar marketing services. For further information regarding these purchases and sales of copper, see Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Business, Results of Operations and Financial Condition Other Commodities Sales of Other Commodities Copper Purchased from Whim Creek and Interested Person Transactions and Conflicts of Interests Present and Future Interested Person Transactions Provision of Marketing Services to and Purchases of Copper from Whim Creek. Procurement Function Our commodities marketing operations are also responsible for providing mining plant equipment, consumables, chemical reagents and spare parts from international suppliers to other members of the Straits Resources Group from its Singapore office to capitalize on typical discounts for bulk-buying by consolidating the requirements for the materials of the various operations within the larger Straits Resources Group. Resource Marine and Infrastructure Development Our resource marine and infrastructure development operations have recently commenced the planning, procurement, implementation and oversight of certain marine and infrastructure development projects at the Sebuku mine. We provide such services for marine fleet services as well as conduct feasibility studies for capital works at the Sebuku mine such as port expansion, conveyor systems and a coal fired power station. For details of these proposed capital works, see Coal Mining Expansion Plans Cost Saving Initiatives. In addition, we also assist Straits Resources Mt. Muro gold mine in studying the feasibility of installing a new power plant at that mine. All expansion activities of members of our Group will be managed and coordinated by our resources infrastructure development operations. Staff members of our resources infrastructure development operations provide, and will continue to provide, technical assistance and support to our coal mining operations in connection with all aspects of planning, purchasing, construction and operation of new and existing facilities, including analysis of feasibility studies prepared by third party consultants, project planning and coordination, project engineering, negotiation of major supply contracts, supervision of project construction, start-up assistance and trouble shooting. Our resources infrastructure development operations also arrange freight logistics for shipments of coal from the Sebuku mine to our customers, the procurement of raw materials, spare parts, property, equipment and supplies and construction and consulting services at the Sebuku mine and arrange marine and infrastructure development at the Sebuku mine, including managing the expansion program at the Sebuku mine. For information on our expansion plans of the Sebuku mine, see Coal Mining Expansion Plans. As part of our business strategy, we are considering developing our resource infrastructure development operations as a separate and independent business and fee generating unit in our Group by offering our technical infrastructure advisory services to third party customers outside the Straits Resources Group. Our resource infrastructure development operations have been enhanced by our acquisition of Indo Straits, which is a marine and civil engineering and construction company based in East Kalimantan, Indonesia. The primary business of Indo Straits is marine civil contracting, including dredging and reclamation. Indo Straits owns 33 marine units, including clam shell dredgers, a cutter suction dredger, pilers, barges and tug boats. Its major clients include, in the oil and gas industry, TotalFinaElf, Unocal, Arco and British Petroleum, in the construction industry, Nippon Steel, Petrosea and PT Bakrie & Brothers Tbk, and in the mining industry, PT Indominco Mandiri and PT Arutmin Indonesia. Indo Straits main services include providing time charters of marine construction plants (including crews), marine-related construction services and dredging and reclamation services. 133

140 Our New Businesses Our new businesses operations explore for potential business opportunities and investments in the natural resources and extractive minerals and metals industries in the Asia-Pacific region. We have recently made a minority equity investment by purchasing 10% of the shares in Xanadu, which holds rights to a mining concession in Mongolia. Xanadu is preparing to commence an exploration program in the concession area but is in the preliminary stages of this process. Litigation We are not involved in, nor have we been involved in, any material legal or arbitration proceedings, including those that are pending or known to be contemplated, which may have, or have had in the 12 months preceding the date of this offering document, a material effect on our financial position or profitability. Although we have rights granted by the Government to mine coal within our concession area at Sebuku, we occasionally face land claims from squatters or others claiming ownership of land within our mining concession. Although we believe such claims to be meritless, to avoid protracted disputes, we typically negotiate with these squatters and claimants to vacate or relinquish their claims in our concession area by paying them a nominal amount. Employees; Labor Disputes As of March 31, 2006, we employed 466 persons to operate and manage the Sebuku mine. Our employees provide services such as mining, catering, medical, personnel transport, laboratory analysis and maintenance activities. We believe that our relationship with our employees is good. The table below shows the breakdown of the full-time employees of our Group by activity as of the end of the last three financial years: Segmented by Activity Year Ended December 31, Support and General Workers Exploration/Rehabilitation Administrative and Finance Management/Executive Mining/Production SalesandMarketing Total The table below shows the breakdown of our full-time employees by geographical region as at the end of the last three financial years: Geographical Region Year Ended December 31, Indonesia Singapore Total

141 Recruitment and Training We give priority to the recruitment and training of employees from the local communities near the Sebuku mine through our apprenticeship training programs. We believe that our continued focus on the transfer of skills, staff development and leadership training contributes to a pool of talented employees necessary to fill future vacancies. Labor Unions On July 14, 2006 we entered into a collective labor agreement with the labour union of BCS representing our Indonesian employees at the Sebuku mine, which covers terms of employment, including working relations, working hours, payroll, employee development and competency, occupational safety and health, employees welfare, social allowances, employees code of conduct and mechanisms for handling disputes. Labor Disputes We are not involved in any material labor disputes and are not aware of any circumstances that would give rise to any material labor disputes affecting our coal mining operations at the Sebuku mine. We have not experienced any material labor disputes at the Sebuku mine since the commencement of our operations there. Insurance We maintain insurance coverage for our BCS operations through various policies issued by Indonesian and international insurers. The coverage under these policies includes personal accident, aviation liability, hangarkeepers liability, medical expatriate, corporate travel, marine cargo, commercial all-risk, fidelity guarantee, motor vehicle fleet, broadform liability, domestic package and commercial package insurance and industrial special risks, which cover risks associated with business interruption. We do not maintain political risk insurance. In addition, our Group is also covered by various policies maintained by the Straits Resources Group including commercial and domestic package insurance, motor vehicle fleet insurance, fidelity guarantee insurance, public and products liability insurance, marine cargo insurance, directors and officers liability insurance and workers compensation insurance as well as comprehensive umbrella liability type insurance. These umbrella liability insurances cover various types of liability imposed such as contractual liability, damages on account of personal injuries, property damage and advertising liability with liability limits of up to US$40 million on any one occurrence. We are reviewing these policies in conjunction with SRL and intend for these policies to be maintained by our Group in the future, taking into account the benefits and costs considerations of maintaining the policies by ourselves. Under the terms of our operating agreements with our mining and other contractors, our contractors are responsible for their own employees and they and their employees must also be covered by appropriate insurance by providing us with periodic evidence of such coverage. 135

142 Properties We own the following properties: Location Certificate No. Use Tenure Approximate gross built-up area Sub District of Cempaka Putih Timur District of Cempaka Putih Municipality of Central Jakarta Province of DKI Jakarta HGB No. 2935/ Cempaka Putih Timur Residential and Archives November 8, 1994 to October 25, sq m Sub District of Lok Tuan District of Bontang Utara Region of Kutai Province of East Kalimantan HGB No. 05/ Lok Tuan Marine Construction Yard July 21, 1998 to September 23, ,075 sq m Sub District of Lok Tuan District of Bontang Utara Region of Bontang Province of East Kalimantan HGB No. 72/ Lok Tuan Marine Construction Yard March 13, 2003 to September 23, ,487 sq m Sub District of Lok Tuan District of Bontang Utara Region of Bontang Province of East Kalimantan HGB No. 73/ Lok Tuan Marine Construction Yard March 13, 2003 to September 23, sq m Sub District of Lok Tuan District of Bontang Utara Region of Bontang Province of East Kalimantan HGB No. 74/ Lok Tuan Marine Construction Yard March 13, 2003 to September 23, ,850 sq m The property under HGB No is subject to a lien in favor of Bank Central Asia pursuant to the Deed of Granting of Security Right over Land (Akta Pemberian Hak Tanggungan) No. 83/2005 dated July 25, We rent/lease the following properties: Location Use Tenure Approximate gross built-up area Lessor 80 Robinson Road #22-03A Singapore Office June 1, 2006 to May 31, ,174 sq ft Hong Leong Holdings Limited 80 Robinson Road #22-04 Singapore Office March 1, 2006 to February 28, ,669 sq ft Hong Leong Holdings Limited Graha Kirana Building, 15th Floor Jl. Yos Sudarso, No. 88, Sunter, North Jakarta 14350, Indonesia Office August 1, 2004 to July 31, ,175 sq m PT Nusa Kirana Jalan Jend. Sudirman No. 22, Balikpapan 76114, East Kalimantan, Indonesia Office and warehouse September 1, 2005 to September 1, sqm (office) 48 sqm (warehouse) PT Eka Dharma Jaya Sakti Tbk In connection with the Coal Cooperation Contract which we entered into with the Government, we have acquired temporary rights over three parcels of land located on Sebuku Island, comprising an aggregate land area of 6,021,982 sq m, which are used for our mining operations, such as mine sites, processing plant, office complex, camps, quarries and mining access ways. 136

143 DESCRIPTION OF PRINCIPAL AGREEMENTS AND INDEBTEDNESS The following description summarizes selected provisions of certain principal agreements related to our coal mining business. This description is a summary and should not be considered to be a full statement of the terms and conditions of such agreements. Coal Cooperation Contract On August 15, 1994, BCS entered into an agreement with PT Tambang Batubara Bukit Asam (Persero), a Government-controlled coal mining company ( PTBA ), for sole and exclusive rights in connection with the exploration and exploitation of coal deposits in BCS s assigned concession area in Sebuku Island, South Kalimantan (the Coal Cooperation Contract ). PTBA s rights and obligations under this contract were subsequently transferred to the Minister of Mines and Energy by way of an amendment to the Coal Cooperation Contract signed on June 27, 1997 and effective from July 1, The following is a summary of the key provisions of the Coal Cooperation Contract. Concession Area. The concession area under the Coal Cooperation Contract covered approximately 18,200 hectares. After intensive exploration from the concession area from 1995 to 1997, BCS relinquished approximately 68% of the concession area to the Government, retaining approximately 5,871 hectares, or approximately 32%, of the concession area. During each year of the Coal Cooperation Contract, BCS must pay to the Government a fixed fee according to the prevailing tariff. Under the terms of the Coal Cooperation Contract, BCS may during the course of its general survey and exploration activities on the concession area, relinquish to the Government one or more sections of the concession area which do not, in its opinion, contain commercially viable coal deposits. BCS will not be entitled to nor will it be responsible for those sections of the concession area which are relinquished. On or before the end of the period allowed for exploration, BCS must reduce the concession area according to the size and boundaries set by the Government, after taking into account the findings of its explorations activities and its production plan. Term and Operating Period. The Coal Cooperation Contract is valid from the date it is entered into until the end of the period allowed for exploitation ( Exploitation Phase ), including any extensions granted for which the Coal Cooperation Contract shall be renewed or extended. The Exploitation Phase commences from the first day of the month after the first month of average daily coal production from mining activities has reached 70% of the planned production capacity, but not later than six months after the completion of supply of the mining equipment and construction of the mining facilities, or 10 years and six months after the date of the Coal Cooperation Contract, including any extensions granted under the Coal Cooperation Contract. The earlier of these two dates is regarded as the Commencement Date. The Exploitation Phase shall continue for 30 years from the Commencement Date. If a force majeure event or suspension of operations occurs, the term of the Coal Cooperation Contract shall be extended for the same time period as the force majeure condition and the subsequent delay of activity or plus such additional time, if so required. Appointment of Sub-Contractors. BCS may appoint as sub-contractors, mining services companies which are licensed by the Directorate General of General Mining, after consultation with the Government. BCS may also appoint one or more of its affiliates to carry out its mining and other obligations under their Coal Cooperation Contract. In the event those obligations are contracted to its affiliates, BCS has agreed that the cost incurred will not exceed what a non-affiliated party would charge for similar works. 137

144 Work Plans, Budget and Regular Reporting Requirements. BCS is required to submit an annual Coal Operations Work Plan and Budget to the Government for approval. The work plans they propose are required to include a general survey, exploration details, a feasibility study and construction plans, that BCS proposes to carry out during the next calendar year. If the Government fails to notify BCS of any suggested revisions to the Coal Operations Work Plan and Budget within 30 days of its receipt of the submission, the proposed work programs and budgets are deemed to be approved by the Government and can be implemented by BCS. If the Government and BCS fail to agree upon a revised Coal Operations Work Plan and Budget within 30 days upon receipt of the proposed revisions, BCS may continue its coal operations under the previously agreed Coal Operations Work Plan and Budget until the revised work program and budget are mutually agreed upon. Under the terms of the Coal Cooperation Contract, BCS must submit quarterly progress reports of its operations to the Government. These progress reports are required to be submitted within 30 days after the end of each calendar quarter. To date, BCS has submitted such progress reports in a timely manner. Furthermore, BCS is required to provide to the Government: maps indicating locations of all boring, stripping and shaft mining sites in the concession areas; copies of reports of logging, borings and shafts which have been evacuated and copies of analysis reports of coal samples obtained from these borings and shafts; and copies of any geophysical maps of the concession area produced by BCS. The Government retains title to such data and any other original data resulting from the coal operations which BCS compiles during the term of the Coal Cooperation Contract. BCS and its affiliates may retain copies of, and freely use, this data. Financing. BCS must provide all the funds required for, and be fully responsible for the financing of, its coal operations in the concession area. Under the terms of the Coal Cooperation Contract, BCS, after consultation with the Government, may determine the most advantageous terms for procuring funds, including the methods of arranging for financing as well as calculating the prevailing interest rates. Further, BCS is required to submit a guarantee deposit of Rp 200,000,000 (or the equivalent in foreign currency) to a bank approved by the Government, of which 50% will be returned to BCS no later than 30 days of notification being given of the completion of the general survey phase. The remaining 50% of the guarantee deposit is required to be returned to BCS no later than 30 days after the general survey maps and other reports required under the Coal Cooperation Contract have been submitted to and approved by the Government. Acquisition and Ownership of Supplies and Equipment. Under the terms of the Coal Cooperation Contract, BCS is responsible for supplying the equipment (including spare parts) and other supplies for the implementation of its coal operations at its own expense and risk. Such equipment and supplies purchased by BCS are the property of BCS and may only be used for the coal operations in the concession area unless otherwise approved by the Government. Production. Under the terms of the Coal Cooperation Contract, all coal mining production proceeds, other than from bulk samples taken before exploitation, are to be shared between the Government and BCS. BCS will receive 86.5% of the gross amount of the coal produced for sale, while the Government, is entitled to take and receive the balance of 13.5%. Both the Government and BCS are entitled to store, sell, transport and deliver their respective share of the coal to a third party. The Government, together with BCS, are to determine the amount, schedule and place of consignment or delivery of their portion of the coal production and using the equipment, storage facilities, transport and loading facilities built, owned and managed by BCS for implementation of the Coal Cooperation Contract. Where necessary, BCS and the Government have agreed to negotiate the consignment schedule for the Government s share of the coal. All costs incurred for the delivery of the Government s share of the coal are to be fully borne by BCS. However, if the Government does not take delivery of its share of the coal according to the agreed location and schedule, BCS is entitled to store the coal at the Government s 138

145 expense and use or sell the coal stored. Where the Government s share of the coal is used or sold by BCS, BCS must reimburse to the Government coal of the same amount, type, size and quality, to be supplied according to a schedule set by the Government in consultation with BCS. Since October 2001, the Government has requested that BCS satisfy its coal sharing obligation through the payment of cash rather than the physical delivery of coal. BCS s actual cash settlement is, however, lower than 13.5% of its coal sales revenue as a result of allowable deductions, such as administrative fees and selling and marketing commissions, made from the royalties payable to the Government in any quarter. Payment of Taxes. The Coal Cooperation Contract requires BCS to pay the following taxes, duties and state fees: Income tax Value added tax for goods, services and sales tax or for luxury goods Land and property tax Revenue stamps Foreigners tax Radio tax Motor vehicle tax Export tax Import duties Motor vehicles title transfer fee Regional taxes and fees approved by the Central Government in Indonesia If BCS, in the interest of facilitation or some other reason, has paid taxes, duties or other fees which need not have been paid, the Government is required to reimburse the payment to BCS within 60 days after receipt of proof of payment. Further, BCS may be granted exemption and or rebates on duty fees for imported goods, equipment and supplies specially required for its coal operations pursuant to the Coal Cooperation Contract through the tenth year of the exploitation phase, after obtaining approval from the Investment Coordinating Agency. Marketing. Under the terms of the Coal Cooperation Contract, BCS is permitted to export its share of the coal produced in the concession area, provided that the domestic demand for coal within Indonesia is satisfied by the Government s share of coal from the Sebuku mine or by another coal mining company. BCS is required to always grant priority to the domestic coal demand in Indonesia. If the domestic coal demand cannot be met by the Government from its own share of coal or from other sources, BCS must sell all or a portion of its share of coal domestically, under terms agreed between the parties, either directly to consumer or through brokers, provided there is no conflict with its existing sales or purchase agreements. The domestic sales price of the coal may not be higher than the prevailing sales price on the world market for coal produced in the Southwest Pacific region, including Australia and Indonesia, for the same quantity and quality of coal, in line with the conditions and terms of these contracts. At a mutually agreed time each year, BCS and the Government are required to meet to analyze the domestic coal demand and produce an export plan in line with production capacity and foreign market share. In the event that BCS exports to its affiliates, any contracts, agreements or terms governing such sales must first be approved by the Government before the exports can be completed. BCS is required to provide proof that the sales price of the coal exported to its affiliates is not lower than the lowest price paid by non-affiliate companies abroad. Further, the Government is entitled to order BCS to sell all or a portion of its coal share based on terms agreed to by both parties. Ownership of BCS s 86.5% share 139

146 of coal as prescribed under the Coal Cooperation Contract shall be transferred to BCS only after the Government s 13.5% share of coal has been delivered by BCS and received by the Government. Default, Settlement of Disputes and Termination. Except for tax matters, any dispute between the Government and BCS involving any provision of the Coal Cooperation Contract and its implementation, including any opinion that the other party has been neglectful in fulfilling its obligations is required to be settled through an Arbitration Council formed and assigned to settle disputes according to the rules of the Indonesian National Arbitration Agency, unless such dispute has been settled through mutual deliberation and consensus. Under the Coal Cooperation Contract provides for the Arbitration Council to consist of three arbiters with one arbiter appointed by the Government, one arbiter appointed by BCS and a third arbiter to be jointly appointed by the two arbiters within 30 days after the appointment of the second arbiter, failing which the third arbiter is to be appointed by the Indonesian National Arbitration Agency upon the request of either the Government or BCS. The Government is entitled to terminate the Coal Cooperation Contract by giving 90 days prior written notification of termination to BCS, in the event BCS is found to be negligent according to the terms of the Coal Cooperation Contract and if BCS fails to rectify the negligence before the deadline stated by the Government in its notification of infringement. The deadline for correcting the negligence may not be less than 60 days from receipt of the notification, except where BCS neglects to make payments to the Government as required under the payment terms of the Coal Cooperation Contract, in which case the deadline to correct the negligence is not to exceed 60 days after receipt of the notification. The Government may also terminate the Coal Cooperation Contract by giving 90 days prior written notification to BCS, should BCS be found to be negligent based on a verdict by a council of an Arbitration Counsel, unless BCS corrects the negligence as determined by the Arbitration Council, or unless BCS has earnestly tried in good faith to correct the negligence. BCS is entitled to terminate the Coal Cooperation Contract by 90 days prior written notification to the Government if the Government commits an infringement of the Coal Cooperation Contract which is supported by a decision of the Arbitration Council and the Government fails to rectify the infringement within the deadline set by the Arbitration Council, or if BCS is of the opinion that conditions do not permit its coal operations under the Coal Cooperation Contract to continue. The Coal Cooperation Agreement provides that upon its termination, the Government and BCS are no longer to be subject to the rights and obligations under the Coal Cooperation Contract, except for rights and obligations which applied prior to the date of termination and those relating to settlement of disputes under the Coal Cooperation Contract. Operational Mining Agreement with BUMA On August 28, 2003, BCS entered into a Formal Instrument of Agreement (Contract for Mining) (the mining contract ) with BUMA. Under the terms of the mining contract, BUMA was to perform all the coal mining operations and assume total operational responsibility for the mining at the Sebuku mine. On November 26, 2004, the terms of the mining contract were amended by a Contract Addendum, to increase the coal production targets for BUMA. Scope of Work. The scope of work to be undertaken by BUMA includes land clearing, pit drainage, waste removal, dump rehabilitation, coal mining and coal haulage to the ROM stockpile. BUMA is also responsible for the maintenance of the haul road, feeding the coal processing plant hopper and transportation of coal from the coal processing plant product bin to the port stockpile. BUMA is also required to ensure and carry out maintenance of the access road from the product bin to the truck-fuelling bay, port stockpiling maintenance and feeding coal to the barge loading conveyor as well as other related support facilities and services. 140

147 Term and Renewal. The mining contract provides for the commencement of the term from the date of the contract (August 28, 2003) and terminating on the earlier of (a) the date when eight million tonnes of coal has been produced, (b) the fourth anniversary of the date of the contract, or (c) an earlier date of termination in accordance with the terms of the contract (the Contract Period ). Under the mining contract, BCS has the option to extend the Contract Period for a further period of up to 12 months or such other period as is mutually agreed with BUMA provided that BCS notifies BUMA at least three months prior to the completion of the Contract Period. BCS may at any time terminate the contract by giving a written notice of termination to BUMA and BCS may do so without cause and for any reason it thinks fit. Termination of the mining contract becomes effective 28 days after the written notice has been served on BUMA. Pursuant to the above terms, in 2006, BCS obtained an extension of the original Contract Period of three years to cover operations at the Sebuku mine through September We have agreed with BUMA the terms of a further five year extension to the mining contract, pending finalization of legal documentation. Employees and Staff. Under the terms of the mining contract, BUMA is responsible for maintaining industrial relations with its own employees and those of its subcontractors and shall be responsible for resolution of any industrial and/or personnel problems relating to its own employees and those of its subcontractors. BUMA is also responsible for employing Indonesian personnel to the maximum extent practicably consistent with efficient operations, giving preference to the local residents of the island of Sebuku. All employees of BUMA and its subcontractors are required to sign and submit to BCS a Code of Conduct. Safety. BUMA is obliged by the mining contract to ensure that all persons for whom it is responsible or over whom it is capable of exercising control, while upon BCS s premises, comply with BCS s safety regulations and are provided safety equipment in accordance with statutory requirements. BUMA is required to construct and operate the mine operations in accordance with relevant statutes, regulations and by-laws relating to safety and with generally accepted practices including but without limiting the generalities of AS 1470 (SAA Code of General Principles for Safe Working in Industry) or the Indonesian equivalent of the foregoing. Production Targets, Payment and Rates. The quantities to be mined and processed within the mining contract may be varied by BCS during the Contract Period by an amount equal to 20% from the amounts indicated in the mining contract. With the exception of diesel fuel used in mining operations, the mining contract does not provide for any rise and fall adjustment to any of the rates, costs or charges set out in the Schedule of Rates. Rise and fall for diesel fuel are to be calculated in accordance with the Rise and Fall Formula of the contract. Under the terms of the mining contract, BUMA is to be paid for the services provided and work done according to the Schedule of Rates set out in the mining contract. For the transportation of coal to the beginning of the coal chain, BUMA s fees are to be paid based upon the actual amount of coal delivered and the extraction costs incurred. Under the terms of our mining contract with BUMA, BUMA is not required to pay us compensatory, or punitive or liquidated damages if it fails to deliver coal to us at the levels or in the amounts specified in the production schedule agreed to by it. Indemnity. BUMA is required to indemnify BCS against all claims and liens in regard to the wages of its employees and the employees of any subcontractor and all claims and liens of subcontractors, suppliers and manufacturers for goods, labor or services in connection with the performance of the coal mining operations. BUMA is also required to indemnify BCS against all liabilities, damages, losses, penalties, demands, suits costs, expenses and proceedings in respect of loss of or damage to property or economic loss, or personal injury or death arising out of any default in performance under or in the mining contract except to the extent such loss, damage, injury or death is attributable to the negligent or intentional act or omission of BCS and BUMA is not in breach of the obligations under the mining contract. In the event the act was a joint or concurrent act of BCS and BUMA, BUMA is to be liable in proportion to its relative degree of fault. BUMA is required to indemnify BCS for any damages, loss, penalties, demands, suits, costs and expenses suffered and incurred as a result of failure to comply 141

148 with any laws, licenses, rules, regulations, orders, proclamations, decrees or other governmental action unless it was acting in accordance with a written direction given by BCS under the mining contract. Breach of Mining Contract. If BUMA commits a substantial breach of the mining contract, and BCS considers that damages may not be an adequate remedy, it is entitled to issue to BUMA a written notice to show cause. Substantial breaches of the mining contract include: failure to proceed with due expedition, failure to lodge security, failure to use required materials or reach required standards, failure to provide evidence of insurance, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue in respect of payment of workers and sub-contractors and suspension of work without any direction from BCS to suspend work. Upon giving notice, BCS may suspend payments to BUMA until reasonable cause is shown. If BUMA fails to show reasonable cause within the time specified in the notice, BCS may choose to take the remaining work out of the hands of BUMA or terminate the contract. Force Majeure. Neither BCS nor BUMA is to be liable for loss or damage arising out of any delay or failure of performance caused if either party is unable at any time whether wholly or in part by reason of force majeure to carry out all or any of its obligations under the contract and that party gives to the other prompt written notice, within seven days of such occurrence, full particulars of such force majeure. Dispute Resolution. If BCS and BUMA fails to settle any dispute amicably, such dispute is to be settled by arbitration by a panel of three arbitrators to be held in Jakarta in English under the rules of arbitration of the United Nations Commission on International Trade Law ( UNCITRAL ). The mining contract provides for any arbitral award to be enforceable pursuant to the 1958 New York Convent on the recognition and enforcement of foreign arbitral awards, and for the parties to waive the application of Articles 1266 and 1267 of the Indonesian Civil Code to the extent that judicial cancellation of the contract is a prerequisite to the termination of the contract or to award of damages. The parties have agreed that a dispute is not to cause any interruption to the work under the contract or the performance by the parties of their obligations. The mining contract is governed by Indonesian law. Coal Preparation and Handling Facilities Contract with LCI On January 1, 2001, BCS and P.T. John Holland Constructions Indonesia ( Boot Co ) entered into a Coal Preparation and Handling Facilities Contract (the Boot Contract ) whereby Boot Co undertook to provide, construct and operate a coal preparation plant and coal handling facilities for the BCS s coal mining operations in Sebuku. Under the Boot Contract, Boot Co is responsible for ensuring that the management, operation and maintenance of the plant and facilities for BCS in relation to the Sebuku Mine and port facilities are maintained at a standard equivalent to those practices that would be acceptable for ISO 9002 Certification and relevant Australian Standards. The Boot Contract was an extension of the then existing boot contract between the parties signed on May 21, Boot Co subsequently changed its name to P.T. Leighton Contractors Indonesia in Term. The original term of the Boot Contract was 4.75 years from January 1, 2001 to September 30, 2005, plus a period equal to the duration of any events of force majeure, unless terminated earlier or BCS exercises the right to buy out in accordance with the terms of the contract or a variation in production levels affects the ultimate remaining life of the Sebuku coal mining operations. By the Deed of Extension and Variation of Boot Contract ( Variation Deed 2005 ) signed on April 30, 2005, the Boot Contract was extended from May 1, 2005 for a period of 2.67 years to expire on December 31, Payment. LCI is to be paid according to a schedule of tariffs and rates provided under the Boot Contract. The tariffs and rates include a production tariff (including all operations, maintenance, management and supervision, spares and consumable reagents and all labour and supervision, with direct and indirect costs.) 142

149 Termination. Pursuant to the Variation Deed 2005, BCS waived its right to terminate the contract except in the event of persistent failure by LCI to operate the processing plant and/or crusher circuit, or the occurrence of a force majeure event which results in the closing down of the mine and/or the operations of the processing plant and/or the crusher circuit. Operational Responsibilities. Under the terms of the Boot Contract, LCI was engaged to design, supply and construct the coal preparation plant and coal handling facilities to meet BCS s project requirements and thereafter to finance, manage, operate, maintain and repair the same. Where necessary and when directed to by BCS, LCI is also obliged to design, obtain quotes, commission, manage, operate, maintain and repair any additional fixed plant required to further increase the output of the coal preparation plant beyond that agreed for in the contract. LCI must also comply with and take all steps within its power to ensure that BCS is able to comply with the conditions of the Coal Cooperation Contract. In addition, LCI is responsible for maintaining industrial relations with its own employees, and those of its subcontractors and be responsible for resolving any industrial and/or personnel problems relating to its own employees and those of its subcontractors. As far as is practicable, LCI is to employ Indonesian personnel, preferably the local residents of Sebuku, provided that such employment is consistent with efficient operations and in accordance with the existing laws and regulations in force in Indonesia. LCI is also responsible for ensuring close liaison with both BCS and BUMA in carrying out production planning. Indemnity. Boot Co is required to indemnify BCS from and against all liability for any such taxes, duties, assessments, contributions, licences, fees, charges or costs in relation thereto and all liability arising in respect of the non-payment of all or any thereof by LCI. LCI is also required to indemnify and defend BCS, its members, directors, officers, employees, agents and subcontractors from and against all liabilities, damages, losses, penalties, demands, suits, costs, expenses (including reasonable solicitor s fees and expenses) and proceedings claimed or made by any person in respect of (a) loss of or damage to property or economic loss, or (b) personal injury or death, arising out of or as a consequence of any default in performance under or in relation to the contract or on behalf of LCI or its directors, officers, employees, agents or subcontractors, except to the extent that such loss, damage, economic loss, injury or death is attributable to the negligent or unintentional act of omission of BCS and LCI is not in breach of its obligations under the contract. LCI is required to further indemnify, defend and save harmless BCS, its directors, officers, employees and agents from and against all liabilities, damages, losses, penalties, demands, suits, costs, expenses (including reasonable solicitor s fees and expenses) and proceedings of any nature whatsoever suffered or incurred because of the failure of LCI or its directors, officers, employees, agents or subcontractors to comply with any laws, licences, rules, regulations, orders, proclamations, decrees or other governmental actions, including the Coal Cooperation Contract, unless that party was acting in accordance with a written direction given to it by or on behalf of BCS under the contract. Insurance. LCI is required, at its own expense, to effect and maintain throughout the term of the contract the minimum insurance coverage set out under the contract and such insurance shall, except in the case of workers compensation insurance, name BCS, its employees, agents and subcontractors as additional insureds and be arranged in such manner as the insurer shall not subrogate against BCS, its employees, agents and subcontractors. LCI is required to maintain insurance during the term of the contract for employees and subcontractors with terms approved by BCS. Force Majeure. If LCI is substantially prevented from performing its duties for a continuous period of 120 days due to a force majeure event, then either party may terminate the agreement and BCS is required to pay LCI in accordance with the provisions of the Boot Contract. Dispute Resolution. Any disputes between BCS and LCI which cannot be amicably resolved is to be settled by arbitration in Jakarta under the rules of arbitration of the UNCITRAL, and Section 631 of the RV ( Reglement De Rechtsvordering ) is to apply. The application of Articles 1266 and 1267 of the Indonesian Civil Code has been waived to the extent that judicial cancellation of the contract is a prerequisite to the termination of the contract or to the award of damages. Any dispute arising out of 143

150 the Variation Deed 2005 which cannot be resolved amicably by the parties or with the assistance of an independent technical or legal expert (as appropriate) within 30 calendar days of written notice by one party to the other is to be settled by arbitration in Jakarta under the rules of the International Chamber of Commerce before a sole arbitrator mutually acceptable to the parties. Operational Agreement with Mitra On January 13, 2003, BCS and Mitra entered into the Contract for the Affreightment and Transshipment of Sebuku Coal (the Mitra Transshipment Contract ) whereby Mitra agreed to provide fully manned tugboats and barges to transport coal from the loading port at Tanjung Kepala, Pulau Sebuku. If BCS changes the method of loading coal into the bulk carriers, Mitra may operate a Spur Barge or other self-loading vessel which the BCS may let to use to accelerate the ship-loading process or to enable gearless vessels to be loaded. The Mitra Transshipment Contract commenced on December 1, 2003 and is effective for the remainder of the Sebuku mine life. The Mitra Transshipment Contract was varied and amended on March 15, 2004 and April 20, 2004 and was last amended pursuant to the Contract of Affreightment and Transshipment of Sebuku Coal Amendment No. 2 dated May 13, Loading and Delivery. BCS has agreed to load Sebuku Coal onto Mitra s barges at BCS s coal loading port and deliver the coal to the end of the conveyor at its coal loading port at Tg Kepala, Pulau Sebuku at its own expense. Mitra is to be responsible for handling mooring lines and supervising the loading process by a load master and stow the coal onto its barges at its own expense. Mitra has agreed to load Sebuku Coal onto bulk carrier using tugs and barges at specified transshipment points. From time to time, BCS may ask Mitra to transport Sebuku Coal for direct deliveries to customers at rates to be negotiated. These deliveries are to be undertaken as and when required and Mitra is required to quote its best price. If BCS and Mitra cannot agree on the price then BCS has the right to offer the transportation contract to another contractor. Quantity. BCS has guaranteed that a minimum rate of coal products per year (12 month basis) on a pro rata basis will be transshipped onto coal bulk carriers at the ship loading positions stipulated by the Mitra Transshipment Contract. If the annual tonnage falls below the guaranteed tonnage and this shortfall is not the result of any force majeure event or closure of the mining operations, BCS is required to compensate Mitra at a contractually agreed ratel. The balance of the coal is to be delivered to other customers on 5,000 to 7,500 metric tonne capacity coal barges as nominated by the customer and if BCS is responsible for the provision of coal barges under the supply agreement with the customer, then BCS may ask Mitra for a freight rate in accordance with the terms of the contract. Mitra s Obligations. Under the terms of the Mitra Transshipment Contract, Mitra is required to make available at all times three to four tug and barge spreads and four sets of trimming equipment to ensure that one transshipment operation can occur and up to a maximum of six tug and barge spreads and sufficient additional sets of trimming equipment to ensure that two transshipment operations can occur at the same time. Mitra is also required to mobilize and increase the number of tug and barge spreads and sufficient sets of trimming equipment as necessary should BCS require the loading of three or more ships simultaneously. Mitra must ensure that the tug and barge spreads arrive at Sebuku in a manner where there is sufficient time to load all the nominated tug and barge spreads with coal before the coal bulk carrier arrives. In addition, it is required to carry out any repairs and modifications to the designated spreads at its own expense, and to the satisfaction of BCS. Mitra is also responsible, at its own expense, for all aspects of the works including but not limited to providing port clearances, harbor permit agency fees at loading, unloading and transshipment points, providing navigation aids, mooring buoys, etc. Further, Mitra is responsible for the provision and maintenance of insurance for the designated tug and barge spreads and other ancillary equipment as well as adequate marine cargo insurance coverage for all transshipment and direct delivery operations. It is also obliged to release, indemnify and hold BCS harmless from any and all claims, judgments, losses, expenses and costs, for personal injury or death of any person, including the employees of either party and third parties and loss or damage to any 144

151 property and equipment to the extent caused or contributed to by its own negligent act or omission or by any act or omission in breach of the terms of the Mitra Transshipment Contract. Mitra must comply with BCS s environment policies and must ensure that it does not dispose of bilge water, dirty oils or garbage into the sea or onto the land within the vicinity of the coal loading port. It is also responsible for maintaining the vessels and equipment utilized in a sound, operational and sea worthy condition in accordance with good shipping practice and all applicable laws of carriage by sea and keep adequate spares on the vessel. BCS Obligations. Subject to the implementation of the Spur Barge operation, BCS has guaranteed the transshipment of a minimum tonnage of coal from Sebuku for each completed year of the Mitra Transshipment Contract subject to any events of force majeure. BCS is required to provide Mitra with details of shipment and loading operations at least two weeks in advance of each vessel s scheduled arrival time, as well as with information on the general terms and conditions of the charter party contracts pertaining to the loading of the bulk carriers and other information about the vessel which is necessary to plan ship loading activities. BCS is also required to ensure that there is sufficient stock of coal for each transshipment and will load the Contractor s barges without any cost to the Contractor. In addition, BCS has agreed to endeavor to obtain coal bulk carriers with a stipulated maximum loading and ensure that the ship s grabs, cranes and equipment are able to load at the rate stated in the Charter Party Contract. Payment and Weight Determination. Payment for transshipment under the Mitra Transshipment Contract is determined by fixed rates according to the weight of the coal, which will be determined by an independent marine surveyor in a load survey report. The cost of engaging the independent marine surveyor is to be borne by BCS. Mitra is required to calculate the rise and fall applicable to each transshipment and include it on each invoice submitted to BCS. No rise and fall is to be applicable in respect of lump sum mobilization and demobilization charges. Demurrage and Despatch. Mitra is to be responsible for any demurrage claims from the bulk carrier s owners or agents unless the claim is due to BCS s failure to supply the required amount of coal or when the claim is due to the combined loading rate of two or more vessels exceeding the maximum barge loading rate stipulated under the contract. Any demurrage due to BCS materially altering the agreed vessel loading schedule is the responsibility of BCS. BCS and Mitra have agreed to settle the despatch and demurrage money on a quarterly basis subject to receipt of the money from the bulk carrier s owner or agent. Claims for Damage. Mitra is to be solely responsible for any claim for damages to the loading port, discharge port and coal bulk carrier as a result of its failure to exercise due diligence in the performance of its obligations but it has the right to engage an independent surveyor to assess the damage due to its own barging operations. Mitra is required to pay BCS upon demand, any claims resulting from the loss of cargo during transshipment operations and the value of the coal lost will be charged at the sale price achieved by BCS for that particular shipment. Marine cargo insurance to cover such events is the responsibility of Mitra. Indemnity. Mitra is required to indemnify BCS against all liabilities, damages, claims, fines, penalties and expenses arising out of any breach by Mitra of any applicable laws, regulations, permits, licenses or clearances during the time the Mitra Transshipment Contract is in force. Force Majeure. The party affected by any force majeure event is required to inform the other party in writing within 24 hours after the occurrence of the force majeure and use reasonable endeavors to overcome the effect. Default and Termination. BCS may terminate the Mitra Transshipment Contract at any time without penalty and without prejudice to its other rights and remedies as provided by the law or under the contract if Mitra defaults in the proper performance of its obligations to BCS. If a force majeure event continues for more then 30 days after notice is given, BCS may terminate by giving five days prior 145

152 written notice. If there is a material default by Mitra, BCS has the right to seek replacement services from a third party and any reasonable sum in excess of the applicable portion of the total cost incurred by BCS due to the default and replacement of Mitra is required to be reimbursed by Mitra subject to limitations of the Mitra Transshipment Contract. If a force majeure event continues for more then 30 days after notice is given, BCS may terminate by giving five days prior written notice and BCS will pay to Mitra all payments for the services rendered up to the termination date and any and all expenses incurred by Mitra less any amount due for claims against Mitra. If termination is a result of default, Mitra is entitled to payment for expenses or services that are not in dispute at the point of termination pending settlement of the company s claim by reason of such termination, after which the prevailing party shall be entitled to indemnification of losses, or damages in connection with such termination. Facility Agreement with ANZ Straits Global Trading entered into a facilty agreement dated January 11, 2006 with Australia and New Zealand Banking Group Limited ( ANZ ) in which ANZ granted to Straits Global Trading a structured trade finance facility of US$5.0 million (the ANZ facility ) to enable SGT to finance a new barge to outload coal. The ANZ facility is secured by inter alia, a corporate guarantee and an indemnity given by BCS, an assignment of SGT s services contract, a mortgage of that equipment and a charge over an escrow account held by SGT. The termination date for the ANZ agreement is 30 calendar months from the initial drawdown date and the availability period of the ANZ facility is 30 days from the date of the ANZ facilty agreement. Repayment of the principal is to be made over 10 installments and determined in accordance with an amortisation schedule provided in the ANZ facility agreement. Interest accrues on the daily balance of each drawing of the facilities at the rate agreed between ANZ and Straits Global Trading from the date of drawdown up to but not including the last day of the interest period. Straits Global Trading must pay the interest for each interest cycle on each interest payment date. If the date for the payment of interest is not a business day, interest must be paid on the preceding business day. The interest payable under the ANZ facility is based on the prevailing Singapore Interbank Offer Rate plus 2% per annum. Under the terms of the ANZ facility, SGT is not permitted to create or permit to exist, and must ensure that none of its subsidiaries creates or permits to exist, any security interest over any of its property, other than a permitted security interest. We expect to repay the ANZ facility in full using a portion of the proceeds of the HVB facility (as described below). Facility Agreement with HVB On September 27, 2006, the Company entered into a revolving facilty agreement with Bayerische Hypo- Und Vereinsbank AG, Singapore Branch ( HVB ) in which HVB granted to the Company a US$50.0 million revolving loan and performance bond facility (the HVB facility ). The purpose of obtaining the HVB facility is to enable the Company to pay off existing Group debts, to fund capital expenditure in respect of the Sebuku coal project, to purchase a power station which we intend to lease to PT IMK and to obtain performance bonds. The HVB facility will be secured, including by way of (1) a guarantee from BCS, Straits Global Trading, SIL, RWD and SMI, (2) an assignment of insurances relating to the vessel, Straits Dragon, given by SMI, (3) a charge over proceeds account given by Straits Global Trading, (4) a charge over account given by the Company, (5) a deed of charge over all assets of our Company (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables, (6) a mortgage over the vessel, Straits Dragon, given by SMI, (7) a share charge over all the shares of and dividends received from Straits Global Trading and SIL given by the Company, (8) a corporate guarantee given BCS, (9) a corporate guarantee given by RWD, (10) a pledge of shares of BCS given by the Company and RWD, (11) a pledge of shares of RWD given by SIL and Mr Ginarsa Tandinegara, (12) a conditional assignment of contracts given by BCS including the Coal Cooperation Contract, the mining contract 146

153 with BUMA, the Boot Contract, the Mitra Transshipment Contract among other agreements relating to BCS coal operations, (13) a fiduciary security over insurance proceeds given by BCS, (14) a fiduciary security over receivables including those arising under our coal sales agreements, given by BCS, (15) a fiduciary security over movable assets given by BCS, (16) a deed of charge over all assets of Straits Global Trading (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies), and receivables, and (17) a deed of charge over all assets of SIL (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables. The rate of interest on the revolving loan facility is the rate per annum of the aggregate of 2% per annum and the prevailing Singapore Interbank Offer rate for the relevant funding period. The HVB facility will terminate on the earlier of June 30, 2013 or the date on which the facility limit decreases to zero in accordance with the facility agreement. The facility agreement contains various covenants and restrictions including, the mandatory reduction in facility amount and prepayment of loans upon the occurence of certain events, including stipulated ratios not being maintained and on our marketable coal reserves falling to stipulated levels, the requirement to maintain certain financial and project ratios, a negative pledge, restrictions on borrowings, a covenant that our Company should not cease to be more than 50% owed by SRL and a restriction on capital reduction and on our subsidiaries issuing shares. Outstanding amounts under the HVB facility become immediately due and repayable upon the occurence of certain events including the breach of the covenants and restrictions described above. In the event that the security that our Group has provided to secure our obligations under the HVB facility is enforced, we may be required to relinquish and transfer our interests in various of our subsidiaries, including BCS, Straits Global Trading, SIL, SET, SMI, PT SCS, SGH, RWD and RWDP, as well as our rights under the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract, among other assets charged or pledged under the security documents described above. Therefore, if we were to default under the HVB facility, and HVB enforces its security interests over our assets, including our shares in our subsidiaries, we may lose control of our Group companies and our other principal assets. 147

154 REGULATION OF THE INDONESIAN COAL MINING INDUSTRY Pursuant to the Indonesian Constitution, all natural resources are controlled by the state. General mining activities in Indonesia are governed by Law Number 11 of 1967 regarding the Principal Provisions on Mining ( Mining Law 11 ) and its implementing regulations, Government Regulation Number 32 of 1969 concerning the Implementation of Mining Law, as amended by Government Regulation Number 79 of 1992 and subsequently amended by Government Regulation Number 75 of 2001 ( Government Regulation 75 ) and Decree of the Minister of Energy and Mineral Resources Number 1614 of 2004 concerning the Guidelines for Application for Contracts of Work in the framework of Foreign Investment ( Decree 1614 ). Mining Law 11 provides that the authority, control and regulation over strategic and vital mineral resources, including coal, in Indonesia are vested in the Minister of Energy and Mineral Resources (the Minister ), while those over non-strategic and non-vital mineral resources are vested in the regional governments of Indonesia. Mining Law 11 authorizes the Minister to license Indonesian government institutions, state-owned companies and individuals to undertake general mining activities, including the exploration for, and exploitation of, mineral resources through a mining authorization (Kuasa Pertambangan). It also allows the Minister to appoint foreign investors as contractors through contracts of work to carry out mining activities that have not or cannot be undertaken by Government institutions or state-owned enterprises. Work may commence after the contract of work has been approved by the Minister, while prior consultation with the House of Representatives (Dewan Perwakilan Rakyat) is required for mining of mineral resources classified as strategic and vital. Coal Cooperation Agreements In 1967, when Mining Law 11 was enacted, the Minister was given the authority to appoint contractors through contracts of work to carry out mining activities that had not been or could not be undertaken by the Government as the holder of mining authorization. Such contracts of work applied to all mineral mining activities. In 1981, Presidential Decree Number 49 of 1981 regarding Provisions for Cooperation Agreement on Coal Mining Operation between Perusahaan Negara Tambang Batubara and Private Contractors ( Decree 49 ) was enacted. The term used in Decree 49 was cooperation agreement. Pursuant to Decree 49, a cooperation agreement is an agreement entered into by and between Perusahaan Negara Tambang Batubara, as the holder of mining authorization, and a private company, as the contractor, to operate coal mining for a period of 30 years. In 1984, the name and status of Perusahaan Negara Tambang Batubara were changed to Perusahaan Umum (PERUM) Tambang Batubara. The Perusahaan Umum (PERUM) Tambang Batubara was then dissolved in 1990 and all of its rights and obligations relating to cooperation agreements were assigned to Perusahaan Perseroan (Persero) PT Tambang Batubara Bukit Asam ( PTBA ). In 1993, Presidential Decree Number 21 of 1993 concerning Principle Provisions for Cooperation Agreement on Coal Mining Operation between PTBA and Private Contractors ( Decree 21 ) was enacted. The term used in Decree 21 was cooperation agreement on coal mining operation. Decree 21 was then revoked and replaced by Presidential Decree No. 75 of 1996 concerning Principle Provisions on Work Agreement on Coal Mining Operation ( Decree 75 ). Decree 75 stipulates that work agreement on coal mining operation, which is known as a coal cooperation agreement, is an agreement between the Government and a private contractor to operate coal mining activities. Pursuant to Decree 75, all rights and obligations of PTBA relating to cooperation agreements on coal mining operation were assigned to the Minister of Mines and Energy. 148

155 The implementation regulation of Decree 75 is a Decree of the Minister of Mines and Energy No. 680.K/29/M.PE/1997 as amended by Decree of the Minister No. 0057K/40/MEN/2004. This implementing regulation stipulates that all matters in relation to coal mining operations based on Decree 49 and Decree 21 which had been under the authority of PTBA are assigned to the Minister and carried out by the Directorate General of Geology and Mineral Resources. Until 2004, when Decree 1614 was enacted, the terms contract of work and coal cooperation agreement were interchangeable as there were no provisions in any Government regulations explicitly stipulating the difference between such terms. In 2004, Decree 1614 was enacted, providing for differentiation between a contract of work and a coal cooperation agreement. Pursuant to Decree 1614: a contract of work is an agreement entered into by and between the Government with a limited liability company established under the framework of foreign investment to conduct mining activities, excluding oil, gas, geothermal, radioactive and coal; and a coal cooperation agreement is an agreement entered into by and between the Government with a limited liability company established under the framework of foreign investment to conduct coal mining activities. However, Decree 1614 will not affect BCS s Coal Cooperation Contract since it provides that all existing coal cooperation agreements that have been signed by the Government prior to the issuance of Decree 1614, including BCS s Coal Cooperation Contract, remain under the authority of the Minister and are carried out by the Directorate General of Geology and Mineral Resources. Decree 49, Decree 21 and Decree 75 regulate coal cooperation agreements entered into by and between the Government as the holder of the mining authorization and a contractor and provide that: the contractor bears all risks and costs related to the coal mining activities under the coal cooperation agreement; the contractor is obligated to deliver 13.5% of the proceeds of the coal production to the Government; the contractor is obligated to pay an annual fee (dead rent) to the Government based on the area of the coal concession in accordance with prevailing regulations; capital goods and materials to be impoted for the operation of the mining activities are exempted from among others, import duties and import levies; and the contractor is obligated to prioritize the use of Indonesian products and services and Indonesian labor. Draft Mineral and Coal Mining Law The Ministry of Energy and Mineral Resources has proposed a new draft legislation on mineral and coal mining ( Draft Mining Law ) which is to be submitted to the Indonesian House of Representatives for discussion. The Draft Mining Law addresses the regulation of the mineral and coal mining industries among the Government, the provincial governments and the regency governments. The Draft Mining Law, if adopted in its current form, would change the current mining licensing system of granting future mining rights by allowing the mining business to be conducted in the forms of Mining Business Assignments (Penugasan Usaha Pertambangan), Mining Business Licenses (Izin Usaha Pertambangan), or People s Mining Licenses (Izin Pertambangan Rakyat). The difference between each form of mining business mentioned above are: (i) a Mining Business Assignment is issued by the Minister to Governmental Agencies with respect to radioactive mineral; 149

156 (ii) (iii) a Mining Business License is a mining license for metal and coal minerals; and for non-metal and rocks minerals issued to business entities (state-owned and regional government-owned companies, Indonesian limited liability companies and co-operatives) and individuals; and a People s Mining License is a mining license which is issued by the regent or mayor to local individuals within a People s Mining Area. Nevertheless, the Draft Mining Law provides that the enactment of the Draft Mining Law would not affect any existing mining authorizations, contracts of work, coal cooperation contracts or regional mining licenses (Suratlzin Pertambangan Daerah or SIPD) until they expire. We cannot assure you that the Draft Mining Law in its present form will be presented to the Parliament or passed to become law within any particular time frame, if at all, or that no significant changes or amendments will be made to the Draft Mining Law prior to or after its enactment. Regional Government Autonomy Law Indonesia is divided into provinces, which are further subdivided into regions and municipalities. The regions and municipalities within a province are autonomous in most of its activities and, therefore, are not subservient to the province. In 1999, the Government adopted Law Number 22 of 1999 ( Law 22 ), which transferred and delegated to the regional governments certain powers that had previously been exercised by the Government. On October 15, 2004, the Government enacted Law Number 32 of 2004, as amended by Government Regulation in Lieu of Law Number 3 of 2005 which was enacted into Law No. 8 of 2005 ( Law 8 ) which replaced Law 22 and, like Law 22, has substantially changed the legal and regulatory framework of the mining industry in Indonesia. Law 8 requires the regional governments to maintain a fair and harmonious relationship with the Government and other regional governments when discharging their governmental affairs, including the utilization of natural and other resources. The governmental affairs that require harmony between the Government and regional governments in the framework of utilizing natural and other resources include matters such as (i) authority, responsibility, utilization, maintenance, control of impact upon, cultivation and conservation, (ii) profit sharing from the utilization of natural and other resources and (iii) environment harmonization, space arrangement plans and land rehabilitation. Law 8 was promulgated on 19 October Forestry Regulation Law Number 41 of 1999 regarding Forestry, as amended by Law Number 19 of 2004 which ratifies Government Regulation in Lieu of Law Number 1 of 2004 ( Forestry Law 19 ) provides that open pit mining operations cannot be conducted within conserved or protected forests areas. Notwithstanding this general prohibition, a number of licenses and contracts for open pit mining in forest areas that existed prior to the enactment of Law Number 41 of 1999 remain valid until their expiration. Significant areas of Indonesia have been classified as protected forests. Our concession includes land which has been designated as conserved forest areas. Of the 73.3 million tones of our coal resources, we have converted approximately 28.3 million tones into reserves. Of the remaining 45.0 million tones of our coal resources which have not been converted into reserves, 34.4 million tones are located under a Government protected mangrove forest zone which has been designated as a conserved forest area under Indonesian forestry laws and regulations. In order to mine in this area and be able to convert the coal resources in this area into reserves, we must obtain Government approval from the Ministry of Forestry to redesignate those parts of the conserved forest area we wish to mine to production forest areas. We intend to submit applications to the Ministry of Forestry seeking this approval. The approval process will involve submission of an application covering the specific areas we wish to mine and our detailed plans for mining and rehabiliting those areas and an assessment and inspection of the area we wish to have redesignated by an evaluation team comprosed of officials from the Ministry of Forestry, the Ministry of Environment, the provincial government and the local government. For the risks associated with obtaining 150

157 Government approvals to mine in the conserved forest areas of our concession, see Risk Factors Risks Related to our Business Mining activities in the forestry areas within our concession area are governed by Indonesian forestry laws and we require Government forestry permits and licenses to mine in these areas and will require Government approval to redesignate conserved forest areas in our concession into production forest areas. Based on Forestry Law 19, the use of forest areas for mining purposes is required to be conducted based on a license to utilize (Izin Pinjam Pakai) from the Minister of Forestry and Plantations. Pursuant to Decree of the Minister of Forestry and Plantations Number 146/KPTS-II/99 dated March 22, 1999 regarding Guidelines for Reclamation of Ex-Mines within Forestry Areas, a holder of a mining authorization or a contract of work whose mining activities are conducted within forest areas, which must be maintained based on the decision of the Minister of Forestry and Plantations, is required to reclaim its mining areas after mining and rehabilitate those areas into forested areas, at its own expense, within a maximum period of six months after the mining activities have been completed in each of those areas. Those reclamation and rehabilitation activities are required to be formulated in a reclamation plan evaluated and approved by the Center for Land Rehabilitation and Soil Conservatory (Balai Rehabilitasi Lahan dan Konservasi Tanah) or the Land Rehabilitation and Soil Conservatory Unit or the Level II Regional Forestry Service Office (Unit Rehabilitasi Lahan dan Konservasi Tanah atau Dinas Kehutanan Daerah Tingkat II). The report concerning the progress of reclamation and rehabilitation activities must be submitted by the mining company to these Government agencies every quarter. Environmental Regulation Environmental protection in Indonesia is governed by various laws, regulations and decrees including Law Number 23 of 1997 regarding Environmental Management ( Environmental Law 23 ), Government Regulation Number 27 of 1999 regarding Environmental Impact Assessments (Analisa Mengenai Dampak Lingkungan or AMDAL ), Decree of the State Minister of Environmental Affairs Number 17 of 2001 regarding Businesses and/or Action Plans which must be completed with AMDAL ( Decree 17 ), Decree of the Minister Number 1453K/29/MEM/2000 dated November 3, 2000 regarding the Technical Guidelines on the Organization or the Government duty in the field of General Mining ( Decree 1453 ) and Decree of the Minister of Energy and Mineral Resources Number 1457 K/28/MEM/2000 dated November 3, 2000 regarding Technical Guidelines for Environmental Management in the Field of Mines and Energy ( Decree 1457 ). Decree 17 and Decree 1457 stipulate, among others, that mining companies conducting exploitation of natural resources that have an environmental or social impact must obtain and maintain an AMDAL document which consists of an environmental impact assessment report, an Environmental Management Plan (Rencana Pengelolaan Lingkungan) and an Environmental Monitoring Plan (Rencana Pemantauan Lingkungan). Where the AMDAL document is not required, under Decree 1457, the company must prepare an Environmental Management Effort Report (Upaya Pengelolaan Lingkungan) and an Environmental Control Effort Report (Upaya Pemantauan Lingkungan). Based on Environmental Law 23, remedial and preventative measures and sanctions (such as the obligation to rehabilitate tailings areas, the imposition of substantial criminal penalties and fines and the cancellation of approvals) may also be imposed to remedy or prevent pollution caused by operations. The sanctions range from three to 15 years of imprisonment and/or a fine of Rp100 million to Rp750 million. Monetary penalty may be ordered in lieu of performance of the obligation to rehabilitate damaged areas. Environmental Law 23 also requires anybody that intends to dispose of any kind of waste to apply for a license. Such waste disposal can only be conducted in the specified locations as determined by the Minister of Environmental Affairs. The waste water disposal reports are further regulated by Government Regulation No. 82 of 2001 concerning Water Quality Management and Water Pollution Management ( Government Regulation 151

158 82 ). Government Regulation 82 requires the party responsible for its activities/businesses, including mining companies, to submit compliance reports on the requirements for (i) the license to dispose of waste water to the ground; and (ii) the license to dispose of waste water to the flowing water or water spring. Such reports shall be submitted to the mayor or regent, with a copy to the Minister of Environmental Affairs on a quarterly basis. In the coal mining industry, Government Regulation 82 is further implemented specifically by the Decision of the Minister of Environmental Affairs Number 113 of 2003 concerning Standard Quality for Coal Mining Business and/or Activities ( Decision 113 ). Decision 113 obliges the mining companies (i) to process its waste water from the mining activities and processing/washing activities, in line with the quality standard for waste water stipulated in Decision 113; (ii) to manage the water that is affected by the impact from the mining activities by way of sedimentation pool; and (iii) to examine the location for the point of compliance of the waste water from the mining activities. Under Decision 113, the mining companies must (i) comply with the requirements stipulated in the license to dispose of waste water; and (ii) submit quarterly reports on the analysis result of the waste water and daily flow rate to the regent or major, with copy to the governor and the Minister of Environmental Affairs. Mining companies must also comply with, among other regulations, Government Regulation Number 18 of 1999 as amended by Government Regulation No. 85 of 1999 regarding Management of Hazardous and Toxic Waste Materials and Government Regulation Number 74 of 2001 regarding Management of Hazardous or Toxic Materials (Bahan Berbahaya dan Beracun), relating to the management of certain materials and waste. Flammable, poisonous or infectious waste from mining (such as used lubricant oil produced by BCS) is subject to these regulations unless test results show that it falls outside the categories set forth in the regulations. These regulations require a company that uses such materials or produces such waste to obtain a license in order to operate, reduce, process and accumulate such waste. This license may be revoked and operations may be required to cease if the regulations relating to such waste are violated. The activities of storing and collecting used lubricant oil is further regulated by the Decree of the Head of Regional Environmental Impact Controlling Agency (Badan Pengendalian Dampak Lingkungan Daerah) No. 255 of 1996 concerning the Procedure on the Storing and Collecting of Used Lubricant Oil ( Decree 255 ) which provides, among other things, that an entity which collects used oil for further use or process must comply with certain requirements, as regulated by Decree 255, including obtaining a license, meeting certain specifications with regard to the buildings where used oil is to be stored, setting up a standard procedure on collection and distribution of used oil and submitting periodic reports with regard to these activities. We have obtained licenses for the temporary storage of hazardous materials, specifically in relation to storing used lubricant oil. Decree 1453 provides technical guidelines for the preparation of the AMDAL, UKL and UPL documents. Decree 1453 also states that regional governments are responsible for the regulation of environmental matters and the approval of the AMDAL, UKL and UPL documents. We have received the approvals for our AMDAL, UKL and UPL documents and reports from the Ministry of Energy and Mineral Resources. Pursuant to Decree 1453, holders of mining authorizations and contracts of work are required to provide to the relevant regional government an Annual Environmental Management and Control Plan (Rencana Tahunan Pengelolaan dan Pemantauan Lingkungan ( RTKPL )) from commencement of exploitation or production. Holders are also required to provide an Annual Environmental Management Plan (Rencana Tahunan Pengelolaan Lingkungan ( RTKL )) from commencement of operations or production, and provide a reclamation guarantee with the regional government bank or commercial banks. Guidelines for the preparation of the RTKPL and RTKL, and procedures for the deposit of a reclamation guarantee are contained in Decree We have complied with our obligations to submit RTKPL and RTKL reports. 152

159 Decree of the Minister of Energy and Mineral Resources Number 1211.K/008/M.PE/1995 dated July 17, 1995 regarding Prevention and Management of Destruction and Contamination of the Environment for the Activities of General Mining Activities ( Decree 1211 ) requires a holder of a mining authorization or contract of work to have the facilities and bear the costs and expenses of performing activities to prevent and minimize environment pollution and destruction resulting from its mining activities. For this purpose, the mining company is obliged to, among others, (i) appoint a Head of Mine Technology (Kepala Teknik Tambang) who is required to directly manage those reclamation activities and submit a report regularly to the Head of Mine Inspection Implementation (Kepala Pelaksana Inspeksi Tambang) of the Government concerning those reclamation activities and; (ii) submit an RTKL and an Annual Plan for Environment Monitoring (Rencana Tahunan Pemantauan Lingkungan) regarding, among others, reclamation activities to the Head of Mine Inspection Implementation. We have complied with the requirements under Decree 1211 in all material respects. Foreign Investment Limitations Direct foreign investments in Indonesia are generally governed by the 1967 Foreign Investment Law (Law Number 1 of 1967 as amended by Law Number 11 of 1970, the Foreign Investment Law ) and its implementing regulations. All matters relating to direct investments are handled by the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal, or BKPM ). BKPM has issued implementing regulations for the Foreign Investment Law pertaining to guidelines and procedures for filing applications for foreign investment and the approval of foreign investment. Not all sectors of foreign investment, however, are governed by the Foreign Investment Law and under the authority of BKPM. A number of sectors (such as banking, financial institutions, insurance, forestry, mining, and oil and gas) are wholly or partly subject to separate regulatory regimes. An important feature of the 1967 Foreign Investment Law is the Government s guarantee that it will not nationalize a foreign investment or revoke rights to control a foreign investment, except where it is declared by law to be in the national interest to do so and then only upon payment of mutually agreeable compensation determined in accordance with principles of international law. This guarantee is accompanied by assurances that the foreign investor will have the authority to appoint the management of the foreign investment company and the right to repatriate capital in the form of after-tax profits, reimbursements for expenses of expatriate manpower and depreciation of fixed assets. Most business sectors (including mining) are open to foreign direct investment, except certain sectors specifically determined by the Government. Under the BKPM regulation, a company with foreign ownership (except such ownership that is made through the capital markets) shall convert its status into a PMA company and subject to limitation and regulation applicable to a PMA company. With respect to a PMA company established to undertake mining, the foreign investment license is issued by BKPM in coordination with the Directorate General of Energy and Mineral Resources. BKPM generally consults with the Ministry of Energy and Mineral Resources regarding foreign investment policy for the mining sector. Under the technical guidelines on foreign investment issued by BKPM in 2002, foreign investors are allowed to engage in mining activities through a PMA Company. For coal mining activities, the PMA must be granted a contract of work and the PMA Company must be either (i) a joint venture company with Indonesian shareholders holding at least 5% of the PMA Company s shares or (ii) a joint venture company between the foreign investor and the holder of a coal mining authorization where the holder of the coal mining authorization has requested a conversion of the mining authorization into a coal contract of work and the holder of the coal mining authorization holds at least 5% of the PMA Company s shares. The requirement that Indonesian shareholders hold at least 5% of the PMA Company s shares only applies to new PMA Companies established after the issuance of the 2002 BKPM technical guidelines. 153

160 Despite 80% foreign ownership in BCS, BCS has the status as a PMDN company. This circumstance was made possible under the prevailing regulation at the time foreign shareholders entered into BCS in A PMDN company has a less-restrictive regulatory environment relative to a PMA company. We believe it is not mandatory for BCS to convert its status into a PMA company since the BKPM technical guideline policy should not apply retroactively to BCS. Other Regulations Related to Mining Operations Other relevant regulations applicable to our mining operations include regulations regarding the use of groundwater and technical guidelines to control air pollution from immovable sources. Companies that propose to explore, drill and acquire groundwater for their operations are required to comply with the provisions of Decree of Minister of Energy and Mineral Resources Number 1451K/10/MEM/2000, including obtaining licenses to explore, drill and acquire groundwater, submitting periodic reports with regard to the activities. Failure to comply with the abovementioned provisions can lead to the suspension or revocation of the relevant licenses or permits. Our operations are also subject to Government regulations concerning the following: (i) (ii) (iii) (iv) usage and operation of a harbor for internal use; usage and operation of an airport for internal use; power generation for internal use; and radio concessions for telecommunications for internal use. We have complied with these regulations in all material respects. 154

161 MANAGEMENT AND CORPORATE GOVERNANCE Management Structure The following chart shows the management reporting structure of our Group as at the Latest Practicable Date: Board of Directors Chief Executive Officer Alvin David Toms Chief Operating Officer Ong Chui Chat Chief Financial Officer James Dracopoulos Marketing/Business Development Director Martin David Purvis General Manager (Operations) General Manager (Technical Resources) Financial Controller General Manager (Marketing/ Business Development) Lim Liang Meng Ronald Stephen Heeks James Carter Carl Raymond Memmott Our Board of Directors Our Board of Directors has ultimate responsibility for the administration of the affairs of our Company. Our Board of Directors consists of six members as follows: Name Age Address Position Milan Jerkovic Bateman Road, Mt Pleasant, 6153 WA, Australia Alvin David Toms Birches Totterridge Village, N20 8JP, London, U.K. Ong Chui Chat Jalan Dermawan, Singapore Martin David Purvis Archdeacon Street, Nedlands, Perth, Western Australia 6009 Dr Chua Yong Hai Cheng Soon Crescent, Singapore Han Eng Juan Siglap Hill, Singapore Chairman, Non-Executive Director Chief Executive Officer Executive Director Executive Director Deputy Chairman, Independent Director Independent Director 155

162 Certain information with respect to the Directors is set out below: Milan Jerkovic was appointed as a Director and Non-executive Chairman on September 20, He is currently the Chief Executive Officer of our holding company, Straits Resources Limited and has been in charge of the overall management of the business and operations of SRL since his appointment in June Mr. Jerkovic has over 20 years of experience in the mining industry involving resource evaluation, operations, financing, acquisition, project development and general management. Between August 2000 and June 2002, Mr. Jerkovic was the Director for Operations in SRL and was responsible for matters relating to operations and project development. Prior to joining the Straits Resources Group in 1996, Mr. Jerkovic had held positions with Western Mining Corporation, Broken Hill Proprietary Billiton and Nord Pacific. He has also been the Chairman of the board of directors of Tritton Resources Limited, a public company listed on the Australian Stock Exchange, since Mr. Jerkovic is a qualified geologist, having graduated from Melbourne University with a degree in geology in 1985, as well as obtaining postgraduate qualifications in mining and mineral economics in He is also a member of the Institute of Company Directors in Australia. Alvin David Toms was appointed as Chief Executive Officer of our Company on September 20, He is also the Non-Executive Chairman on the board of directors of Straits Resources Limited. Mr. Toms has more than 35 years of experience in founding, developing and financing enterprises associated with mining, contracting, marine, engineering and civil construction. In 1995, he diversified his interests into advanced information technology by pioneering the growth of Neural Technologies Limited in the United Kingdom. Apart from being a director of Straits Resources Limited and our Company, he is also a director of several companies in the Straits Resources Group, including Straits Mining Pty Ltd (appointed in July 1992), Grilambone Copper Company Pty Ltd (appointed in August 1992), Straits Exploration (Australia) Pty Ltd (appointed in September 1993), Straits (Whim Creek) Pty Ltd (appointed in November 1995), Straits Gold Pty Ltd (appointed in February 1996), Straits Bulk & Industrial Pty Ltd (appointed in August 1996), Straits (Hillgrove) Gold Pty Ltd (appointed in March 2004) and Straits Indo Gold Pty Ltd (appointed in May 2003). Ong Chui Chat was appointed as our Chief Operating Officer on September 20, He is currently serving on the board of directors of Straits Resources Limited and provides strategic advice to Straits Resources Limited in relation to its interests in South East Asia. Mr. Ong is a qualified marine civil engineer with over 20 years of experience operating in South East Asia in construction, marine engineering, business development and resource exploration. Apart from his directorships in our Company and in Straits Resources Limited, Mr. Ong is also a director of other Straits Resources Group companies including our subsidiary, PT Indo Straits (appointed in 1985) and PT Indo Muro Kencana (appointed February 2006). He is also currently the Commissioner on the board of PT Bahari Cakrawala Sebuku. Martin David Purvis was appointed to our Board as an Executive Director on September 20, 2006 and is responsible for the Company s marketing and business development interests. Mr. Purvis is currently an executive director of Straits Resources Limited and has since June 1999, been appointed as Group General Manager (Marketing and Business Development) of Straits Resources Limited. He is also the Managing Director of Tritton Resources Limited (appointed October 2005), which is part of the Straits Resources Group. He has more than twenty years experience in the resource industry, working in senior management roles in South Africa, Indonesia and Australia. From June 1997 to June 1999, he was the Operations Manager of BCS, and was responsible for the construction, development and operation of our Sebuku coal mine in East Kalimantan, Indonesia. Prior to that, Mr. Purvis was the Marketing Manager, Head of Marketing and Group Project Manager at Gold Fields South Africa between March 1990 to June From September 1988 to February 1990, he was seconded by Gold Fields South Africa to be Marketing Manager at Zinc Corporation of South Africa. From September 1986 to August 1988, he was a Mining Investment Analyst at the Mineral Economics Division of Gold Fields South Africa. Between September 1984 and September 1986, he was engaged in production planning at Anglo American Corporation s Western Deep Levels Mine. Mr. Purvis graduated with BSc (Hons) in 156

163 Mining Engineering at Leeds University in the UK in 1984 and holds a post-graduate Diploma in Business Management from the Damelin Institute, South Africa. Dr Chua Yong Hai was appointed to our Board as Deputy Chairman and Independent Director on September 20, He is currently Chairman of Asia-Pacific Investment Company Limited and Allco (Singapore) Limited. He is also a director of the publicly listed CIH Limited and Nam Lee Pressed Metal Industries Limited as well as several other privately owned companies. Dr Chua was previously a Deputy Secretary in the Singapore Government Administrative Service where his last positions were Director of Investments in the Ministry of Finance and General Manager of Temasek Holdings Private Limited. From 1989 to 1996, he was the Group General Manager of Suntec City Development Private Limited and prior to that, the Principal Consultant of Egon Zehnder International Singapore office from 1985 to Between 1982 and 1985, Dr Chua was first Group General Manager and subsequently Chief Executive and Managing Director in the publicly listed United Engineers Limited. He was also a recipient of the Public Service Medal and the Public Service Star for his contributions to social and community service. Dr Chua was also Singapore s non-resident High Commissioner to Namibia and Swaziland and currently the Singapore non-resident High Commissioner to the Maldives. He has also served as the Honorary Consul of Uruguay to Singapore. Dr Chua is a registered professional chemical engineer and holds a BSc (Honours) First Class degree in Applied Chemistry and a Graduate Diploma in Business Administration from the then University of Singapore and a PhD degree in Chemical Engineering from the University of New South Wales. Han Eng Juan was appointed to our Board as an Independent Director on September 20, Mr. Han is currently serving as a director of the Singapore Deposit Insurance Corporation Limited. He is also serving as a member of the Citizenship Committee of Inquiry. Between 2002 and 2005, he was the Deputy Chairman and non-executive director of Dexia Banque Internationale A Luxembourg, Singapore Branch. Prior to that, he was the General Manager and subsequently, the Senior Managing Director of Dexia Banque Internationale A Luxembourg BIL (Asia) Ltd and General Manager/Country Head of Dexia Banque Internationale A Luxembourg, Singapore Branch from 1982 to From 1968 to 1982, Mr. Han was the chief executive officer of the Board of Commissioners of Currency, Singapore. During that time, between 1979 and 1981, he also served concurrently as Manager of the Banking Supervision Department of the Monetary Authority of Singapore. Prior to that, Mr. Han worked as an accountant in the Accountant-General s Office under the Ministry of Finance. Between 1997 and 2002, Mr. Han assumed the role of Treasurer and subsequently Chairman of the Singapore Investment Banking Association. Since 1990, he also served in various positions in the Singapore Red Cross Society, including Council Member, Finance Commission and is the current Treasurer. Mr. Han was awarded the Public Administration Medal (Silver) (PPA) in Mr. Han holds a Professional Diploma in Accountancy from Singapore Polytechnic and graduated from the National University of Singapore in 1969 with a Bachelor in Accountancy (Hons). Relationships, Arrangements or Understandings Milan Jerkovic, Alvin David Toms, Ong Chui Chat and Martin David Purvis are all directors in our holding company, SRL and have been appointed to our Board in connection with our Company s listing on the SGX-ST and the Combined Offering. Except for the foregoing, none of our Directors is related to one another or to any of our Executive Officers or Substantial Shareholders, and there are no arrangements or understandings with any of our Substantial Shareholders, customers or suppliers or other persons pursuant to which any of our Directors was appointed. Terms of Office Under our Articles of Association, at each annual general meeting, not less than one-third of our Directors for the time being is required to retire from office by rotation and is eligible for re-election at that annual general meeting (the Directors so to retire being those longest in office). 157

164 Our Board Committees We are managed by a Board of Directors which must consist of not less than two members. Our Board of Directors consists of six members, three of whom are not our employees. Our Board of Directors has an audit committee ( Audit Committee ), a remuneration committee ( Remuneration Committee ) and a nominating committee ( Nominating Committee ). Audit Committee. The Audit Committee comprises Milan Jerkovic, Dr Chua Yong Hai and Han Eng Juan. The Chairman of the Audit Committee is Han Eng Juan. The Audit Committee is established to assist the Board of Directors in fulfilling its statutory and financial responsibilities. The Audit Committee is authorised by the Board of Directors to investigate any activity within its terms of reference. The following are some of the functions performed by the Audit Committee: review the annual audit plans of our external and internal auditors; review the external and internal auditors findings on their evaluation of our system of internal controls, including accounting controls; review the significant financial reporting issues and judgments so as to ensure the integrity of the financial statements of our Company and any formal announcements relating to our Company s financial performance; review the scope and results of the audit and its cost-effectiveness, and the independence and objectivity of the external auditors; reviewing the adequacy of our internal controls and the effectiveness of our internal audit function; review the quarterly, half-year and full-year balance sheets and profit and loss accounts of our Company; review the assistance given by our officers to the Audit Committee, external auditors and internal auditors, where applicable; review interested person transactions; make recommendations to the Board on the appointment, reappointment and removal of our external auditors, and approving the remuneration and terms of engagement of the external auditor; meet with the external auditors, and with the internal auditors, without the presence of our Company s management, at least annually; and review the independence of the external auditors annually. Apart from duties listed above, our Audit Committee will commission and review the findings of internal investigations into any suspected fraud or irregularity, or failure of internal controls or infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on our operating results and/or financial position. Remuneration Committee. The Remuneration Committee was set up on September 20, 2006 and comprises Milan Jerkovic, Dr Chua Yong Hai and Han Eng Juan. The Chairman of the Remuneration Committee is Dr Chua Yong Hai. The Remuneration Committee is responsible for setting cash and long-term incentive compensation for our executive officers and other key employees and administering our Straits Employee Share Option Plan and our Straits Executive Share Acquisition Plan. As part of its responsibilities, the Remuneration Committee will review annually the remuneration of each of our Directors, Executive Officers and other employees who are related to our Substantial Shareholders and will make recommendations, in consultation with the Chairman of the Board, to the entire Board for approval. Our annual report will disclose in bands the remuneration of our Directors, our top five key executive officers as well as of employees who are immediate family members of a Director or our chief executive officer and whose annual remuneration exceeds S$150,

165 In the event that any member of our Remuneration Committee is interested in a decision to be made by the Remuneration Committee, he must abstain from participating in the decision-making process. Nominating Committee. The Nominating Committee was established on September 20, 2006 and comprises Milan Jerkovic, Dr Chua Yong Hai and Han Eng Juan. The Chairman of the Nominating Committee is Dr Chua Yong Hai. Our Nominating Committee will be responsible for (i) nominating persons to stand for election to the Board (which may in the future include Alvin David Toms, Milan Jerkovic or other Directors of SRL of that time), having regard to their contribution and performance, (ii) determining annually whether or not a Director is independent and (iii) deciding whether or not a Director is able to and has been adequately carrying out his duties as a Director. The Nominating Committee will decide how the Board s performance is to be evaluated and propose objective performance criteria, subject to the approval of the Board, regarding how the Board has enhanced long-term shareholders value. The Board will also implement a process to be carried out by the Nominating Committee for assessing the effectiveness of the Board as a whole and for assessing the contribution by each individual Director to the effectiveness of the Board. Each member of the Nominating Committee must abstain from voting on any resolutions in respect of the assessment of his performance or re-nomination as Director. Our Executive Officers Certain information with respect to our principal executive officers is set out below: Name Age Address Position James Dracopoulos Club Street #09-21, Emerald Gardens, Singapore Lim Liang Meng Choa Chu Kang North 6, #04-25 Yew Mei Green, Singapore Ronald Stephen Heeks 43 Bukit Jeruk Complex, Jl Jendral Surdirman Balikpapan, Kalimantan, Indonesia James Carter Bishan Street 21, #14-01 Rafflesia, Singapore Carl Raymond Memmott Cairnhill Road #02-04, Elizabeth Heights, Singapore Chief Financial Officer General Manager (Operations) General Manager (Technical Resources) Financial Controller General Manager (Marketing/Business Development) Certain information with respect to the Executive Officers is set out below: James Dracopoulos is our Chief Financial Officer and is responsible for managing the commercial, administrative and accounting functions of our Group. He is currently also the Managing Director of our commodities marketing arm, Straits Global Trading, where in June 2004 he was responsible for setting up our Group s trading operations in Singapore. Prior to that, he was the General Manager of PT SCS, where he managed the business development, commercial, corporate, legal and government related aspects of various interests owned by the Straits Resources Group in Indonesia. Between September 2000 and May 2003, Mr. Dracopoulos was the Company Secretary and General Manager of Finance and Administration of our ultimate holding company, Straits Resources Limited. Prior to that, he was the Finance Manager and then Operations Manager of BCS between September 1997 and September 2000 and became responsible for the entire business operations of the Straits Resources Group in Indonesia, covering both minesite and corporate related matters. Between March 1994 and September 159

166 1997, Mr. Dracopoulos was the Manager for Finance and Administration of Girilambone Copper Company Pty Ltd, a subsidiary of Straits Resources Limited. Prior to joining the Straits Resources Group, he was the Commercial Superintendent at the Electricity Trust of South Australia s Leigh Creek Coal Field between March 1992 and March 1994 and a Regional Accountant at Macmahon Contractors Pty Ltd between July 1988 and January Mr. Dracopoulos graduated from the South Australian Institute of Technology (University of South Australia) with a Bachelor degree in Accounting in 1984 and has been a member of the Australian Society of Certified Practising Accountants since December He is currently a member of the Chartered Secretaries of Australia. Lim Liang Meng is our General Manager (Operations) and is responsible for managing all operational aspects of our mining business, including mining, hauling, processing, barge loading, environmental rehabilitation, safety, community development and government relations. He is currently also the Operations Manager of PT Straits Consultancy Services in charge of all mining operations of our Group in Indonesia, including the coal mine at Sebuku and the gold mine at Mt Muro. Prior to that, he was the Resident Manager and the Production Manager for the Sebuku coal mine under BCS between August 2004 and January 2006, and between September 2003 and August 2004, respectively. Between November 1999 and September 2003, Mr. Lim was employed by Links Island Holding Ltd to oversee all the marine operations for a fleet of more than 30 vessels involved in dredging, reclamation, vessel chartering and commodity transportation projects Singapore, Malaysia, Thailand and Indonesia. Prior to that, he was a Senior Project Manager at Utraco Structural System Pte Ltd where he was involved in managing multiple civil and building projects in Singapore between January 1998 and November Between May 1996 and January 1998, Mr. Lim was a Manager for Special Project at VSL Pte Ltd, managing heavy lifting, post tensioning and precast structuring projects in Singapore and Indonesia. Prior to that, he was a Manager at both Straits Engineering Contracting Pte Ltd and PT Indo Straits between August 1990 and May 1996 where he was in charge of managing marine related projects such as dredging, reclamation, pipe laying, jetty construction, marina construction and breakwater construction in Singapore and Indonesia. Mr. Lim graduated from Singapore Polytechic with a Diploma in Civil Engineering in Ronald Stephen Heeks is our General Manager (Technical Resources) and is responsible for the management of exploration and technical issues with mining and operations at the Sebuku coal mine. He was formerly employed by Straits Resources Group since 2004 as the Manager Technical Indonesia, which requires him to manage the gold mining operations of the Straits Resources Group at Mt. Muro, in addition to managing the coal operations at Sebuku. Between 2003 and 2004, Mr. Heeks was a Consultant Geologist with SRL and was responsible for resource definition for the gold mining operations at Mt. Muro. Prior to that, he was employed by Bullabulling Joint Venture between 2001 and 2003, as Operations Manager in charge of a 1.2 million tonnes per annum heap leach operation in Western Australia. Between 1993 and 2001, Mr. Heeks was a director of Exploration and Mining Consultants Pty Ltd and was responsible for the set up and operations of a geologoical consultancy company providing geology consultancy services to customers in Myanmar, Indonesia, Thailand, Brazil and Australia. Mr. Heeks graduated from the Ballarat School of Mines in 1981 with a Bachelor Applied Science (Geology) and is a member of the Australian Institute of Mining and Metallurgy. James Carter is our Financial Controller and is responsible for the financial control of our Group. He was formerly the Company Secretary of Straits Resources Limited. He has approximately 12 years financial and commercial experience in the resources industry (Gold, Copper & Coal) working in site based and corporate office roles in Western Australia and Indonesia. Between June 2001 and September 2003, Mr. Carter was the Manager of Finance and Administration at Straits Resources Limited and was primarily responsible for heading the finance department of the Straits Resources Group s coal mining operations in Sebuku. Prior to that, he was a Senior Financial Accountant at Straits Resources Limited between July 2000 and June Prior to joining the Straits Resources Group, he was a Senior Management Accountant at Normandy Mining Ltd between July 1998 to July He was a Systems Accountant at Sony Computer Entertainment between October 1997 and April 1998 and a Management Accountant at Great Central Mines Ltd between December 1994 and March Mr. Carter graduated from the Edith Cowan University with a Bachelor of Business (Accounting) in

167 and currently holds a Graduate Diploma in Corporate Governance from the Chartered Secretaries Australia which he obtained in He has been a member of the Australian Society of Certified Practising Accountants since Carl Raymond Memmott is our General Manager (Business Development) and is responsible for the formulation, implementation and management of our business development policies. He is also the General Manager Logistics and Transport, of our commodities marketing operations, Straits Global Trading Pte Ltd. Mr. Memmott has over 18 years of experience in business development work in the region. Prior to joining our Group in November 2005, Mr. Memmott was the Business Development Director of EGIS Projects Asia Pacific between February 1997 and September 2005 where he managed business development projects in Asia and Australia worth between S$100 million and US$500 million. Between November 1988 and December 1996, Mr. Memmott was the Business Development Manager of John Holland Ltd during which period he helped to develop Straits Resources Limited s first project, the Girilambone Copper Mine. Prior to that, he was the Business Development Manager of Leighton Group Ltd between October 1987 and November 1988 and Area Manager of Pak-Poy & Kneebone Pty Ltd between January 1984 and November Between January 1972 and December 1983, Mr. Memmott worked as a design engineer in various organisations including the Kampsax Group, the Elstress Group in Hong Kong and Bornhorst & Ward. Mr. Memmott is currently a director of various companies within the Straits Asia Group, namely Straits Global Trading Pte Ltd, Straits Marine & Infrastructure Pte Ltd and Straits Energy Trading Pte Ltd. He is a member of the Financial Services Institute of Australia and has been a Fellow of the Institute of Engineers, Australia since Mr. Memmott graduated from the University of Queensland in 1970 with a Bachelor of Engineering (Hons), where he subsequently obtained a Master of Engineering Science in He also holds a Graduate Diploma in Business Studies from the University of New England, obtained in Family relationships None of our Executive Officers is related to one another or to any of our Directors or to any of our Substantial Shareholders. Directors Compensation The compensation in bands of S$250,000, including any benefit in kind and any deferred compensation accrued for the financial year in question and payable at a later date, paid by our Company and our subsidiaries to each of our Directors, for services rendered by them in all capacities to our Company and our subsidiaries for the years ended December 31, 2004 and December 31, 2005, and expected to be payable by our Company and our subsidiaries to each of these Directors for services rendered by them in all capacities to our Company and our related corporations for the year ending December 31, 2006 are as follows: Year Ended December 31, (1) Milan Jerkovic (2)... N.A. N.A. Band A Alvin David Toms (2)... N.A. N.A. Band D Ong Chui Chat (2)... N.A. N.A. Band C Martin David Purvis (2)... N.A. N.A. Band A Dr Chua Yong Hai (2)... N.A. N.A. Band A Han Eng Juan (2)... N.A. N.A. Band A (1) Estimated, as if they had been appointed for the full twelve-month period in (2) Our Directors were not yet appointed to the Board for the financial years ended December 31, 2004 and December 31, Our non-independent Directors, Milan Jerkovic, Alvin David Toms, Ong Chui Chat and Martin David Purvis were compensated by SRL in 2004 and 2005 for services rendered to the entire Straits Resources Group, and compensation paid would not be reflective of the compensation that they would receive had they provided services solely to our Group during those periods. 161

168 Remuneration bands: A refers to remuneration below the equivalent of S$250,000 B refers to remuneration between the equivalent of S$250,000 and S$499,999 C refers to remuneration between the equivalent of S$500,000 and S$749,999 D refers to remuneration between the equivalent of S$750,000 and S$999,999 Executive Officers Compensation The compensation in bands of S$250,000, including any benefit in kind and any deferred compensation accrued for the financial year in question and payable at a later date, paid by our Company and our subsidiaries to each of our Company s Executive Officers, for services rendered by them in all capacities to our Company and our subsidiaries for the financial years ended December 31, 2004 and December 31, 2005, and expected to be payable by our Company and our subsidiaries to each of these executive officers for services rendered by them in all capacities to our Company and our related corporations for the financial year ending December 31, 2006 are as follows: Year Ended December 31, (1) James Dracopoulos... Band B Band B Band B Lim Liang Meng... Band A Band B Band B Ronald Stephen Heeks... Band B Band C Band B James Carter... N.A. N.A. Band A Carl Raymond Memmott... N.A. Band A Band B (1) Estimated, as if they had been appointed for the full 12 months of Remuneration bands: A refers to remuneration below the equivalent of S$250,000 B refers to remuneration between the equivalent of S$250,000 and S$499,999 C refers to remuneration between the equivalent of S$500,000 and S$749,999 Service Agreement and Duration of Service Our Company had on September 20, 2006, entered into Service Agreements with Alvin David Toms, Ong Chui Chat and Martin David Purvis for an initial period of three years commencing with effect from September 20, Upon the expiration of 24 months from the commencement of the term of the Service Agreement, each of these Directors and the Company has agreed to enter into good faith negotiations concerning the extension of their respective Service Agreements. The Service Agreements may be terminated by either party giving the other party three months notice in writing, whereupon normal salary payments will be payable until the expiry of such notice. Our Company may terminate the Service Agreements immediately upon the occurrence of certain events, such as an act of negligence or dishonesty, fraud, willful disobedience, misconduct or breach of duty, or a willful, persistent and material breach of the terms of the Service Agreement. The annual salaries of Alvin David Toms, Ong Chui Chat and Martin David Purvis under the terms of the Service Agreements are S$700,000, S$600,000 and S$177,683, respectively. As Martin David Purvis is also an executive director in SRL, 25% of his annual salary will be attributable to the time spent for SARL and 75% attributable to his time spent on SRL. We expect their salaries, including bonus, if any, to be reviewed by the Board of Directors in consultation with our Remuneration Committee annually at the end of each financial year. At each review, their salary, including bonus, may be increased having regard to, among other things, the responsibilities held and the performance of the particular Director. Alvin David Toms, Ong Chui Chat and Martin David Purvis will each abstain from 162

169 voting any decision made by our Board of Directors in connection with the amendment of any term of, or the renewal of, their respective Service Agreements. Each of these Directors will also be entitled during his employment to such other benefits, including a first class return airfare to London for him and his spouse per annum, directors and officers liability insurance and reimbursement of reasonable out-of-pocket expenses properly incurred by him in the course of the employment. Each of Alvin David Toms and Ong Chui Chat is also entitled to the use of a fully maintained motor car. In addition, all remuneration or benefit in kind payable or provided by the Company is to be paid free and clear of all present and future taxes unless required by law. If any deduction is required by law, the Company is required to pay to these Directors an additional amount to ensure that they receive the amount they would have received if no deduction had been required. For the purpose of determining their service period, leave entitlements, termination benefits or for any other purpose, these Executive Directors service at the commencement of their appointment are deemed to be contiguous with their current or previous service as an executive of Straits Resources Limited. Each of these Directors is also entitled to receive a termination payment of three months current salary for each year of service for which the Director has served as an executive in the Company (subject to a maximum cap of 36 months) in the event that his appointment as an Executive Director is terminated by our Company other than (a) by way of giving notice, (b) immediate termination without prior notice if the Director (i) commits any act which may materially detrimentally affect our Company or any of our subsidiaries, including but not limited to an act of negligence or of dishonesty, fraud, willful disobedience, misconduct or breach of duty, (ii) willfully, persistently and materially breaches the Service Agreement and does not remedy the breach within 14 days of receipt of notice in writing from our Company specifying the breach, (iii) commits any act of bankruptcy or compounds with creditors, or (iv) becomes of unsound mind or becomes liable to be dealt with under any law relating to mental health, or (c) by way of his resignation as a Director of our Company or any of our subsidiaries, as required of that Director in the event that his appointment under the Service Agreement being terminated, in each case in accordance with the terms of the Service Agreement. Had the Service Agreements been in place in the financial year 2005, the aggregate remuneration payable to our Executive Directors (including Directors fee and benefits in kind) would have been approximately US$0.94 million and the profit before tax of our Group for the financial year 2005 would have been approximately US$52.9 million instead of US$53.8 million. Our Executive Directors aggregate remuneration of approximately US$0.94 million represents approximately 1.8% of the profit before tax of our Group in the financial year 2005 (with aggregate remuneration added back) had the Service Agreements been in effect for financial year Straits Employee Share Option Plan Overview On September 20, 2006, we adopted the Straits Employee Share Option Plan ( Option Plan ), the rules of which are set out in Appendix B of this offering document. The Option Plan complies with the relevant rules set out in the the Listing Manual. In order to remain an attractive and competitive employer, it is essential that we adopt incentive plans which will enable us to reward our employees without inflating the total remuneration costs of our Group. The Option Plan gives us the flexibility to build a variable component into the remuneration package of all deserving employees and through the grant of options. As at the date of this offering document, no options have been granted under the Option Plan. Objectives of the Option Plan The objective of the Option Plan is to provide employees of our Company and its subsidiaries with the opportunity of participating in the equity of our Company so as to provide an incentive for employees to achieve greater success and profitability for our Company and to maximize the long-term performance of our Company. 163

170 Size of the Option Plan The aggregate number of new Shares granted under the Option Plan shall be limited to 5% of the issued share capital of the Company from time to time. The restriction on the size of the Option Plan may not be amended without the prior approval of the Shareholders of the Company and provided that the aggregate number of new Shares granted under the Option Plan on any date, when added to the number of new Shares issued and issuable in respect of (a) all Options granted under the Plan, and (b) all awards granted under any other share option, share incentive, performance share or restricted share plan implemented by the Company and for the time being in force, does not exceed fifteen percent (15%) of the issued share capital of the Company on the day preceding that date. Eligibility Only full or part-time employees (excluding any Director of our Company) of our Group are eligible to participate in the Option Plan ( Eligible Employees ). Notwithstanding the above, Controlling Shareholders and their associates are not eligible to participate in the Option Plan. Acceptance of Options An offer may be accepted in whole or in part by the offeree signing and returning the acceptance form together with payment for the consideration (if any) for the grant of the options within the closing date specified in the offer, failing which such offer automatically lapses and become null and void and of no effect. Exercise Price Under the rules of the Option Plan, the exercise price of an option is the weighted average of the last dealt prices of Shares sold on the SGX-ST during the five consecutive days on which the Shares are traded on the SGX-ST, immediately prior to the date of offer of the options to Eligible Employees, as determined by the Remuneration Committee by reference to the daily official list or any other publication published by the SGX-ST, rounded to the nearest whole cent in the event of fractional prices, plus an amount equal to 10% of such average price or Singapore twenty (20) cents, whichever is higher. Administration of Option Plan The Option Plan is to be administered by the Remuneration Committee in its absolute discretion with such powers and duties as are conferred on it by the Board. The Remuneration Committee may in its absolute discretion offer options to Eligible Employees during the period which the Option Plan is in force, which is 10 years from the date it was adopted by our Shareholders, provided that in the event that an announcement on any matter of any exceptional nature involving unpublished price sensitive information is made, options may only be granted on or after the second market day from the date on which such announcement is made. Abstention from Voting Shareholders who are eligible to participate in the Option Plan are to abstain from voting on any Shareholders resolution relating to the Option Plan. Rights of Option Holders Shares allotted and issued on the exercise of an option rank in full for all dividends or other distributions declared or recommended in respect of the then existing Shares and shall in all other respects rank pari passu with the other existing Shares then in issue. 164

171 Exercise of Options Options granted to participants may only be exercised up to but not more than 50% of the total number of options granted between the first anniversary and the second anniversary of the date of grant of the options, and may exercise any of the options that remain unexercised after the second anniversary of the date of grant of the options and before the expiry of the five year period from the date on which the options were granted. Termination of Options Special provisions in the rules of the Option Plan deal with the lapse or earlier exercise of options in circumstances which include the termination of the participant s employment in our Group and the death of the participant. Variation of Share Capital If there is a variation in the share capital of our Company, we may adjust the exercise price of options or the number of options that may be granted under the Option Plan. However, unless the Remuneration Committee considers an adjustment to be appropriate, we do not intend to regard the issue of securities as consideration for an acquisition or a private placement of securities, or the cancellation of issued shares purchased or acquired by our Company by way of a market purchase of such shares undertaken by our Company on the SGX-ST during the period when such share purchase mandate granted by the Shareholders is in force, as a circumstance requiring adjustment. Reporting and Approvals We intend to disclose details of the options granted pursuant to our Option Plan, including the number of options exercised and the Exercise Price, in our annual report. We have made an application to the SGX-ST for permission to deal in and for quotation of the Shares which may be issued upon exercise of the options to be granted under the Option Plan. The approval of the SGX-ST is not to be taken as an indication of the merits of our Company, our subsdiaries, our Shares, the Offering Shares, or the Option Shares which may be allotted or issued upon the exercise of options granted under the Option Plan. Duration of the Option Plan The Option Plan will be in force up to a maximum period of 10 years from the date on which the Option Plan was adopted. The Option Plan may continue beyond the stipulated period with the approval of Shareholders by way of ordinary resolution in general meeting and of any relevant authorities which may then be required. Straits Executive Share Acquisition Plan Overview In addition to the Straits Employee Share Option Plan, we also adopted the Straits Executive Share Acquisition Plan (the Share Plan ) on September 20, 2006, the rules of which are set out in Appendix C of this offering document. The Share Plan gives us the flexibility to build a variable component into the remuneration package of all deserving executives. A summary of the rules of the Share Plan is set out as follows. 165

172 Objectives of the Share Plan The purpose of the Share Plan is to attract, retain, motivate and reward key executive employees. The Share Plan provides full-time executive employees of our Group (other than Directors of our Company) ( Eligible Participants ) with an opportunity to acquire an ownership interest in the Company, thereby aligning their interests with those of other Shareholders as a means of encouraging them to ensure that our Company s performance increases shareholder value through long-term growth. Participants and Eligibility All full-time employees of our Group with executive responsibilities (excluding Directors of our Company) are eligible to participate in the Share Plan. Controlling Shareholders or their Associates are not eligible to participate in the Share Plan. Administration of the Share Plan The Share Plan is to be administered by the Remuneration Committee with such discretion, powers and duties as are conferred to it by the Board. Size of the Share Plan The aggregate number of new Shares granted under the Share Plan is limited to 5% of the issued share capital of the Company from time to time. The restriction on the size of the Share Plan may not be amended without the prior approval of the Shareholders of the Company and provided that the aggregate number of Shares over which the Remuneration Committee may issue under the Share Plan on any date, when added to the number of Shares issued and issuable in respect of all Shares granted under the Share Plan and all awards granted under any other share option, share incentive, performance share or restricted share plan implemented by the Company and for the time being in force, does not exceed fifteen (15) per cent. of the issued share capital of the Company on the day preceding that date. Grant of Awards Under the rules of the Share Plan, there are no fixed periods for the grant of an award of Shares ( Award ). The Remuneration Committee may issue Awards to Eligible Particpants at any time, provided that in the event that an announcement on any matter of an exceptional nature involving unpublished price sensitive information is made, Awards may only be issued on or after the second market day from the date on which such announcement is made. Acceptance of Awards The grant of an Award, if not accepted within the time period specified in the Award, will automatically lapse and become null and void. An Award may only be accepted once, whether in whole or (as the case may be) in part. Subscription Price Under the rules of the Share Plan, the subscription price for each Share granted under an Award is the price determined by the Remuneration Committee as being the weighted average price of Shares traded on the SGX-ST over the period of five consecutive days on which the Shares are traded on the SGX-ST prior to the date of grant of the Award as determined by the Remuneration Committee by reference to the daily official list or any other publication published by the SGX-ST, or as otherwise determined in accordance with the Share Plan. 166

173 Rights of Holders of Shares issued under the Share Plan Shares allotted and issued pursuant to an Award ( Plan Shares ) will rank in full for any dividend, right, allotment or other distribution and shall in all respects rank pari passu with the other existing shares then in issue. Loans In connection with the Share Plan, our Company has also implemented a scheme for the making of limited recourse loans which has been approved by our Shareholders in general meeting. We expect the acquisition of the Plan Shares by an Eligible Participant who has accepted an Award ( Participant ) to be exclusively and fully funded by an interest free loan advanced to him by our Company, to be applied directly towards payment of the subscription price of the Plan Shares to be acquired. Until such time as a loan under the Share Plan is repaid in full, the Eligible Participant is required to authorise the Company to retain all dividends payable in respect of the Plan Shares acquired by the Participant, which dividends shall be applied in reduction of the loan. An Eligible Participant may elect to repay a loan in full at any time while a loan balance exists and prior to termination of his employment. Termination of Share Plan The Remuneration Committee may suspend or terminate the Share Plan in respect of further issues of Plan Shares at any time by notice in writing to the Eligible Participants. Thereafter, the Company may not issue any further Awards during the suspended or terminated period but shall continue to administer the Share Plan according to the terms of the rules of the Share Plan. Adjustments If there is a variation in the share capital of our Company, we may adjust the subscription price or class and/or number of shares that are the subject of an Award or the class and/or maximum number of Shares that may be granted under the Share Plan. However, unless the Remuneration Committee considers an adjustment to be appropriate, we do not intend to regard the issue of securities as consideration for an acquisition or a private placement of securities, or the cancellation of issued shares purchased or acquired by our Company by way of a market purchase of such shares undertaken by our Company on the SGX-ST during the period when such share purchase mandate granted by the Shareholders is in force as a circumstance requiring adjustment. Cost of Grant of Options under the Option Plan and Awards under the Share Plan We recognize the fair value of options granted under the Option Plan as an expense in the income statement with a corresponding increase in the share-based payment reserve. We measure the fair value at grant date and recognize the fair value over the vesting period. We determine the amount recognized over the vesting period by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets), on the date of grant. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable on vesting date. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable on vesting date. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. Upon the exercise of options, we expect to transfer the balance of the share-based payments reserve relating to those options to share capital. We measure share based compensation under the Share Plan as the value of the option inherent within shares issued under these plans, which we expense immediately upon grant of the shares with a corresponding credit to the share-based payment reserve. As the employee becomes entitled to the shares, the share-based payment reserve is decreased with a corresponding increase in share capital. 167

174 Transfer of Shares to Executives and Employees In recognition of the contribution by our staff to the success of the Group, our Selling Shareholder intends to transfer a portion of its Shares to certain executives and employees of our Group (the Recipients ). In conjunction with this transfer of Shares (the Share Transfer ), our Company has implemented a loan scheme to provide an interest free loan (the SARL Loans ) to 41 executives (including Executive Directors) to facilitate their acquisition of our Shares from the Selling Shareholder. In addition, up to 235 junior employees in our Company and our Indonesian subsidiaries will be granted Shares pursuant to the Share Transfer. The loan scheme to provide the SARL Loans by our Company in connection with the Share Transfer has been approved by our Shareholders in a general meeting. The grant of the SARL loan by our Company and the Share Transfer are contingent on and will only be effective immediately upon the close of the Combined Offering and our admission to the Official List of the SGX-ST. In the event that the Combined Offering does not proceed, the SARL Loans will not be granted and the Shares intended to be transferred to the Recipients under the Share Transfer will remain with the Selling Shareholder. The SARL Loans, which have no fixed term of repayment, will be repaid by offsetting against dividends payable in respect of the Shares the acquisition of which was funded by the SARL Loans. In addition, the proceeds from any future sale of such Shares are to be applied by the relevant executive towards repayment of the loan. The loan may be repaid in cash or any other form of consideration agreed to by the Company in full settlement of the loan and in any event will become immediately due and repayable upon the relevant executive ceasing to be an employee of the Company or of a related company of the Company or, in the case of an Executive Director, when he ceases to be a full time employee of the Company or a related company of our Company. Pursuant to the Share Transfer, we expect 5,550,000 Shares will be transferred to the Recipients from the Selling Shareholder, comprising approximately 0.60% of our issued share capital immediately prior to the Combined Offering ( pre-combined Offering share capital ). The Shares to be received by the 41 executives will be acquired at a price to be determined by the Selling Shareholder by reference to among other things, the Offering Price, and the Maximum Offering Price which is S$0.72. Up to 235 junior employees will be granted the Shares by the Selling Shareholder at no cost. Of the 5,550,000 Shares to be transferred, a total of 2,125,000 Shares (comprising 0.23% of our pre-combined Offering share capital) will be acquired by three of our Executive Directors, namely Alvin David Toms, Ong Chui Chat and Martin David Purvis, who will each receive 1,000,000 Shares, 750,000 Shares and 375,000 Shares, respectively, comprising 0.11%, 0.08% and 0.04%, respectively of our pre-combined Offering issued share capital. A total of 1,125,000 Shares (comprising 0.12% of the pre-combined Offering share capital) will be acquired by five of our Executive Officers, namely James Dracopoulos, Carl Raymond Memmott, Lim Liang Meng and Ronald Stephen Heeks, who will each receive 250,000 Shares, and James Carter, who will receive 125,000 Shares. The remaining 33 executives and the employees will in aggregate receive a total of 2,300,000 Shares, comprising 0.25% of our pre-combined Offering share capital. We have applied for, and received, a waiver from the SGX-ST from compliance with Rule 210(4)(b) of the Listing Manual in order to provide the loans to our Executive Directors to acquire Shares. The waiver was applied for, and granted, on the following basis: The loans are granted to our Executive Directors on the same terms and conditions as the loans granted to the other 38 eligible executives. The SARL Loan is granted on a one-off basis, as part of our desire to recognise and reward our employees and executives in recognition of their contributions to our Group. In this regard, our Executive Directors have also made significant contributions to our Group. 168

175 SHARE CAPITAL Our Share Capital As at the date of this offering document, our issued and paid-up share capital is S$50,219,700 divided into 920,765,220 Shares, all of which are fully paid. Except as disclosed above and under General and Statutory Information below, there has been no change in our issued share capital during the three years preceding the date of lodgement of this offering document with the Authority. None of our Shares is held by or on behalf of us or any of our subsidiaries. On September 20, 2006, our Shareholders passed resolutions to approve, amongst other things, the following: the Subdivision of every one ordinary share in our issued and paid-up share capital into 30 ordinary shares; the conversion of our Company into a public limited company and the change of name to Straits Asia Resources Limited ; the adoption of a new set of Articles of Association; the adoption of the Straits Employee Share Option Plan and the Straits Executive Share Acquisition Plan, and the issue of shares thereunder; that authority be and is hereby given pursuant to Section 161 of the Singapore Companies Act to our Directors to: (A) (i) issue Shares in the capital of our Company whether by way of rights, bonus or otherwise; and/or (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require Shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares, (B) at any time and upon such terms and conditions and for such purposes and to such persons as our Directors may in their absolute discretion deem fit; and (notwithstanding the authority conferred by this authority may have ceased to be in force) issue Shares in pursuance of any Instrument made or granted by our Directors while this authority was in force, provided that: (1) the aggregate number of Shares to be issued pursuant to such authority (including Shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 50% of the post-combined Offering issued share capital of our Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of Shares to be issued other than on a pro rata basis to Shareholders of our Company (including Shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 20% of the post-combined Offering issued share capital of our Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of Shares that may be issued under sub-paragraph (1) above, the percentage of post-combined Offering issued share capital shall be based on the issued share capital immediately following the close of the Combined Offering of our Company, after adjusting for: (i) new Shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this authority is passed; and 169

176 (ii) any subsequent consolidation or sub-division of Shares; (3) in exercising the authority conferred by this authority, our Company shall comply with the provisions of the Listing Manual for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of our Company; and (4) (unless revoked or varied by our Company in General Meeting) the authority conferred by this authority shall continue in force until the conclusion of the next Annual General Meeting of our Company or the date by which the next Annual General Meeting of our Company is required by law to be held, whichever is the earlier. We have only one class of shares in the capital of our Company, being the Shares. There are no founder, management, deferred or unissued Shares reserved for issuance for any purpose. The rights and privileges of our Shares are stated in our Articles of Association. Details of changes in our issued and paid-up share capital since incorporation on June 10, 1995 and immediately after the closing of the Combined Offering are as follows: Number of Shares Paid-up capital (S$) Issued and fully paid ordinary shares as at the date of incorporation Issue of new ordinary shares pursuant to acquisition of BCS... 24,546,635 24,546,635 24,546,637 24,546,637 Issue of new ordinary shares pursuant to acquisition of Sebuku Investments Limited and minority interests in BCS... 6,145,537 25,673,063 30,692,174 50,219,700 Subdivision of one ordinary share into 30 ordinary shares ,765,220 50,219,700 Pre-Combined Offering issued and paid-up share capital ,765,220 50,219,700 Post-Combined Offering issued and paid-up share capital ,765,220 50,219,

177 INTERESTED PERSON TRANSACTIONS AND CONFLICTS OF INTERESTS Interested Person Transactions In general, transactions between our Group and any of our interested persons (namely, the Directors, chief executive officer or Controlling Shareholders or the associates of such Directors, chief executive officer or Controlling Shareholders) are Interested Person Transactions for the purposes of Chapter 9 of the SGX-ST Listing Manual. Our interested persons include: SRL, which holds 100% of the issued share capital of the Selling Shareholder and the associates of SRL, including Whim Creek and PT IMK which are subsidiaries of SRL; our Directors and their respective associates; and Gerald Alain Denis Keet, who owns 19.5% of the issued share capital of SRL and is deemed a Controlling Shareholder of our Company. Except for the Reorganization (for further details, see Reorganization of Our Group ) and as disclosed below, none of our Directors, Executive Officers or Controlling Shareholders has any interest, direct or indirect, in any material transaction undertaken by our Group within the past three years ended December 31, 2005 and up to the Latest Practicable Date. Present and Future Interested Person Transactions The transactions described in this section Present and Future Interested Person Transactions will be recurrent interested person transactions. We intend to continue with them or to provide for them under our Shareholders Mandate (as defined in the section Guidelines for Future Interested Person Transactions ) following our listing on the SGX-ST. These arrangements will be subject to review procedures under our Shareholders Mandate as set out in the section Review Procedures and Threshold Limits for Interested Person Transactions to the extent required by the SGX-ST Listing Manual. Provision of Marketing Services to and Purchases of Copper from Whim Creek Since June 2005, our subsidiary Straits Global Trading has been purchasing copper from Whim Creek. On August 5, 2005, SGT and Whim Creek entered into a contract to formalize the purchase arrangements (the Whim Creek Copper Contract ), the terms of which were subsequently varied by an amendment in February Under the Whim Creek Copper Contract, SGT has agreed to purchase 50,000 metric tonnes of copper or the total output of Whim Creek s copper operations in Australia between May 2005 and June 2008, whichever is completed earlier. The price of purchases for copper of a prescribed quality, is determined by reference to a commercial benchmark, namely, the relevant Official London Metal Exchange Copper Grade Cash Settlement ( LME ) quotation. The price for all other copper not conforming to the contractually agreed quality is negotiated between SGT and Whim Creek at the time of purchase, depending on the purity level of such copper being purchased. The terms of the Whim Creek Copper Contract were negotiated at arm s length on normal commercial terms, with reference to market rates for the supply of similar copper products. In January 2006, SGT entered into a sales and agency agreement with Whim Creek ( Whim Creek Sales and Agency Agreement ), whereby Whim Creek appointed SGT as its agent to, among other things, market and facilitate the sale of Whim Creek s products. The Whim Creek Sales and Agency Agreement also contemplates that SGT will continue to purchase copper from Whim Creek for sale to third parties on the same terms as the Whim Creek Copper Contract. 171

178 In consideration of the marketing and agency services provided to Whim Creek, Straits Global Trading is entitled to receive a monthly agency fee of US$20,000. This monthly agency fee was determined on an arm s length basis and on normal commercial terms, with reference to market benchmarks and the cost of providing such marketing services. The Whim Creek Sales and Agency Agreement is for an initial period of one year and is automatically renewed on a yearly basis, unless terminated by either party in accordance with the terms of the agreement. The value of the purchases of copper from Whim Creek and the aggregate fees received from Whim Creek during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date are as follows: Year Ended December 31, January 1, up to the Latest Practicable Date Value of transactions (in millions) US$ US$ US$ US$ Purchases of copper from Whim Creek Fees received from Whim Creek under the Whim Creek Sales and Agency Agreement While we intend the focus of our commodities marketing business to be on bulk commodities going forward, we intend to continue providing marketing and agency services and to purchase copper from Whim Creek, in order to continue utilizing the customer relationships that we have already built up with purchasers of Whim Creek copper. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Marketing Services to and Purchases of Gold and Silver from PT IMK Since August 2005, our subsidiary, Straits Global Trading has been purchasing from PT IMK, gold and silver produced from its Mt. Muro mining operations and which it on-sells to third party customers. Straits Global Trading has also been providing to PT IMK various marketing related services, such as logistics support and assistance, sales administration as well as delivery and logistics documentation. The price for the purchases by Straits Global Trading from PT IMK was determined at arm s length on normal commercial terms, by reference to the spot price for gold or silver on the date of sale. Contemporaneously, Straits Global Trading sells the gold or silver to third parties at the same price at which it was purchased from PT IMK, adjusted to cover the freight and handling costs incurred by Straits Global Trading for collection and delivery of the products to third party customers. In consideration of the provision of marketing related services, Straits Global Trading is entitled to charge PT IMK a marketing fee of 2% of the sale price under the contracts between Straits Global Trading and the third party customers, which was determined on an arm s length basis and on normal commercial terms, with reference to among other things, the cost to Straits Global Trading of providing the services and the fees a third party would have charged PT IMK for providing similar services. In January 2006, these arrangements were formally documented, in a sales and agency agreement entered into between Straits Global Trading and PT IMK ( PT IMK Sales and Agency Agreement ). The term of the PT IMK Sales and Agency Agreement is for an initial period of one year and is automatically renewed on a yearly basis unless terminated by either party giving 60 days written notice. 172

179 The value of the purchases from PT IMK and the aggregate fees received from PT IMK during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date are as follows: Year Ended December 31, January 1, up to the Latest Practicable Date Value of transactions (in millions) US$ US$ US$ US$ Purchases from PT IMK Fees and receipts by SGT While we intend the focus of our commodities marketing business to be on bulk commodities going forward, we intend to continue providing marketing and other services to and purchasing gold and silver from PT IMK, in order to continue utilizing the customer relationships that we have already built up with purchasers of gold and silver produced by PT IMK. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Technical and Commercial Services to PT IMK Our subsidiary, PT SCS has been providing technical and commercial services to PT IMK in respect of its Mt. Muro gold mining operations in Indonesia since These arrangements were formalized by way of a technical services agreement (the PT IMK Technical Services Agreement ) and a commercial services agreement (the PT IMK Commercial Services Agreement ), both of which were entered into between PT SCS and PT IMK in January The technical services provided to PT IMK cover mine planning and scheduling, geological modeling, reviewing the operations of the processing plant, operating strategy, project construction, exploration and other technical support, expertise and assistance as may be agreed from time to time. The commercial services provided to PT IMK include accounting services, book-keeping, banking services, internal and external reporting, taxation advice and compliance, procurement of goods and services, contracts, information technology and communication services, human resource advice and compliance, payroll services, logistics and administrative services, among others. In consideration of these technical and commercial services, PT SCS receives management fees based on the estimated man hours provided over the year and averaged on a monthly basis. The initial monthly fee for the provision of technical services was US$51,000 per month, and for commercial services was US$62,000 per month. The fees are subject to review from time to time and varied to accurately reflect the man hours provided. The fees, which represent the cost to PT SCS of providing these services, were each determined on an arm s length basis and on normal commercial terms, with reference to among other things, the appointment of Straits Global Trading as the marketing agent for PT IMK s products under the PT IMK Agency Agreement. The PT IMK Technical Agreement and the PT IMK Commercial Agreement each continues for the life of the Mt. Muro gold mine. 173

180 The aggregate of the management fees received from PT IMK for the provision of technical services and commercial services during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date are as follows: Year Ended December 31, January 1, up to the Latest Practicable Date Value of transactions (in millions) US$ US$ US$ US$ Management fees received for providing technical and commercial services to PT IMK We intend to continue providing technical and commercial services to PT IMK. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Construction and Marine Services to PT IMK and other Interested Persons Our subsidiary, Indo Straits may in the future provide construction and marine services to PT IMK as well as to other subsidiaries of Straits Resources Group as and when such services are required. The fees for such services, should they be provided, will be determined at arm s length and on normal commercial terms, with reference to market rates for the supply of similar services. In addition, the provision of these services will be subject to the terms as determined by the review procedures which we will adopt for future transactions of such nature. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Procurement Services to PT IMK and other subsidiaries of SRL From time to time, PT SCS and Straits Global Trading have provided procurement services to PT IMK. These procurement services include the purchase of machinery and other materials required in connection with the operation of the mines at Mt. Muro. This arrangement for the provision of procurement services was formally documented by an agreement entered into between our Company and SRL in September 2006 (the SRL Co-operation Agreement ) which provided, among others, for the utilization of our procurement capabilities for the procurement of international mining plant and reagents by SRL in its Australian and Indonesian operations. Pursuant to the terms of the SRL Co-operation Agreement, the margin we gain for the provision of procurement services is 2% of the procurement price representing the cost of the machinery or materials purchased. This margin was determined on an arm s length basis and on normal commercial terms, and by reference to, among other things, the rates that third parties would charge for the provision of similar services. The value of the procurement sales (including margin)/commission received from PT IMK for procurement services rendered during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date are as follows: Year Ended December 31, January 1, up to the Latest Practicable Date Value of transactions (in millions) US$ US$ US$ US$ Sales of machinery, reagents and other materials

181 We intend to continue providing procurement services to PT IMK, as well as to other subsidiaries of SRL, including Straits Hillgrove Gold and Straits Salt, as and when our services are required, on a cost plus margin basis as provided under the SRL Co-operation Agreement. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Obtaining of Technical and Corporate Services from SRL Pursuant to the SRL Co-operation Agreement entered into in September 2006, SRL agreed to supply and provide various technical and corporate services to our Group. These services include, but are not limited to the following: (a) (b) technical services in connection with the existing operations of the Sebuku coal mine, including mining, geological modeling, review of coal processing plant, operating strategy, problem solving, project engineering and management, exploration and review of operating manuals; and corporate services in connection with the existing operations of the Sebuku coal mine, including operational assistance (such as mine planning strategies, assessment of development and construction projects) and commercial assistance (such as evaluation, negotiation and implementation of long-term financial models, marketing strategies, sourcing and procurement policies and banking and financing facilities) as well as providing documentation and management advice to enable our Company to meet the corporate practices of the Straits Resources Group in relation to safety standards, industrial relations and treasury management. The fees payable to SRL for the provision of technical services to our Group are US$75,000 per month and for the provision of corporate services to our Company is US$50,000 per month. The fees are subject to annual review and agreement between the parties. The term of the agreement is for the life as long as SRL remains the controlling shareholder of our Company. Under the terms of the agreement, we may request for additional services to be provided by SRL on terms to be agreed between the parties. The terms of the services we obtain from SRL were negotiated at arm s length and on normal commercial terms, with reference to the cost we expect to pay third parties for such equivalent services, and the cost to us (in terms of time, resources and expense) if we undertook such technical and corporate services ourselves. The obtaining from SRL of these technical and corporate services will be subject to the terms as determined by the review procedures which we will adopt for future transactions of such nature. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Infrastructure Supply, Funding and Operational Services by SMI to subsidiaries of the Straits Resources Group Our Company, through its subsidiary, SMI, intends to fund, lease and provide infrastructural development and operational services for the mines operated by the Straits Resources Group where appropriate. In particular, SMI may in future, provide such services to PT IMK through projects involving the construction of a coal-fired power station and to Straits Salt or SRL for its Yannarie Salt Project through the building of vessels and development of port facilities. Should such infrastructure projects be undertaken by us in future, we expect them to be managed on a case by case basis with arm s length contractual arrangements put in place at the time of the evolvement of such projects. We expect the rates of supply payable to us to be negotiated and determined based on fair and reasonable market rates for the provision of similar services. Payment of Insurance Expenses to Straits Resources Straits Resources maintains several insurance policies for the benefit of the Straits Resources Group, including an umbrella liability policy and an expatriate medical coverage policy. Since our Group benefits from these policies, we reimburse Straits Resources for a portion of the costs of these insurances on a cost sharing basis at amounts negotiated and determined at arm s length and on normal commercial terms. The amount of insurance reimbursements paid by us to Straits Resources 175

182 during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date is US$2,691, which we paid to SRL in We intend to review the benefits of taking insurance coverage directly rather than through the above arrangements with Straits Resources. Depending on the outcome of that review, these arrangements may or may not continue. Should we choose to continue with the current arrangement, any payment of reimbursements will be subject to the review procedures set by the Audit Committee. Please refer to Review Procedures and Threshold Limits for Interested Person Transactions below for more information. Provision of Loans by SARL to Interested Persons In recognition of their contribution to the success of our Group, our Company has agreed to provide interest free loans pursuant to a loan scheme to three of our executive Directors, namely Alvin David Toms, Ong Chui Chat and Martin David Purvis, in order to facilitate their acquisition of 1,000,000 Shares, 750,000 Shares and 375,000 Shares respectively from the Selling Shareholder. The provision of the loans to and the acqusition of the Shares by these Directors are contingent upon the close of the Combined Offering and our admission to the Official List of the SGX-ST. The loans provided to these three Executive Directors will be on the same terms as the loans provided by our Company to other executives of our Group in order for them to acquire Shares from the Selling Shareholder. Please see Management and Corporate Governance Transfer of Shares to Executives and Employees for more details on the loans. Upon the close of the close of the Combined Offering and our admission to the Offical List of the SGX-ST, the maximum amount of loans outstanding from Alvin David Toms, Ong Chui Chat and Martin David Purvis pursuant to the provision of loans for the purpose of such share acquisition will be S$720,000, S$540,000 and S$270,000 respectively. Alvin David Toms, Ong Chui Chat and Martin David Purvis have each agreed with the Company that these loan amounts owing to the Company will be offset by the dividends declared in respect of the Shares the acquisition of which was funded by these loans. In addition, the proceeds from any future sale of these Shares will first be applied towards the repayment of any outstanding amount under the loans. The loans become immediately due and repayable upon the executive Director ceasing to be a full time employee of our Company or a related company of our Company. Past or Non-Recurring Interested Person Transactions The transactions with the relevant interested persons described in this section are material past and/or non-recurring interested person transactions that are material in the context of the Combined Offering. These transactions will not be subject to our Shareholders Mandate under the listing rules of the SGX-ST. Obtaining of Technical and Corporate Services from SRL Pursuant to a technical services agreement ( BCS Technical Services Agreement ) and a Corporate Services Agreement ( BCS Corporate Services Agreement ), both entered into on November 30, 2001 between SRL and our subsidiary, BCS, SRL agreed to provide technical and commercial services to BCS in relation to its coal mining operations. The technical services provided by SRL to BCS under the BCS Technical Services Agreement include mine planning and scheduling, geological modeling, reviewing the operations of the Sebuku coal preparation plant, project construction, exploration and other technical support, expertise and assistance as may be agreed from time to time. In consideration of these services, SRL received a management fee based on the applicable hourly rate in respect of each person providing such technical services. The hourly rates paid to SRL were negotiated and agreed between SRL and BCS at arm s length and on normal commercial terms and based on prevailing market rates for the supply of similar technical services. 176

183 The corporate services were provided by SRL to BCS under the BCS Corporate Services Agreement and include providing assistance to BCS to optimize the performance of the Sebuku coal mine through mine planning strategies and assessment of development and construction projects, evaluating and implementing long-term financial models, marketing strategies, sourcing and procurement policies and banking and financing facilities. In addition, SRL provided documentation and management advice and assistance to BCS in order for BCS to comply with the corporate practices of the SRL group in relation to safety standards, industrial relations, treasury management and other SRL group corporate governance standards. In consideration of these services, SRL received a monthly fee based on the estimated man-hours provided over the year and averaged on a monthly basis. The initial monthly fee was estimated at US$52,000 per month subject to review from time to time and varied to accurately reflect the man hours provided. The amount of fees for technical and commercial services provided to BCS during the three years ended December 31, 2005 and from January 1, 2006 up to the Latest Practicable Date are as follows: Year Ended December 31, January 1, up to the Latest Practicable Date Value of transactions (in millions) US$ US$ US$ US$ Obtaining of technical and corporate services fromsrl The BCS Technical Services Agreement and the BCS Commercial Services Agreement have been terminated by mutual agreement. Provision of technical and corporate services in relation to the Sebuku coal mine are currently being provided under the Co-operation Agreement between our Company and SRL. See Present and Future Interested Person Transactions Obtaining of Technical and Corporate Services from SRL. Loans between Indo Straits and Interested Persons Indo Straits provided loans to various interested persons during the three years ended December 31, 2005, all of which were unsecured, payable on demand, interest free and were fully settled by December 31, The loans outstanding as at the end of the financial periods set out below prior to the settlement of such loans are set out below. For the year ended 31 December: Loans by Indo Straits to Alvin David Toms (1)... Rp.3,082,378,095 Rp. 3,118,242,784 Rp. 3,543,433,241 Loans by Indo Straits to Ong Chui Chat and OCC Investments Pte Ltd (2)... Rp.2,730,459,929 Rp. 3,065,172,386 Rp. 3,975,878,615 Loans by Indo Straits to Tiger Energy Ltd, and Geo Resources Ltd (3)... Rp.70,513,480 Rp. 70,863,480 Rp. 70,863,480 Loans by PTIS to Gerald Alain Denis Keet (4)(5)... Rp.5,571,548,862 Rp. 7,164,966,111. Rp. 8,802,808,994 Loans to PTIS (6) by Gerald Alain Denis Keet (5) RP. 20,122,794,976 Rp. 15,485,667,596 Rp. 9,394,334,598 (1) The largest amount of loan outstanding between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was Rp 3,543,433,241. (2) OCC Investments Pte Ltd is an associate of Ong Chui Chat. The largest amount of loan outstanding between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was Rp. 3,975,878,615. (3) Tiger Energy Ltd and Geo Resources Ltd are companies controlled by Alvin David Toms and Ong Chui Chat. The largest amount of loan outstanding between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was Rp. 70,863,480. (4) The largest amount of loan outstanding between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was Rp. 8,802,808,

184 (5) Loans to or from Gerald Alain Denis Keet include loans to or from his associates, namely, David Keet, Primerock Ltd, Straits Engineers Contracting Pte. Ltd, Nicol & Andrew (Far East) Pte. Ltd. and Neural Technology Ltd. (6) The largest amount of loan outstanding between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was Rp. 20,122,794,976. As at the Latest Practicable Date, there were no outstanding amounts due to us from the interested persons stated above. Going forward, we do not intend to enter into loans of this nature with our interested persons. Inter-company loans between the Straits Asia Group and the Straits Resources Group Our Group provided short-term loans to SRL and PT IMK, and SRL provided loans to us, during the three years ended December 31, 2005, all of which were unsecured, interest free and payable on demand. The respective amount of loans provided to and obtained from these interested persons as well as the net amounts outstanding as at December 31, 2003, 2004 and 2005 are set out below. As at December 31, US$( 000) Loans between our Group and SRL (1) : Loans provided to SRL.... 4,430 4,586 9,884 Loans obtained from SRL (2)... 1,609 1,710 1,625 Loans provided by our Group to PT IMK (3) , Net total loans provided to Interested Persons... 2,821 4,090 8,761 (1) The largest amount of loans outstanding from SRL between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was US$ 9,884 thousand. (2) The largest amount of loans owed to SRL between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was US$1,710 thousand. (3) The largest amount of loan outstanding from PT IMK between the beginning of the financial year ended December 31, 2003 and the Latest Practicable Date was US$1,214 thousand. During the period between January 1, 2006 and the Latest Practicable Date (a) there were no loans made to or obtained from SRL and (b) there was a loan of US$393 thousand made by us to PT IMK. As at the Latest Practicable Date, there were no outstanding amounts due to us from or due from us to, the interested persons stated above. Going forward, we do not intend to enter into loans of this nature with our interested persons. Guidelines for Future Interested Person Transactions We anticipate that we would, in the ordinary course of business, continue to enter into certain transactions with our interested persons, including but not limited to those categories of transactions described below. In view of the time-sensitive nature of commercial transactions, it would be advantageous for us to obtain a Shareholders mandate to enter into certain interested person transactions in our ordinary course of business, provided that all such transactions are carried out on normal commercial terms and are not prejudicial to the interests of our Company and our minority Shareholders. Chapter 9 of the Listing Manual allows a listed company to obtain a mandate from its shareholders for recurrent interested person transactions which are of a revenue or trading nature or for those necessary for its day-to-day operations. These transactions may not include the purchase or sale of assets, undertakings or businesses that are not part of our day-to-day operations. 178

185 Pursuant to Rule 920(2) of the Listing Manual, our Company may treat a general mandate as having been obtained from our Shareholders ( Shareholders Mandate ) for us to enter into interested person transactions with our interested persons, if the information required under Rule 920(1)(b) of the Listing Manual is included in this offering document. In relation to us, the information required by Rule 920(1)(b) is as follows: (a) (b) (c) (d) (e) (f) (g) the class of interested persons with which the Entity At Risk (as defined below) will be transacting; the nature of the transactions contemplated under the mandate; the rationale and benefit to the Entity At Risk; the methods or procedures for determining transaction prices; the independent financial advisor s opinion on whether the methods or procedures in (d) above are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders; an opinion from our Audit Committee if it takes a different view to the independent financial advisor; and a statement from us that we will obtain a new mandate from our Shareholders if the methods or procedures in (d) above become inappropriate. The Shareholders Mandate will be effective until the earlier of the following: (i) our first annual general meeting following the Listing Date of our Company on the Main Board of the SGX-ST; or (ii) the first anniversary of the Listing Date. Thereafter, we will seek the approval of our Shareholders for renewal of the Shareholders Mandate at each subsequent annual general meeting. Entities At Risk For the purposes of the Shareholders Mandate, an Entity At Risk means: our Company; a subsidiary of our Company that is not listed on the SGX-ST or an approved exchange; or an associated company of our Company that is not listed on the SGX-ST or an approved exchange, provided that the Group or the Group and interested persons has control over the associated company. Currently, we do not have any such associated companies. Classes of Mandated Interested Persons The Shareholders Mandate will apply to our Group s interested person transactions with: SRL; Whim Creek; PT IMK; and any other subsidiary of SRL (each a Mandated Interested Person ). Transactions with Mandated Interested Persons that do not fall within the ambit of the Shareholders Mandate shall be subject to the relevant provisions of Chapter 9 of the Listing Manual. 179

186 Mandated Transactions The transactions with Mandated Interested Persons that will be covered by the Shareholders Mandate ( Mandated Transactions ) relating to the provision to, or obtaining from, Mandated Interested Persons of products and services in the ordinary course of business of our Group or which are necessary for the day-to-day operations of our Group (but not in respect of the purchase or sale of assets, undertakings or businesses that are not part of our day-to-day operations) are as follows: (a) (b) (c) (d) (e) (f) (g) (h) purchases of goods/commodities from and in connection therewith the provision of marketing services by Straits Global Trading to Whim Creek, PT IMK and other subsidiaries of SRL; provision of technical and commercial services by PT SCS to PT IMK; provision of construction and marine services by Indo Straits to PT IMK and other subsidiaries of SRL; provision of procurement services by our Group to PT IMK and other subsidiaries of SRL; obtaining of technical and corporate services from SRL; provision of infrastructure supply, funding and operational services by SMI to subsidiaries of SRL; payment of insurance expenses and utilizing the insurance cover of SRL; and provision or the obtaining of such other products and/or services which are incidental to or in connection with the provision or obtaining of products and/or services in sub-paragraphs (a) to (g) above. Rationale for and Benefits of the Shareholders Mandate The transactions with the Mandated Interested Persons are entered into or to be entered into by our Group in its ordinary course of business. They are recurring transactions that are likely to occur with some degree of frequency and arise at any time and from time to time. Our Directors are of the view that it will be beneficial to our Group to transact or continue to transact with the Mandated Interested Persons. Our Directors believe that our Group will be able to benefit from its transactions with the Mandated Interested Persons. The Shareholders Mandate and the renewal of the Shareholders Mandate on an annual basis will eliminate the need to convene separate general meetings from time to time to seek Shareholders approval as and when potential interested person transactions with the Mandated Interested Persons arise, thereby reducing substantially the administrative time and expenses in convening general meetings, without compromising the corporate objectives or adversely affecting the business opportunities available to us. The Shareholders Mandate is intended to facilitate transactions in our ordinary course of business that are transacted from time to time with the Mandated Interested Persons, provided that they are carried out on normal commercial terms and are not prejudicial to the interests of our Company and our minority Shareholders. Disclosure will be made in the format required by the Listing Manual, and to the extent required by the SGX-ST, of the aggregate value of interested person transactions conducted pursuant to the Shareholders Mandate during the current financial year, and in the annual reports for the subsequent financial years during which a Shareholders Mandate is in force. Review Procedures and Threshold Limits for Interested Person Transactions Our Audit Committee has oversight of all interested person transactions undertaken by our Group including the review of, and where required approval of, such transactions. We have also established the following procedures to ensure that the interested person transactions are undertaken on an arm s length basis and on normal commercial terms. 180

187 Review Procedures In general, there are procedures established by our Group to ensure that interested person transactions, including the Mandated Transactions with the Mandated Interested Persons, are undertaken on an arm s length basis consistent with our Group s usual business practices and policies and which are carried out on normal commercial terms not prejudicial to the interests of our Company, and on terms which are generally no more favorable to the interested person than those extended to or obtained from unrelated third parties. In particular, the following review procedures have been implemented: (a) Provision of Services and Goods to Mandated Interested Persons In relation to any transaction proposed to be carried out with Mandated Interested Persons for the provision of services, including any marketing, technical, commercial, corporate, procurement, construction and/or infrastructure services, such transactions shall be made at our prevailing rates/prices and carried out on normal commercial terms that are not more favorable to the relevant interested person than those extended to unrelated third persons or otherwise in accordance with applicable industry norms. Where the prevailing market rates or prices are not available whether due to the nature of the services to be provided, or the unavailability or impracticability of obtaining comparable third party quotes or otherwise, or it is not practicable or appropriate in the circumstances to make reference to prevailing market rates or prices, our Group s pricing for such services will be determined in accordance with the Group s usual business practices and pricing policies and taking into account all relevant factors including the circumstances relating to the need to provide such services and any other direct or incidental benefit or detriment to the Group in providing such services (for instance, the benefit derived from being able to provide marketing services to the Mandated Interested Person in respect of and in connection with goods/commodities to be purchased from the Mandated Interested Person). In addition, a senior officer authorized by our Board who does not have any interests, whether direct or indirect, in relation to the transaction will determine whether the price for the provision of services by us to the Mandated Interested Person is fair and reasonable. (b) Purchases of Goods/Commodities from Mandated Interested Persons In relation to any transaction proposed to be carried out with Mandated Interested Persons for the purchase of goods/commodities, including bulk commodities such as coal and metals, and minerals such as gold, silver and copper, such transactions shall where possible, be made at prevailing market rates/prices and carried out on normal commercial terms that are not less competitive than those extended by unrelated third persons or otherwise in accordance with applicable industry norms. Where the prevailing market rates or prices are not available whether due to the nature of the goods/commodities to be purchased, or the unavailability or impracticability of obtaining comparable third party quotes or otherwise, or it is not practicable or appropriate in the circumstances to make reference to prevailing market rates or prices, in assessing the price for the goods/commodities offered by the Mandated Interested Person, we will take into account our Group s usual business practices and pricing policies and all relevant factors including the circumstances relating to the need to purchase such goods/commodities and any other direct or incidental benefit or detriment to the Group in purchasing such goods/commodities (for instance, the benefit derived from being able to provide marketing services to the Mandated Interested Person in respect of and in connection with goods/commodities to be purchased from the Mandated Interested Person). In addition, a senior officer authorized by our Board who does not 181

188 have any interests, whether direct or indirect, in relation to the transaction will determine whether the price for the provision of goods/commodities by the Mandated Interested Person is fair and reasonable in the circumstances. In particular, the abovementioned senior officer referred to in paragraphs (a) and (b) above so authorized by our Board will, in reviewing whether or not purchase contracts are to be entered into with Mandated Interested Persons, adopt the following review procedures: (i) (ii) (iii) (iv) purchase contracts will be entered into with Mandated Interested Persons only if corresponding contracts or agreements to sell the equivalent amount of goods/commodities over an equivalent tenure have been reached between our Group and our customers; the price agreed between our Group and the Mandated Interested Person for our purchase of goods/commodities from the Mandated Interested Person should be no lower than the price agreed between our Group and our customers for the sale of such goods/commodities; where marketing functions are performed by our Group in connection with the purchase of goods/commodities from Mandated Interested Persons, we will charge an agency fee to such Mandated Interested Persons, and such agency fee shall be governed by a separate agreement; and the price and tenure of the goods/commodities purchase contracts with Mandated Interested Persons should be substantially in line with the terms of contracts that our Group would expect to offer to unrelated third party goods/commodities suppliers, taking into account all relevant commercial factors. (c) Obtaining of Services/Reimbursement of Expenses from Mandated Interested Persons Our Group will satisfy itself that the actual fees paid or payable for the technical, corporate and other professional services, provided by a Mandated Interested Person, including any reimbursement of expenses paid by a Mandated Interested Person for services provided by third parties to our Group is fair and reasonable. We will, on an annual basis, review the costs of obtaining such services provided by the Mandated Interested Person or the reimbursements payable to the Mandated Interested Person by comparing the fees payable to the Mandated Interested Person against our internal costing and budgeting estimates prepared by reference to third party quotations for providing similar services. Where third party quotations are not available, whether due to the nature of the services to be obtained, or the unavailability or impracticability of obtaining comparable third party quotes or otherwise, or it is not practicable or appropriate in the circumstances to make reference to prevailing market rates or prices, in assessing the price for the services offered by the Mandated Interested Person, we will take into account our Group s usual business practices and pricing policies and all relevant factors including the circumstances relating to the need to obtain such services and any other direct or incidental benefit or detriment to the Group in obtaining such services (for instance, the benefit derived from organizational or institutional knowledge and familiarity). In addition, a senior officer authorized by our Board who does not have any interests, whether direct or indirect, in relation to the transaction will determine whether the price for the provision of services by the Mandated Interested Person or the amount of reimbursements payable to the Mandated Interested Person for services provided to us by third parties is fair and reasonable in the circumstances. 182

189 Threshold Limits In addition to the above review procedures, all interested person transactions (including interested person transactions with Mandated Interested Persons) will be monitored as individual transactions and will require the prior approval of the relevant approving authority who does not have any interests, whether direct or indirect, in relation to the transaction, as follows: (a) (b) an interested person transaction not exceeding US$10.0 million will require the prior approval of a senior officer authorized by our Board; and an interested person transaction exceeding US$10.0 million, will require the prior approval of our Chief Financial Officer or other senior officer authorized by our Board; Other Review Procedures Our Audit Committee will also review all interested person transactions including Mandated Transactions to ensure that the prevailing rules and regulations of the SGX-ST (in particular, Chapter 9 of the Listing Manual) are complied with. Our Group has also implemented the following procedures for the identification of interested person transactions (including Mandated Transactions) and interested persons (including Mandated Interested Persons) and the recording of all our interested person transactions: (a) (b) our Financial Controller will maintain a register of all transactions carried out with interested persons including Mandated Interested Persons (and the basis, including the quotations obtained to support such basis, on which these transactions are entered into, whether mandated or non-mandated); and on a quarterly basis, our Financial Controller will submit a report to our Audit Committee of all recorded interested person transactions, and the basis of such transactions, entered into by our Group. Our Company s annual internal audit plan shall incorporate a review of all interested person transactions, including the established review procedures for the monitoring of such transactions including transactions with Mandated Interested Persons, whether they are new interested person transactions or existing interested person transactions that have been renewed or revised during the relevant financial year pursuant to the Shareholders Mandate. In addition, our Audit Committee shall also review from time to time such internal controls and review procedures for interested person transactions to determine if they are adequate and/or commercially practicable in ensuring that the transactions between our Group and interested persons are conducted on normal commercial terms and not prejudicial to the interests of our Company and our minority Shareholders. In conjunction with such review, our Audit Committee will also ascertain whether the established review procedures have been complied with. Further, if during these reviews our Audit Committee is of the view that the internal controls and review procedures for interested person transactions are inappropriate or not sufficient to ensure that the interested person transactions will be on normal commercial terms and not prejudicial to the interests of our Company and our minority Shareholders, our Audit Committee will (pursuant to Rule 920(1)(b)(iv) and (vii) of the Listing Manual) revert to our Shareholders for a fresh Shareholders Mandate based on new internal controls and review procedures for transactions with the Mandated Interested Persons. For the purposes of the above review of the internal controls and review procedures, any of our Directors or a member of our Audit Committee who is not considered independent will abstain from participating in the Audit Committee s review of the internal controls and review procedures. Our Board of Directors and our Audit Committee will have overall responsibility for determining the review procedures with the authority to delegate to individuals or committees within our Group as they deem appropriate. 183

190 Opinion of the Independent Financial Advisor KPMG Corporate Finance Pte Ltd ( KPMG Corporate Finance ) was appointed as our independent financial advisor pursuant to Rule 920(1)(b)(v) of the SGX-ST Listing Manual to opine on whether the methods and procedures for determining transaction prices, as set out above, are sufficient to ensure that our Group s transactions with the Mandated Interested Persons are on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders. Having taken into consideration the review procedures for Mandated Transactions set up by the Group, the role of the Audit Committee in enforcing the Mandated Transactions, the rationale for and benefits of the Shareholders mandate, KPMG Corporate Finance is of the opinion that the review procedures for determining transaction prices of Mandated Transactions as set out under the section Review Procedures for Transactions with Interested Persons are, if applied strictly, sufficient to ensure that the Mandated Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of our Company and our minority Shareholders. For further details, see Appendix D Letter from KPMG Corporate Finance to the Independent Directors dated October 26, 2006 in respect of the Shareholders Mandate for Interested Person Transaction. Definitions Certain terms used in the sub-sections Guidelines for Future Interested Person Transactions and Review Procedures and Threshold Limits for Interested Person Transactions have the following meanings: associate means: (a) (b) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means: (i) (ii) (iii) his immediate family; the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; and any company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more; and in relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30% or more; control means the capacity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of a company; controlling shareholder means a person who: (a) (b) holds directly or indirectly 15% or more of the nominal amount of all voting shares in a company. The SGX-ST may determine that a person who satisfies this paragraph is not a controlling shareholder; or in fact exercises control over a company; and interested person means a Director, chief executive officer, or controlling shareholder of our Company, or an associate of any such Director, chief executive officer, or controlling shareholder. 184

191 Conflicts of Interest Potential Conflicts of Interest We summarise below the potential conflicts of interest which may arise from the interests of our principal Shareholders and Directors in any corporation carrying on similar business as us. A number of our Directors and Executive Officers are also directors or key executives of Straits Resources and/or its subsidiaries. Straits Resources, which is our Controlling Shareholder, is also engaged in exploration and mining activities in natural resources such as copper, gold, silver, antimony, in Australia and also in Asia (in the case of the Mt. Muro gold and silver mine in Indonesia). We currently conduct and will in the future conduct various Interested Person Transactions with Straits Resources involving the sale and purchase of products and the provision and receipt of services. Of our Directors, Milan Jerkovic and Martin David Purvis are executive directors of Straits Resources. Alvin David Toms is the non-executive Chairman of the Board of Straits Resources and is a Substantial Shareholder in SRL. Ong Chui Chat is a non-executive director of Straits Resources. Mitigation We believe that any potential conflicts of interests (including those arising from the interested person transactions mentioned above) are addressed as follows: Straits Resources and we have entered into a Co-operation Agreement in order to facilitate the development of Straits Asia Resources Group as a diversified and integrated mining, resources and commodities marketing business in Asia. Straits Resources will endeavour to provide assistance to us as provided for in the Co-operation Agreement or as otherwise agreed from time to time. Straits Resources and we will co-operate in the identification of business opportunities and will foster and encourage the development of opportunities to utilise existing synergies and our respective operational and technical expertise; for so long as it remains a controlling shareholder of our Group, Straits Resources will (notwithstanding the absence of a legally binding agreement) use its best endeavours not to create competition with our Group by such actions as setting up, operating or acquiring a material interest in any other company outside our Group which is in the business of mining and/or marketing of bulk commodities in Asia, except in the event that such activity is conducted with the participation or consent of our Group in accordance with the Co-operation Agreement. In evaluating our participation or consent, our Directors have a fiduciary duty to act in our best interests, as well as a duty to abstain from voting on any matter in which they are interested or conflicted; our Directors have a duty to disclose their interests in respect of any contract, arrangement, proposal, transaction or matter in which they have any personal material interest, or any actual or potential conflict of interests (including a conflict of interests that arises from their directorship(s) or executive position(s) or personal investment in any other corporation(s)) that may involve them. Upon such disclosure, such Directors shall not participate in any proceedings of our Board, and shall in any event abstain from voting, in respect of any such contract, arrangement, proposal, transaction or matter in which the conflict of interests arises, unless and until our Audit Committee has determined that no such conflict of interest exists; our Audit Committee will review any actual or potential conflicts of interests that may involve our Directors disclosed by them to our Board and the exercise of Directors fiduciary duties in this respect. Upon disclosure of an actual or potential conflict of interests by a Director, our Audit Committee will consider whether a conflict of interests does in fact exist. A Director who is a member of our Audit Committee will not participate in any proceedings of our Audit Committee in relation to the review of a conflict of interests relating to him. The review will include an examination of the nature of the conflict and such relevant supporting data, as our Audit Committee may deem reasonably necessary; 185

192 we have established policies and procedures, including internal audit controls, to ensure that our transactions with our Controlling Shareholder and its associates are entered into on an arm s length basis and on commercial terms consistent with our Group s usual business practices and policies. These procedures include the appointment of an independent financial adviser to opine on whether the methods and procedures for determining transaction prices are sufficient to ensure that our transactions with our Controlling Shareholder and its associates are entered into on arm s-length terms and at commercial rates that will not be prejudicial to our interests and the interests of our minority Shareholders (see Interested Person Transactions ); upon our listing on the SGX-ST, we will be subject to the SGX-ST listing rules on interested person transactions. The objective of these rules is to ensure that our interested person transactions do not prejudice the interests of our Shareholders as a whole. These rules require us to make prompt announcements, disclosures in our annual report and/or seek Shareholders approval for certain material interested person transactions. Our Audit Committee may also have to appoint independent financial advisers to review such interested person transactions and opine on whether such transactions are fair and reasonable to us, not prejudicial to our interests and the interests of our minority Shareholders. Under the SGX-ST listing rules, our Shareholders Mandate must be renewed at each annual general meeting and disclosure must be made in our annual report of the aggregate value of interested person transactions conducted pursuant to the Shareholders Mandate during each financial year, and in the annual reports for the subsequent years during which the Shareholders Mandate is in force. We must also adopt a new mandate if for any reason the review policies and procedures under our current Shareholders Mandate are inadequate (see Interested Person Transactions ); our Audit Committee will review interested person transactions on a periodic basis to ensure compliance with our policies and procedures, including the internal audit controls, referred to above, and with the relevant provisions of the SGX-ST listing rules. If a member of our audit committee has an interest in a transaction, he will abstain from participating in the review and approval process of our Audit Committee in relation to that transaction. Our Audit Committee will also review the policies and procedures to ensure that they are adequate to achieve the objectives of ensuring that our interested person transactions are fair and reasonable to us and not prejudicial to our interests and the interests of our minority Shareholders; our Board is of the opinion that Alvin David Toms and Milan Jerkovic are able to fulfill their respective roles as our Chief Executive Officer and Non-Executive Chairman, notwithstanding that Milan Jerkovic reports as chief executive officer of SRL to the SRL board currently chaired by Alvin David Toms. In addition, the Nominating Committee of our Board will review the effectiveness of the current reporting arrangements in the course of nominating persons to stand for election to our Board; and our Directors owe fiduciary duties to us, including the duty to act in good faith and in our best interests. Our Directors are also subject to a duty of confidentiality that precludes a Director from disclosing to any third party (including any of our Shareholders or their associates) information that is confidential to us. Except as disclosed above and in the section Interested Person Transactions and Conflicts of Interests : (i) (ii) (iii) no Director, Executive Officer, Controlling Shareholder, or any of their respective associates has any interest, direct or indirect, in any transactions to which our Company was or is to be a party; no Director, Executive Officer, Controlling Shareholder, or any of their respective associates has any interest, direct or indirect, in any company carrying on the same business or a similar trade which competes materially and directly with the existing business of our Group; and no Director, Executive Officer, Controlling Shareholder, or any of their respective associates has any interest, direct or indirect, in any company that is our customer or supplier of goods and services. 186

193 PRINCIPAL AND SELLING SHAREHOLDERS Principal Shareholders Our Company has 920,765,220 Shares outstanding. The shareholdings of our Directors and Substantial Shareholders, both direct and deemed, as at the Latest Practicable Date and after completion of the Combined Offering are set out in the table below: Name Shares Owned as at the Latest Practicable Date Shares Owned Immediately After the Combined Offering (assuming the Over-allotment Option is not exercised) Shares Owned Immediately After the Combined Offering (assuming the Over-allotment Option is exercised in full) No. of Shares % No. of Shares % No. of Shares % Substantial Shareholders: Straits Bulk and Industrial Pty Ltd (1).. 920,765, ,215, ,215, Straits Resources Limited (2) Directors: Milan Jerkovic (3)... Alvin David Toms (4)... 1,000, ,000, Ong Chui Chat (5) , , Martin David Purvis (6) , , Dr Chua Yong Hai... Han Eng Juan... Employees (7)... 3,425, ,425, Public shareholders ,000, ,000, Total ,765, ,765, ,765, (1) Straits Bulk and Industrial Pty Ltd (the Selling Shareholder) owns the entire issued share capital of our Company immediately prior to the Combined Offering. (2) Straits Resources Limited, our ultimate holding company, owns the entire issued share capital of Straits Bulk and Industrial Pty Ltd and is for the purposes of Section 4 of the SFA, deemed to own a 100% interest in the share capital of our Company immediately prior to the Combined Offering and 64.7% interest in the share capital of our Company immediately after the Combined Offering (assuming the Over-allotment Option is not exercised). (3) Milan Jerkovic owns 1.8% (comprising 3,165,226 shares) in the issued share capital of Straits Resources Limited and is therefore not deemed to have any interest in the share capital of our Company for the purposes of Section 4 of the SFA. (4) Alvin David Toms owns 17.3% (comprising 30,605,989 shares) in the issued share capital of Straits Resources Limited and is therefore not deemed to have any interest in the share capital of our Company prior to the Combined Offering. However, prior to the Combined Offering, Mr Toms has agreed to acquire and the Selling Shareholder has agreed to transfer 1,000,000 Shares to him upon the close of the Combined Offering and the admission of the Company on the official list of the SGX-ST. (5) Ong Chui Chat owns 2.6% (comprising 4,569,281 shares) in the issued share capital of Straits Resources Limited and and is therefore not deemed to have any interest in the share capital of our Company prior to the Combined Offering. However, prior to the Combined Offering, Mr Ong has agreed to acquire and the Selling Shareholder has agreed to transfer 750,000 Shares to him upon the close of the Combined Offering and the admission of the Company on the official list of the SGX-ST. (6) Martin David Purvis owns 0.4% (comprising 705,438 shares) in the issued share capital of Straits Resources Limited and is therefore not deemed to have any interest in the share capital of our Company prior to the Combined Offering. However, prior to the Combined Offering, Mr Purvis has agreed to acquire and the Selling Shareholder has agreed to transfer 375,000 Shares to him upon the close of the Combined Offering and the admission of the Company to the Official List of the SGX-ST. (7) 38 executives, including five our Executive Officers (namely James Dracopoulos, Carl Raymond Memmott, Lim Liang Meng, Ronald Stephen Heeks and James Carter) as well 235 junior employees of our Company and our Indonesian subsidiaries will receive such Shares from the Selling Shareholder upon the close of the Combined Offering and the admission of the Company to the Official List of the SGX-ST. See Management and Corporate Governance Transfer of Shares to Executives and Employees for further details. Except as disclosed above, there are no other relationships between our Directors and Substantial Shareholders. 187

194 Except as disclosed above, our Company is not directly or indirectly owned or controlled by another corporation, any government or other natural person, whether severally or jointly. There is no known arrangement, the operation of which may, at a subsequent date, result in a change in the control of our Company. The Shares held by our Directors and Substantial Shareholders described above do not carry different voting rights from the Offering Shares. Significant Changes in Percentage Ownership The following table sets forth the significant changes in the shareholding interests of our Directors and Substantial Shareholders in our Shares as at the end of the last three financial years and as at the Latest Practicable Date. Except as disclosed below, there were no significant changes in the percentage ownership in our Company since March 31, As of December 31, (1) As of the Latest Practicable Date Name No. of Shares owned % No. of Shares owned % No. of Shares owned % No. of Shares owned % Substantial Shareholders Straits Bulk and Industrial Pty Ltd % 2 100% 30,692, % 30,692, % Straits Resources Limited (2) % 100% 100% 100% Gerald Alain Denis Keet (3) % 49.6% 21.9% 19.5% Directors Milan Jerkovic Alvin David Toms Ong Chui Chat Martin David Purvis Dr Chua Yong Hai Han Eng Juan (1) The percentages set out in this table are calculated based on the issued share capital of our Company as at the relevant times. (2) Straits Resources has a 100% indirect shareholding interest in our Company through Straits Bulk and Industrial Pty Ltd (3) Gerald Alain Dennis Keet owned 60,871,456 shares, 60,871,456 shares, 35,872,005 shares and 34,602,005 shares in SRL for each of the last three financial years ended December 31, 2005 and as of the Latest Practicable Date, respectively. Mr Keet is deemed to have an interest of 49.6% in the share capital of our Company for each of the financial years ended 2003 and 2004 for the purposes of Section 4 of the SFA, and was therefore a Substantial Shareholder of our Company in 2003 and 2004, respectively. Selling Shareholder Our Selling Shareholder, Straits Bulk and Industrial Pty Ltd owns the entire issued share capital of our Company prior to the Combined Offering, and is offering 320,000,000 Offering Shares, representing 34.8% of our Company s issued share capital as of the Latest Practicable Date. Straits Bulk and Industrial Pty Ltd is an investment holding company established in Australia, and is a wholly-owned subsidiary of Straits Resources Limited, a diversified resource company established in Australia. The address of the Selling Shareholder is Level 1, 35 Ventnor Avenue, West Perth 6005, Western Australia. Moratorium Our Company and certain Shareholders have agreed with the Global Coordinator on certain lock-up arrangements as discussed in Plan of Distribution Restrictions on Disposals and Issues of Shares. 188

195 DESCRIPTION OF OUR SHARES The following statements are brief summaries of the more important rights and privileges of Shareholders conferred by the laws of Singapore and our Articles of Association. These statements summarise the material provisions of our Articles of Association but are qualified in their entirety by reference to our Articles of Association and the laws of Singapore. Shares Our Shares, which have identical rights in all respects, rank equally with one another. Our Articles of Association provide that we may issue shares of a different class with preferential, deferred, qualified or special rights, privileges or conditions as our Board of Directors may think fit, and may issue preference shares which are, or at our option are, redeemable, subject to certain limitations. As at the date of this offering document, we have 920,765,220 Shares in issue which are fully paid-up in cash. All of our Shares are in registered form. We may, subject to the provisions of the Singapore Companies Act and the rules of the SGX-ST, purchase our own Shares. However, we may not, except in the circumstances permitted by the Singapore Companies Act, grant any financial assistance for the acquisition or proposed acquisition of our Shares. New Shares We may only issue new Shares with the prior approval of our Shareholders in a general meeting. Our Shareholders have given us general authority to issue new shares, and make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, prior to our next annual general meeting or if earlier the date by which our next annual general meeting is required by law to be held, and to issue shares in pursuance of any Instrument made or granted by our Directors while such general authority is in force. The aggregate number of shares to be issued pursuant to such general authority (including shares to be issued pursuant to Instruments made or granted pursuant to such general authority) may not exceed 50.0% of our issued share capital, of which the aggregate number of shares to be issued other than on a pro rata basis to our Shareholders (including shares issued pursuant to Instruments made or granted pursuant to such general authority) may not exceed 20.0% of our issued share capital. For the purpose of computing such numerical limits, the percentage of issued share capital is calculated based on the issued share capital of our Company immediately following the close of the Combined Offering, after adjusting for new Shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time that the general authority is given, and adjusted for any subsequent consolidation or subdivision of Shares. Subject to the foregoing, the provisions of the Singapore Companies Act and any special rights attached to any class of Shares currently issued, our Board of Directors controls the allotment and issue of all new Shares and may impose such rights and restrictions as it thinks fit. Shareholders We only recognize the persons who are registered in our register of members and, in cases in which the person so registered is CDP or its nominee, as the case may be, we recognize the persons named as the depositors in the depository register maintained by CDP for our Shares as holders of our Shares. We will not, except as required by law, recognize any equitable, contingent, future or partial interest in any of our Shares, or any interest in any fractional part of a Share, or other rights in respect of any Share, other than the absolute right thereto of the registered holder of that Share or of the person whose name is entered in our register of members as the registered holder thereof, or of the person whose name is entered in the depository register maintained by CDP for that Share. 189

196 We may close our register of members at any time or times if we provide the SGX-ST with at least ten clear Market Days notice. However, our register of members may not be closed for more than 30 days in aggregate in any calendar year. We typically close our register of members to determine Shareholders entitlement to receive dividends and other distributions. Transfer of Shares There is no restriction on the transfer of fully paid-up Shares except where required by law or the listing rules or the rules or bye-laws of any stock exchange on which we are listed or as provided in our Articles of Association. Our Board of Directors may in their discretion decline to register any transfer of Shares which are not fully paid-up Shares or on which we have a lien or refuse to register a transfer to a transferee of whom they do not approve (except where such refusal contravenes the bye-laws or listing rules of the securities exchange upon which shares in our Company are listed). See Limitations on Rights to Hold or Vote Shares. A Shareholder may transfer any Shares registered in its own name by means of a duly signed instrument of transfer in a form approved by any stock exchange on which we are listed. Our Board of Directors may also decline to register any instrument of transfer unless, among other things, it has been duly stamped and is presented for registration together with the share certificate and such other evidence of title as they may require. A Shareholder may transfer any Shares held through the SGX-ST book-entry settlement system by way of a book-entry transfer without the need for any instrument of transfer. We will replace lost or destroyed certificates for Shares provided that the applicant pays a fee which will not exceed S$2.00 together with the amount of stamp duty payable, if any, and furnishes such evidence and a letter of indemnity as our Board of Directors may require. General Meetings of Our Shareholders We are required to hold an annual general meeting every year. Our Board of Directors may convene an extraordinary general meeting whenever they think fit and must do so if Shareholders representing not less than 10.0% of the total voting rights of all Shareholders request in writing that such a meeting be held. Unless otherwise required by law or by our Articles of Association, voting at general meetings is by ordinary resolution, requiring an affirmative vote of a simple majority of the votes cast at that meeting. An ordinary resolution suffices, for example, for the appointment of directors. A special resolution, requiring the affirmative vote of at least 75.0% of the votes cast at the meeting, is necessary for certain matters under Singapore law, including: voluntary winding up; amendments to our Memorandum of Association and our Articles of Association; a change of our corporate name; and a reduction in the share capital. We must give at least 21 days notice in writing for every general meeting convened for the purpose of passing a special resolution. Ordinary resolutions generally require at least 14 days notice in writing. The notice must be given to every Shareholder who has supplied us with an address in Singapore for the giving of notices and must set forth the place, the day and the hour of the meeting and, in the case of special business, the general nature of that business. 190

197 Voting Rights A Shareholder is entitled to attend, speak and vote at any general meeting, in person or by proxy. A proxy need not be a Shareholder. A person who holds Shares through the SGX-ST book-entry settlement system will only be entitled to vote at a general meeting as a Shareholder if his name appears on the depository register maintained by CDP 48 hours before the general meeting. Except as otherwise provided in our Articles of Association, two or more Shareholders must be present in person or by proxy to constitute a quorum at any general meeting. Under our Articles of Association: on a show of hands, every Shareholder present in person or by proxy shall have one vote (provided that in the case of a Shareholder who is represented by two proxies, only one of the two proxies as determined by that Shareholder or, failing such determination, by the chairman of the meeting (or by a person authorised by the chairman) in his sole discretion shall be entitled to vote on a show of hands); and on a poll, every Shareholder present in person or by proxy shall have one vote for each Share which he holds or represents. A poll may be demanded in certain circumstances, including: by the chairman of the meeting; by any five Shareholders having the right to vote at the meeting; and by any Shareholder having the right to vote at the meeting and representing not less than 10.0% of the total voting rights of all Shareholders having the right to vote at the meeting. However, no poll may be demanded on a question of the choice of the chairman of the meeting or on a question of adjournment of the meeting. In the case of a tied vote, whether on a show of hands or a poll, the chairman of the meeting shall be entitled to a casting vote. Dividends We may, by ordinary resolution of our Shareholders, declare dividends at a general meeting, but we may not pay dividends in excess of the amount recommended by our Board of Directors. Our Board of Directors may also declare an interim dividend without the approval of our Shareholders. We must pay all dividends out of our profit(s). All dividends we pay are pro rata in amount to our Shareholders in proportion to the amount paid up on each Shareholder s Shares, unless the rights attaching to an issue of any Share provide otherwise. Unless otherwise directed, dividends may be paid by a cheque or warrant sent through the post to each Shareholder at his registered address appearing in our register of members or (as the case may be) the depository register. However, our payment to CDP of any dividend payable to a Shareholder whose name is entered in the depository register shall, to the extent of payment made to CDP, discharge us from any liability to that Shareholder in respect of that payment. Bonus and Rights Issue Our Board of Directors may, with approval from our Shareholders at a general meeting, capitalize any reserves or profits (including profit or monies carried and standing to any reserve and distribute the same as bonus Shares credited as paid-up to the Shareholders in proportion to their shareholdings. Our Board of Directors may also issue bonus Shares to participants of any share incentive or option scheme or plan implemented by our Company and approved by our Shareholders in such manner and on such terms as our Board of Directors shall think fit. 191

198 Our Board of Directors may also issue rights to take up additional Shares to Shareholders in proportion to their shareholdings. Such rights are subject to any conditions attached to such issue and the regulations of any stock exchange on which we are listed. Take-overs The Singapore Code on Take-overs and Mergers regulates the acquisition of voting shares of public companies and contains certain provisions that may delay, deter or prevent a take-over or change in control of our Company. Any person acquiring an interest, either on his own or together with parties acting in concert with him, in 30.0% or more of the voting shares in our Company or, if such person holds, either on his own or together with parties acting in concert with him, between 30.0% and 50.0% (both inclusive) of the voting shares in our Company, and acquires additional voting shares representing more than 1.0% of our voting Shares in any six-month period, may be required to extend a take-over offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and Mergers. Parties acting in concert comprise individuals or companies who, pursuant to an arrangement or understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the presumption is rebutted) to be acting in concert with each other. They include: a company and its related and associated companies and companies whose associated companies include any of these companies; a company and its directors (including their close relatives, related trusts and companies controlled by any of the directors, their close relatives and related trusts); a company and its pension funds and employee share schemes; a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis; a financial or other professional adviser and its clients in respect of shares held by the adviser and persons controlling, controlled by or under the same control as the adviser and all the funds managed by the adviser on a discretionary basis, where the shareholdings of the adviser and any of those funds in the client total 10.0% or more of the client s equity share capital; directors of a company (including their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for the company may be imminent; partners; and an individual and his close relatives, related trusts, any person who is accustomed to act in accordance with his instructions and companies controlled by the individual, his close relatives, his related trusts or any person who is accustomed to act in accordance with his instructions. Subject to certain exceptions, a take-over offer must be in cash or be accompanied by a cash alternative at not less than the highest price paid by the offeror or parties acting in concert with the offeror within the preceding six months. Under the Singapore Code on Take-overs and Mergers, where effective control of a company is acquired or consolidated by a person, or persons acting in concert, a general offer to all other Shareholders is normally required. An offeror must treat all Shareholders of the same class in an offeree company equally. A fundamental requirement is that Shareholders in the company subject to the take-over offer must be given sufficient information, advice and time to consider and decide on the offer. 192

199 Liquidation or Other Return of Capital If we are liquidated or in the event of any other return of capital, holders of our Shares will be entitled to participate in the distribution of any assets in proportion to their shareholdings, subject to any special rights attaching to any other class of shares in our Company. Indemnity As permitted by Singapore law, our Articles of Association provide that, subject to the Singapore Companies Act, our Board of Directors and officers shall be entitled to be indemnified by us against any liability incurred in defending any proceedings, whether civil or criminal: which relate to anything done or omitted to have been done by them as an officer, director or employee; and in which judgment is given in their favour or in which they are acquitted or in connection with any application under any statute for relief from liability in respect thereof in which relief is granted by the court. We may not indemnify our Directors and officers against any liability which by law would otherwise attach to them in respect of any negligence, default, breach of duty or breach of trust of which they may be guilty in relation to us. However, we may purchase and maintain for our Directors and officers insurance against any such liability. Substantial Shareholdings The Singapore Companies Act and the Securities and Futures Act require such Substantial Shareholders to give notice to us and the SGX-ST, including particulars of their interest and the circumstances by which they have acquired such interest, within two Singapore business days of their becoming our Substantial Shareholders and of any change in the percentage level of their interest. Under the Singapore Companies Act, a person has a substantial shareholding in our Company if he has an interest (or interests) in one or more voting Shares and the total votes of that Share or those Shares) is not less than 5.0% of the aggregate of the nominal amount of all voting shares in our Company. Percentage level, in relation to a Substantial Shareholder, means the percentage figure ascertained by expressing the total votes attached to all the voting shares in which the Substantial Shareholder has an interest (or interests) immediately before or (as the case may be) immediately after the relevant time as a percentage of the total votes attached to all the voting shares in our Company, and, if it is not a whole number, rounding that figure down to the next whole number. Minority Rights Section 216 of the Singapore Companies Act protects the rights of minority Shareholders of Singapore incorporated companies by giving the Singapore courts a general power to make any order, upon application by any of our Shareholders, as they think fit to remedy any of the following situations: if our affairs are being conducted or the powers of our Board of Directors are being exercised in a manner oppressive to, or in disregard of the interests of, one or more of our Shareholders; or if we take an action, or threaten to take an action, or our Shareholders pass a resolution, or propose to pass a resolution, which unfairly discriminates against, or is otherwise prejudicial to, one or more of our Shareholders, including the applicant. 193

200 Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in no way limited to those listed in the Singapore Companies Act itself. Without prejudice to the foregoing, Singapore courts may: direct or prohibit any act or cancel or vary any transaction or resolution; regulate the conduct of our affairs in the future; authorise civil proceedings to be brought in our name, or on our behalf, by a person or persons and on such terms as the court may direct; direct us or some of our Shareholders to purchase a minority Shareholder s shares and, in the case of our purchase of shares, a corresponding reduction of our share capital; and direct that we be wound up. Legal Framework The following statements are brief summaries of the laws of Singapore relating to the legal framework in Singapore and our Board of Directors, which are qualified in their entirety by reference to the laws of Singapore. Singapore has a common law system based on a combination of case law and statute law. The Singapore Companies Act is the principal companies legislation governing companies incorporated under the laws of Singapore and provides for three main forms of corporate vehicles, being the company limited by shares, the company limited by guarantee and the unlimited company. Companies are incorporated by filing with the Accounting and Corporate Regulatory Authority in Singapore through certain electronic forms, including the constitutional documents which are its Memorandum and Articles of Association. The Memorandum of Association of a Singapore incorporated company sets out the objects and powers of the company. The Articles of Association generally contain provisions relating to share capital and variation of rights, transfers and transmissions of shares, meetings of Shareholders, directors and directors meetings, powers and duties of directors, accounts, dividends and reserves, capitalisation of profits, secretary, common seal, winding up and indemnity of the officers of our Company. 194

201 CLEARANCE AND SETTLEMENT In-principle approval has been obtained from the SGX-ST for the listing and quotation of our Shares. For the purpose of trading on the SGX-ST, a board lot for our Shares will comprise 1,000 Shares. Upon listing and quotation on the SGX-ST, our Shares will be traded under the book-entry settlement system of CDP, and all dealings in and transactions of our Shares through SGX-ST will be effected in accordance with the terms and conditions for the operation of securities accounts with CDP, as amended from time to time. CDP, a wholly-owned subsidiary of Singapore Exchange Limited, is incorporated under the laws of Singapore and acts as a depository and clearing organisation. CDP holds securities for its accountholders and facilitates the clearance and settlement of securities transactions between accountholders through electronic book-entry changes in the securities accounts maintained by such accountholders with CDP. Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf of persons who maintain, either directly or through depository agents, securities accounts with CDP. Persons named as direct securities account holders and depository agents in the depository register maintained by CDP, rather than CDP itself, will be treated, under the Singapore Companies Act and our Articles of Association, as our members in respect of the number of our Shares credited to their respective securities accounts. Persons holding our Shares in a securities account with CDP may withdraw the number of Shares they own from the book-entry settlement system in the form of physical share certificates. Such share certificates will not, however, be valid for delivery pursuant to trades transacted on the SGX-ST, although they will be prima facie evidence of title and may be transferred in accordance with our Articles of Association. A fee of S$10 for each withdrawal of 1,000 Shares or less and a fee of S$25 for each withdrawal of more than 1,000 Shares will be payable upon withdrawing our Shares from the book-entry settlement system and obtaining physical share certificates. In addition, a maximum fee of S$2 or such other fee as our Directors may determine, will be payable to our share registrar for each share certificate issued, and stamp duty of S$10 is also payable where our Shares are withdrawn in the name of the person withdrawing our Shares, or S$0.20 per S$100 or part thereof of the last-transacted price where our Shares are withdrawn in the name of a third party. Persons holding physical share certificates who wish to trade on the SGX-ST must deposit with CDP their share certificates together with the duly executed and stamped instruments of transfer in favour of CDP, and have their respective securities accounts credited with the number of our Shares deposited before they can effect the desired trades. A fee of S$10 and stamp duty of S$20 is payable upon the deposit of each instrument of transfer with CDP. Transactions in our Shares under the book-entry settlement system will be reflected by the seller s securities account being debited with the number of our Shares sold and the buyer s securities account being credited with the number of our Shares acquired. No transfer stamp duty is currently payable for the transfer of our Shares that are settled on a book-entry basis. A Singapore clearing fee for trades in our Shares on the SGX-ST is payable at the rate of 0.05% of the transaction value, subject to a maximum of S$200 per transaction. The clearing fee, instrument of transfer deposit fee and share withdrawal fee, as well as the share certificate issue fee payable to our share registrar, are subject to GST of 5%. Dealings in our Shares will be carried out in Singapore dollars and will be effected for settlement through CDP on a scripless basis. Settlement of trades on a normal ready basis on the SGX-ST generally takes place on the third Market Day following the transaction date, and payment for the securities is generally settled on the following Market Day. CDP holds securities on behalf of investors in securities accounts. An investor may open a direct securities account with CDP or a securities sub-account with a CDP depository agent. A CDP depository agent may be a member company of the SGX-ST, bank, merchant bank or trust company. 195

202 TAXATION The discussion below is not intended to constitute a complete analysis of all tax consequences relating to ownership of our Shares. Prospective purchasers of our Shares should consult their own tax advisors concerning the tax consequences of their particular situations. This description is based on laws, regulations and interpretations as now in effect and available as of the date of this offering document. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive to the date of issuance of the Shares. These laws and regulations are also subject to various interpretations and the relevant tax authorities or the courts could later disagree with the explanations or conclusions set out below. Singapore Taxation Income Tax The following is a discussion of certain tax matters arising under the current tax laws in Singapore and is not intended to be and does not constitute legal or tax advice. While this discussion is considered to be a correct interpretation of existing laws in force as at the date of this Prospectus, no assurance can be given that courts or fiscal authorities responsible for the administration of such laws will agree with this interpretation or that changes in such laws will not occur. The discussion is limited to a general description of certain Singapore tax consequences with respect to ownership of the Shares by investors, and does not purport to be a comprehensive or exhaustive description of all of the tax considerations that may be relevant to a decision to purchase the Shares. Prospective investors should consult their tax advisers regarding Singapore tax and overseas tax consequences of owning and disposing the Shares. It is emphasised that neither our Company, the Directors nor any other persons involved in the Invitation accepts responsibility for any tax effects or liabilities resulting from the subscription for, purchase, holding or disposal of the Shares. Individual Income Tax An individual is a tax resident in Singapore in a year of assessment if, in the preceding year, he was physically present in Singapore or exercised an employment in Singapore (other than as a director of a company) for 183 days or more, or if he resides in Singapore. The following income received in Singapore by non-resident individuals is exempt from Singapore income tax: (i) (ii) all foreign sourced income; and Singapore-sourced investment income from financial instruments, except where such income is derived through a partnership in Singapore or is derived through carrying on of a trade, business or profession. For individual tax residents of Singapore, the income specified in (i) above is exempt from tax except where such income is derived through a partnership in Singapore. The income specified in (ii) above subject to the exception mentioned, is also exempt from tax. Thus, an individual taxpayer is generally only subject to Singapore income tax on income (other than certain investment income and one-tier dividends which are exempt from tax) accrued in or derived from Singapore, irrespective of whether that person is a resident or non-resident of Singapore. The tax rate for a resident individual varies according to the individual s circumstances, but is subject to the current maximum rate of 20% with effect from the year of assessment 2007 (i.e. calendar year 2006), as proposed in the 2005 Budget. A non-resident individual is normally taxed at the corporate tax rate, except that Singapore employment income is taxed at a flat rate of 15% or at resident rates, whichever yields a higher tax. 196

203 Corporate Income Tax A corporate taxpayer is regarded as resident for Singapore tax purposes if its business is controlled and managed in Singapore. A Singapore resident corporate taxpayer is subject to Singapore income tax on income accrued in or derived from Singapore, and on foreign sourced income received in Singapore. However, foreign dividends, branch profits and foreign sourced service income received in Singapore by a Singapore resident company are exempt from Singapore tax if certain conditions are met. In addition, one-tier dividends received by a resident company are also exempt from Singapore income tax. A non-resident corporate taxpayer, with certain exceptions, is subject to income tax only on income that is accrued in or derived from Singapore, and on foreign sourced income received in Singapore, subject to certain exceptions. One-tier dividends received by a non-resident Singapore company are also exempt from Singapore income tax. There is no withholding tax on dividends paid by a Singapore resident company to non-resident Shareholders. The corporate tax rate is presently 20%. In calculating a company s chargeable income, 75% of up to the first S$10,000 of chargeable income and 50% of up to the next S$90,000 are exempt from corporate tax. The remaining chargeable income will be fully taxable at the corporate tax rate of 20%. The tax exemptions referred to above do not apply to Singapore dividend income. Dividend Distributions Singapore currently adopts a one-tier corporate taxation system. The tax on corporate profits is final and any dividends (whether in cash or in kind) paid by a Singapore resident company are tax exempt in the hands of the shareholders, regardless of their legal form and tax residence status. Such dividends are unfranked with no tax credit attached. Capital Gains Singapore does not impose tax on capital gains. There are no specific laws or regulations which deal with the characterisation of capital gains. Gains derived from activities which are regarded as the carrying on of a trade or business in Singapore are income in nature and are therefore subject to income tax. Profits arising from the disposal of the Shares should generally not be taxable in Singapore unless the investor is dealing or trading in shares in Singapore, in which case, the disposal profits would be taxable as trading profits and not treated as non-taxable capital gains. Stamp Duty There is no stamp duty on the subscription or allotment of the Shares. Stamp duty is also not payable on subsequent transfers of the Shares as they are transferred electronically through the Central Depository system. Estate Duty Singapore estate duty is imposed on the value of most immovable property situated in Singapore owned by an individual who was at the time of death not domiciled in Singapore, subject to specific exemption limits. Movable assets of an individual who at the time of death was not domiciled in Singapore are exempt from estate duty. Singapore estate duty is imposed on the value of most immovable property situated in Singapore and on most movable property, wherever it may be situated, owned by an individual who was at the time of death domiciled in Singapore, subject to specific exemption limits. 197

204 The Shares are considered to be movable property situated in Singapore as our Company s share register is maintained in Singapore. Singapore estate duty is payable to the extent that the value of dutiable property exceeds S$600,000. Unless other exemptions apply to other assets (for example, the separate exemption limit for residential properties), any excess beyond S$600,000 will be taxed at 5% on the first S$12,000,000 of the individual s Singapore chargeable assets and thereafter at 10%. Prospective purchasers of the Shares who are individuals, whether or not domiciled in Singapore, should consult their own tax advisers regarding Singapore estate duty consequences of their investment. United States Federal Income Taxation The following is a description of the principal United States federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our Shares. This description addresses only the United States federal income tax considerations of holders that are initial purchasers of our Shares pursuant to the Combined Offering and that will hold such Shares as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, including: financial institutions or insurance companies; real estate investment trusts, regulated investment companies or grantor trusts; dealers or traders in securities or currencies; tax-exempt entities; persons that received our shares as compensation for the performance of services; persons that will hold our Shares as part of a hedging or conversion transaction or as a position in a straddle for United States federal income tax purposes; certain U.S. expatriates; persons that have a functional currency other than the United States dollar; or holders that own or are deemed to own 10% or more, by voting power or value, of our Shares. Moreover, this description does not address the United States federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of our Shares. This description is based on the Internal Revenue Code of 1986, as amended (the Code ), existing, proposed and temporary United States Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date hereof. The United States tax laws and the interpretation thereof are subject to change, which change could apply retroactively and could affect the tax consequences described below. For purposes of this description, a U.S. Holder is a beneficial owner of our Shares that, for United States federal income tax purposes, is: a citizen or resident of the United States; a partnership or corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; an estate the income of which is subject to United States federal income taxation regardless of its source; or 198

205 a trust if such trust validly elects to be treated as a United States person for United States federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of the substantial decisions of such trust. A Non-U.S. Holder is a beneficial owner of our Shares that is not a U.S. Holder. If a partnership (or any other entity treated as a partnership for United States federal income tax purposes) holds our Shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its tax advisor as to its tax consequences. You should consult your own tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning or disposing of our Shares. Internal Revenue Service Circular 230 Disclosure Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the description set forth herein with respect to U.S. federal tax issues was not intended or written to be used, and such description cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the U.S. Internal Revenue Code. This description was written to support the marketing of the Shares and is limited to the U.S. federal tax issues described herein. Additional issues may exist that could affect the U.S. federal tax treatment of an investment in the Shares, or the matters that are the subject of the description, and this description does not consider or provide any conclusions with respect to any such additional issues. Taxpayers should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. Distributions Subject to the discussion below under United States Federal Income Taxation Passive Foreign Investment Company Considerations, for United States federal income tax purposes, if you are a U.S. Holder, for United States federal income tax purposes, the gross amount of any distribution made to you of cash or property, (other than certain distributions, if any, of our Shares distributed pro rata to all our Shareholders) with respect to your Shares, before reduction for any Singapore taxes withheld therefrom, will be includible in your income as dividend income to the extent such distributions are paid out of our current or accumulated earnings and profits as determined under United States federal income tax principles. Non-corporate U.S. Holders will not be taxed on such distributions at the lower rates applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) that are applicable to certain qualifying dividends received with respect to taxable years beginning on or before 31 December In addition, such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. In general, the amount of any distribution by a non-u.s. corporation that exceeds its current and accumulated earnings and profits as determined under United States federal income tax principles, will be treated first as a tax-free return of adjusted tax basis in your Shares and thereafter as capital gain. If the non-u.s. corporation does not report to a U.S. Holder the portion of a distribution that exceeds its earnings and profits, the entire distribution generally will be taxable as a dividend even if that distribution otherwise would be treated as a non-taxable return of capital or as capital gain under the rules described above. We do not maintain calculations of our earnings and profits under United States federal income tax principles. If you are a U.S. Holder, and we pay a dividend in Singapore dollars, any such dividend will be included in your gross income in an amount equal to the United States dollar value of such Singapore dollars on the date of receipt. If the Singapore dollars are not converted to United States dollars, a U.S. Holder will have a basis in the Singapore dollars equal to the United States dollar value on the date of receipt. 199

206 Generally, any gain or loss recognized on a subsequent conversion of such Singapore dollars to United States dollars or other disposition will be treated as ordinary income or loss for U.S. foreign tax credit limitation purposes. If you are a U.S. Holder, dividends paid to you with respect to your Shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. For United States federal income tax purposes, you will be treated as having received the amount of any Singapore taxes withheld by us and as then having paid over the withheld taxes to the Singapore taxing authorities. As a result of this rule, the amount of dividend income included in gross income by you for United States federal income tax purposes with respect to a payment of dividends may be greater than the amount of cash actually received (or receivable) by you from us with respect to the payment. Subject to certain conditions and limitations, Singapore tax withheld on dividends may be credited against your United States federal income tax liability or deducted from your taxable income. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends that we distribute generally will constitute passive income or, in the case of certain U.S. Holders, financial services income for taxable years beginning on or before December 31, U.S. Holders should note, however, that the financial services income category will be eliminated with respect to taxable years beginning after December 31, Thereafter, the foreign tax credit limitation categories are limited to passive category income and general category income. Subject to the discussion below under United States Federal Income Taxation Backup Withholding Tax and Information Reporting Requirements, if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on dividends received by you on your Shares, unless you conduct a trade or business in the United States and such income is effectively connected with that trade or business. Sale or Exchange of Shares Subject to the discussion below under United States Federal Income Taxation Passive Foreign Investment Company Considerations, if you are a U.S. Holder, you generally will recognize gain or loss on the sale or exchange of your Shares equal to the difference between the amount realized on such sale or exchange and your adjusted tax basis in your Shares. Such gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, the maximum marginal United States federal income tax rate applicable to such gain will be lower than the maximum marginal United States federal income tax rate applicable to ordinary income (other than certain dividends) if your holding period for such Shares exceeds one year. Gain or loss, if any, recognized by you generally will be treated as United States source income or loss for United States foreign tax credit purposes. Consequently, you may not be able to use the foreign tax credit arising from any Singapore tax imposed on the disposition of the shares as discussed above under Singapore Taxation Income Tax Capital Gains unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources. The deductibility of capital losses is subject to limitations. If you are a U.S. Holder, the initial tax basis of your Shares will be the United States dollar value of the Singapore dollar-denominated purchase price determined on the date of purchase. If the Shares are treated as traded on an established securities market, a cash basis U.S. Holder, or, if it elects, an accrual basis U.S. Holder, will determine the dollar value of the cost of such Shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. If you convert United States dollars to Singapore dollars and immediately use that currency to purchase Shares, such conversion generally will not result in taxable gain or loss to you. With respect to the sale or exchange of Shares, the amount realized generally will be the United States dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. Holder and (2) the date of disposition in the case of an accrual basis U.S. Holder. If the Shares are treated as traded on an established securities market, a cash basis taxpayer, or, if it elects, an accrual basis taxpayer, will determine the United States dollar value of the amount realized by 200

207 translating the amount received at the spot rate of exchange on the settlement date of the sale. A U.S. Holder that receives Singapore dollars upon the sale or other disposition of Shares will have a tax basis in the Singapore dollars received equal to the United States dollar amount received. Generally, any gain or loss realized by a U.S. Holder on a subsequent conversion or other disposition of such Singapore dollars will be ordinary income or loss. Subject to the discussion below under United States Federal Income Taxation Backup Withholding Tax and Information Reporting Requirements, if you are a Non-U.S. Holder, you generally will not be subject to United States federal income or withholding tax on any gain realized on the sale or exchange of such Shares unless: such gain is effectively connected with your conduct of a trade or business in the United States; or you are an individual and have been present in the United States for 183 days or more in the taxable year of such sale or exchange and certain other conditions are met. Passive Foreign Investment Company Considerations A non-u.s. corporation will be classified as a passive foreign investment company, or a PFIC, for United States federal income tax purposes in any taxable year in which, after applying certain look-through rules, either at least 75% of its gross income is passive income ; or at least 50% of the average value of its gross assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. Based on certain estimates of our gross income and gross assets and the nature of our business, we believe that we are not a PFIC for our taxable year ending December 31, 2005 and do not expect that we will be a PFIC for the current taxable year. Our status in future years will depend on our assets and activities in those years. We have no reason to believe that our assets or activities will change in a manner that would cause us to be classified as a PFIC, but there can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC, and you are a U.S. Holder, you generally would be subject to imputed interest charges and other disadvantageous tax treatment with respect to any gain from the sale or exchange of, and certain distributions with respect to, your Shares. There are a variety of elections that may alleviate certain tax consequences of holding stock in a PFIC. If we were a PFIC, it is expected that the conditions necessary for making certain of such elections will not apply in the case of our Shares. You should consult your own tax advisor regarding the tax consequences that would arise if we were treated as a PFIC. Backup Withholding Tax and Information Reporting Requirements United States backup withholding tax and information reporting requirements generally apply to certain payments to certain noncorporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, Shares made within the United States or by a U.S. payor or U.S. middleman to a holder of Shares, other than an exempt recipient, including a corporation, a payee that is not a United States person that provides an appropriate certification and certain other persons. A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, Shares within the United States or by a U.S. payor or U.S. middleman to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is 28 percent through In the case of such payments made within the United States to a foreign simple trust, a foreign grantor trust or a foreign partnership, other than payments to 201

208 a foreign simple trust, a foreign grantor trust or a foreign partnership that qualifies as a withholding foreign trust or a withholding foreign partnership within the meaning of such United States Treasury Regulations and payments to a foreign simple trust, a foreign grantor trust or a foreign partnership that are effectively connected with the conduct of a trade or business in the United States, the beneficiaries of the foreign simple trust, the persons treated as the owners of the foreign grantor trust or the partners of the foreign partnership, as the case may be, will be required to provide the certification discussed above in order to establish an exemption from backup withholding tax and information reporting requirements. Moreover, a payor may rely on a certification provided by a payee that is not a United States person only if such payor does not have actual knowledge or a reason to know that any information or certification stated in such certificate is incorrect. The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our Shares. You should consult your own tax advisor concerning the tax consequences of your particular situation. 202

209 PLAN OF DISTRIBUTION The Combined Offering. Macquarie Securities (Singapore) Pte Limited is acting as Sole Global Coordinator, Bookrunner and Underwriter (the Global Coordinator ) and initial purchaser in connection with the Combined Offering. The Combined Offering consists of: (i) the International Offering to investors, including institutional and other investors in Singapore and (ii) the Singapore Public Offer. The Combined Offering comprises 320,000,000 Offering Shares. The minimum size of the Singapore Public Offer is 14,000,000 Offering Shares. Offering Shares may be re-allocated between the International Offering and the Singapore Public Offer, for example, in the event of excess applications in one and a deficit of applications in the other. The International Offering is conducted pursuant to a purchase agreement (the Purchase Agreement ) which is expected to be entered into among each of Macquarie Securities (Singapore) Pte Limited as the initial purchaser, Macquarie Securities (Asia) Pte Limited, Straits Resources, the Selling Shareholder and ourselves on the Price Determination Date upon agreement of the Offering Price. The Singapore Public Offer is conducted pursuant to an offer agreement (the Offer Agreement ) dated October 26, 2006 among each of Macquarie Securities (Singapore) Pte Limited, Macquarie Securities (Asia) Pte Limited, the Selling Shareholder, Straits Resources and ourselves. Subject to the terms and conditions contained in the Purchase Agreement and the Offer Agreement, the Selling Shareholder has agreed to sell to the initial purchaser, and the initial purchaser has agreed to procure the purchase of the number of Offering Shares, at the Offering Price and/or to purchase those Offering Shares at the Offering Price. The Offer Agreement is conditional upon, among other things, the execution and delivery of the Purchase Agreement and the Purchase Agreement having become unconditional. Upon execution of the Purchase Agreement the Global Coordinator will enter into sub-underwriting arrangements with BNP Paribas Peregrine (Singapore) Ltd and CIMB-GK Securities Pte. Ltd. in respect of the Combined Offering. The Offering Shares are being offered and sold outside the United States to non-u.s. persons (including institutional and other investors in Singapore) in reliance on Regulation S under the U.S. Securities Act and within the United States to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act. The Offering Shares are being offered concurrently in certain other jurisdictions outside Singapore. Prior to the Combined Offering, there has been no public market for the Offering Shares. The Offering Price will be determined following a book-building process by agreement among the Global Coordinator, the Selling Shareholder and us on the Price Determination Date, which is subject to change. Among the factors that will be taken into account in determining the Offering Price are the demand for the Offering Shares and prevailing conditions in the securities market. If, for any reason, the Combined Offering does not proceed, all application monies of the Singapore Public Offer will be refunded (without interest or share of revenue or other benefit arising therefrom) to all applicants, at their own risk (provided that such refunds are made in accordance with the procedures set out in the section Terms, Conditions and Procedures for Application and Acceptance of the Offering Shares under the Singapore Public Offer in Appendix E of this offering document) and without any right or claim against us, the Selling Shareholder and the initial purchaser. Notice of the Offering Price will be published in one or more major Singapore newspapers, such as The Straits Times, The Business Times or Lianhe Zaobao, not more than two calendar days after the Price Determination Date. The Selling Shareholder will pay the initial purchaser, as compensation for its services in connection with the offer and sale of the Offering Shares in the Combined Offering, a combined management, underwriting and selling commission of up to 3.0% (inclusive of certain incentive fees) of an amount equal to the total number of Offering Shares under the Combined Offering plus any Shares sold 203

210 pursuant to the Over-allotment Option multiplied by the Offering Price received by the Selling Shareholder. The Selling Shareholder has agreed to reimburse the initial purchaser for certain expenses incurred in connection with the Combined Offering. Purchasers of the Offering Shares may be required to pay brokerage (and if so required, such brokerage will be up to 1.0% of the Offering Price), stamp taxes and other similar charges in accordance with the laws and practices of the country of purchase, in addition to the Offering Price, as applicable. Under the Combined Offering, no pre-emptive rights apply or are attached to the Offering Shares. The International Offering In the Purchase Agreement, the initial purchaser will agree, subject to the terms and conditions set forth in that agreement, to procure the purchase of, and/or to purchase, the Offering Shares being offered in the International Offering. The Purchase Agreement may be terminated at any time prior to delivery of the Offering Shares pursuant to the terms of the Purchase Agreement upon the occurrence of certain events, including, amongst other things, certain force majeure events. The closing of the International Offering is conditional upon certain events including the fulfillment, or waiver by the SGX-ST, of all conditions contained in the letter of eligibility from the SGX-ST for the listing and quotation of our issued Shares (including the Offering Shares) on the Main Board of the SGX-ST. Subject to certain conditions, we and the Selling Shareholder have agreed to indemnify the initial purchaser and certain persons against certain liabilities incurred in connection with the International Offering. The Singapore Public Offer In the Offer Agreement, Macquarie Securities (Singapore) Pte Limited has agreed, subject to the terms and conditions set forth in that agreement, to procure the purchase of, and/or to purchase, the Offering Shares being offered pursuant to the Singapore Public Offer. The Offer Agreement will be terminated upon termination of the Purchase Agreement. The Singapore Public Offer is conditional upon the conditions to the International Offering set out in the Purchase Agreement being satisfied. Subject to certain conditions, we and the Selling Shareholder have agreed to indemnify Macquarie Securities (Singapore) Pte Limited against certain liabilities incurred in connection with the Singapore Public Offer. Over-allotment Option In connection with the Combined Offering, the Selling Shareholder has granted the Global Coordinator an option, exercisable by the Global Coordinator, in full or in part on one or more occasions no later than the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST, and (ii) the date when the Global Coordinator has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action, to purchase up to an aggregate of 48,000,000 Shares (representing not more than 15% of the total Offering Shares) at the Offering Price, solely to cover the over-allotment of the Offering Shares, if any. Price Stabilization In connection with the Combined Offering, Macquarie Securities (Singapore) Pte Limited, as stabilizing manager (the Stabilizing Manager ), may over-allot Shares or effect transactions which stabilize or maintain the market price of our Shares at levels which might not otherwise prevail in the open market. Such transactions may be effected on the SGX-ST and in other jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulations, including the Securities and Futures Act and any regulations thereunder. However, there is no assurance that the Stabilizing Manager will undertake Stabilizing action. Such transactions, if commenced, may be discontinued at 204

211 any time and shall not be effected after the earlier of (i) the date falling 30 days from the commencement of trading of the Shares on the SGX-ST or (ii) the date that the Stabilizing Manager has bought on the SGX-ST an aggregate of 48,000,000 Shares representing not more than 15% of the total Offering Shares to undertake stabilizing action. None of us, the Selling Shareholder nor the Stabilizing Manager makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Shares. In addition, none of us, the Selling Shareholder nor the Stabilizing Manager makes any representation that the Stabilizing Manager will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice (unless such notice is required by law). The Stabilizing Manager will be required to make a public announcement through the SGX-ST on the cessation of the stabilizing action not later than the start of the trading day of the SGX-ST immediately after the day of cessation of stabilization action. Share Lending Agreement Upon signing the Purchase Agreement, the Global Coordinator will enter into a share lending agreement with the Selling Shareholder under which it may borrow up to 48,000,000 Shares from the Selling Shareholder for the purpose of facilitating settlement of the over-allotment of Shares in connection with the Combined Offering. The Global Coordinator will re-deliver to the Selling Shareholder such number of Shares which are equivalent to the Shares (if any) lent under this agreement no later than five Singapore business days following the earlier of (i) the exercise of the Over-allotment Option or (ii) the expiry of the Over-allotment Option, or such earlier time as may be agreed between the parties. Restrictions on Disposals and Issues of Shares We have agreed that neither we nor any of our subsidiaries will, without the prior written consent of the Global Coordinator for a period of six months after the Listing Date (the First Six-month Period ): (a) issue, offer, sell, pledge, charge, grant security or create encumbrances over, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares; (b) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of Shares; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of Shares or such other securities, in cash or otherwise. The Selling Shareholder has agreed that neither it nor any of its subsidiaries will, directly or indirectly, except in connection with the Over-allotment Option, for the First Six-month Period: (a) offer, sell, pledge, charge, grant security or create encumbrances over, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares; (b) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of Shares; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of Shares or such other securities, in cash or otherwise. The Selling Shareholder has further agreed that neither it nor any of its subsidiaries will, directly or indirectly, without the prior written consent of the Global Coordinator for a period of six months after the First Six-month Period: (a) offer, sell, pledge, charge, grant security or create encumbrances over, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares; (b) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic 205

212 consequences of ownership of Shares; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of Shares or such other securities, in cash or otherwise. Straits Resources Limited has agreed that neither it nor any of its subsidiaries will, for the First Six-month Period: (a) offer, sell, pledge, charge, grant security or create encumbrances over, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any SBIL Shares or any securities convertible into or exercisable or exchangeable for SBIL Shares; (b) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of SBIL Shares; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of SBIL Shares or such other securities, in cash or otherwise. Straits Resources Limited has further agreed that neither it nor any of its subsidiaries will, without prior written consent of the Global Coordinator for a period of six months after the First Six-month Period: (a) offer, sell, pledge, charge, grant security or create encumbrances over, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any SBIL Shares or any securities convertible into or exercisable or exchangeable for SBIL Shares; (b) enter into any swap, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of SBIL Shares; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of SBIL Shares or such other securities, in cash or otherwise. Other Relationships The initial purchaser and its affiliates engage in transactions with, and perform services for, the Selling Shareholder and/or us in the ordinary course of business and may in the future engage in investment banking transactions with the Selling Shareholder and/or us, for which they may in the future receive customary compensation. All services provided by the initial purchaser in connection with the Combined Offering have been provided as an independent contractor and not as a fiduciary to the Company. Persons Intending to Purchase in the Combined Offering We are not aware of any person who intends to purchase more than 5% of the Offering Shares offered pursuant to the Combined Offering. No action has been or will be taken in any jurisdiction that would permit a public offering of the Offering Shares being offered outside Singapore, or the possession, circulation or distribution of this document or any other material relating to us or the Offering Shares in any jurisdiction where action for the purpose is required. Accordingly, the Offering Shares may not be offered or sold, directly or indirectly, and neither this offering document nor any other offering material or advertisement in connection with the Offering Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. 206

213 Expenses The expenses payable in connection with the Combined Offering and the application for listing, including the underwriting and selling commission, and all other incidental expenses relating to the Combined Offering, are estimated (based on circumstances known to us as at the date of this document, which may change) to amount to approximately S$13.0 million (assuming the Overallotment Option is exercised in full) and the Offering Price is the Maximum Offering Price, the breakdown of which is set out below: S$ (in millions) Underwriting and selling commission Professional and accounting fees Marketing and advertising expenses Other Combined Offering related expenses Total 13.0 Distribution And Selling Restrictions The distribution of this offering document or any offering material and the offering, sale or delivery of Offering Shares is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this document or any offering material are advised to consult with their own legal advisers as to what restrictions may be applicable to them and to observe such restrictions. This offering document may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorized. United States The Offering Shares have not been and will not be registered under the U.S. Securities Act and may not be offered, sold or delivered within the United States except in certain transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The initial purchaser and each sub-underwriter propose (i) to sell (as agent or as principal) the Offering Shares only to qualified institutional buyers in the United States in reliance on Rule 144A under the U.S. Securities Act and (ii) to sell (as agent or as principal) the Offering Shares outside of the United States in offshore transactions in reliance on Regulation S under the U.S. Securities Act and in accordance with applicable law. Any offer or sale of the Offering Shares in the United States in reliance on Rule 144A or another exemption from the registration requirements of the U.S. Securities Act will be made by broker-dealers who are registered as such under the U.S. Exchange Act. The Global Coordinator is expected to make offers and sales in the United States through its selling agents who are registered broker-dealers in the United States. Terms used above have the meanings given to them by Regulation S and Rule 144A under the U.S. Securities Act. In addition, until 40 days after the commencement of the Combined Offering, an offer or sale of the Offering shares within the United States by a dealer (whether or not participating in the Combined Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in compliance with Rule 144A or pursuant to another exemption from the registration requirements of the U.S. Securities Act. Malaysia No person may, in Malaysia, carry on a business of dealing in securities (including the Offering Shares) unless that person is licensed or permitted to do so under the laws of Malaysia. Dealing in securities is defined in the Securities Industry Act to include (a) acquiring, disposing of, subscribing for or underwriting, or (b) making or offering to make with any person or inducing or attempting to induce any person to enter into, or offer to enter into, any agreement for or with a view to acquiring, disposing or 207

214 subscribing for or underwriting securities. This offering document has not been registered as a prospectus under Division 3 of the Securities Commission Act but has been lodged as an information memorandum for the purposes of Section 38(4) of the Securities Commission Act. Accordingly, the initial purchaser and each sub-underwriter may only sell, or make an offer or invitation to purchase the Offering Shares, directly or indirectly (either by way of circulating or distributing this document or any other offering document or material relating to the Offering Shares or otherwise), to persons specified in Schedule 2 of the Securities Commission Act. Japan The Offering Shares have not been and will not be registered under the Securities and Exchange Law of Japan, as amended (the SEL ). The initial purchaser and each sub-underwriter has represented and agreed that the Offering Shares which it purchases will be purchased by it as principal and that, in connection with the Offering, it will not, directly or indirectly, offer or sell any Offering Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or entity organized under the laws of Japan) or to others for reoffer or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements under the SEL and otherwise in compliance with such law and any other applicable laws, regulations and ministerial guidelines of Japan. Hong Kong The initial purchaser, each of its affiliates and each sub-underwriter has not (i) offered or sold, and will not offer or sell, in Hong Kong, by means of any document, any Offering Shares other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance or (b) in other circumstances which do not result in the offering document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance or (ii) issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere any advertisement, invitation or offering document relating to any Offering Shares which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to any Offering Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance or any rules made under that Ordinance. The contents of this offering document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to this offer. If you are in any doubt about any of the contents of this offering document, you should obtain independent professional advice. European Economic Area In relation to each member state of the European Economic Area which has implemented the Prospectus Directive, or a relevant member state, with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state, or the relevant implementation date, neither the initial purchaser nor any sub-underwriter has made and will not make an offer of shares to the public in that relevant member state prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that it may, with effect from and including the relevant Implementation Date, make an offer of shares to the public in that relevant member state at any time: to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities, 208

215 to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year, (ii) a total balance sheet of more than C43,000,000 and (iii) an annual net turnover of more than C50,000,000, as shown in its last annual or consolidated accounts, or in any other circumstances which do not require the publication by the issuer of a prospectus as required by Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase the shares, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state. United Kingdom The initial purchaser and each sub-underwriter has represented and agreed that: it has complied and will comply with all applicable Financial Services Markets Act 2000 (the FSMA ) provisions with respect to anything done by it in relation to the Offering Shares in, from or otherwise involving the United Kingdom; and it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) in connection with the issue or sale of any Offering Shares in circumstances in which section 21(1) of FSMA does not apply to us or the Selling Shareholder. Ireland The initial purchaser and each sub-underwriter has represented and agreed that it has not made and will not make an offer of any Offering Shares to the public in Ireland, except that it may, make an offer of Offering Shares to the public in Ireland: in the period beginning on the date of publication of a prospectus in relation to those Offering Shares which has been approved by the competent authority in Ireland or if approved by the competent authority of a home EEA member state of the issuer notified to the competent authority in Ireland, in either case in accordance with the Prospectus (Directive 2003/71/EC) Regulations 2005 and ending on the date which is 12 months after the date of such publication; at any time to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR 43,000,000 and (3) an annual turnover of more than EUR 50,000,000, all as shown in its last annual or consolidated accounts; or at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression offer of shares to the public in relation to any Offering Shares in Ireland means the communication in any form and by any means of sufficient information on the terms of the offer and the Offering Shares to be offered so as to enable an investor to decide whether or not to purchase or subscribe to the Offering Shares, as method of communication may be varied in that EEA member state. References to the Prospectus Directive include any relevant implementing measure in Ireland. 209

216 Italy The initial purchaser and each sub-underwriter acknowledges and agrees that the Combined Offering has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa, the CONSOB ) pursuant to Italian securities legislation and, accordingly, acknowledges and agrees that the Offering Shares may not and will not be offered, sold or delivered, nor may or will copies of this offering document or any other documents relating to the Offering Shares be distributed in Italy other than to professional investors (operatori qualificati), as defined in Article 31, second paragraph of CONSOB Regulation No of July 1, 1998, as amended ( Regulation No ) or pursuant to another exemption from the requirements of Article 100 of Legislative Decree No. 58 of February 24, 1998, as amended (the Italian Finance Law ) and Article 33, first paragraph of CONSOB Regulation No of May 14, The initial purchaser and each sub-underwriter acknowledges and agrees that any offer, sale or delivery of the Offering Shares or distribution of copies of this document or any other document relating to the Offering Shares or this document in the Republic of Italy as set out above must be: made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Legislative Decree No. 385 of September 1, 1993, as amended (the Banking Act ); and in compliance with any other applicable laws and regulations. Germany The initial purchaser and each sub-underwriter has represented and agreed that the Offering Shares have not been and will not be offered, sold or publicly promoted or advertised by it in the Federal Republic of Germany other than in compliance with the German Securities Prospectus Act (Wertpapierprospektgesetz, WpPG ) of June 22, 2005, or any other laws applicable in the Federal Republic of Germany governing the issue, offering and sale of securities. This document may not be distributed, and the Offering Shares may not be offered or sold, in the Federal Republic of Germany other than to persons who are qualified investors as defined in Section 2 number 6 of the WpPG, or to fewer than 100 non-qualified investors. Nothing in this document should be construed as investment advice to persons other than such permitted recipients or as otherwise constituting a public offering within the meaning of the WpPG or any other laws applicable in the Federal Republic of Germany. The Netherlands The initial purchaser and each sub-underwriter has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell the Offering Shares in the Netherlands other than to professional market parties as defined in article 1a of the Exemption Regulation pursuant to the Securities Act 1995 (Vrijstellingsregeling Wet toezicht effectenverkeer 1995). Belgium This offering document and related documents have not been approved in Belgium and are not intended to constitute, and may not be construed as, a public offering in the Kingdom of Belgium. Accordingly, these documents may not be distributed or circulated to, and the securities may not be offered or sold to, any member of the public in the Kingdom of Belgium other than institutional investors listed in article 3.2 of the Royal Decree of July 7, 1999 (the Royal Decree ), acting for their own account, or investors subscribing for a minimum amount of EUR 250, each pursuant to article 3.1 of the Royal Decree and, provided any such investor qualifies as a consumer within the meaning of article 1.7 of the Law of July 14, 1991 on consumer protection and trade practices (the Consumer Protection Law ), such offer or sale is made in compliance with the provisions of the Consumer Protection Law and its implementing legislation. 210

217 Switzerland The Offering Shares may not and will not be publicly offered, distributed or re-distributed on a professional basis in or from Switzerland and neither this offering document nor any other solicitation for investments in the Offering Shares may be communicated or distributed in Switzerland in any way that could constitute a public offering within the meaning of Articles 1156 or 652a of the Swiss Code of Obligations or of Article 2 of the Federal Act on Investment Funds of March 18, This offering document may not be copied, reproduced, distributed or passed on to others without the initial purchaser s prior written consent. This prospectus is not a prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of Obligations or a listing prospectus according to article 32 of the Listing Rules of the Swiss Exchange and may not comply with the information standards required thereunder. We will not apply for a listing of the Offering Shares on any Swiss stock exchange or other Swiss regulated market and this offering document may not comply with the information required under the relevant listing rules. The Offering Shares offered hereby have not and will not be registered with the Swiss Federal Banking Commission and have not and will not be authorized under the Federal Act on Investment Funds of March 18, The investor protection afforded to acquirers of investment fund certificates by the Federal Act on Investment Funds of March 18, 1994 does not extend to acquirers of the shares. France This document is not being distributed in the context of a public offering in France within the meaning of Article L of the Code monétaire et financier, and has therefore not been submitted to the Autorité des marchés financiers for prior approval and clearance procedure. The initial purchaser, the sub-underwriters, the Selling Shareholder and us represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, the Offering Shares to the public in France, and has not distributed or caused to be distributed, and will not distribute or cause to be distributed, to the public in France, this document or any other offering materials relating to the Offering Shares, and that such offers, sales and distributions have only been and shall only be made in France to: (i) providers of investment services relating to portfolio management for the account of third parties; and/or (ii) qualified investors (investisseurs ones_ize) other than individuals, all as defined in and in accordance with Articles L.411-2, D to D of the Code monétaire et financier. Investors in France falling within the qualified investors or restricted circle of investors exemption may only participate in the issue of the Offering Shares for their own account in accordance with the conditions set out in Articles L.411-2, D to D.411-3, D.734-1, D.744-1, D and D of the Code monétaire et financier. The Offering Shares may only be issued, directly or indirectly, to the public in France in accordance with Articles L.411-1, L.411-2, L and L to L of the Code monétaire et financier. Australia This document has not been, and will not be, lodged with the Australian Securities and Investments Commission as a disclosure document for the purposes of the Corporations Act Any Offering Shares in our Company issued upon acceptance of the offer may not be offered for sale (or transferred, assigned or otherwise alienated) to investors in Australia for at least 12 months after their issue, except in circumstances where disclosure to investors is not required under Chapter 6D of the Corporations Act 2001 or unless a disclosure document that complies with the Corporations Act 2001 is lodged with the Australian Securities and Investments Commission. United Arab Emirates This document has not been approved by the United Arab Emirates ( UAE ) Central Bank and we have not received any authorization from the UAE Central Bank to market or sell the Offering Shares in the UAE. No services relating to this document will be rendered in the UAE. 211

218 General Purchasers of Offering Shares sold by the initial purchaser and any sub-underwriter may be required to pay stamp taxes and or other charges in accordance with the laws and practice of the country of purchase. No action has been or will be taken in any jurisdiction that would permit a public offering of the Offering Shares being offered outside of Singapore, or the possession, circulation or distribution of this offering document or any other material relating to us or the Offering Shares, in any jurisdiction where action for the purpose is required. Accordingly, the Offering Shares may not be offered or sold, directly or indirectly, and neither this offering document nor any other offering material or advertisements in connection with the Offering Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. 212

219 TRANSFER RESTRICTIONS Due to the following restrictions, investors are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of Offering Shares offered and sold in reliance on Rule 144A or Regulation S under the U.S. Securities Act. The Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an effective registration statement or in accordance with an applicable exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. The Offering Shares are being offered and sold outside of the United States to non-u.s. persons in reliance on Regulation S. In addition, until 40 days after the commencement of the offering of the Offering Shares, an offer or sale of Offering Shares within the United States by a dealer (whether or not participating in the Combined Offering) may violate the registration requirements of the U.S. Securities Act if such offer is made otherwise than pursuant to Rule 144A or another exemption from registration under the Securities Act. Rule 144A Restrictions Each purchaser of the Offering Shares in reliance on Rule 144A, by its acceptance of this offering document and of the Offering Shares, will be deemed to have acknowledged, represented to and agreed with the Company and the Selling Shareholder as follows (terms used herein that are defined in Rule 144A or Regulation S under the U.S. Securities Act are used herein as defined therein): (1) It (A) is a qualified institutional buyer within the meaning of Rule 144A, (B) is aware that the sale of Offering Shares to it is being made in reliance on Rule 144A and (C) is acquiring the Offering Shares for its own account or for the account of a qualified institutional buyer, as the case may be. (2) It understands and agrees that the Offering Shares have not been and will not be registered under the U.S. Securities Act and may not be reoffered, resold, pledged or otherwise transferred except (A) (i) to a person who the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S under the U.S. Securities Act or (iii) pursuant to an exemption from registration under the U.S. Securities Act provided by Rule 144 under the U.S. Securities Act (if available) and (B) in accordance with all applicable securities laws of the States of the United States. (3) It understands that the Offering Shares (to the extent they are in certificated form), unless otherwise determined by our Company in accordance with applicable law, will bear a legend substantially to the following effect: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE U.S. SECURITIES ACT ) OR WITH ANY SECURITIES REGULATORY AUTHORITY OR ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER OR ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE U.S. SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, OR (3) PURSUANT TO AN EXEMPTION PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OR ANY STATE OF THE UNITED STATES. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE SHARES REPRESENTED HEREBY MAY 213

220 NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT OF SHARES ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK. (4) Notwithstanding anything to the contrary in the foregoing, the Offering Shares may not be deposited into any unrestricted depositary receipt facility in respect of shares established or maintained by a depositary bank. Prospective purchasers are hereby notified that sellers of the Offering Shares may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. Regulation S Restrictions Each person who purchases Offering Shares in offshore transactions in reliance on Regulation S under the U.S. Securities Act, by its acceptance of this offering document and of Offering Shares, will be deemed to have acknowledged, represented to and agreed with our Company, the Selling Shareholder and the Global Coordinator as follows (terms used herein that are defined in Rule 144A or Regulation S under the U.S. Securities Act are used herein as defined therein): (1) It acknowledges (or if it is a broker-dealer, its customer has confirmed to it that such customer acknowledges) that such shares have not been and will not be registered under the U.S. Securities Act. (2) It certifies that either (A) it is, or at the time such shares are purchased will be, the beneficial owner of such shares, and (i) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S under the U.S. Securities Act) and (ii) it is not an affiliate of our company or a person acting on behalf of such an affiliate, or (B) it is a broker-dealer acting on behalf of its customer, and its customer has confirmed to it that (i) such customer is, or at the time such shares are purchased will be, the beneficial owner of such shares, (ii) such customer is not a U.S. person and it is located outside the United States (within the meaning of Regulation S under the U.S. Securities Act) and (iii) such customer is not an affiliate of our company or a person acting on behalf of such an affiliate. Any resale or other transfer, or attempted resale or other transfer, made other than in compliance with the above-stated restrictions shall not be recognized by our Company. In addition, each prospective purchaser of Offering Shares, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with our Company, the Selling Shareholder and the initial purchaser as follows: (1) It acknowledges that none of our Company, the initial purchaser or any person representing our Company, the Selling Shareholder or the initial purchaser has made any representation to it with respect to our Company or the offering or sale of the Offering Shares, other than the information contained or incorporated by reference in this offering document, which offering document has been delivered to it and upon which it is relying in making its investment decision with respect to the Offering Shares; and it has had access to such financial and other information concerning our Company and the Offering Shares as it has deemed necessary in connection with its decision to purchase the Offering Shares. (2) It acknowledges that our Company and the initial purchaser and others will rely upon the truth and accuracy of the acknowledgments, representations and agreements contained under this section of this offering document entitled Transfer Restrictions and agrees that, if any of the acknowledgments, representations or agreements deemed to have been made by it through its purchase of the Offering Shares are no longer accurate, it shall promptly notify our Company, the Selling Shareholder and the initial purchaser; and if it is acquiring any Shares as fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account. 214

221 AVAILABLE INFORMATION For so long as our Shares remain outstanding and are restricted securities within the meaning of Rule 144(a)(3) of the U.S. Securities Act, we will furnish, upon the request of any shareholder, such information as is specified in paragraph (d)(4) of Rule 144A under the U.S. Securities Act, to such holder or beneficial owner or to a prospective purchaser of such shares or any interest therein who is a qualified institutional buyer within the meaning of Rule 144A, in order to permit compliance by such holder or beneficial owner with Rule 144A in connection with the resale of such shares or beneficial interest therein in reliance on Rule 144A unless, at the time of such request, we are subject to the reporting requirements of Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended (the U.S. Exchange Act ), or we are included in the list of foreign private issuers that claim exemption from the registration requirements of Section 12(g) of the U.S. Exchange Act and therefore are required to furnish to the U.S. Securities and Exchange Commission certain information pursuant to Rule 12g3-2(b) under the U.S. Exchange Act. 215

222 ENFORCEMENT OF CIVIL LIABILITIES We are a limited liability company incorporated under the laws of the Republic of Singapore. Most of our Directors and management and our auditors reside primarily in Australia and Singapore. A substantial portion of our assets and the assets of such persons are located in Australia and Indonesia. As a result, it may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce in the United States any judgment obtained in the United States courts against us or any of such persons, including judgments based upon the civil liability provisions of the securities laws of the United States or any state or territory of the United States. Judgments of United States courts based upon the civil liability provisions of the federal securities laws of the United States are not enforceable in Singapore courts and there is no doubt as to whether Singapore courts will enter judgments in original actions brought in Singapore courts based solely upon the civil liability provisions of the federal securities laws of the United States. 216

223 LEGAL MATTERS Certain legal matters in connection with the Combined Offering and our Offering Shares as to Singapore law will be passed upon for us and the Selling Shareholder by Venture Law LLC. Certain legal matters in connection with the Combined Offering and our Offering Shares as to United States and English law will be passed upon for us and the Selling Shareholder by White & Case LLP, Singapore and New York, New York. Certain legal matters in connection with the Combined Offering and our Offering Shares as to Indonesian law will be passed upon for us and the Selling Shareholder by Makes & Partners. Certain legal matters relating to Singapore law will be passed upon for the initial purchaser by Wong Partnership. Certain legal matters relating to United States and English law will be passed upon for the initial purchaser by Allen & Overy. Each of Venture Law LLC, White & Case LLP, WongPartnership and Allen & Overy does not make, or purport to make, any statement in this offering document and is not aware of any statement in this offering document which purports to be based on a statement made by it and each of them, to the extent permitted by law, makes no representation, express or implied, regarding, and takes no responsibility for, any statement in or omission from this offering document. 217

224 INDEPENDENT PUBLIC ACCOUNTANTS Our consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005 included in this offering document have been audited by, and the unaudited consolidated interim financial statements as at and for the three-month period ended March 31, 2006 have been reviewed by, PricewaterhouseCoopers, independent public accountants, as stated in their reports appearing in this offering document. With respect to the unaudited consolidated interim financial statements as at and for the three months period ended March 31, 2006, PricewaterhouseCoopers reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated September 29, 2006 appearing herein states that they did not audit and do not express an opinion on the unaudited consolidated interim financial statements. Accordingly, the degree of reliance on their report on such information should be restricted in the light of the limited nature of the review procedures applied. For the purpose of complying with the Securities and Futures Act only, PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this offering document with the inclusion herein of, and all references to (i) its name, (ii) its auditors report dated September 29, 2006 with respect to our consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005, (iii) its review report dated September 29, 2006 with respect to our unaudited consolidated interim financial statements as of and for the three months period ended March 31, 2006 and (iv) its Report on Examination of the Proforma Financial Statements of our Group dated September 29, 2006 for the financial year ended December 31, 2005 and the three months period ended March 31, 2006, in the form and context in which they are respectively included in this offering document. A written consent under the Securities and Futures Act is different from a consent filed with the U.S. Securities and Exchange Commission under Section 7 of the U.S. Securities Act, which is applicable only to transactions involving securities registered under the U.S. Securities Act. As the Shares in the Combined Offering have not and will not be registered under the U.S. Securities Act, PricewaterhouseCoopers has not filed a consent under Section 7 of the U.S. Securities Act. For the purposes of offers and sales outside the United States to non-us persons as defined under Regulation S of the Securities Act in reliance on Regulation S (other than in Singapore) and within the United States to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act, PricewaterhouseCoopers has acknowledged the inclusion in this offering document of, and all references to (i) its name, (ii) its auditors report dated September 29, 2006 with respect to our consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005, (iii) its review report dated September 29, 2006 with respect to our unaudited consolidated interim financial statements as of and for the three months period ended March 31, 2006, (iv) its Report on Examination of the Proforma Financial Statements of our Group dated September 29, 2006 for the financial year ended December 31, 2005 and the three months period ended March 31, 2006, in the form and context in which they are respectively included in this offering document. 218

225 INDEPENDENT MINING CONSULTANT Our coal reserve and resource figures presented in this offering document are estimates that have been prepared by us and reviewed by BOYD, an independent mine consultant. BOYD is a firm of mining and geological consultants based in Brisbane, Australia. BOYD has provided, and is expected to continue to provide, mining consulting services to us. The Independent Technical Review of the Sebuku Mine and Infrastructure as at August 8, 2006 included in this offering document as Appendix A has been prepared by BOYD and has been included in this offering document upon the authority of BOYD as experts in geology and mining. 219

226 GENERAL AND STATUTORY INFORMATION Directors and Management Other Principal Directorships of Our Directors The present principal directorships, other than those held in our Company, and the principal directorships in the last five years preceding the date of this offering document of each of our Directors are as follows: Name Present Principal Directorships Past Principal Directorships Milan Jerkovic Alvin David Toms Straits Gold Holdings Pte Limited Tritton Resources Limited Straits Resources Limited Straits Mining Pty Ltd Girilambone Copper Company Pty Ltd Straits (Whim Creek) Pty Ltd Straits Gold Pty Ltd Straits (Hillgrove) Gold Pty Ltd Straits Indo Gold Pty Ltd Muro Offshore Pty Ltd Indo Muro Pty Ltd Straits Bulk & Industrial Pty Ltd Straits Salt Pty Ltd Straits Exploration (Australia) Pty Ltd Straits Mine Management Pty Ltd Neural Mining Solutions Pty Ltd Kalteng Emas Pte. Ltd. Kalteng Minerals Pte. Ltd. PT Bahari Cakrawala Sebuku PT Straits Consultancy Services Straits Resources Limited Straits Mining Pty Ltd Girilambone Copper Company Pty Ltd Straits (Whim Creek) Pty Ltd Straits Gold Pty Ltd Straits (Hillgrove) Gold Pty Ltd Straits Indo Gold Pty Ltd Straits Bulk & Industrial Pty Ltd Straits Exploration (Australia) Pty Ltd Tomcat Holdings Pte. Ltd. Neural Technologies Limited Brooke Limited Kalteng Minerals Pte. Ltd Kalteng Emas Pte. Ltd. Nicol & Andrew Technology Pte Ltd. (struck-off) Straits Engineers Contracting Pte Ltd. Straits Global Trading Pte. Ltd. Reyka Wahana Digdjaya Pte. Ltd. Straits Global Trading Pte. Ltd. 220

227 Name Present Principal Directorships Past Principal Directorships Ong Chui Chat Martin David Purvis Dr. Chua Yong Hai Nicol & Andrew Technology Pte Ltd (Struck-off) Nicol & Andrew (Far East) Pte. Limited Straits Engineers Contracting Pte. Ltd. Straits Global Trading Pte. Ltd. Straits Energy Trading Pte. Ltd. Straits Resources Limited Reyka Wahana Digdjaya Pte. Ltd. Straits Marine and Infrastructure Pte. Ltd. PT Indo Muro Kencana PT Bahari Cakrawala Sebuku PT Indo Straits Sebuku Investments Limited PT Straits Consultancy Services O.C.C Investment Ltd Arapa Leasing Pte Ltd Tritton Resources Limited Straits Resources Limited Allco (Singapore) Limited Asia Pacific Investment Company Ltd Asia Pacific Investment Company No.2 Ltd CIH Limited (formerly known as Clipsal Industries (Holdings) Limited) East Dragon Securities Ltd Game Link Ltd Golden Melody Assets Ltd Heartland Retail Holdings Pte Ltd Legion Holdings Pte Ltd Magic Island Investments Ltd Nam Lee Pressed Metal Industries Limited Newfaith Properties Ltd Prime Asset Holdings Limited Prime Residential Holdings Pte Ltd Prime Retail Holdings Pte Ltd Pure Properties Ltd Quintique Investment Pte Ltd Singapore Corporation of Rehabilitative Enterprises Smiling Dragon Ltd PT Bahari Cakrawala Sebuku Antrobane Properties Ltd Chelverton International Pte Ltd Corporate Brokers International Pte. Ltd. Holly Equity Investments Ltd Intercultural Business Consultants Pte. Ltd. International Mezzanine Fund Management Asia Limited International Mezzanine Fund Management Limited International Mezzanine Origination Company Pte. Ltd. NeoCorp International Ltd (under Judicial Management) Stallion Press (S) Pte Ltd Stand Alone Enterprises Ltd Tiger Red Enterprises Ltd Wales Holdings Ltd Prime Industrial Holdings Private Limited Lend Lease Corporation Ltd Stanbridge International Pte Ltd 221

228 Name Present Principal Directorships Past Principal Directorships Han Eng Juan Singapore Deposit Insurance Corporation Limited Fabriline Pte Ltd Coleman Commercial & Language Centre (Ang Mo Kio) Pte. Ltd. Joobz International Pte. Ltd. Dexia BIL Asia Singapore Limited Dexia Nominees Singapore Pte Limited RBC Dexia Investor Services Singapore Pte. Limited RBC Dexia Trust Services Singapore Limited Dexia Asset Management (Asia) Ltd (dissolved by members voluntary winding-up) The Institute of Banking and Finance Other Principal Directorships of our Executive Officers The present principal directorships, other than those held in our Company, and the principal directorships in the last five years of each of our Executive Officers are as follows: Name Present Principal Directorships Past Principal Directorships James Dracopoulos Lim Liang Meng Straits Global Trading Pte Ltd Straits Energy Trading Pte Ltd Straits Gold Holdings Pte Limited Kalteng Emas Pte Ltd Kalteng Minerals Pte Ltd Straits Marine & Infrastructure Pte Ltd Reyka Wahana Digdjaya Pte Ltd PT Straits Consultancy Services Indo Muro Pty Ltd Muro Offshore Pty Ltd PT Borneo Emas Perkasa PT Bumi Borneo Metalindo PT Kuda Perdana Pertiwi PT Bumi Bahari Nusantara PT Bahari Cakrawala Sebuku PT Indo Muro Kencana PT Bahari Cakrawala Sebuku PT Indo Muro Kencana Straits Asia Resources Pte. Ltd. DLM Marine Pte Ltd SLM Holding Pte Ltd LLM Marine Pte Ltd (in liquidation by members voluntary winding-up) PLM Marine Pte Ltd (in liquidation by members voluntary winding-up) JLM Marine Pte Ltd Ronald Stephen Heeks James Carter PT Indo Straits 222

229 Name Present Principal Directorships Past Principal Directorships Carl Raymond Memmott Straits Global Trading Pte Ltd Straits Marine & Infrastructure Pte Ltd Straits Energy Trading Pte Ltd Arapa Leasing Pte Ltd Straits Asia Resources Pte. Ltd. Statutory Matters None of our Directors or Executive Officers is or was involved in any of the following events: (i) (ii) (iii) (iv) (v) (vi) (vii) during the last 10 years, an application or a petition under any bankruptcy laws of any jurisdiction was filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within two years from the date he ceased to be a partner; during the last 10 years, an application or a petition under any law of any jurisdiction was filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within two years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency; any unsatisfied judgments against him; a conviction of any offence, in Singapore or elsewhere, involving fraud or dishonesty which is punishable with imprisonment, or any criminal proceedings (including any pending criminal proceedings which he is aware of) for such purpose; a conviction of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or any criminal proceedings (including pending criminal proceedings of which he is aware) for such breach; during the last 10 years, judgement entered against him in any civil proceeding in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty on his part, or any civil proceedings (including any pending civil proceedings of which he is aware) involving an allegation of fraud, misrepresentation or dishonesty on his part; a conviction in Singapore or elsewhere of any offence in connection with the formation or management of any entity or business trust; (viii) disqualification from acting as a director or an equivalent person of any entity (including the trustee of a business trust), or from taking part directly or indirectly in the management of any entity or business trust; (ix) (x) any order, judgement or ruling of any court, tribunal or governmental body permanently or temporarily enjoining him from engaging in any type of business practice or activity; to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of affairs of: (a) (b) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere; any entity (not being a corporation) which has been investigated for a breach of any law or regulatory requirement governing such entities in Singapore or elsewhere, 223

230 (c) (d) any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; or (xi) been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Authority or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere. Except as disclosed in Plan of Distribution and except for the Over-allotment Option, no person (including any Director or Executive Officer) has been, or is entitled to be, given an option to purchase any shares in or debentures of our Company. Articles of Association The following summarizes certain provisions of our Articles of Association relate to: (i) Directors power to vote on a proposal, arrangement or contract in which he is interested: Article 105 A Director shall not vote in respect of any contract or proposed contract or arrangement or any other proposal whatsoever in which he has any personal material interest, directly or indirectly. A Director shall not be counted in the quorum at a meeting in relation to any resolution on which he is debarred from voting. (ii) Directors power to vote on remuneration (including pension and other benefits) for himself or for any other director, and whether the quorum at the meeting of the Board of Directors to vote on Directors remuneration may include the Director whose remuneration is the subject of the vote: Article 82 The ordinary fees of the Directors shall from time to time be determined by Ordinary Resolution and shall not be increased except pursuant to an Ordinary Resolution passed at a General Meeting where notice of the proposed increase shall have been given in the notice convening the General Meeting and shall (unless such resolution otherwise provides) be divisible among the Directors as they may agree, or failing agreement, equally, except that any Director who shall hold office for part only of the period in respect of which such fees is payable shall be entitled only to rank in such division for a proportion of fees related to the period during which he has held office. Article 83 (A) (B) Any Director who holds any executive office, or who serves on any committee of the Directors, or who otherwise performs services which in the opinion of the Directors are outside the scope of ordinary duties of a Director, may be paid such extra remuneration by way of salary, commission or otherwise as the Directors may determine. The remuneration (including any remuneration under Article 83(A) above) in the case of a Director other than an Executive Director shall be payable by a fixed sum and shall not at any time be by commission on or percentage of the profits or turnover, and no Director whether an Executive Director or otherwise shall be remunerated by a commission on or percentage of turnover. 224

231 Article 85 The Directors shall have power to pay and agree to pay pensions or other retirement, superannuation, death or disability benefits to (or to any person in respect of) any Director for the time being holding any executive office and for the purpose of providing any such pensions or other benefits to contribute to any scheme or fund or to pay premiums. Article 91 The remuneration of a Managing Director (or a person holding an equivalent position) shall from time to time be fixed by the Directors and may, subject to the provisions of these presents, be by way of salary or commission or participation in profits or by any or all of these modes but he shall not under any circumstances be remunerated by a commission on or a percentage of turnover. (iii) the borrowing powers exercisable by our Directors, and how these borrowing powers may be varied: Article 112 Subject to the Statutes and the provisions of these presents, the Directors may exercise all the powers of the Company to borrow money, to mortgage or charge its undertaking, property and uncalled capital and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. Article 112, like any other provision in our Articles of Association, may be amended by a special resolution of our shareholders. (iv) (v) the retirement or non-retirement of a Director under an age limit requirement: There are no specific provisions in our Articles of Association relating to the retirement or non-retirement of a Director under an age limit requirement. Section 153 (1) of the Singapore Companies Act however, provides that no person of or over the age of 70 years shall be appointed a Director of a public company, unless he is appointed or re-appointed as a Director of the Company or authorized to continue in office as a Director of the Company by way of an ordinary resolution passed at an Annual General Meeting. the shareholding qualification of a Director: Article 81 A Director shall not be required to hold any shares of the Company by way of qualification. A Director who is not a member of the Company shall nevertheless be entitled to attend and speak at General Meetings. (vi) the rights, preferences and restrictions attaching to each class of shares: Article 3 Subject to the Statutes and the provisions of these presents, no shares may be issued by the Directors without the prior approval of the Company by Ordinary Resolution but subject thereto and to Article 7, and to any special rights attached to any shares for the time being issued, the Directors may allot and issue shares or grant options over or otherwise dispose of shares to such persons on such terms and conditions and for such consideration and at such time and subject or not to the payment of any part of the amount thereof in cash as the Directors may think fit, and any shares may be issued with such preferential, deferred, qualified or special rights, privileges, conditions or restrictions whether as regards dividend, return of capital, participation in surplus assets and profits, voting, conversion or otherwise, as the Directors may think fit. Preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors, PROVIDED THAT: 225

232 (a) (b) (subject to any direction to the contrary that may be given by the Company in a General Meeting) any issue of shares for cash to members holding shares of any class shall be offered to such members in proportion as nearly as may be to the number of shares of such class then held by them and the provisions of the second sentence of Article 7(A) with such adaptations as are necessary shall apply; and the rights attaching to shares of a class other than ordinary shares shall be expressed in the resolution creating the same and in the provisions of these presents. Article 4 (A) (B) Preference shares may be issued subject to such limitation thereof as may be prescribed by any securities exchange upon which shares in the Company are listed. Preference shareholders shall have the same rights as ordinary shareholders as regards receiving of notices, reports and balance sheets and attending General Meetings of the Company. Preference shareholders shall also have the right to vote at any meeting convened for the purpose of reducing the capital or winding-up or sanctioning a sale of the undertaking of the Company or where the proposal to be submitted to the meeting directly affects their rights and privileges or when the dividend on the preference shares is more than six Months in arrear. The Company has power to issue further preference capital ranking equally with, or in priority to, preference shares already issued. Article 14 Without prejudice to any special rights previously conferred on the holders of any shares or class of shares for the time being issued, any share in the Company may be issued with such preferred, deferred or other special rights, or subject to such restrictions, whether as regards dividend, return of capital, voting or otherwise, as the Company may from time to time by Ordinary Resolution determine (or, in the absence of any such determination, as the Directors may determine) and subject to the provisions of the Statutes, the Company may issue preference shares which are, or at the option of the Company are liable to be redeemed. (vii) change in capital: Article 6 The Company in General Meeting may from time to time by Ordinary Resolution increase its capital by the allotment and issue of new shares. Article 7 (A) Subject to the bye-laws or listing rules of the securities exchange upon which shares in the Company are listed or to any direction to the contrary that may be given by the Company in a General Meeting, all new shares shall, before issue, be offered to such persons who as at the date of the offer are entitled to receive notices from the Company of General Meetings in proportion, as far as the circumstances admit, to the number of the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and, after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company. The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered under this Article 7(A). 226

233 (B) Except so far as otherwise provided by the conditions of issue or by these presents, all new shares shall be subject to the provisions of the Statutes and of these presents with reference to allotment, payment of calls, lien, transfer, transmission, forfeiture and otherwise. Article 8 The Company may by Ordinary Resolution: (a) (b) (c) (d) consolidate and divide all or any of its shares; cancel any shares which, at the date of the passing of the resolution, have been forfeited and diminish the amount of its capital by the number of shares so cancelled; sub-divide its shares, or any of them in accordance with the Statutes and the bye-laws or listing rules of the securities exchange upon which shares in the Company are listed, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued or new shares; or subject to the Statutes, convert any class of paid-up shares into any other class of paid-up shares. Article 9 (A) (B) The Company may reduce its share capital or any reserve in any manner and with and subject to any incident authorized and consent required by law. Subject to the Statutes, the Company may purchase or otherwise acquire any of its issued shares on such terms and in such manner as the Company may from time to time think fit and in the manner prescribed by the Statutes. If required by the Statutes, any share which is so purchased or acquired by the Company, unless held as treasury shares in accordance with the Statutes, shall be deemed to be cancelled immediately on purchase or acquisition by the Company. On the cancellation of any share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may hold or deal with any such share (including treasury shares) which is so purchased or acquired by it in accordance with the Statutes. (viii) any change in the respective rights of the various classes of shares including the action necessary to change the rights, indicating where the conditions are different from those required by the applicable law: Article 5 (A) Whenever the share capital of the Company is divided into different classes of shares, the special rights attached to any class may, subject to the Statutes, be varied or abrogated either with the consent in writing of holders who represent at least three-quarters of the total voting rights of all the shares of that class or by a Special Resolution passed at a separate General Meeting of the holders of the shares of the class (but not otherwise) and may be so varied or abrogated either whilst the Company is a going concern or during or in contemplation of a winding-up. To every such separate General Meeting, all the provisions of these presents relating to General Meetings of the Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two persons at least holding or representing by proxy at least one-third of the total voting rights of all the shares of that class and that any holder of shares of the class present in person or by proxy may demand a poll and that every such holder shall on a poll have one vote for every share of the class held by him, PROVIDED THAT where the necessary majority for such a Special Resolution is not obtained at such General Meeting, consent in writing if obtained from holders who represent at least three-quarters of the total voting rights of all the shares of that 227

234 (B) (C) class concerned within two Months of such General Meeting shall be as valid and effectual as a Special Resolution passed at such General Meeting. The foregoing provisions of this Article shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the special rights whereof are to be varied. The repayment of preference capital other than redeemable preference capital, or any alteration of preference shareholders rights, may only be made pursuant to a Special Resolution of the preference shareholders concerned PROVIDED THAT where the necessary majority for such a Special Resolution is not obtained at the General Meeting, consent in writing if obtained from holders who represent at least three-quarters of the total voting rights of all the preference shares concerned within two Months of the General Meeting, shall be as valid and effectual as a Special Resolution carried at the General Meeting. The special rights attached to any class of shares having preferential rights shall not, unless otherwise expressly provided by the terms of issue thereof, be deemed to be varied by the creation or issue of further shares ranking as regards participation in the profits or assets of the Company in some or all respects pari passu therewith but in no respect in priority thereto. The conditions prescribed by Article 5 for variation of such rights are not different from those required under the Singapore Companies Act. (ix) any dividend restriction, the date on which the entitlement to dividends arises, any procedure for our Shareholders to claim dividends, any time limit after which a dividend entitlement will lapse and an indication of the party in whose favour this entitlement then operates: Article 124 The Company may by Ordinary Resolution declare dividends but no such dividends shall exceed the amount recommended by the Directors. No dividends may be paid, unless otherwise provided in the Statutes, to the Company in respect of treasury shares. Article 125 If and so far as in the opinion of the Directors the profits of the Company justify such payments, the Directors may declare and pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half yearly or other dates prescribed for the payment thereof and may also from time to time declare and pay interim dividends on shares of any class of such amounts and on such dates and in respect of such periods as they think fit. Article 126 Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide and except as otherwise permitted under the Statutes: (a) (b) all dividends in respect of shares must be paid in proportion to the number of shares held by a member but where shares are partly paid all dividends must be apportioned and paid proportionately to the amounts paid or credited as paid on the partly paid shares; and all dividends must be apportioned and paid proportionately to the amounts so paid or credited as paid during any portion or portions of the period in respect of which dividend is paid. For the purposes of this Article, no amount paid on a share in advance of calls shall be treated as paid on the share. Article 127 No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Statutes. 228

235 Article 133 Any dividend or other moneys payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address appearing in the Register of Members or (as the case may be) the Depository Register of a member or person entitled thereto (or, if two or more persons are registered in the Register of Members or (as the case may be) entered in the Depository Register as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons) or to such person at such address as such member or person or persons may by writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby. Notwithstanding the foregoing provisions of this Article and the provisions of Article 135, the payment by the Company to the Depository of any dividend payable to a Depositor shall, to the extent of the payment made to the Depository, discharge the Company from any liability to the Depositor in respect of that payment. Article 135 Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in a General Meeting or a resolution of the Directors, may specify that the same shall be payable to the persons registered as the holders of such shares in the Register of Members or (as the case may be) the Depository Register at the close of business on a particular date and thereupon the dividend shall be payable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares. Article 129 (A) (B) (C) (D) The Directors may retain any dividend or other moneys payable on or in respect of a share on which the Company has a lien and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. The Directors may retain the dividends payable upon shares in respect of which any person is under the provisions as to the transmission of shares hereinbefore contained entitled to become a member, or which any person is under those provisions entitled to transfer, until such person shall become a member in respect of such shares or shall transfer the same. The payment by the Directors of any unclaimed dividends or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof. All dividends and other moneys payable on or in respect of a share that are unclaimed after first becoming payable may be invested or otherwise made use of by the Directors for the benefit of the Company and any dividend or moneys unclaimed after a period of six years from the date they are first payable may be forfeited and if so shall revert to the Company but the Directors may at any time thereafter at their absolute discretion annul any such forfeiture and pay the moneys so forfeited to the person entitled thereto prior to the forfeiture. A payment by the Company to the Depository of any dividend or other moneys payable to a Depositor shall, to the extent of the payment made, discharge the Company from any liability in respect of that payment. If the Depository returns any such dividend or moneys to the Company, the relevant Depositor shall not have any right or claim in respect of such dividend or moneys against the Company if a period of six Years has elapsed from the date on which such other moneys are first payable. 229

236 Material Contracts The dates of, parties to and general nature of the material contracts (not being contracts entered into in the ordinary course of business) entered into by our Company or any of our subsidiaries during the two years preceding the date of lodgement of this offering document with the Authority, and the amount of any consideration passing to or from our Company or any of our subsidiaries, as the case may be, under such contracts are as follows: (1) the Share Purchase Agreement dated June 30, 2006 entered into between Straits Marine & Infrastructure Pte Ltd and Gerald Alain Denis Keet pursuant to which Gerald Alain Denis Keet agreed to transfer the entire issued shares in Arapa Leasing comprising 100,000 ordinary shares to Straits Marine & Infrastructure Pte Ltd for a cash consideration of A$6.0 million; (2) the Share Sale and Purchase Agreement dated June 30, 2006 entered into between PT Tiyandi Mandiri Utama and Arapa Leasing Pte Ltd pursuant to which PT Tiyandi Mandiri Utama agreed to transfer 150 shares in Indo Straits (being 15% of the issued shares in Indo Straits) to Arapa Leasing for a cash consideration of A$0.75 million; and (3) the Share Sale and Purchase Agreement dated August 31, 2006 entered into between our Company and the Selling Shareholder pursuant to which the Selling Shareholder agreed to transfer the entire issued share capital in Straits Global Trading, SMI, SGH and SET to our Company for a consideration based on the net book asset value of Straits Global Trading, SMI, SGH and SET as at August 31, Significant Changes Saved as disclosed in this offering document, no event has occurred since June 30, 2006 and up till the Latest Practicable Date which would have a material effect on the financial information set out in our audited consolidated financial statements for the financial years ended December 31, 2003, 2004 and 2005, our unaudited interim consolidated interim financial statements for each of the three-month periods ended March 31, 2005 and 2006 and our unaudited condensed interim consolidated financial statements for the six months period ended 30 June No event has occurred since June 30, 2006 and up till the Latest Practicable Date which may have a material effect on the financial position and results of our Company. Working Capital Our Directors are of the opinion that, after taking into account the present banking facilities and cash flows from our operations, we will have sufficient working capital available for our present requirements. See Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Liquidity and Capital Resources. Take-overs Sections 138, 139 and 140 of the Securities and Futures Act, and the Singapore Code on Take-overs and Mergers (collectively the Singapore Take-over and Merger Laws and Regulations ) will apply to take-over offers for our Company for so long as our Shares are listed for quotation on the SGX-ST. The Singapore Code on Take-overs and Mergers regulates the acquisition of ordinary shares of public companies or corporations, all or any of the Shares of which are listed for quotation on a securities exchange, and contains certain provisions that may delay, deter or prevent a take-over or change in control of such a public company. Any person acquiring an interest, either on his own or together with parties acting in concert with him, in 30.0% or more of the voting shares in such a public company or, if such person holds, either on his own or together with parties acting in concert with him, between 30.0% and 50.0% (both inclusive) of the voting shares in that company, and acquires additional voting shares representing more than 1.0% of the voting shares in that company in any six-month period, he, must, except with the consent of the Securities Industry Council, extend a take-over offer for the remaining voting shares in accordance with the provisions of the Singapore Code on Take-overs and 230

237 Mergers. These provisions may discourage or prevent certain types of transactions involving an actual or threatened change of control of our Company. Some of our Shareholders may therefore be disadvantaged as a transaction of that kind might have allowed the sale of Shares at a price above the prevailing market price. Parties acting in concert comprise individuals or companies who, pursuant to an arrangement or understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares in a public company incorporated in Singapore, to obtain or consolidate effective control of that company. Certain persons are presumed (unless the presumption is rebutted) to be acting in concert with each other. They include: a company and its related and associated companies and companies whose associated companies include any of these companies; a company and its directors (including their close relatives, related trusts and companies controlled by any of the directors, their close relatives and related trusts); a company and its pension funds and employee share schemes; a person and any investment company, unit trust or other fund whose investment such person manages on a discretionary basis; a financial or other professional advisor and its clients in respect of shares held by the advisor and persons controlling, controlled by or under the same control as the advisor and all the funds managed by the advisor on a discretionary basis, where the shareholdings of the advisor and any of those funds in the client total 10.0% or more of the client s equity share capital; directors of a company (including their close relatives, related trusts and companies controlled by any of such directors, their close relatives and related trusts) which is subject to an offer or where the directors have reason to believe a bona fide offer for the company may be imminent; partners; and an individual and his close relatives, related trusts, any person who is accustomed to act in accordance with his instructions and companies controlled by the individual, his close relatives, his related trusts or any person who is accustomed to act in accordance with his instructions. Subject to certain exceptions, a take-over offer must be in cash or be accompanied by a cash alternative at not less than the highest price paid by the offeror or parties acting in concert with the offeror within the preceding six months. Under the Singapore Code on Take-overs and Mergers, where effective control of a public company incorporated in Singapore is acquired or consolidated by a person, or persons acting in concert, a general offer to all other shareholders is normally required. An offeror must treat all shareholders of the same class in an offeree company equally. A fundamental requirement is that shareholders in the company subject to the take-over offer must be given sufficient information, advice and time to consider and decide on the offer. Our Subsidiaries Details of our subsidiaries as at the Latest Practicable Date are as follows: Subsidiaries Country/State of Incorporation Principal Place of Business Principal Business Effective ownership interest Issued and Paid-up/ Registered Capital Straits Global Trading Pte. Ltd. Singapore 80 Robinson Road #22-04 Singapore Marketing and procurement of resource commodities 100% S$10,000 Straits Energy Trading Pte. Ltd. Singapore 80 Robinson Road #22-04 Singapore Bulk commodity trading/investment holding company 100% S$

238 Subsidiaries Country/State of Incorporation Principal Place of Business Principal Business Effective ownership interest Issued and Paid-up/ Registered Capital Straits Gold Holdings Pte Limited Singapore 80 Robinson Road #22-04 Singapore Investment holding company 100% S$2.00 Straits Marine & Infrastructure Pte. Ltd. Singapore 80 Robinson Road #22-04 Singapore Marine construction/ resource infrastructure development 100% S$2.00 Reyka Wahana Digjaya Pte. Ltd. Singapore 36 Robinson Road #13-04 City House Singapore Investment holding company 100% S$2.00 Arapa Leasing Pte Ltd Singapore 5 Shenton Way #25-08 UIC Building Singapore Infrastructure development 100% S$6,151,830 PT Reyka Wahana Digdjaya Indonesia Graha Kirana Building 15th Floor, Jl. Yos Sudarso Kav 88 Jakarta Business and management development consulting 100% (includes 10% indirect interest) Rp. 1,500,000,000 PT Bahari Cakrawala Sebuku Indonesia Graha Kirana Building 15th Floor, Jl. Yos Sudarso Kav 88 Jakarta Coal Mining 100% Rp. 3,500,000,000 PT Straits Consultancy Services Indonesia Graha Kirana Building 15th Floor, Jl. Yos Sudarso Kav 88 Jakarta General mining geology survey services 99% Rp. 493,050,000 PT Indo Straits Indonesia Graha Kirana Building 15th Floor, Jl. Yos Sudarso Kav 88 Jakarta Marine infrastructure 100% (includes 5% indirect interest) Rp. 1,116,150,000 Sebuku Investments Limited Isle of Man Newcourt Chambers, 39 Bucks Road, Douglas, Isle of Man, 1M1 3DE Investment holding company 100% 1,

239 Changes in Issued Share Capital Except as disclosed below and and set out under the section entitled Share Capital Our Share Capital, there were no changes in the issued and paid-up share capital of our Company and our subsidiaries within the three years preceding the Latest Practicable Date: Date of Issue No. of shares issued Price per share Event/Purpose of issue Resultant share capital Our Company March 11, ,546,635 S$1.00 Consideration for acquisition of S$24,546,637 March 11, ,145,537 S$3.18 shares in BCS and Sebuku Investments Limited S$50,219,700 Straits Global Trading Pte. Ltd. May 3, S$1.00 Incorporation S$2.00 December 30, ,998 S$1.00 Allotment and issue of 9,998 shares S$10,000 Straits Energy Trading Pte. Ltd. September 1, S$1.00 Incorporation S$2.00 Straits Marine & Infrastructure Pte. Ltd. February 18, S$1.00 Incorporation S$2.00 Arapa Leasing Pte. Ltd January 1, ,000 $ Allotment and issue of 20,000 shares S$6,151,830 Reyka Wahana Digdjaya Pte. Ltd October 12, $1 Incorporation S$2 Sebuku Investments Limited January 1, Allotment and issue of 100 shares April 1, Allotment and issue of 900 shares Miscellaneous No public take-over offer by a third party in respect of our Shares or by us in respect of the Shares of another corporation or the units of a business trust occurred during the financial year ended December 31, 2005 and the Latest Practicable Date. We did not employ any expert on a contingent basis, who has a material interest, direct or indirect, in our Shares, or has a material economic interest, direct or indirect, in our Company, including an interest in the success of the Combined Offering. Consents Macquarie Securities (Asia) Pte Limited, as Issue Manager, and Macquarie Securities (Singapore) Pte Limited as the Sole Global Coordinator, Bookrunner and Underwriter have each given and have not withdrawn their written consent to the issue of this offering document with references to their name in the form and context in which they appear in this offering document and to act in such capacity in relation to this offering document. 233

240 PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this offering document with the inclusion herein of (i) its name, (ii) its auditors report dated September 29, 2006 on our consolidated financial statements for the financial years ended December 31, 2003, 2004 and 2005, (iii) its review report dated September 29, 2006 on our unaudited consolidated interim financial statements for the three months period ended March 31, 2006 and (iv) its Report on Examination of the Proforma Financial Statements of our Group dated September 29, 2006 for the financial year ended December 31, 2005 and the three months period ended March 31, 2006, which have been prepared for the purposes of incorporation in this offering document in the form and context in which they are included and references to their name in the form and context in which they appear in this offering document and to act in such capacity in relation to this offering document. John T. Boyd Company (Australia) Pty. Ltd. has given and has not withdrawn its written consent to the issue of this offering document with the inclusion herein of (i) its name and (ii) the Independent Technical Review of the Sebuku Mine and Infrastructure as at August 8, 2006, which has been prepared for the purposes of incorporation in this offering document in the form and context in which they are included and references to their name in the form and context in which they appear in this offering document and to act in such capacity in relation to this offering document. KPMG Corporate Finance Pte Ltd, as the Independent Financial Advisor, has given and has not withdrawn its written consent to the issue of this offering document with the inclusion herein of (ii) its name and (ii) the Letter dated October 26, 2006 from KPMG Corporate Finance Pte Ltd to the Independent Directors in respect of the Shareholder s Mandate for Interested Person Transactions which has been prepared for the purposes of incorporation in this offering document in the form and context in which it is included and references to their name in the form and context in which they appear in this offering document and to act in such capacity in relation to this offering document. Documents Available For Inspection Copies of the following documents are available for inspection at our registered office during normal business hours for a period of six months from the date of registration of this offering document with the Authority: (i) (ii) the Memorandum of Association and Articles of Association of our Company; the material contracts referred to above under Material Contracts ; (iii) the directors service contracts referred to under Management and Corporate Governance Service Agreement and Duration of Service of this offering document; (iv) (v) (vi) (vii) the consolidated financial statements for the financial years ended December 31, 2003, 2004 and 2005; the auditors report dated September 29, 2006 on the consolidated financial statements for the financial years ended December 31, 2003, 2004 and 2005; the unaudited consolidated interim financial statements for the three months period ended March 31, 2006; the auditors review report dated September 29, 2006 on the unaudited consolidated interim financial statements for the three months period ended March 31, 2006; (viii) the Report on Examination of the Proforma Financial Statements of our Group dated September 29, 2006 for the financial year ended December 31, 2005 and for the three months period ended March 31, 2006; (ix) the proforma financial statements for the financial year ended December 31, 2005 and for the three months period ended March 31, 2006; 234

241 (x) (xi) the audited consolidated financial statements of Arapa Leasing Pte Ltd and its subsidiary for the financial year ended December 31, 2005; the letters of consent referred to under General and Statutory Information Consents of this offering document; (xii) the Independent Technical Review of the Sebuku Mine and Infrastructure as at August 8, 2006; and (xiii) Letter from KPMG Corporate Finance to the Independent Directors dated October 26, 2006 in respect of the Shareholders Mandate for Interested Person Transactions. 235

242 COAL RESERVE AND RESOURCE REPORTING We report our coal resources and reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2004 edition) (the 2004 JORC Code ), published by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australasian Institute of Geoscientists and Minerals Council of Australia. The standards of the 2004 JORC Code substantially comply with those required by the U.S. Securities and Exchange Commission. For a discussion of the differences between the reporting requirements of the 2004 JORC Code and the standards promulgated by the U.S. Securities and Exchange Commission, see Reserve Reporting Requirements of the U.S. Securities and Exchange Commission and Cautionary Note to Investors Concerning Estimates of Measured, Indicated and Inferred Resources. Definitions under the 2004 JORC Code Under the 2004 JORC Code, the term coal resource refers to a concentration or occurrence of coal of intrinsic economic interest in or on the Earth s crust in such form and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a coal resource are known, estimated or interpreted from specific geological evidence and knowledge. Coal resources are subdivided, in order of increasing geological confidence, into inferred, indicated and measured categories. Under the 2004 JORC Code, the terms inferred coal resource, indicated coal resource and measured coal resource have the following meanings: inferred coal resource refers to that part of the coal resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. indicated coal resource refers to that part of the coal resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. measured coal resource refers to that part of the coal resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity. The term coal reserve is defined in the 2004 JORC Code as the economically mineable part of a measured or indicated coal resource. It includes diluting materials and allowances for losses which may occur when the coal is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors (the modifying factors ). These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Coal reserves are subdivided in order of increasing confidence into probable coal reserves and proved coal reserves. The choice of the appropriate category of reserve is determined primarily by the classification of the corresponding resource and, pursuant to the 2004 JORC Code, must be made by the competent person or competent persons preparing the reserve statement. 236

243 Under the JORC Code, a competent person is a person who is a Member or Fellow of the Australasian Institute of Geoscientists, or of a Recognised Overseas Professional Organisation included in a list promulgated from time to time. A competent person must have a minimum of five years experience which is relevant to the style of mineralization and type of of deposit under consideration and to the activity which that person is undertaking. According to the 2004 JORC Code, coal reserves, which are a modified subset of the indicated and measured coal resources, require consideration of the modifying factors affecting extraction and should, in most cases, be estimated with input from a range of disciplines. Measured coal resources may convert to either proved coal reserves or probable coal reserves. The competent person may be unable to convert measured coal resources to probable coal reserves because of uncertainties associated with some or all of the modifying factors which are taken into account in the conversion from coal resources to coal reserves. The relationship between exploration results, coal resources and coal reserves is illustrated in the 2004 JORC Code as follows: Exploration Results Mineral Resources Inferred Ore Reserves Increasing level of geological knowledge and confidence Indicated Measured Probable Proved Consideration of mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors (the modifying factors ) Note: The relationship between the conversion of measured coal resources to probable coal reserves is shown by the broken arrow in the illustration above. Although the trend of the broken arrow includes a vertical component, it does not, in this instance, imply a reduction in the level of geological knowledge or confidence. In such a situation the modifying factors should be fully explained. Under the 2004 JORC Code, the term recoverable coal reserves represents the combination of proved and probable coal reserves. The term marketable coal reserves, representing beneficiated or otherwise enhanced coal product, may, pursuant to the 2004 JORC Code, be used in public reports for companies in conjunction with, but not instead of, reports of coal reserves. The basis of the predicted yield to achieve marketable coal reserves should be stated. The term in situ reserves refers to the coal contained in an economic pit shell before any mining adjustments have been made. Coal Resource and Reserve Statement We derived the information contained in this offering document relating to our coal resources and reserves as of May 31, 2006 from the Independent Technical Review of the Sebuku Mine and Infrastructure (the Technical Review ), attached as Appendix A to this offering document. A coal reserve and resource statement as of May 31, 2006 for the Sebuku mine has been prepared by Mr. Peter Storey, an employee of Straits Resources and a competent person under the 2004 JORC Code, 237

244 and the coal reserve and resource data from that resource and reserve statement have been reviewed by BOYD, an independent mine consultant, and included in the Technical Review. See Independent Mining Consultants. Assumptions Underlying Our Coal Reserve Estimates We estimate our coal reserves using various assumptions regarding our mining costs and the price of coal. Our reserves are sensitive to the cost and revenue assumptions we use due to the geological structure of our deposits, which means that, all other factors being the same, if the cost assumption is higher or the price assumption is lower, we estimate lower reserves, and if the cost assumption is lower or the price assumption is higher, we estimate more reserves. The cost and revenue assumptions we have used to determine our coal reserves are derived from our 2006 operating budget and an assumed coal sales price of US$36 per tonne for coal (FOB delivery) with a calorific value of 5,500 kcal/kg (gar). We have derived the assumed sales price of coal used when we calculated the reserves through a detailed analysis of the base case and coal prices that we believe could be achieved during the period taken to mine the coal. Calculation of this coal price is an iterative process and we use a range of factors, including an assessment of likely future prices derived from independent experts and research houses, sensitivity of the recoverable reserves to different coal prices, review of receivable prices from existing contracts and analysis of historic coal price trends. However, our sensitivity analyses for our reserve calculations show that our reserve calculation is not sensitive to reasonable changes in our revenue assumption. For more information regarding the cost and revenue factors used to estimate our coal reserves presented in this offering document, see the Technical Review. Reserve Reporting Requirements of the U.S. Securities and Exchange Commission and Cautionary Note to Investors Concerning Estimates of Measured, Indicated and Inferred Resources Our resources and reserves included in this offering document and the Technical Review conform to the 2004 JORC Code. Under the listing rules of the Australian Stock Exchange, a public report must be prepared in accordance with the 2004 JORC Code if it includes a statement of coal resources or coal reserves. The 2004 JORC Code has been accepted as the basis for consistent public reporting of resources and reserves by many international mining companies. The U.S. Securities and Exchange Commission has applied the following reporting definitions to reserves under its Industry Guide 7-Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations ( Industry Guide 7 ): A reserve is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of ore when dealing with metalliferous minerals; when other materials such as coal, oil, shale, tar, sands, limestone, etc. are involved, an appropriate term such as recoverable coal may be substituted. Proven (measured) reserves are reserves for which: (a) (b) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. 238

245 Probable (indicated) reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. The standards of the 2004 JORC Code are similar to the U.S. Securities and Exchange Commission standards in Industry Guide 7, so that, we believe, our reserve estimates included in this offering document and the Technical Review would not materially differ from reserve estimates calculated with reference to the U.S. Securities and Exchange Commission standards and using the U.S. Securities and Exchange Commission definitions. We and BOYD have concluded that the methodology of either code would produce substantially similar outcomes with the differences being in terminology and documentation. In this offering document, in addition to our coal reserves, we report our coal resources under the 2004 JORC Code and, in reporting those coal resources, we use the terms measured, indicated and inferred coal resources. See Definitions under the 2004 JORC Code. You should note that while those terms are recognized by some government regulators and other investors, the U.S. Securities and Exchange Commission does not recognize them or permit their use in documents filed with it unless such estimates are required to be disclosed by foreign or state law. Inferred mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Industry Guide 7, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies. You should not assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. You are also cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. You should refer to the specific provisions of the 2004 JORC Code (which can be found at the following Internet website: and the U.S. Securities and Exchange Commission s Industry Guide 7 (which can be found at the following Internet website: corpfin/forms/industry.htm#exguide7) for a better understanding of the differences between these two codes. 239

246 SUMMARY OF CERTAIN DIFFERENCES BETWEEN SFRS AND U.S. GAAP The consolidated financial statements of our Group included elsewhere in this offering document have been prepared in accordance with SFRS. Certain differences exist between SFRS and U.S. GAAP that may be material to the financial information in this offering document. The following is a general summary of certain differences between SFRS and U.S. GAAP as applicable to our Group. The Company is responsible for preparing the summary below. The Company has not prepared a complete reconciliation of its consolidated financial statements and related footnote disclosures between SFRS and U.S. GAAP and has not quantified such differences. This summary should not be constructed as exhaustive. No attempt has been made to identify all disclosures, presentation or classification differences that would affect the manner in which transactions or events are presented in the consolidated financial statements. Additionally, no attempt has been made to identify future differences between SFRS and U.S. GAAP as a result of prescribed changes in accounting standards mandatorily effective from the latest balance sheet in this offering document. In making an investment decision, investors must rely upon their own examination of our Group, the terms of the Combined Offering and the financial information. Potential investors should consult their own professional advisors for an understanding of the differences between SFRS and U.S. GAAP and how these differences might affect the financial information herein. Consolidation SFRS Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. U.S. GAAP Under U.S. GAAP, FASB Interpretation No. 46 (Revised) Consolidation of Variable Interest Entities ( FIN 46R ) addresses the consolidation of entities in which a reporting enterprise has an economic interest, but for which a voting interest approach to consolidation is not effective in identifying where control of the entity really lies, or in which the equity investors do not bear the economic risks and rewards of the entity. Overall, the objective of FIN 46R is to improve the consistency and comparability of financial statements of enterprises engaged in similar activities. An entity is a variable interest entity ( VIE ) if the entity s equity at risk is not sufficient to finance its activities without additional subordinated financial support from other parties. An entity is also a VIE if, as a group, the holders of the equity investment at risk lack any one of the following characteristics: direct or indirect ability to make decisions about the entity s activities through voting rights; obligation to absorb the expected losses of the special purpose entity if they occur; or the right to receive the residual returns of the entity if there are any. FIN 46R requires consolidation of those VIEs for which an entity is the primary beneficiary, such as special purpose entities. If an entity is not considered a VIE, SFAS 94 Consolidation of All Majority-Owned Subsidiaries requires all majority-owned subsidiaries (i.e., all companies in which a parent has a controlling financial interest through direct or indirect ownership of a majority voting interest) to be consolidated, unless control does not rest with the majority owner. 240

247 Business Combinations Involving Entities under Common Control SFRS Business combinations involving entities under common control is outside the scope of SFRS 103. Generally, business combinations involving entities under common control is accounted for using pooling-of-interest method. U.S. GAAP Specific rules exist for accounting for combinations of entities under common control. Such transactions are generally recorded at predecessor cost, reflecting the transferor s carrying amount of the assets and liabilities transferred. The use of predecessor values or fair values depends on a number of individual criteria. Minority Interest SFRS Under SFRS, minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. Minority interest is presented in the consolidated balance sheet within equity, separately from the parent shareholders equity. Minority interest in the profit or loss of the Group shall also be separately disclosed. Changes in the Group s ownership interest in a subsidiary after control is obtained that do not result in a loss of control are accounted for by adjusting the carrying amount of minority interest to reflect the change in Group s interest in the subsidiary s net assets. The difference between the amount of adjustment to minority interest and the fair value of the consideration paid or received, if any, is brought to equity or income statement. U.S. GAAP Under U.S. GAAP, minority interest is not considered as part of the stockholder s equity. The portion of profit or loss attributable to the minority interest is separately disclosed on the face of the income statement. The acquisition of some or all of the non-controlling interest in a subsidiary is accounted for using the purchase method. Deferred income taxes SFRS Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that is probable that future taxable profit will be available against which the temporary differences can be utilized. 241

248 Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated companies and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. U.S. GAAP Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes requires the recognition of deferred tax assets and liabilities for temporary differences between book and tax balances and the recognition of deferred tax assets for tax loss carry-forwards and credits. Deferred tax assets are subject to a valuation allowance if it is more likely than not (greater than 50%) that some or all of the asset will not be realized. The valuation allowance should be sufficient to reduce the asset to the amount that is more likely than not to be realized. Discounting of deferred tax assets or liabilities is not permitted. Deferred tax assets and liabilities are measured based on the enacted tax rates expected to apply when the relevant temporary differences reverse. Change in enacted tax rates are recognized in the period the tax change is enacted. Under U.S. GAAP, deferred tax liabilities and deferred tax assets are offset and presented for each tax paying component of an enterprise and within each particular tax jurisdiction. Impairment of Long-lived Assets SFRS Intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If there is such an indication, the asset must be tested for impairment. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. Value in use is the future cash flows to be derived from the particular asset, discounted to present value using a pre-tax market-determined rate that reflects the current assessment of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflow which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Any impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard. If an impairment loss is recognized, any related deferred tax assets or liabilities are determined in accordance with FRS 12 by comparing the revised carrying amount of the asset with its tax base. Impairment of long-lived assets are charged to income statement as expense unless the impairment reverses a previous revaluation increase, in which case, it is directly charged against any revaluation reserve to the extent that the reduction does not exceed the amount held in the revaluation reserve in respect of the same item. Any excess will be charged to the income statement. Reversals of impairment losses are required when there has been a change in the estimates used to determine the recoverable amount. U.S. GAAP U.S. GAAP requires an impairment loss to be recognized for long-lived assets, including property, plant and equipment, where a triggering event occurs and the carrying amount of the asset exceeds the future undiscounted cash flows expected to result from use and eventual disposal of the asset. If it is determined that the asset is impaired, the impairment loss recognized is the difference between the 242

249 carrying amount of the asset and its fair value, being either market value or the sum of future discounted cash flows. Once such impairments have been recorded, subsequent recoveries are not allowed. Investment Securities SFRS SFRS requires that debt securities be classified as fair value through profit or loss, available-for-sale or held-to-maturity; equity shares may only be classified as fair value through profit or loss or available-for-sale. Securities at fair value through profit or loss are sub-categorized to held for trading and designated at fair value through profit or loss at inception. Securities classified as fair value through profit or loss are carried at fair value and realized gains and losses arising from the change in fair value are recognized in the income statement. Securities classified as available-for-sale are carried at fair value and unrealized gains and losses arising from the change in fair value are recognized in the fair value reserve within equity. Securities classified as held-to-maturity are carried at amortized cost. The Group assesses at each balance sheet date whether there is objective evidence that a security or a group of securities is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the investments are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from the fair value reserve within equity and recognized in the income statement. Impairment losses recognized in the income statement on equity investments are not reversed through the income statement, until the equity investments are disposed of. U.S. GAAP U.S. GAAP requires specific accounting depending on whether the investment is a debt or equity security. Debt securities are classified as trading, available-for-sale or held-to-maturity. Equity securities that have readily determinable fair values are classified as either trading or available-for-sale. If securities (both debt and equity) are held principally for resale in the near term, they should be classified as trading. Debts securities that an entity has both the ability and intent to hold until maturity should be classified as held-to-maturity. All other securities would be considered available-for-sale. Securities classified as trading are carried at current market value and realized gains and losses arising from the change in fair value are recognized in the income statement. Securities classified as available-for-sale are carried at current market value and unrealized gains and losses arising from the change in fair value are recognized in other comprehensive income in shareholders equity. Debt securities classified as held-to-maturity are carried at amortized cost. Securities for which there is no market for the shares (i.e. investment in non-public entity) are accounted for at cost. For listed securities classified as held-to-maturity or available for sale and for securities recorded at cost, a company should determine whether a decline in fair value is other than temporary. An other than temporary impairment is generally defined as being a prolonged period in which the fair value of the investment remains at a level substantially below the investment s cost. If the decline is other than temporary, the cost basis of the security should be written down to fair value as the new cost basis and the write-down should be included in earnings as a realized loss. Each individual security should be evaluated for impairment as the practice of providing a general allowance for unidentified impairment is not appropriate. 243

250 Exploration and Evaluation Expenditure SFRS Under SFRS, expenditures incurred in exploration activities should be expensed unless they meet the definition of an asset. An entity recognizes an asset when it is probable that economic benefits will flow to the entity as a result of the expenditure. U.S. GAAP Under U.S. GAAP, exploration and evaluation expenditure are charged to operations as incurred. Costs are capitalized when it has been determined that an ore body can be economically developed, which requires the completion of a feasibility study. The time between initial acquisition and full evaluation of a property s potential is variable and is determined by several factors, including the location relative to existing infrastructure, the property s stage of development, geological controls and ore prices. If an ore body is determined to be economically mineable, acquisition and development costs are capitalized. Acquisition and development costs are amortised when production begins using the units-of-production method based on proven and probable reserves. Assets Retirement Obligations SFRS Under SFRS, provision for assets retirement obligations is recognized when the Group has a legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. U.S. GAAP Under U.S. GAAP, accrual (and capitalization) of an asset retirement obligation for which there is an existing legal obligation. The obligation must be (i) unavoidable; (ii) be associated with the retirement of a tangible long-lived asset; (iii) result from the acquisition, construction or development and/or the normal operation of that asset; and (iv) the obligating event must have occurred prior to the balance sheet date. Futher, it requires that the fair value of the asset retirement obligation be recorded if a reasonable estimate of fair value can be made. In determining the amount of liability to be recorded, a company should use a credit-adjusted risk free rate to discount the liability. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability and as an expense classified as an operating item in the statement of income (referred to as accretion expense). Changes resulting from revisions to either timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase (decrease) in the carrying amount of the liability and the related capitalized asset retirement costs as part of the carrying amount of the related long-lived asset. Inventories SFRS Under SFRS, Inventories are carried at the lower of cost or net realizable value. The net realizable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses. Reversal of a write-down (limited to the amount of the original write-down) is required for a subsequent increase in value of inventory previously written down. U.S. GAAP Under U.S. GAAP, inventories are stated at the lower of cost or market, with market generally limited to an amount that is not more than the net realizable value or less than net realizable value less a normal profit margin. A provision to write-down inventories to the lower of cost or maket cannot be reversed should the market value recover prior to sale or disposition. As a result, write-down of inventories can only be recovered through sale or disposition. 244

251 Revenue Recognition SFRS Under SFRS, revenue from the sale of goods is recognized when a Group entity has delivered the products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. U.S. GAAP Under U.S. GAAP, revenue is recognized when earned, which is when there is a persuasive evidence of an arrangement, when delivery has occurred or services have been rendered, the price is fixed and determinable and collection of the price is reasonably assured. Delivery is not considered to have occurred unless legal title to the goods has transferred and the buyer assumes the risks and records the ownership of the goods. Under U.S. GAAP, revenue is reduced for estimated returns and allowances due to quality and customer rejections. Presentation and Disclosure Disclosure in financial statements is generally more extensive under U.S. GAAP than SFRS, and there are differences in presentation including (but not limited to) the following: Statement of Cash Flows SFRS Interest paid and dividends paid or received shall be classified in a consistent manner from period to period as operating, investing or financing cash flows. In addition, cash and cash equivalents includes overdraft on demand. U.S. GAAP Interest paid and dividends received to be classified as cash flows from operating activities. Dividends paid are classified as cash flow on financing activities. Bank overdrafts are not included in cash and cash equivalent and accordingly, changes in balances of overdrafts are classified as financing cash flows. Statements of Comprehensive Income SFRS Under SFRS, items of gains and losses that are recognized directly in the shareholder s equity instead of the income statement (e.g., foreign exchange translation difference) can be presented either in the notes or separately highlighted within the primary statements of changes in stockholders equity. U.S. GAAP Under U.S. GAAP, SFAS No. 130, Reporting Comprehensive Income, requires the reporting of comprehensive income and its components in financial statements that are displayed with the same prominence as other financial statements that constitute a full set of financial statements. Comprehensive income other than net income reported in the income statement is known as other comprehensive income, and such items are classified separately based on their nature. Items reported should be accumulated in a separate accumulated other comprehensive income component of shareholders equity. Accumulated other comprehensive income is comprised of cumulative foreign currency translation adjustments, changes in fair value of cash flow and net investment hedges, unrealized gains (losses) on available-for-sale investments in debt and equity securities, minimum pension liability adjustments and income tax related to other comprehensive income items. 245

252 Segment Reporting SFRS Under SFRS, segment reporting applies to enterprises whose equity or debt securities are publicly traded and enterprises that are in the process of issuing equity or debt securities in public securities markets. Primary and secondary (business and geographic) segments are reported based on risks and returns and internal reporting structure. Disclosures for primary segments include revenues, results, capital expenditures, total assets, total liabilities and other items. For secondary segment, revenues, total assets and capital expenditures are reported. Group accounting policies apply for the purpose of segment reporting. There is no specific disclosure required on factors used to identify reportable segments. U.S. GAAP Pursuant to SFAS No. 131 Disclosures About Segments of an Enterprise and Related Information, a public business enterprise is required to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker of a company in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Similar disclosures to SFRS (primary segment) except liabilities and geographical capital expenditures are not required. Depreciation, amortization, tax, interest and exceptional/extraordinary items are disclosed if reported internally. Disclosure of factors used to identify segments is required. 246

253 GLOSSARY OF TECHNICAL TERMS The explanations of certain terms used in this offering document are not intended as technical definitions, but have been provided to assist the reader to understand certain terms as used in this offering document. We have also included abbreviations and acronyms of certain units of measurement in this offering document. Coal Terms anthracite... ash... ash fushion temperature... barge... bituminous coal... blasting... blending... British thermal unit or Btu.. bulk commodities.... C&F... calorific value or cv... CIF... coal with the highest energy content, from 86% to 98%, by weight, and high caloric values. impurities consisting of iron, alumina and other incombustible matter that are contained in coal. Since ash increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal. temperature of initial deformation of ash fusion samples measured in a reducing atmosphere; the temperature at which ash melts and slagging occurs. alongandlarge, usually flat-bottomed, boat that is towed by other boats or ships. the most common type of coal and characterized by a moisture content of less than 20% by weight and heating value of 10,500 to 14,000 Btu per pound. Bituminous coal is a soft, dense and black coal containing large amounts of carbon, often with well-defined bands of bright and dull material. It is used primarily as fuel in steam-electric power generation, with substantial quantities also used for heat and power applications in manufacturing and to make coke. theprocess of explosion in the mine. theprocess of coal mixing to obtain the desired coal quality. a measure of the thermal energy required to raise the temperature of one pound of pure liquid water one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit). amineral that is commonly exported in bulk oceangoing carriers, including coal, salt, iron ore and bauxite. Cost and freight acoal sample s energy content measured as the heat released on complete combustion in air or oxygen, usually expressed as the amount of heat (measured in kilo calories) per unit weight of coal (measured in kilograms) or (kcal/kg). Cost, insurance and freight 247

254 coal.... a readily combustible black or brownish-black rock with a composition, including inherent moisture, which consists of more than 50% by weight and more than 70% by volume of carbonaceous material. It is formed from plant remains that have been compacted, hardened, chemically altered and metamorphosed by heat and pressure over time. coal seam or seam... coke... coking coal... doré... dry coal basis... free on board (FOB)... fossil fuel.... fouling... gar... highwall.... indicated resources... JORC... coal deposits occur in layers in a bed of coal lying between a roof and floor with each layer called a seam. ahard, dry carbon substance produced by heating coal to a very high temperature in the absence of air and used in the manufacture of iron and steel. coal used to make coke and also referred to as metallurgical coal. an unrefined alloy of gold with variable quantities of silver and smaller quantities of base metals, which is produced at a mine before passing on to a refinery for upgrading to London Good Delivery standard. coal quality data calculated on a theoretical basis in which no moisture is associated with the sample. thepricepaidforcoal at the mining operation site excluding freight and insurance costs where the buyer pays and arranges for transportation (and insurance thereof) and the seller s responsibility stops at delivery to the point of origination. fuelsuch as coal, petroleum or natural gas formed from the fossil remains of organic material. theaccumulation of refuse in gas passages or on heat absorbing surfaces which results in undesirable restriction to the flow of gas or heat. gross as received. anunexcavated face of exposed overburden and coal in a surface mine or bank on the uphill side of a contour mine excavation. referstothatpart of the coal deposit for which quality and quantity can be estimated with a reasonable level of confidence, as defined in the 1999 JORC Code. Indicated resources have a lower level of geological confidence than measured resources. thejointorereserves Committee JORC Code the Australasian Code for Reporting of Mineral Resources and Ore Reserves (1999 edition) prepared by the JORC, which sets out the minimum standards, recommendations and guidelines for public reporting of exploration results, mineral resources and ore reserves in Australasia. lignite... marketable reserves... thelowest quality type of coal with a high moisture content (up to 45% by weight) and heating value of 6,500 to 8,300 Btu per pound. It is brownish-black in color and tends to oxidize and disintegrate when exposed to air. anestimate of the quantity of coal that could be profitably sold under expected market conditions. 248

255 measured resources... nar... nitrogen oxide (Nox)... open cut mining.... offtake agreement... overburden... preparation plant... probable reserves... proved reserves.... reclamation... reserve... ROM or Run of Mine... referstothatpart of the coal deposit for which quality and quantity can be estimated with a high level of confidence, as defined in the 2004 JORC Code. netasreceived. a gas formed in high-temperature environments, such as coal combustion, that is a harmful pollutant that contributes to acid rain. a form of mining designed to extract minerals that lie near the surface. Overburden is removed to expose the minerals for mining. Rock covering the minerals may be blasted and removed by large draglines or electric shovels and trucks. anindustry term generally used to describe a purchase agreement for existing and/or future production of commodities. any material, consolidated or unconsolidated, such as layers of earth and rock, that overlies a coal seam. In surface mining operations, overburden is removed prior to coal extraction. usually located on a mine site, although one plant may serve several mines. A preparation plant is a facility for crushing, sizing and washing coal to prepare it for use by a particular customer. The washing process has the potential benefit of reducing the coal s sulfur content. similartoproved reserves, but with a lower level of confidence, as the number of intersections of the coal seams by pits trenches and boreholes in the sampling is less than that conducted in arriving at the proved reserves (as defined in the 2004 JORC Code). the economically mineable part of an indicated, and in some circumstances, measured mineral resource (as defined in the 2004 JORC Code). It includes diluting materials and allowances for losses that may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. theprocess of restoring the environment to a stable state following mining activities by restoring topsoil and planting vegetation. The process commonly includes recontouring or reshaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground covers. Reclamation operations are usually underway before the mining of a particular site is completed. Reclamation is regulated by applicable local law. coal, about which size, form, distribution, quantity and quality are known, and which is mineable considering the economic, technical, legal and environmental aspects at the time of measurement. usually the typical quality of coal that is extracted prior to any act of beneficiation such as washing, crushing or screening. The term is used loosely and can be applied on a pit-by-pit basis and is typically also used to refer to the processing and raw stockpile areas. 249

256 slagging... strip or strip ratio.... sub-bituminous coal.... sulfur.... sulfur content... surface mine... thermal coal... truck-and-shovel mining.... underground mine... volatile matter... washing or washed... theaccumulation of hard deposits on the radiant walls of a boiler, usually due to the presence of sodium, vanadium and sulfur. theastripratioisthenumber of bank cubic meters of overburden needing removal to access one million tonne of coal. A strip ratio of 4:1 means that four bank cubic meters of overburden must be stripped to produce one tonne of coal. Strip ratios vary based primarily on geological characteristics of the in situ coal and the depth at which deposits lie. dullblackcoal that ranks between lignite and bituminous coal with moisture content between 20% and 30% by weight and heat content ranging from 7,800 to 9,500 Btu per pound of coal. one of the elements present, in varying quantities, in coal that contributes to environmental degradation when coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion. coal is commonly described by its sulfur content due to the importance of sulfur to customers concerned about compliance with environmental regulations. Low sulfur coal has a variety of definitions, but typically is used to describe coal consisting of 1.0% or less sulfur. amineinwhichthecoal lies near the surface and can be extracted by removing the overburden. coal used in thermal plants to generate electricity. a form of mining where large shovels are used to remove overburden, which is generally used to backfill pits after the coal has been removed or used for other purposes. Smaller shovels load coal in trucks for transportation to the preparation plant or loadout facilities. alsoknown as a deep mine. Usually located several hundred feet below the earth s surface, an underground mine s coal is removed mechanically and transferred by shuttle car or conveyor to the surface. those products, exclusive of moisture, released by a material as gas or vapor. theremoval or reduction of impurities from coal. Units of Measurement hectare... kcal/kg... km... tonnes.... ametricunitofsquare measurement of surface or land equal to 10,000 square meters, or approximately 2,471 acres. kilocalorie per kilogram. kilometres. a metric ton or tonne which is equivalent to 1,000 kilograms, or 2, pounds. The metric tonne, and not the net ton or British ton, is the unit of weight measure referred to in this offering document. 250

257 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements for the financial years ended 31 December 2003, 2004 and F-1 Unaudited Consolidated Interim Financial Statements for the three months period ended 31 March F-45 Proforma Financial Statements for the financial year ended 31 December 2005 and the three months period ended 31 March F-89 Unaudited Condensed Interim Consolidated Financial Statements for the six months period ended 30 June F

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259 STRAITS ASIA RESOURCES LIMITED ( Formerly known as Straits Sebuku Pte Ltd ) (Incorporated in Singapore) AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and 2005 F-1

260 STRAITS ASIA RESOURCES LIMITED (Incorporated in Singapore) AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and 2005 Contents Page Statement by Directors... F-3 Auditors Report.... F-4 Consolidated Income Statements... F-5 Consolidated Balance Sheets.... F-6 Consolidated Statements of Changes in Equity.... F-7 Consolidated Cash Flow Statements... F-8 Notes to the Consolidated Financial Statements... F-9 F-2

261 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES STATEMENTS BY DIRECTORS For the financial years ended 31 December 2003, 2004 and 2005 In the opinion of the directors, (a) (b) the consolidated financial statements set out on pages F-5 to F-44 are drawn up so as to give a true and fair view of the state of affairs of the Group at 31 December 2003, 2004 and 2005 and of the results of the business, changes in equity and cash flows of the Group for the financial years ended 31 December 2003, 2004 and 2005; and at the date of this statement, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they fall due. On behalf of the directors Milan Jerkovic Director Ong Chui Chat Director F-3

262 AUDITORS REPORT TO THE BOARD OF DIRECTORS OF STRAITS ASIA RESOURCES LIMITED The Board of Directors Straits Asia Resources Limited 80 Robinson Road #22-04, Singapore September 2006 Dear Sirs We have audited the accompanying consolidated financial statements of the Company and its subsidiaries (collectively known as the Group ) for the financial years ended 31 December 2003, 2004 and 2005 as set out on pages F-5 to F-44. These consolidated financial statements of the Group are the responsibility of the Company s directors. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform our audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements of the Group are properly drawn up in accordance with the Singapore Financial Reporting Standards so as to present fairly, in all material respects, the state of affairs of the Group at 31 December 2003, 2004 and 2005, and the results, changes in equity, and the cash flows of the Group for the financial years ended on those dates. This Report has been prepared for inclusion in the Prospectus (the Prospectus ) in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ). PricewaterhouseCoopers Certified Public Accountants Singapore Partner-in-charge: Tham Tuck Seng F-4

263 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS For the financial years ended 31 December 2003, 2004 and 2005 Financial year ended 31 December Notes US$ 000 US$ 000 US$ 000 Revenue Sales revenue ,182 74,771 43,657 Cost of sales of goods (100,080) (47,558) (43,438) Gross Profit ,102 27, Other revenue from ordinary activities , Other (losses)/gains (116) Expenses Other expenses from ordinary activities... Marketing and distribution expense (3,735) (224) (201) Corporate expense (3,261) (3,724) (1,433) Finance costs (189) (174) (580) Profit/(loss) before income tax... 53,797 23,663 (1,373) Income tax expense (9,438) (6,555) (128) Total profit/(loss) for the year... 44,359 17,108 (1,501) Attributable to: Equity holder of the Company... 44,359 14,969 (1,480) Minority interest... 2,139 (21) 44,359 17,108 (1,501) Earnings per share for profit attributable to the ordinary equity holder of the Company: 10. Basic earnings per share (cents) (0.20) Diluted earnings per share (cents) (0.20) The accompanying notes form an integral part of these financial statements. F-5

264 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As at 31 December 2003, 2004 and 2005 As at 31 December Notes US$ 000 US$ 000 US$ 000 ASSETS Current assets Cash and cash equivalents ,704 16,012 4,579 Trade and other receivables ,225 10,711 2,312 Inventories 13. 2, Income tax recoverable ,570 27,341 8,410 Non-current assets Receivables ,090 6,087 4,436 Property, plant and equipment ,224 2,314 2,178 Exploration and evaluation expenditure Mine properties ,410 13,920 13,791 Deferred income tax assets ,524 23,146 21,309 Total assets ,094 50,487 29,719 LIABILITIES Current liabilities Trade and other payables ,661 18,208 17,785 Current income tax liabilities ,977 5,708 Borrowings(non-interestbearing) ,388 1,465 1,382 Provisions for other liabilities and charges ,679 25,697 19,695 Non-current liabilities Provisions for other liabilities and charges ,343 1,718 1,522 Borrowings(non-interestbearing) Deferred income tax liabilities ,234 1, ,814 3,354 2,496 Total liabilities... 36,493 29,051 22,191 NET ASSETS... 29,601 21,436 7,528 EQUITY Capital and reserves attributable to the Company s equity holder Share capital and share premium ,058 * * Other reserves 22. (13,227) 17,686 17,387 Retained earnings/(accumulated losses)... 9,770 1,611 (9,859) 29,601 19,297 7,528 Minority interest ,139 Total equity... 29,601 21,436 7,528 * Less than US$1,000 The accompanying notes form an integral part of these financial statements. F-6

265 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the financial years ended 31 December 2003, 2004 and 2005 Notes Share capital and share premium Retained earnings/ (Accumulated losses) Other reserves Minority interest Total US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Total at 1 January * (8,379) 17, ,029 Loss for the year... (1,480) (21) (1,501) Total recognized loss for the year... (1,480) (21) (1,501) Total equity at 31 December * (9,859) 17,387 7,528 Total at 1 January * (9,859) 17,387 7,528 Profit for the year... 14,969 2,139 17,108 Total recognized gain for the year... 14,969 2,139 17,108 Transfer to other reserve (299) 299 Dividends paid (3,200) (3,200) Total equity at 31 December * 1,611 17,686 2,139 21,436 Total at 1 January * 1,611 17,686 2,139 21,436 Profit for the year... 44,359 44,359 Total recognized gains for the year... 44,359 44,359 Capitalisation of capital reserve. 17,237 (17,237) Issue of share capital by a subsidiary Acquisition of minority interest by parent ,821 (13,682) (2,139) Dividends paid (36,200) (36,200) Total equity at 31 December ,058 9,770 (13,227) 29,601 * Less than US$1,000 The accompanying notes form an integral part of these financial statements. F-7

266 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS For the financial years ended 31 December 2003, 2004 and 2005 Financial year ended 31 December Notes US$ 000 US$ 000 US$ 000 Cash flows from operating activities Receipts from customers ,002 69,842 46,874 Payments to suppliers and employees... (98,659) (51,996) (40,655) 53,343 17,846 6,219 Interest received Interestpaid... (57) (31) (149) Income taxes (paid)/refunded... (9,316) 859 Net cash inflow from operating activities ,072 18,734 6,085 Cash flows from investing activities Payments for purchase of property, plant and equipment... (3,993) (906) (155) Payments for exploration expenditure... (266) (127) (510) Net cash outflow from investing activities... (4,259) (1,033) (665) Cash flows from financing activities Repayment of borrowings... (5,000) Loans to/from related parties... (4,671) (1,269) 179 Loans to non related parties... (4,256) (999) Restricted cash... (800) 13 Issue of shares by subsidiary... 6 Dividends paid to company s shareholders... (36,200) (3,200) Net cash outflow from financing activities... (45,121) (6,268) (4,808) Net (decrease)/increase in cash and cash equivalents... (5,308) 11, Cash and cash equivalents at the beginning of the financial year... 16,012 4,579 3,967 Cash and cash equivalents at end of year ,704 16,012 4,579 The accompanying notes form an integral part of these financial statements. F-8

267 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and 2005 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General The consolidated financial statements have been prepared for inclusion in the prospectus in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ) (formerly known as Straits Sebuku Pte Ltd). The Company is incorporated and domiciled in Singapore. The address of its registered office is 80 Robinson Road, #22-04, Singapore The principal activity of the Company is that of investment holding. The Group is principally engaged in the business of mining, exploration and the marketing and trading of commodities. The Company s immediate holding corporation is Straits Bulk and Industrial Pty Ltd, a company incorporated in Australia. The Company s ultimate holding corporation is Straits Resources Limited, a company incorporated in Australia. The address of Straits Resources Limited, is Level 1, 35 Ventor Avenue, West Perth, Western Australia, Basis of Preparation In September 2006, the Company acquired 100% of the issued and paid-up share capital of Straits Global Trading Pte Ltd ( SGT ), Straits Gold Holdings Pte Ltd ( SGH ), Straits Energy Trading Pte Ltd ( SET ) and Straits Marine Industries Pte Ltd ( SMI ), for an aggregate cash consideration determined based on the net book asset values of each of SGT, SET, SGH and SMI as at 31 August The aggregate net book asset values of these entities as at 31 August 2006 was approximately US$7,752,000. Accordingly, the net assets of the Group has reduced by approximately US$7,752,000 upon the completion of the acquisition. The above restructuring exercise is a business combination of entities under common control since the Company, SGT, SGH, SET and SMI are all directly held and controlled by Straits Bulk and Industrial Pty Ltd throughout the 3 financial years ended 31 December 2005, 2004 and Accordingly, the acquisitions have been accounted for using the pooling of interest method. For the purpose of these financial statements, the consolidated income statements and consolidated cash flow statements include the results of operations, the changes in equity and cash flows of the companies now comprising the Group as if the current structure of the Group had been in existence throughout the relevant periods. The consolidated balance sheets have been prepared to present the financial position of the Group as at 31 December 2005, 2004 and 2003 as if the current structure of the Group had been in existence since 1 January The assets and liabilities are brought into the consolidated balance sheets at their existing carrying amounts. All intra-group transactions and balances have been eliminated on consolidation. The audited consolidated financial statements do not reflect the adjustment for the future exchange of cash consideration for the acquisition of the 100% interest in SGT, SGH, SET and SMI as described in the above restructuring exercise which, will be adjusted for at the date of the acquisition. F-9

268 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements by the Group for the financial year ended 31 December 2005, 2004 and 2003 are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4. (a) Revenue recognition Revenue for the Group comprises the fair value of the consideration received or receivable for the sale of goods and rendering of management and agency services, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group. Revenue is recognised as follows: (1) Sale of goods Sales revenue comprises revenue earned from the sale of products to entities outside the company. Sales revenue is recognized when the product is delivered and: (i) (ii) (iii) (iv) (v) risk and reward has been passed to the customer; the product is in a form suitable for delivery; the quantity of the product can be determined with reasonable accuracy; the product has been despatched to the customer and is no longer under the physical control of the company; the selling price can be determined with reasonable accuracy. (2) Rendering of services Revenue from management, agency and logistic services is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed. (3) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and thereafter amortising the discount as interest income. F-10

269 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (a) Revenue recognition (continued) (4) Dividend income Dividend income is recognised when the right to receive payment is established. (b) Group accounting (1) Subsidiaries Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Acquisition of entities that are under common control have been consolidated using the pooling-of-interest method as set out in Note 2. The purchase method of accounting is used to account for the acquisition of other subsidiaries. The cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured as the minorities share of the fair value of the subsidiaries identifiable assets and liabilities at the date of acquisition by the Group and the minorities share of changes in equity since the date of acquisition, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the minority are attributed to the equity holders of the Company until the minority s share of losses previously absorbed by the equity holders of the Company has been recovered. F-11

270 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (b) Group accounting (continued) (1) Subsidiaries (continued) Changes in the Group s ownership interest in a subsidiary after control is obtained that do not result in a loss of control are accounted for by adjusting the carrying amount of minority interest to reflect the change in the Group s interest in the subsidiary s net assets. The difference between the amount of adjustment to minority interest and the fair value of the consideration paid or received, if any, is brought to equity. (2) Transaction costs Costs directly attributable to an acquisition are included as part of the cost of acquisition. (c) Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of an item of property, plant and equipment also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred. Depreciation on mine property, plant and equipment (excluding land) is calculated on a unit-of-production basis so as to write off the cost of each asset in proportion to the depletion of the proved and probable mineral reserves, or on a straight line basis over the estimated useful life of the asset. Depreciation on other property, plant and equipment is calculated on a straight line basis to write off the net cost over its expected useful life to the consolidated entity. The expected useful lives are as follows: Buildings 3 10 years Plant and equipment 3 5 years Motor vehicles 5 years The accumulated costs of the construction of buildings and plant and the installation of machinery are capitalised as construction in progress. These costs are reclassified to property, plant and equipment accounts when the construction or installation is complete. Depreciation is charged from the date when assets are brought into use. F-12

271 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (c) Property, plant and equipment (continued) The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. (d) Exploration and evaluation expenditure Exploration and evaluation expenditure are capitalized in the balance sheet, in respect of areas of interest for which the rights of tenure are current and where: (i) (ii) Such costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or Exploration and/or evaluation activities in the area have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area are continuing. Exploration expenditure incurred that does not satisfy the policy stated above is expensed in the period in which it is incurred. Exploration expenditure that has been capitalised which no longer satisfies the policy stated above is written off in the period in which that decision is made. Upon the commencement of mining activities, deferred exploration and development expenditures are reclassified to mine properties and then amortised in accordance with the accounting policy for mine properties as detailed at note 3(e) below. The net carrying value of each area of interest is reviewed regularly and, to the extent to which this value exceeds its recoverable value, that excess is provided for or written off in the year in which this is determined. (e) Mine properties Mine properties represent the acquisition costs and/or accumulation of exploration, evaluation and development expenditure in respect of areas of interest in which mining has commenced. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. F-13

272 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (e) Mine properties (continued) Amortisation is provided on a unit of production basis so as to write off the cost in proportion to the depletion of the proved and probable mineral reserves. Reserve and life of mine estimates are reviewed on an annual basis, and amortisation rates are adjusted accordingly where necessary. (f) Deferred mining expenditure Certain mining costs, principally those that relate to the stripping of waste and which relate to future economically recoverable ore to be mined, have been capitalised and included in mine properties as deferred mining. These costs are deferred or taken to the cost of production as the case may be, so that each tonne of ore mined bears the average costs of waste removal per tonne of ore, as determined by the waste to ore ratio derived from the current pit design and incurs the associated variable contract mining costs specific to the production area from which that ore is mined. The waste to ore ratio and the remaining life of the mine are regularly assessed by the Directors and senior management to ensure the carrying value and rate of deferral is appropriate. (g) Impairment of assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (h) Financial assets (1) Classification The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the Investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. F-14

273 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (h) Financial assets (continued) (1) Classification (continued) (ii) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. (2) Recognition and derecognition Purchases and sales of financial assets are recognised on the trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from those financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (3) Initial measurement Financial assets are initially recognised at fair value plus transaction costs. (4) Subsequent measurement Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in the fair value reserve within equity. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income statement. (5) Determination of fair value The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. F-15

274 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (h) Financial assets (continued) (6) Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale investments, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss is removed from equity and recognized in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement. (i) Trade and other receivables Trade receivables and other receivables are recorded at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Collectibility of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the allowance is recognized in the income statement. (j) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months from the reporting date. (k) Fair value estimation The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. F-16

275 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (l) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid at the reporting date. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method. (m) Operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight-line basis over the period of the lease. (n) Inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (o) Income taxes The income tax expense or credit for the period is the tax payable on the current period s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognized in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. F-17

276 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (o) Income taxes (continued) Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (p) Provisions Provisions for asset dismantlement and removal or restoration are recognised when the Group has a legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provision is not recognised for future operating losses. Provision for restoration and rehabilitation The Group has obligations to dismantle, remove, restore and rehabilitate certain items of property, plant and equipment. The Group recognizes the estimated costs of dismantlement, removal or restoration of items of property, plant and equipment arising from the acquisition or use of assets. This provision is estimated based on the best estimate of the expenditure required to settle the obligation, taking into consideration time value. The estimated costs are discounted using the pre-tax discount rate that reflects the time value of money. As the value of the provision represents the discounted value of the present obligation to restore, dismantle and rehabilitate, the increase in the provision due to the passage of time is recognized in the income statement as a borrowing cost. Changes in estimated timing or amount of the expenditure or discount rate which affect the discounted cost is adjusted against the cost of the related property, plant and equipment unless the decrease in the liability exceeds the carrying amount of the asset or the asset has reached the end of its useful life. In such cases, the excess of the decrease over the carrying amount of the asset or the changes in the liability is recognised in profit or loss immediately. (q) Employee benefits (1) Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognized in other payables in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognized when the leave is taken and measured at the rates paid or payable. F-18

277 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (q) Employee benefits (continued) (2) Termination benefits Liabilities for termination benefits are recognized when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. The liabilities for termination benefits are recognized in other creditors unless the amount or timing of the payments is uncertain, in which case they are recognized as provisions. Liabilities for termination benefits expected to be settled within 12 months are measured at the amounts expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the reporting date are measured as the estimated cash outflows, discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future payments, where the effect of discounting is material. (3) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds does not hold sufficient assets to pay all employee benefits relating to employee service in the current and preceding financial years. The Group s contribution to defined contribution plans are recognised in the financial year to which they relate. (r) Foreign currency translation (1) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in United States Dollars. (2) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. F-19

278 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Significant accounting policies (continued) (r) Foreign currency translation (continued) (3) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognized in the foreign currency translation reserve. (s) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. (t) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits with financial institutions and bank overdrafts. Bank overdrafts are included in borrowings on the balance sheet. (u) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds. (v) Dividend Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at the Balance Sheet Date. (w) Rounding of amounts The board has determined that the financial reports of the Group are more clearly presented when rounded to the nearest thousand dollars. Amounts reported in the financial report have been rounded on this basis as permitted by paragraph 48 of FRS 1. F-20

279 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on management s historical experience and knowledge of relevant facts and circumstances at that time. The Group makes estimates and judgements concerning the future. The resulting accounting estimates and judgements may differ from the related actual results and may have a significant effect on the carrying amounts of assets and liabilities within the next financial year and on the amounts recognized in the financial statements. Information on such estimates and judgements is contained in the accounting policies and/or notes to the financial statements. (a) (b) (c) Estimation for the provision for rehabilitation and dismantling Provision for rehabilitation and dismantling of property, plant and equipment is estimated taking into consideration facts and circumstance available at the balance sheet date. This estimate is based on the expenditure required to undertake the rehabilitation and dismantling, taking into consideration time value. Please refer to note 3(p) for details. Impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties The Group reviews for impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties in accordance with the accounting policy stated in note 3(g). The recoverable amount of these assets has been determined based on the higher of the assets fair value less costs to sell and value in use. These calculations require the use of estimates and judgements. Please refer to note 3(c), (e), (f) and (g) for details. Income taxes Judgement is required in determining the provision for income taxes. The Group recognizes liabilities for anticipated tax based on estimates of taxes due. Where the final tax outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made. 5. Revenue US$ 000 US$ 000 US$ 000 Sales of goods ,182 74,771 43,657 Other revenue from operation: Management fees... 1, Logistics services Agency fees , Other (losses)/gains: Net foreign exchange gain/(losses)... (218) Interest income Others (116) ,062 75,343 44,279 F-21

280 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Expenses by nature US$ 000 US$ 000 US$ 000 Commodity purchases... 38,801 Contractor costs ,185 33,608 26,930 Depreciation of plant and equipment... 1, Equipment rental... 2,169 1, Amortisation of mine properties.... 1,793 2,673 1,648 Royalties to government... 9,981 7,656 5,188 Movement in coal inventories... (2,023) Rental on operating leases Bad-debt written-off Value added tax ,962 Employee benefits (Note 7)... 2,668 2,388 2,319 Other expenses... 8,146 2,661 4,441 Total cost of sales, marketing and distribution costs and corporate expenses ,076 51,506 45, Employee benefits US$ 000 US$ 000 US$ 000 Wages and salaries... 2,637 2,257 2,319 Post retirement benefits Definedcontributionplans Other staff benefits ,668 2,388 2, Finance costs US$ 000 US$ 000 US$ 000 Bank charges and interest.... (57) (31) (167) Other finance costs.... (132) (143) (413) (189) (174) (580) F-22

281 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Income tax expense (a) Income tax expense US$ 000 US$ 000 US$ 000 Currenttax... 9,202 5,714 (11) Deferredtax... (147) Under/(Over) provided in prior years Current Deferred... (180) 9,438 6, Deferred income tax expense included in income tax expense comprises: Decrease in deferred tax assets (note 17) Increase/(decrease) in deferred tax liabilities (note17)... (156) (147) (b) Numerical reconciliation of income tax expense to prima facie tax payable US$ 000 US$ 000 US$ 000 Profit before income tax expense... 53,797 23,663 (1,373) Tax at the Singapore tax rate of 20% (2004: 20% 2003: 22%)... 10,759 4,733 (302) Tax effect on: Non deductible expenses , Income subject to tax incentive.... (3,845) (913) Sundry items... (89) (6) 4 Difference in overseas tax rates... 1,787 1,531 (141) Under/(Over) provision in prior years (180) Total income tax expense... 9,438 6, In August 2004, Straits Global Trading Pte Ltd, a subsidiary of the Company, was granted the Global Trader Programme status from International Enterprise Singapore. The Global Trader Programme status was effective on 1 June 2004, the date of commencement of the company s activities and is valid for a 5 year period. Global Trader Programme status entitles the company to a concessional tax rate of 10% on income earned from eligible trading activities. The validity of the Global Trader Programme status is contingent on the company satisfying minimum turnover, local expenditure and employment levels. F-23

282 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Income tax expense (continued) (c) Movements in current income tax liabilities/(recoverable) US$ 000 US$ 000 US$ 000 At beginning of financial year... 5,708 (865) (854) Provision for current year... 9,202 5,714 (11) Under provision in respect of prior years Tax (paid)/refunded... (9,316) 859 At end of financial year... 5,977 5,708 (865) 10. Earnings Per Share Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year: Net profit attributable to members of Straits Asia Resources Limited (US$ 000)... 44,359 14,969 (1,480) Weighted average number of ordinary shares on issue for basic earnings per share ,407, ,399, ,399,110 Basic earnings per share (cents) (0.20) The weighted average number of shares for 2005, 2004 and 2003 has been adjusted to reflect the sub-division and consolidation of shares as part of restructuring (note 33(a)). Diluted earnings per share is the same as basic earnings per share. As at the balance sheet dates, the Company does not have any potential ordinary shares that have a dilutive effect on earnings per share. 11. Cash and cash equivalents US$ 000 US$ 000 US$ 000 Cash at bank and on hand... 10,665 15,989 4,579 Fixed deposits with financial institutions ,504 16,812 4,579 Restricted cash deposit pledged with a bank for banking facilities (note 12)... (800) (800) Cash and cash equivalents... 10,704 16,012 4,579 The fixed deposit has a maturity date of two months (2004: two months) with an average effective interest rate of 2.8% per annum (2004: 1.5% per annum) F-24

283 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Cash and cash equivalents (continued) Cash and cash deposits are denominated in the following currencies US$ 000 US$ 000 US$ 000 Indonesian Rupiah Singapore Dollar UnitedStatesDollar... 11,157 16,489 4,429 AustralianDollar ,504 16,812 4,579 The carrying amount of cash and cash equivalents approximate their fair value. 12. Trade and other receivables US$ 000 US$ 000 US$ 000 Trade debtors non-related parties... 13,252 6,691 1,685 Trade debtors relatedcorporations... 2,418 Other debtors Less: Provision for impairment of doubtful receivables... (257) (257) 16,128 6,759 1,685 Receivable from ultimate holding corporation... 3,020 Receivable from related corporations ,214 Loans to non-related parties , Advance to a non-related party... 5,094 Restricted cash (note 11) Prepayments Other receivables ,225 10,711 2,312 Receivables from ultimate holding corporation and related corporations are interest free and repayable on demand. Loans to non-related parties are interest-free and repayable on demand. Advance to a non-related party represents a short-term advance which has been repaid subsequent to 31 December The carrying amount of trade and other receivables approximate their fair value. Trade and other receivables are denominated in United States Dollars. F-25

284 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Inventories US$ 000 US$ 000 US$ 000 Coal inventories, at cost Finished goods... 2, Receivables Non-current US$ 000 US$ 000 US$ 000 Receivable from ultimate holding corporation... 6,864 4,586 4,430 Other receivables , ,090 6,087 4,436 The amounts receivable are interest-free and are not expected to be repaid within 12 months from the balance sheet dates and are denominated in United States Dollars. The carrying amount approximates the fair value. 15. Property, plant and equipment Buildings Plant & equipment Motor vehicles Construction in progress Total US$ 000 US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,739 3, ,578 Additions ,766 3,993 Transfers to/from other classes.... 2, (3,231) At 31 December ,856 6, ,571 Accumulated depreciation At 1 January (1,993) (1,731) (540) (4,264) Depreciation expense... (271) (715) (97) (1,083) At 31 December (2,264) (2,446) (637) (5,347) Net book value At 31 December , ,224 F-26

285 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Property, plant and equipment (continued) Buildings Plant & equipment Motor vehicles Construction in progress Total US$ 000 US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,739 2, ,672 Additions Transfers to/from other classes (771) At 31 December ,739 3, ,578 Accumulated depreciation At 1 January (1,708) (1,331) (455) (3,494) Depreciation expense... (285) (400) (85) (770) At 31 December (1,993) (1,731) (540) (4,264) Net book value At 31 December , , Cost At 1 January ,732 1, ,517 Additions Transfers to/from other classes (350) At 31 December ,739 2, ,672 Accumulated depreciation At 1 January (1,472) (1,115) (365) (2,952) Depreciation expense... (236) (216) (90) (542) At 31 December (1,708) (1,331) (455) (3,494) Net book value At 31 December , , Exploration and evaluation, development and mine properties (a) Exploration and evaluation expenditure US$ 000 US$ 000 US$ 000 Opening balance Expenditure incurred Transferred to mine properties... (17) Closing balance F-27

286 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Exploration and evaluation, development and mine properties (continued) (b) Mine Properties Mining right Deferred mining Expenditure Deferred exploration and development expenditure Total US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,679 5,283 12,291 35,253 Expenditure transferred from exploration Expenditure during the year At 31 December ,679 5,283 12,574 35,536 Accumulated Amortisation At 1 January (12,768) (401) (8,164) (21,333) Amortisation for the year... (811) (656) (326) (1,793) At 31 December (13,579) (1,057) (8,490) (23,126) Net book value At 31 December ,100 4,226 4,084 12, Cost At 1 January ,679 2,490 12,282 32,451 Expenditure during the year... 2, ,802 At 31 December ,679 5,283 12,291 35,253 Accumulated Amortisation At 1 January (11,423) (7,237) (18,660) Amortisation for the year... (1,345) (401) (927) (2,673) At 31 December (12,768) (401) (8,164) (21,333) Net book value At 31 December ,911 4,882 4,127 13, Cost At 1 January ,679 2,490 11,772 31,941 Expenditure during the year At 31 December ,679 2,490 12,282 32,451 Accumulated Amortisation At 1 January (10,450) (6,562) (17,012) Amortisation for the year... (973) (675) (1,648) At 31 December (11,423) (7,237) (18,660) Net book value At 31 December ,256 2,490 5,045 13,791 F-28

287 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Deferred income tax Deferred tax assets Provisions Tax losses Other Total US$ 000 US$ 000 US$ 000 US$ At 1 January (Credited)/charged to income statement... (15) (89) (104) At 31 December At 1 January (Credited)/charged to income statement... (10) (264) 77 (197) At 31 December At 1 January (Credited)/charged to income statement (28) (8) At 31 December US$ 000 US$ 000 US$ 000 Represented by: to be recovered within one year to be recovered after one year Deferred tax liabilities Accelerated tax depreciation < > Mine properties Property, plant and equipment Others Total US$ 000 US$ 000 US$ 000 US$ At 1 January (Credited)/charged to income statement (70) 35 At 31 December At 1 January (Credited)/charged to income statement (32) 644 At 31 December , ,391 F-29

288 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Deferred income tax (continued) Deferred tax liabilities (continued) Accelerated tax depreciation < > Mine properties Property, plant and equipment Others Total US$ 000 US$ 000 US$ 000 US$ At 1 January , ,391 (Credited)/charged to income statement.. (180) 23 (157) At 31 December , , US$ 000 US$ 000 US$ 000 Represented by: to be recovered after one year... 1,234 1, Trade and other payables US$ 000 US$ 000 US$ 000 Trade payables to: non-related parties ,961 2,893 5,459 relatedcorporations... 1, Other payables , Accrued operating expenses... 10,442 13,220 11,561 25,661 18,208 17,785 The carrying amounts of current trade and other payables approximate their fair value. Trade and other payables are denominated in United States Dollars. 19. Borrowings non-interest bearing US$ 000 US$ 000 US$ 000 Payable to ultimate holding corporation... 1,625 1,710 1,609 1,625 1,710 1,609 Represented by: Current... 1,388 1,465 1,382 Non-current ,625 1,710 1,609 F-30

289 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Borrowings non-interest bearing (continued) The current payables to ultimate holding corporation are unsecured, interest free and repayable on demand. The non-current payables are unsecured, interest free and not expected to be repaid in the next twelve months from the balance sheet date. The carrying amounts of receivables from holding corporations approximate their fair value and are denominated in United States Dollars. 20. Provisions for other liabilities and charges Provision for employee benefits Provision for rehabilitation and dismantling Total US$ 000 US$ 000 US$ 000 At 1 January ,548 1,976 Additional provisions Increase in provision discount Used during the year.... (19) (79) (98) At 31 December ,612 2,050 Additional provisions Increase in provision discount Used during the year.... (387) (387) At 31 December ,367 2,034 Additional provisions Increase in provision discount Used during the year.... (168) (91) (259) At 31 December ,408 1, US$ 000 US$ 000 US$ 000 Represented by: Current Non-current... 1,343 1,718 1,522 1,996 2,034 2, Share capital and share premium Details of the share capital and share premium of the Company are as follows: (i) Authorised ordinary share capital The authorised number of ordinary shares is 50,000,000 shares (2004: 100,000; 2003: 100,000) with a par value of $1 per share (2004 and 2003: $1 per share). F-31

290 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Share capital and share premium (continued) (ii) Issued and fully paid ordinary share capital Amount < > No. of shares Issued share capital Share capital Share premium Total share capital and share premium US$ 000 US$ 000 US$ Balance at beginning and end of financialyear... 2 * * 2004 Balance at beginning and end of financialyear... 2 * * 2005 Balance at beginning of financial year... 2 * * Capitalisation of capital reserve**.. 24,546,635 17,237 17,237 Issue of share to acquire the minority interest (Note 23)... 6,145,537 3,787 12,034 15,821 Balance at end of financial year... 30,692,174 21,024 12,034 33,058 * Less than US$1,000. ** The Company capitalised the sum of US$17,237,000 in the capital reserve by paying up in full the aggregate par value of 24,546,635 new ordinary shares of S$1 each in the capital of the Company. 22. Other reserves US$ 000 US$ 000 US$ 000 Composition General reserve (a) Capital reserve (b).... (13,526) 17,387 17,387 (13,227) 17,686 17,387 (a) General reserve The Indonesian Limited Company Law No. 1/1995 dated 7 March 1995 requires Indonesian companies to set up a general reserve amounting to 20% of the company s issued and paid up share capital. PT Bahari Cakrawala Sebuku ( PTBCS ), a subsidiary in the Group has appropriated an amount to the value of 20% of issued and paid up capital from retained earnings to a general reserve in compliance with this law during the financial year ended 31 December 2004, however at balance sheet date this appropriation had not yet been approved by the shareholders of the company. Subsequent to balance date, on 13 June 2006, the shareholders of the company approved the appropriation. This reserve is non-distributable. F-32

291 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Other reserves (continued) (b) Capital reserve US$ 000 US$ 000 US$ 000 At beginning of financial year (i)... 17,387 17,387 17,387 Issued of shares by a subsidiary... 6 Capitalised as share capital (Note 21(ii))... (17,237) Acquisition of minority interest (ii)... (13,682) At end of financial year... (13,526) 17,387 17,387 (i) (ii) The capital reserve at the beginning of financial year represents the aggregate amount of share capital of the subsidiaries prior to the restructuring as mentioned in Note 2 and a capital reserve of US$17,237,000 of the Company. This represents the difference between the value of the consideration paid for the acquisition of the 20% minority interest in PTBCS and the amount that these minority interests were recognised in the financial statements. See note Minority interest US$ 000 US$ 000 US$ 000 Interest in: Share capital Retained profits.... 1,991 (148) 2,139 In January 2005, the Group acquired the remaining 20% equity interest of PT Bahari Cakrawala Sebuku for a consideration of US$15,821,000. The acquisition consideration was satisfied by the allotment and issuance of 6,145,537 shares of S$1 each at a premium of S$3.18 per share. The acquisition has been treated as an equity transaction between shareholders, and accordingly, the difference between the value of the consideration paid for this minority interest (in shares) and the amount that minority interest was recognised in the financial statements at the time of acquisition has been treated as a return of capital and brought into equity as capital reserve. 24. Dividends US$ 000 US$ 000 US$ 000 Ordinary dividends paid Interim exempt (one-tier) dividend paid in respect of current year. 36,200 3,200 F-33

292 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Related party transactions (a) Transactions with related parties: US$ 000 US$ 000 US$ 000 Dividends paid to immediate holding corporation... 36,200 3,200 Management fees paid to ultimate holding corporation... 1,435 1, Commodities and services sold/rendered to related corporations... 5, Commodity purchases from related corporations... 35,571 Related party balances are disclosed at notes 12, 14, 18 and 19. (b) Key management personnel compensation: US$ 000 US$ 000 US$ 000 Salaries and other short term employee benefits... 1, Termination benefits Post-employment benefits contribution to CPF Others , Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy in note 2: Name of entity Country of incorporation Principal activities Effective equity interest % % % Straits Global Trading Pte Ltd (a) Singapore Trading * Straits Energy Trading Pte Ltd (a) Singapore Dormant * Straits Gold Holdings Pte (b) Singapore Dormant Limited RWD Pte Ltd (b) Singapore Dormant 100 PT Bahari Cakrawala Sebuku (c) Indonesia Coal mining PT Straits Consultancy (c) Indonesia Management services Services Sebuku Investments Limited (b) Isle of Man Investment holdings 100 PT Reyka Wahana Digdjaya (b) Indonesia Investment holdings 100** (a) Audited by PricewaterhouseCoopers, Singapore (b) Not required to be audited under the law of the country of incorporation (c) Audited by PricewaterhouseCoopers, Indonesia * Incorporated in the financial year ended 31 December ** Include 10% indirect interest F-34

293 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Commitments (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognized as liabilities is as follows: US$ 000 US$ 000 US$ 000 Later than one year but not later than five years Property, plant and equipment payable (b) Operating leases Commitments for minimum lease payments in relation to non-cancelable operating leases are payable as follows: US$ 000 US$ 000 US$ 000 Within one year Later than one year but not later than five years Contingent liabilities On 11 October 2005, the Indonesian Minister of Finance ( MoF ) issued Regulation no.95/ PMK.02/2005 ( Regulation 95 ) which imposes a 5% duty on coal exports based on a regulated coal price. The regulation became effective on the date of issuance. No amount has been provided in the financial statements of PTBCS as of 31 December 2005 relating to this matter. The Company s position is similar to other coal industry participants, the majority of whom elected not to comply with Regulation 95 as of 31 December 2005, pending the outcome of request for the regulation to be revised, and potential legal challenges to the regulation. PTBCS therefore has a contingent liability for the unpaid duty of approximately US$0.8 million at 31 December 2005 (note 33(b)). PTBCS has commitments in respect of certain arrangements for the mining, processing and handling of coal and related activities. These arrangements include penalties in respect of early termination of the arrangements. Provision for these penalties has not been made in the financial statements as there are no present intentions to terminate these agreements. An action for land compensation of Rp 3.5 billion (approximately US$0.42 million) has been raised against PTBCS in the Indonesian Supreme Court. This action is an appeal of the decisions of the provincial high court and regional court which both found in the favour of PTBCS. No amount has been recognised in the financial statements as management is confident that the appeal will not succeed. F-35

294 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Reconciliation of profit/(loss) after income tax to net cash inflow from operating activities US$ 000 US$ 000 US$ 000 Profit/(Loss) for the year... 44,359 17,108 (1,501) Depreciation and amortisation... 2,876 3,443 2,190 Unrealised exchange (gain)/loss (97) (629) (Increase)/decrease in receivables.... (8,681) (6,915) 3,659 (Increase)/decrease in tax recoverable (11) (Increase)/decrease in inventories... (2,023) Decrease in deferred tax assets (Increase) in deferred mining... (2,793) Increase in trade/other creditors... 7, ,215 Increase in current tax liabilities ,708 Increase (decrease) in deferred tax liabilities.... (157) Increase/(decrease) in other provisions... (38) Net cash inflow from operating activities... 44,072 18,734 6, Financial risk management The Group s operations are exposed to market risk (including currency risk, commodity price risk and interest rate risk), credit risk and liquidity risk. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group may use derivative financial instruments such as foreign exchange contracts and commodity contracts to hedge certain risk exposures. (a) Market risk (i) (ii) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the entity s functional currency. Commodity price risk Commodity price risk is the risk of financial loss resulting from movements in the price of the Group s commodity inputs and outputs. The Group is exposed to commodity price risk arising from revenue derived from sales of coal as well as to the impact of crude oil prices on the cost of fuel consumed in the mining and processing of coal. The coal price risk is managed through contractual arrangements with customers and derivative instruments such as forward sales contracts may be used. However, no derivative instruments were used during the financial years. Fuel is currently acquired at the spot rate available at time of acquisition, which exposes the Group to the impact of changes to world prices for crude oil. However, the Group continues to assess the potential financial risk associated with rising crude oil prices and whether the risk requires management through contractual arrangements or the use of derivative instruments. F-36

295 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Financial risk management (continued) (a) Market risk (continued) (iii) Interest rate risk The Group is not exposed to significant interest rate risk as it has no significant external borrowings as it relies on cash generated from its normal business activities to fund its operations. (b) (c) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any one financial institution. Liquidity risk Prudent liquidity risk management implies maintaining at all times sufficient cash, liquid investments and committed credit facilities to meet the Group s commitments as they arise. Liquidity risk management covers daily, short-term and long-term needs. The appropriate levels of liquidity are determined by both the nature of the Group s business and its risk profile. 31. Segment information Primary reporting format business segments Business Segments The Group is organised into the following divisions by product: Coal Mining: Exploration, development, mining and marketing of coal. Commodity Trading: Trading of gold, copper and other minerals which commenced in Other operations of the Group mainly comprise of management services and investment holding, neither of which constitutes a separately reportable segment. Unallocated costs represent corporate expense. Segment assets consist primarily of property, plant and equipment, mine properties, exploration and evaluation expenditure, inventories, receivables and cash and cash equivalents, but exclude deferred income tax assets and non trade receivables from the ultimate holding corporation and related corporations. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities and non trade payables to the ultimate holding corporation and related corporations. Capital expenditure comprises additions to property, plant and equipment and mine properties. F-37

296 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Segment information (continued) Secondary reporting format geographical segments The Group s two business segments operate principally in the geographical region of Asia. The pricing of the Group s products is governed principally by international market pricing example: Sebuku coal is benchmarked to the Newcastle Barlow Jonker Index (BJI) and adjusted for transport charges and relative calorific value. Hence the Group is not materially subject to risk and returns arising in differing economic environments in Asia. Primary reporting function business segments Financial year ended 31 December 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales ,147 41, ,182 Other revenue/income ,830 1,880 Total segment revenue/income ,197 41,035 1, ,062 Segment results... 53,229 2,234 55,463 Unallocated revenue less unallocated expenses... (1,666) (1,666) Profit before income tax... 53,229 2,234 (1,666) 53,797 Income tax expense... (9,438) (9,438) Total profit... 53,229 2,234 (11,104) 44,359 Other segment items Acquisition of properties, plant and equipment, Intangibles and other non current assets... 4, ,259 Depreciation and amortisation... 2, ,876 Segment assets Segment assets... 41,858 9,240 51,098 Unallocated assets... 14,996 14,996 41,858 9,240 14,996 66,094 Segment liabilities Segment liabilities... 24,026 3,128 27,154 Unallocated liabilities... 9,339 9,339 24,026 3,128 9,339 36,493 F-38

297 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Segment information (continued) Primary reporting format business segments Financial year ended 31 December 2004 Coal Unallocated Total US$ 000 US$ 000 US$ 000 Sales: externalsales... 74,771 74,771 Other revenue/income Total segment revenue/income... 74, ,343 Segment results... 24,948 24,948 Unallocated revenue less unallocated expenses.... (1,285) (1,285) Profit before income tax... 24,948 (1,285) 23,663 Income tax expense... (6,555) (6,555) Total profit... 24,948 (7,840) 17,108 Other segment items Acquisition of properties, plant and equipment, Intangibles and other non current assets ,033 Depreciation and amortisation... 3, ,443 Segment assets Segment assets ,981 36,981 Unallocated assets... 13,506 13,506 36,981 13,506 50,487 Segment liabilities Segment liabilities... 20,658 20,658 Unallocated liabilities... 8,393 8,393 20,658 8,393 29,051 F-39

298 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Segment information (continued) Primary reporting format business segments Financial year ended 31 December 2003 Coal Unallocated Total US$ 000 US$ 000 US$ 000 Sales: externalsales... 43,657 43,657 Other revenue/income Total segment revenue/income... 43, ,279 Segment results (1,756) (1,756) Unallocated revenue less unallocated expenses Profit before income tax... (1,756) 383 (1,373) Income tax expense... (128) (128) Total profit... (1,756) 255 (1,501) Other segment items Acquisition of properties, plant and equipment, Intangibles and other non current assets Depreciation and amortisation... 2,191 2,191 Segment assets Segment assets ,521 23,521 Unallocated assets... 6,198 6,198 23,521 6,198 29,719 Segment liabilities Segment liabilities... 20,200 20,200 Unallocated liabilities... 1,991 1,991 20,200 1,991 22, New accounting standards and FRS interpretations Certain new accounting standards and FRS interpretations have been published that are mandatory for accounting periods beginning on or after 1 January The Group s assessment of those standards and interpretations that are relevant to the Group is set out below: (a) FRS 19 (Amendment), Employee Benefits This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. It also adds new disclosure requirements. As the Company does not intend to change the accounting policy adopted for recognition of actuarial gains and losses and does not participate in any multi-employer plans, adoption of this amendment will only impact the format and extent of disclosures presented in the accounts, if material. The Company will apply this amendment from annual periods beginning 1 January F-40

299 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and New accounting standards and FRS interpretations (continued) (b) (c) FRS 106, Exploration for and Evaluation of Mineral Resources The Group has early adopted FRS 106, Exploration for and Evaluation of Mineral Resources refer note 3(e). The adoption of FRS 106 did not result in substantial changes to the Group s accounting policy. INT FRS 104, Determining whether an Arrangement contains a Lease INT FRS 104 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. It requires an assessment of whether: (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the arrangement conveys a right to use the asset. Management is currently assessing the impact of INT FRS 104 on the Company s operations. (d) FRS 107, Financial Instruments: Disclosures and a complementary amendment to FRS 1, Presentation of Financial Statements Capital Disclosures FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces FRS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in FRS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under FRS. The amendment to FRS 1 introduces disclosures about the level of an entity s capital and how it manages capital. The Group assessed the impact of FRS 107 and the amendment to FRS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of FRS1. The Group will apply FRS 107 and the amendment to FRS 1 from annual periods beginning 1 January Event occurring after balance sheet date (a) On 20 September 2006, the Shareholders passed resolutions to approve, amongst other things, the following: the subdivision of every one ordinary share in the issued and paid-up share capital of the Company into 30 ordinary shares ( Subdivision ); the conversion of the Company into a public limited company and the change of name to Straits Asia Resources Limited ; the adoption of a new set of Articles of Association; the adoption of the Straits Employee Share Option Plan and the Straits Executive Share Acquisition Plan, and the issue of shares thereunder; F-41

300 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Event occurring after balance sheet date (continued) that authority be and is hereby given pursuant to Section 161 of the Act to our Directors to: (A) (i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; and/or (B) (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and (notwithstanding the authority conferred by this authority may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this authority was in force, provided that: (1) the aggregate number of shares to be issued pursuant to such authority (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 50% of the post-combined Offering issued share capital of the Company (as calculated in accordance with subparagraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to Shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 20% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of post-combined Offering issued share capital shall be based on the issued share capital immediately following the close of the Combined Offering of the Company at the time this authority is passed, after adjusting for: (i) (ii) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this authority is passed; and any subsequent consolidation or sub-division of shares; (3) in exercising the authority conferred by this authority, the Company shall comply with the provisions of the Listing Manual for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and F-42

301 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Event occurring after balance sheet date (continued) (4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this authority shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. (b) On 21 July 2006, the Indonesian Supreme Court issued a ruling stipulating that Regulation 95 was contrary to a higher level of prevailing Indonesian laws and regulations because the duty imposed double taxation on coal through both a royalty and an export duty on the same goods and, therefore, held that Regulation 95 was void. The Supreme Court also stated that coal companies previously subject to Regulation 95 were no longer obliged to pay that duty. However, the Supreme Court did not rule the Government is required to refund the duty that had been paid by the coal companies from the date of issuance of Regulation 95 until the ruling was issued. On 13 September 2006, the Directorate General of Customs and Duty issued Circular Letter No. SE-28/BC/2006 on coal export duty which states that from 13 September 2006, no export duty will be applied on coal exports. The Government may file a request to the Supreme Court to re-examine the ruling. However, the Company is not aware of any announcement by the Government to take this action in response to the ruling, including whether it intends to file a request for re-examination of the ruling. (c) (d) Subsequent to 31 December 2005, a total of US$21,500,000 of tax exempt (one-tier) interim dividends have been declared and paid in respect of the financial year ending 2006 to Straits Bulk Industrial Pty Ltd. On 27 September 2006, the Company entered into a revolving facility agreement with Bayerische Hypo- Und Vereinsbank AG, Singapore Branch ( HVB ) in which HVB granted to the Company a US$50.0 million revolving loan and performance bond facility (the HVB facility ). The purpose of obtaining the HVB facility was to enable the Company to pay off the existing group debts, to fund capital expenditure in respect of the Sebuku coal project, to purchase a power station which the Company intends to lease to PT IMK and to obtain performance bonds. The HVB facility will be secured including by way of: (1) a guarantee from BCS, Straits Global Trading, SIL, RWD and SMI, (2) an assignment of insurances relating to the vessel, Straits Dragon, given by SMI, (3) a charge over proceeds account given by Straits Global Trading, (4) a charge over account given by the Company, (5) a deed of charge over all assets of our Company (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables), (6) a mortgage over the vessel, Straits Dragon, given by SMI, F-43

302 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2003, 2004 and Event occurring after balance sheet date (continued) (7) a share charge over all the shares of and dividends received from Straits Global Trading and SIL given by the Company, (8) a corporate guarantee given BCS, (9) a corporate guarantee given by RWD, (10) a pledge of shares of BCS given by the Company and RWD, (11) a pledge of shares of RWD given by SIL and Mr Ginarsa Tandinegara, (12) a conditional assignment of contracts given by BCS including the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract among other agreements relating to BCS coal operations, (13) a fiduciary security over insurance proceeds given by BCS, (14) a fiduciary security over receivables given by BCS, (15) a fiduciary security over movable assets given by BCS, (16) a deed of charge over all assets of Straits Global Trading (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies), and receivables, and (17) a deed of charge over all assets of SIL (including real property, book debts, bank acounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables. In the event that the security that the Group has provided to secure the Company s obligations under the HVB facility is enforced, the Company may be required to relinguish and transfer the Company s interests in various subsidiaries, including BCS, Straits Global Trading, SIL, SET, SMI, PT SCS, SGH, RWD and RWDP, as well as the Company s rights under the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract, among other assets charged or pledged under the security documents described above. Therefore, if the Company was to default under the HVB facility, and HVB enforces its security interests over the Company s assets, including the Company shares in the Company s subsidiaries, the Company may lose control of the Group and the other principal assets. 34. Authorisation of financial statements These financial statements were authorized for issue in accordance with a resolution of the Board of Director of Straits Asia Resources Limited on 29 September F-44

303 STRAITS ASIA RESOURCES LIMITED ( Formerly known as Straits Sebuku Pte Ltd ) (Incorporated in Singapore) AND ITS SUBSIDIARIES UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2006 F-45

304 STRAITS ASIA RESOURCES LIMITED (Incorporated in Singapore) AND ITS SUBSIDIARIES UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2006 Contents Page Statement by Directors... F-47 Review Report.... F-48 Consolidated Income Statements... F-49 Consolidated Balance Sheets.... F-50 Consolidated Statements of Changes in Equity.... F-51 Consolidated Cash Flow Statements... F-52 Notes to the Consolidated Financial Statements... F-53 F-46

305 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES STATEMENTS BY DIRECTORS For the three months period ended 31 March 2006 In the opinion of the directors, nothing has come to our attention that causes us to believe that the unaudited consolidated interim financial statements of the Group as set out on pages F-49 to F-88 of the Prospectus are not presented fairly, in all material aspects, to reflect the state of affairs of the Group at 31 March 2006 and the results of the business, changes in equity and cash flows of the Group for the three months period from 1 January 2006 to 31 March On behalf of the directors Milan Jerkovic Director Ong Chui Chat Director F-47

306 REVIEW REPORT TO THE BOARD OF DIRECTORS OF STRAITS ASIA RESOURCES LIMITED The Board of Directors Straits Asia Resources Limited 80 Robinson Road #22-04, Singapore September 2006 Dear Sirs We have reviewed the unaudited consolidated interim financial statements of the Company and its subsidiaries (collectively known as the Group ) for the three months period ended 31 March 2006 as set out on pages F-49 to F-88. These unaudited interim consolidated financial statements of the Group are the responsibility of the Company s directors. Our responsibility is to issue a report on these unaudited interim consolidated financial statements based on our review. We conducted our review in accordance with the Singapore Standard on Review Engagements This standard requires that we plan and perform our review to obtain moderate assurance as to whether the unaudited consolidated interim financial statements are free of material misstatement. A review is limited primarily to inquiries of the Company s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the unaudited consolidated interim financial statements of the Group for the three months period ended 31 March 2006 are not presented fairly, in all material respects, in accordance with Singapore Financial Reporting Standards. This Report has been prepared for inclusion in the Prospectus (the Prospectus ) in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ). PricewaterhouseCoopers Certified Public Accountants Singapore Partner-in-charge: Tham Tuck Seng F-48

307 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS For the three months period ended 31 March 2006 Unaudited for the 3 months period ended Notes 31 March March 2006 US$ 000 US$ 000 Revenue Sales revenue ,526 62,944 Cost of sales of goods (12,655) (44,472) Gross Profit.... 9,871 18,472 Other revenue from ordinary activities Othergains,net Expenses Other expenses from ordinary activities Marketinganddistribution (191) (643) Administrative expense (964) (639) Finance costs (5) (104) Profit before income tax... 8,920 17,598 Income tax expense (1,908) (2,782) Total profit for the period 7,012 14,816 Attributable to: Equity holders of the Company... 7,012 14,816 Earnings per share for profit attributable to the ordinary equity holders of the company: 10. Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form an integral part of these financial statements F-49

308 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As at 31 March 2006 As at Notes 31 December March 2006 US$ 000 (audited) US$ 000 (unaudited) ASSETS Current assets: Cash and cash equivalents ,704 20,087 Trade and other receivables ,225 27,422 Inventories ,641 1,718 40,570 49,227 Non-current assets Receivables ,090 7,104 Property, plant and equipment ,224 11,395 Exploration and evaluation expenditure Mine properties ,410 11,892 Deferred income tax assets ,524 31,313 Total assets ,094 80,540 LIABILITIES Current liabilities Trade and other payables ,661 34,186 Current income tax liabilities ,977 4,566 Borrowings(interestbearing) Borrowings(non-interestbearing) ,388 1,388 Provisions for other liabilities and charges ,679 41,193 Non-current liabilities Provisions for other liabilities and charges ,343 1,366 Borrowings(interestbearing) ,533 Borrowings(non-interestbearing) Deferred income tax liabilities ,234 1,294 2,814 7,430 Total liabilities... 36,493 48,623 NET ASSETS... 29,601 31,917 EQUITY Capital and reserves attributable to the Company s equity holder Share capital and share premium ,058 33,058 Other reserves... (13,227) (13,227) Retainedearnings... 9,770 12,086 Total equity... 29,601 31,917 The accompanying notes form an integral part of these financial statements F-50

309 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the three months period ended 31 March 2006 Notes Share capital and share premium Retained earnings Other reserves Minority interest Total US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Unaudited Total at 1 January * 1,611 17,686 2,139 21,436 Currency translation differences recognized directly in equity... Profit for the year... 7,012 7,012 Total recognized gain for the year... 7,012 7,012 Capitalisation of capital reserve... 17,237 (17,237) Contribution of equity, net transaction costs.... Acquisition of minority interest by parent ,821 (13,682) (2,139) Dividends paid... (3,200) (3,200) Total equity at 31 March ,058 5,423 (13,233) 25,248 Total at 1 January ,058 9,770 (13,227) 29,601 Profit for the year... 14,816 14,816 Total recognized gain for the year... 14,816 14,816 Dividends paid... (12,500) (12,500) Total equity at 31 March ,058 12,086 (13,227) 31,917 * Less than US$1,000 The accompanying notes form an integral part of these financial statements F-51

310 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS For the three months period ended 31 March 2006 Unaudited for the 3 months period ended Notes 31 March March 2006 US$ 000 US$ 000 Cash flows from operating activities Receipts from customers... 19,728 59,001 Payments to suppliers and employees... (15,485) (35,352) 4,243 23,649 Interest received Interestpaid... (5) (104) Income taxes paid... (4,400) (4,133) Net cash (outflow)/inflow from operating activities (132) 19,463 Cash flows from investing activities... Payments for purchase of property, plant and equipment... (214) (6,486) Payments for exploration expenditure... (2) (175) Net cash outflow from investing activities... (216) (6,661) Cash flows from financing activities... Loans to related parties (393) Loans to non related parties... (1,875) 4,540 Proceeds from borrowings.... 5,000 Repayment of borrowings... (66) Dividends paid to company s shareholders... (3,200) (12,500) Net cash outflow from financing activities... (4,823) (3,419) Net (decrease)/increase in cash and cash equivalents... (5,171) 9,383 Cash and cash equivalents at the beginning of the period... 16,012 10,704 Cash and cash equivalents at end of period... 10,841 20,087 The accompanying notes form an integral part of these financial statements F-52

311 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March 2006 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General The consolidated financial statements have been prepared for inclusion in the prospectus in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ) (formerly known as Straits Sebuku Pte Ltd). The Company is incorporated and domiciled in Singapore. The address of its registered office is 80 Robinson Road, #22-04, Singapore The principal activity of the Company is that of investment holding. The Group is principally engaged in the business of mining, exploration and the marketing and trading of commodities. The Company s immediate holding corporation is Straits Bulk and Industrial Pty Ltd, a company incorporated in Australia. The Company s ultimate holding corporation is Straits Resources Limited, a company incorporated in Australia. The address of Straits Resources Limited, is Level 1, 35 Ventor Avenue, West Perth, Western Australia, Basis of Preparation In September 2006, the Company acquired 100% of the issued and paid-up share capital of Straits Global Trading Pte Ltd ( SGT ), Straits Gold Holdings Pte Ltd ( SGH ), Straits Energy Trading Pte Ltd ( SET ) and Straits Marine Industries Pte Ltd ( SMI ), for an aggregate cash consideration determined based on the net book asset values of each of SGT, SET, SGH and SMI as at 31 August The aggregate net book values of these entities as at 31 August 2006 was approximately US$7,752,000. Accordingly, the net assets of the Group has reduced by approximately US$7,752,000 upon the completion of the acquisition. The above restructuring exercise is a business combination of entities under common control since the Company, SGT, SGH, SET and SMI are all directly held and controlled by Straits Bulk and Industrial Pty Ltd throughout the three months period ended 31 March 2006 and 31 March Accordingly, the acquisitions have been accounted for using the pooling of interest method. For the purpose of these financial statements, the consolidated income statements and consolidated cash flow statements include the results of operations, the changes in equity and cash flows of the companies now comprising the Group as if the current structure of the Group had been in existence throughout the relevant periods. The consolidated balance sheets have been prepared to present the financial position of the Group as at 31 March 2006 as if the current structure of the Group had been in existence since 1 January The assets and liabilities are brought into the consolidated balance sheets at their existing carrying amounts. All intra-group transactions and balances have been eliminated on consolidation. The audited consolidated financial statements do not reflect the adjustment for the future exchange of cash consideration for the acquisition of the 100% interest in SGT, SGH, SET and SMI as described in the above restructuring exercise which, will be adjusted for at the date of the acquisition. F-53

312 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements by the Group for the period ended 31 March 2006 are set out below. These policies have been consistently applied, unless otherwise stated. The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4. In 2006, the Group adopted the new and revised FRS and Interpretations to FRS ( INT FRS ) that are applicable in the current period. The 2005 financial statements have been amended as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. The following are the FRS and INT FRS that are relevant to the Group: FRS 19 (Amendment) INT FRS 104 Employee Benefits Determining whether an Arrangement contains a Lease The adoption of the above FRS and INT FRS did not result in substantial changes to the Group s accounting policies. (a) Revenue recognition Revenue for the Group comprises the fair value of the consideration received or receivable for the sale of goods and rendering of management and agency services, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group. Revenue is recognised as follows: (1) Sale of goods Sales revenue comprises revenue earned from the sale of products to entities outside the company. Sales revenue is recognized when the product is delivered and: (i) (i) (ii) (iii) (iv) risk and reward has been passed to the customer; the product is in a form suitable for delivery; the quantity of the product can be determined with reasonable accuracy; the product has been despatched to the customer and is no longer under the physical control of the company; the selling price can be determined with reasonable accuracy. F-54

313 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (a) Revenue recognition (continued) (2) Rendering of services Revenue from management, agency and logistic services is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed. (3) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and thereafter amortising the discount as interest income. (4) Dividend income Dividend income is recognised when the right to receive payment is established. (b) Group accounting (1) Subsidiaries Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Acquisition of entities that are under common control have been consolidated using the pooling-of-interest method as set out in Note 2. The purchase method of accounting is used to account for the acquisition of other subsidiaries. The cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. F-55

314 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (b) Group accounting (continued) (1) Subsidiaries (continued) Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured as the minorities share of the fair value of the subsidiaries identifiable assets and liabilities at the date of acquisition by the Group and the minorities share of changes in equity since the date of acquisition, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the minority are attributed to the equity holders of the Company until the minority s share of losses previously absorbed by the equity holders of the Company has been recovered. Changes in the Group s ownership interest in a subsidiary after control is obtained that do not result in a loss of control are accounted for by adjusting the carrying amount of minority interest to reflect the change in the Group s interest in the subsidiary s net assets. The difference between the amount of adjustment to minority interest and the fair value of the consideration paid or received, if any, is brought to equity. (2) Transaction costs Costs directly attributable to an acquisition are included as part of the cost of acquisition. (c) Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of an item of property, plant and equipment also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred. F-56

315 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (c) Property, plant and equipment (continued) Depreciation on mine property, plant and equipment (excluding land) is calculated on a unit-of-production basis so as to write off the cost of each asset in proportion to the depletion of the proved and probable mineral reserves, or on a straight line basis over the estimated useful life of the asset. Depreciation on other property, plant and equipment is calculated on a straight line basis to write off the net cost over its expected useful life to the consolidated entity. The expected useful lives are as follows: Buildings 3 10 years Plant and equipment 3 5 years Motor vehicles 5 years The accumulated costs of the construction of buildings and plant and the installation of machinery are capitalised as construction in progress. These costs are reclassified to property, plant and equipment accounts when the construction or installation is complete. Depreciation is charged from the date when assets are brought into use. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. (d) Exploration and evaluation expenditure Exploration and evaluation expenditure are capitalized in the balance sheet, in respect of areas of interest for which the rights of tenure are current and where: (i) (ii) Such costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or Exploration and/or evaluation activities in the area have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area are continuing. Exploration expenditure incurred that does not satisfy the policy stated above is expensed in the period in which it is incurred. Exploration expenditure that has been capitalised which no longer satisfies the policy stated above is written off in the period in which that decision is made. F-57

316 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (d) Exploration and evaluation expenditure (continued) Upon the commencement of mining activities, deferred exploration and development expenditures are reclassified to mine properties and then amortised in accordance with the accounting policy for mine properties as detailed at note 3(e) below. The net carrying value of each area of interest is reviewed regularly and, to the extent to which this value exceeds its recoverable value, that excess is provided for or written off in the year in which this is determined. (e) Mine properties Mine properties represent the acquisition costs and/or accumulation of exploration, evaluation and development expenditure in respect of areas of interest in which mining has commenced. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. Amortisation is provided on a unit of production basis so as to write off the cost in proportion to the depletion of the proved and probable mineral reserves. Reserve and life of mine estimates are reviewed on an annual basis, and amortization rates are adjusted accordingly where necessary. (f) Deferred mining expenditure Certain mining costs, principally those that relate to the stripping of waste and which relate to future economically recoverable ore to be mined, have been capitalised and included in mine properties as deferred mining. These costs are deferred or taken to the cost of production as the case may be, so that each tonne of ore mined bears the average costs of waste removal per tonne of ore, as determined by the waste to ore ratio derived from the current pit design and incurs the associated variable contract mining costs specific to the production area from which that ore is mined. The waste to ore ratio and the remaining life of the mine are regularly assessed by the Directors and senior management to ensure the carrying value and rate of deferral is appropriate. (g) Impairment of assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). F-58

317 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (h) Financial assets (1) Classification The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the Investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. (2) Recognition and derecognition Purchases and sales of financial assets are recognised on the trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from those financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (3) Initial measurement Financial assets are initially recognised at fair value plus transaction costs. (4) Subsequent measurement Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in the fair value reserve within equity. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income statement. F-59

318 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (h) Financial assets (continued) (5) Determination of fair value The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. (6) Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale investments, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss is removed from equity and recognized in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement. (i) Trade and other receivables Trade receivables and other receivables are recorded at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Collectibility of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the allowance is recognized in the income statement. (j) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months from the reporting date. F-60

319 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (k) (l) (m) (n) (o) Fair value estimation The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid at the reporting date. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method. Operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight-line basis over the period of the lease. Inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Income taxes The income tax expense or credit for the period is the tax payable on the current period s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognized in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. F-61

320 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (o) Income taxes (continued) Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (p) Provisions Provisions for asset dismantlement and removal or restoration are recognised when the Group has a legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provision is not recognised for future operating losses. Provision for restoration and rehabilitation The Group has obligations to dismantle, remove, restore and rehabilitate certain items of property, plant and equipment. The Group recognizes the estimated costs of dismantlement, removal or restoration of items of property, plant and equipment arising from the acquisition or use of assets. This provision is estimated based on the best estimate of the expenditure required to settle the obligation, taking into consideration time value. The estimated costs are discounted using the pre-tax discount rate that reflects the time value of money. As the value of the provision represents the discounted value of the present obligation to restore, dismantle and rehabilitate, the increase in the provision due to the passage of time is recognized in the income statement as a borrowing cost. Changes in estimated timing or amount of the expenditure or discount rate which affect the discounted cost is adjusted against the cost of the related property, plant and equipment unless the decrease in the liability exceeds the carrying amount of the asset or the asset has reached the end of its useful life, in such cases, the excess of the decrease over the carrying amount of the asset or the changes in the liability is recognised in profit or loss immediately. (q) Employee benefits (1) Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognized in other payables in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognized when the leave is taken and measured at the rates paid or payable. F-62

321 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (q) Employee benefits (continued) (2) Termination benefits Liabilities for termination benefits are recognized when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. The liabilities for termination benefits are recognized in other creditors unless the amount or timing of the payments is uncertain, in which case they are recognized as provisions. Liabilities for termination benefits expected to be settled within 12 months are measured at the amounts expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the reporting date are measured as the estimated cash outflows, discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future payments, where the effect of discounting is material. (3) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds does not hold sufficient assets to pay all employee benefits relating to employee service in the current and preceding financial years. The Group s contribution to defined contribution plans are recognised in the financial year to which they relate. (r) Foreign currency translation (1) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in United States Dollars. (2) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. F-63

322 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Significant accounting policies (continued) (r) Foreign currency translation (continued) (3) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognized in the foreign currency translation reserve. (s) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. (t) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits with financial institutions and bank overdrafts. Bank overdrafts are included in borrowings on the balance sheet. (u) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds. (v) Dividend Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at the Balance Sheet Date. (w) Rounding of amounts The Board has determined that the financial reports of the Group are more clearly presented when rounded to the nearest thousand dollars. Amounts reported in the financial report have been rounded on this basis as permitted by paragraph 48 of FRS 1. F-64

323 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on management s historical experience and knowledge of relevant facts and circumstances at that time. The Group makes estimates and judgements concerning the future. The resulting accounting estimates and judgements may differ from the related actual results and may have a significant effect on the carrying amounts of assets and liabilities within the next financial year and on the amounts recognized in the financial statements. Information on such estimates and judgements is contained in the accounting policies and/or notes to the financial statements. (a) Estimation for the provision for rehabilitation and dismantling Provision for rehabilitation and dismantling of property, plant and equipment is estimated taking into consideration facts and circumstance available at the balance sheet date. This estimate is based on the expenditure required to undertake the rehabilitation and dismantling, taking into consideration time value. Please refer to note 3(p) for details. (b) Impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties The Group reviews for impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties in accordance with the accounting policy stated in note 3(g). The recoverable amount of these assets has been determined based on the higher of the assets fair value less costs to sell and value in use. These calculations require the use of estimates and judgements. Please refer to note 3(c), (e), (f) and (g) for details. (c) Income taxes Judgement is required in determining the provision for income taxes. The Group recognizes liabilities for anticipated tax based on estimates of taxes due. Where the final tax outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made. F-65

324 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Revenue Unaudited 31 March March 2006 US$ 000 US$ 000 Sales of goods... 22,526 62,944 Other revenue from operation: Management fees Logistics services Agency fees Other gains/(losses): Net foreign exchange losses... (14) (8) Interest Income ,735 63, Expenses by nature Unaudited 31 March March 2006 US$ 000 US$ 000 Commodities purchases ,681 Contract costs... 7,495 13,351 Depreciation of plant and equipment Equipment rental ,447 Amortisation of mine properties Royalties to government... 2,036 3,095 Export levy Movement in coal inventories... (19) 923 Rental on operating leases Value added tax Employee benefits (Note 7) ,017 Other expenses... 1,499 1,445 Total cost of sales, marketing and distribution costs and corporate expenses.. 13,810 45, Employee benefits Unaudited 31 March March 2006 US$ 000 US$ 000 Wages and salaries ,017 F-66

325 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Finance costs Unaudited 31 March March 2006 US$ 000 US$ 000 Bank charges and interest.... (5) (104) 9. Income tax expense (a) Income tax expense Unaudited 31 March March 2006 US$ 000 US$ 000 Currenttax... 1,956 2,722 Deferredtax... (48) (60) Under provided in prior years... Deferredtax ,908 2,782 Deferred income tax expense included in income tax expense comprises: (Decrease)/Increase in deferred tax liabilities (note 17)... (48) 60 (b) Numerical reconciliation of income tax expense to prima facie tax payable Unaudited 31 March March 2006 US$ 000 US$ 000 Profit before income tax expense... 8,920 17,598 Tax at the Singapore tax rate of 20% (2005: 20%)... 1,784 3,520 Tax effect on: Non-deductible expenses Income subject to tax incentive... (487) (1,364) Difference in overseas tax rates Under provision in prior years Total income tax expense... 1,908 2,782 In August 2004, Straits Global Trading Pte Ltd, a subsidiary of the Company, was granted the Global Trader Programme status from International Enterprise Singapore. The Global Trader Programme status was effective on 1 June 2004, the date of commencement of the company s activities and is valid for a 5 year period. Global Trader Programme status entitles the company to a concessional tax rate of 10% on income earned from eligible trading activities. The validity of the Global Trader Programme status is contingent on the company satisfying minimum turnover, local expenditure and employment levels. F-67

326 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Income tax expense (continued) (c) Movements in current income tax liabilities Unaudited 31 December March 2006 US$ 000 US$ 000 At beginning of financial year/period... 5,708 5,977 Provision for current year.... 9,202 2,722 Under/over provision in respect of prior years Taxpaid... (9,316) (4,133) At end of financial year/period... 5,977 4, Earnings Per Share Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year: Unaudited 31 March March 2006 Net profit attributable to members of Straits Asia Resources Limited (US$ 000). 7,012 14,816 Weighted average number of ordinary shares in issue for basic earnings per share ,369, ,765,220 Basic earnings per share (cents) The weighted average number of shares for 2006 and 2005 has been adjusted to reflect the sub-division and consolidation of shares as part of restructuring (note 34(a)). Diluted earnings per share is the same as basic earnings per share. As at the balance sheet dates, the Company does not have any potential ordinary shares that have a dilutive effect on earnings per share. 11. Cash and cash equivalents Unaudited 31 December March 2006 US$ 000 US$ 000 Cash at bank and on hand... 10,665 20,038 Fixed deposits with financial institutions ,504 20,887 Restricted cash deposit pledged with a bank for banking facilities (note12)... (800) (800) Cash and cash equivalents... 10,704 20,087 F-68

327 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Cash and cash equivalents (continued) The fixed deposit has a maturity date of three months (2005: three months) with an average effective interest rate of 4.0% per annum (2005: 2.8% per annum). Cash and fixed deposits are denominated in the following currencies Unaudited 31 December March 2006 US$ 000 US$ 000 Indonesian Rupiah Singapore Dollar UnitedStatesDollar... 11,157 20,334 AustralianDollar ,504 20,887 The carrying amount of cash and cash equivalents approximate their fair value. 12. Trade and other receivables Unaudited 31 December March 2006 US$ 000 US$ 000 Trade debtors nonrelated... 13,252 17,152 Trade debtors relatedcorporations... 2,418 2,775 Other debtors ,119 Less: Provision for impairment of doubtful receivables... (257) (257) 16,128 20,789 Receivable from ultimate holding corporation... 3,020 3,835 Receivable from other related corporations Loans to non-related parties Advance to a non-related party... 5,094 Restricted Cash (note 11) Prepayments Other receivables ,225 27,422 Receivables from ultimate holding corporation and related corporations are interest-free and repayable on demand. Loans to non-related parties are interest-free and repayable on demand. Advance to a non-related party represents a short-term advance which has been repaid subsequent to 31 December The carrying amount of trade and other receivables approximate their fair value. F-69

328 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Trade and other receivables (continued) Trade and other receivables are denominated in the following currencies Unaudited 31 December March 2006 US$ 000 US$ 000 UnitedStatesDollar... 27,225 27, Inventories Unaudited 31 December March 2006 US$ 000 US$ 000 Coal inventories, at cost Finished goods... 2,641 1, Receivables Non-current Unaudited 31 December March 2006 US$ 000 US$ 000 Receivable from ultimate holding corporation... 6,864 6,890 Other receivables ,090 7,104 The amounts receivable are interest-free and are not expected to be repaid within 12 months from the balance sheet dates and are denominated in United States Dollars. The carrying amount approximates the fair value. F-70

329 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Property, plant and equipment Buildings Plant & equipment Motor vehicles Construction in progress Total US$ 000 US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,739 3, ,578 Additions ,766 3,993 Transfer... 2, (3,231) At 31 December ,856 6, ,571 Accumulated depreciation At 1 January (1,993) (1,731) (540) (4,264) Depreciation expense... (271) (715) (97) (1,083) At 31 December (2,264) (2,446) (637) (5,347) Net book value At 31 December , , Cost At 1 January ,856 6, ,571 Additions... 5, ,486 Transfer (237) At 31 March ,856 12, ,128 17,057 Accumulated depreciation At 1 January (2,264) (2,446) (637) (5,347) Depreciation expense... (59) (234) (22) (315) At 31 March (2,323) (2,680) (659) (5,662) Net book value At 31 March , ,128 11,395 At the balance sheet date, the net book value of plant and equipment mortgaged as securities for bank loan amounted to US$5,055,000 (2005: Nil) (Note 20). F-71

330 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Exploration and evaluation, development and mine properties (a) Exploration and evaluation Unaudited 31 December March 2006 US$ 000 US$ 000 Opening balance Expenditure incurred Transferred to mine properties... (17) Closing balance (b) Mine Properties in use Mining right Deferred mining expenditure Deferred exploration and development expenditure Total US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,679 5,283 12,291 35,253 Expenditure transferred from exploration Expenditure during the year At 31 December ,679 5,283 12,574 35,536 Accumulated Amortisation At 1 January (12,768) (401) (8,164) (21,333) Amortisation for the year... (811) (656) (326) (1,793) At 31 December (13,579) (1,057) (8,490) (23,126) Net book value At 31 December ,100 4,226 4,084 12, Cost At 1 January ,679 5,283 12,574 35,536 Expenditure during the period At 31 March ,679 5,283 12,627 35,589 Accumulated Amortisation At 1 January (13,579) (1,057) (8,490) (23,126) Amortisationfortheperiod... (224) (201) (146) (571) At 31 March (13,803) (1,258) (8,636) (23,697) Net book value At 31 March ,876 4,025 3,991 11,892 F-72

331 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Deferred income tax Deferred tax assets Provision Tax losses Other Total US$ 000 US$ 000 US$ 000 US$ At 1 January (Credited)/charged to income statement (28) (8) At 31 December At 1 January and 31 March Unaudited 31 December March 2006 US$ 000 US$ 000 Represented by: to be recovered after one year Deferred tax liabilities Accelerated tax depreciation < > Mine properties Property, plant and equipment Total US$ 000 US$ 000 US$ At 1 January , ,391 (Credited)/charged to income statement... (180) 23 (157) Charged to equity.... At 31 December , , At 1 January , ,234 Charged to income statement Charged to equity.... At 31 March , ,294 Unaudited 31 December March 2006 US$ 000 US$ 000 Represented by: to be recovered after one year... 1,234 1,294 F-73

332 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Trade and other payables Unaudited 31 December March 2006 US$ 000 US$ 000 Trade payables to: third parties... 12,961 14,936 relatedcorporations... 1,600 8,646 Other payables Accrued operating expenses... 10,442 10,254 25,661 34,186 The carrying amounts of current trade and other payables approximate their fair value. Trade and other payables are denominated in United States Dollars. 19. Borrowings (non-interest bearing) Unaudited 31 December March 2006 US$ 000 US$ 000 Payable to ultimate holding corporation... 1,625 1,625 1,625 1,625 Represented by: Current... 1,388 1,388 Non-current ,625 1,625 The current payable to ultimate holding corporation are unsecured interest-free and repayable on demand. The non-current payable is unsecured, interest-free and not expected to be repaid in the next twelve months from the balance sheet date. The carrying amounts of receivables from holding corporations approximate their fair value and are denominated in United States Dollars. F-74

333 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Borrowings- interest bearing Unaudited 31 December March 2006 US$ 000 US$ 000 Bank loan... 4,933 Represented by: Current Non-current... 4,533 4,933 The facility is a structured finance facility denominated in United States Dollars. Interest is charged at the calculated rate of SIBOR plus 2.3 percent, and the effective interest rate for the period ending 31 March 2006 was 6.906%. The bank loan is secured by: (i) a mortgaged over the plant and equipment (Note 15) (ii) (iii) corporate guarantee from a subsidiary an assignment of service contract 21. Provisions for other liabilities and charges Provision for employee benefits Provision for rehabilitation and dismantling Total US$ 000 US$ 000 US$ 000 At 1 January ,367 2,034 Additional provisions Increase in provision discount Used during the year... (168) (91) (259) At 31 December ,408 1,996 At 1 January ,408 1,996 Additional provisions At 31 March ,408 2,019 Unaudited 31 December March 2006 US$ 000 US$ 000 Represented by: Current Non-current... 1,343 1,366 1,996 2,019 F-75

334 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Share capital and share premium No. of shares Issued share capital Amount < > Share capital Share premium Total share capital and share premium US$ 000 US$ 000 US$ Balance at 1 January * * Capitalisation of capital reserve**... 24,546,635 17,237 17,237 Proceeds from share issue... 6,145,537 3,787 12,034 15,821 Share issue expenses... Balance at 31 December ,692,174 21,024 12,034 33, Balance at 1 January ,692,174 21,024 12,034 33,058 Effect of Companies (Amendment) Act 2005 (seenote(a)below)... 12,034 (12,034) Proceeds from share issue... Share issue expenses... Balance at 31 March ,692,174 33,058 33,058 * Less than US$1,000. ** The Company capitalised the sum of US$17,237,000 in the capital reserve by paying up in full the aggregate par value of 24,546,635 new ordinary shares of S$1 each in the capital of the Company. (a) Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the concepts of par value is abolished and the amount in the share premium account as of 31 March 2006 is required to become part of the company s share capital. 23. Other reserves and retained earnings Unaudited 31 December March 2006 US$ 000 US$ 000 Composition General reserve (a) Capital reserve (b)... (13,526) (13,526) (13,227) (13,227) F-76

335 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Other reserves and retained earnings (continued) (a) General reserve The Indonesian Limited Company Law No. 1/1995 dated 7 March 1995 requires Indonesian companies to set up a general reserve amounting to 20% of the company s issued and paid up share capital. PT Bahari Cakrawala Sebuku ( PTBCS ), a subsidiary in the Group has appropriated an amount to the value of 20% of issued and paid up capital from retained earnings to a general reserve in compliance with this law during the financial year ended 31 December 2004, however at balance date this appropriation had not yet been approved by the shareholders of the company. Subsequent to balance sheet date, on 13 June 2006, the shareholders of the company approved the appropriation. This reserve is non-distributable. (b) Capital reserve Unaudited 31 December March 2006 US$ 000 US$ 000 At beginning of financial year (i)... 17,387 (13,526) Issued of shares by a subsidiary... 6 Capitalised as share capital (Note 21(ii))... (17,237) Acquisition of minority interest (ii)... (13,682) At end of financial year (13,526) (13,526) (i) (ii) The capital reserve at the beginning of financial year represents the aggregate amount of share capital of the subsidiaries prior to the restructuring as mentioned in Note 2 and a capital reserve of US$17,237,000 of the Company. This represents the difference between the value of the consideration paid for the acquisition of the 20% minority interest in PTBCS and the amount that these minority interests were recognised in the financial statements. See Note Minority interest In January 2005, the Group acquired 20% equity interest of PT Bahari Cakrawala Sebuku ( PT BCS ) for a consideration of US$15,798,000. The acquisition consideration was satisfied by the allotment and issuance of 6,136,659 shares of S$1 each in the share capital of the Company. The acquisition has been treated as an equity transaction between shareholders, and accordingly, the difference between the value of the consideration paid for these minority interests (in shares) and the amount that minority interests were recognised in the financial statements at the time of acquisition has been treated as a return of capital. F-77

336 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Dividends Unaudited 31 March March 2006 US$ 000 US$ 000 Ordinary dividends paid Interim exempt (one-tier) dividend paid in respect of current year.... 3,200 12, Related party transactions (a) Transactions with related parties: Unaudited 31 March March 2006 US$ 000 US$ 000 Dividends paid to immediate holding corporation... 3,200 12,500 Agency fees receivable from a related corporation Management fees paid to ultimate holding corporation Commodities and services sold / rendered to related corporations. 1, Commodity purchases from related corporations... 22,451 Related party balances are disclosed at notes 12,14,18 and 19. (b) Key management personnel compensation: Unaudited 31 March March 2006 US$ 000 US$ 000 Salaries and other short term employee benefits F-78

337 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy in note 3 (b): Name of entity Country of incorporation Principal activities Effective equity interest 31 Dec Mar Mar 2006 % % % Straits Global Trading Pte Ltd (a) Singapore Trading Straits Energy Trading Pte Ltd (b) Singapore Dormant Straits Gold Holdings Pte (b) Singapore Dormant Limited RWD Pte Ltd (b) Singapore Dormant PT Bahari Cakrawala Sebuku (c) Indonesia Coal mining PT Straits Consultancy (c) Indonesia Management services Services Sebuku Investments Limited (b) Bermuda Investment holdings PT Reyka Wahana Digdjaya (b) Indonesia Investment holdings 100** 100** 100** (a) Reviewed by PricewaterhouseCoopers, Singapore (b) Not required to be audited under the law of the country of incorporation (c) Reviewed by PricewaterhouseCoopers, Indonesia ** Include 10% indirect interest 28. Commitment (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognized as liabilities is as follows: Unaudited 31 December March 2006 US$ 000 US$ 000 Later than one year but not later than five years Property, plant and equipment payable F-79

338 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Commitment (continued) (b) Operating leases Commitments for minimum lease payments in relation to non-cancelable operating leases are payable as follows: Unaudited 31 March March 2006 US$ 000 US$ 000 Within one year Later than one year but not later than five years Contingent liabilities On 11 October 2005, the Indonesia Minister of Finance ( MoF ) issued Regulation no.95/pmk.02/ 2005 ( Regulation 95 ) which imposes a 5% duty on coal exports based on a regulated coal price. The regulation became effective on the date of issuance. No amount has been provided in the financial statements of PTBCS as of 31 March 2006 relating to this matter. The Company s position is similar to other coal industry participants, the majority of whom elected not to comply with Regulation 95 as of 31 March 2005, pending the outcome of request for the regulation to be revised, and potential legal challenges to the regulation. PTBCS therefore has a contingent liability for the unpaid duty of approximately US$1.5 million at 31 March 2006 (note 34(b)). PTBCS has commitments in respect of certain arrangements for the mining, processing and handling of coal and related activities. These arrangements include penalties in respect of early termination of the arrangements. Provision for these penalties has not been made in the financial statements as there are no present intentions to terminate these agreements. An action for land compensation of Rp 3.5 billion (approximately US$0.42 million) has been raised against PTBCS in the Supreme Court of Indonesia. This action is an appeal of the decisions of the provincial high court and regional court which both found in the favour of the PTBCS. No amount has been recognised in the financial statements as management is confident that the appeal will not succeed. F-80

339 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Reconciliation of profit after income tax to net cash inflow from operating activities Unaudited 31 March March 2006 US$ 000 US$ 000 Profit for the year... 7,012 14,816 Depreciation and amortisation Unrealised exchange (gain)/loss... (26) (Increase)/decrease in receivables.... (2,930) (4,359) (Increase)/decrease in tax recoverable... (Increase)/decrease in inventories... (19) 923 Decrease in deferred tax assets... (Increase) in deferred mining... Decrease in other operating assets... (Decrease)/increase in trade/ other creditors... (2,545) 8,525 Increase in current tax liabilities... (2,444) (1,411) (Decrease)/increase in deferred tax liabilities... (48) 60 Increase in other provisions Net cash inflow from operating activities... (132) 19, Financial risk management The Group s operations are exposed to market risk (including currency risk, commodity price risk and interest rate risk), credit risk and liquidity risk. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group may use derivative financial instruments such as foreign exchange contracts and commodity contracts to hedge certain risk exposures. Financial risk management is carried out under policies approved by the Board of Directors. (a) Market risk (i) (ii) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the entity s functional currency. Commodity price risk Commodity price risk is the risk of financial loss resulting from movements in the price of the Group s commodity inputs and outputs. The Group is exposed to commodity price risk arising from revenue derived from sales of coal. This risk is managed through contractual arrangements with customers and derivative instruments such as forward sales contracts may be used. However, no derivative instruments were used during the financial years. F-81

340 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Financial risk management (continued) (a) Market risk (continued) (ii) Commodity price risk (continued) Fuel is currently acquired at the spot rate available at time of acquisition, which exposes the Group to the impact of changes to world prices for crude oil. However, the Group continue to assess the potential financial risk associated with rising crude oil prices and whether the risk requires management through contractual arrangements or the use of derivative instruments. (iii) Interest rate risk The Group is not exposed to significant interest rate risk as it has no significant external borrowings as it relies on cash generated from its normal business activities to fund its operations. (b) (c) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any one financial institution. Liquidity risk Prudent liquidity risk management implies maintaining at all times sufficient cash, liquid investments and committed credit facilities to meet the Group s commitments as they arise. Liquidity risk management covers daily, short-term and long-term needs. The appropriate levels of liquidity are determined by both the nature of the Group s business and its risk profile. 32. Segment information Primary reporting format business segments Business Segments The consolidated entity is organised into the following divisions by product: Coal Mining: Exploration, development, mining and marketing of coal. Commodity Trading: Trading of gold, copper and other minerals. Other operations of the Group mainly comprise of management services and investment holding, neither of which constitutes a separately reportable segment. Unallocated costs represent corporate expense. Segment assets consist primarily of property, plant and equipment, mine properties, exploration and evaluation expenditure, inventories, receivables and cash and cash equivalents, and exclude deferred income tax assets. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities. Capital expenditure comprises additions to property, plant and equipment and mine properties. F-82

341 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Segment information (continued) Secondary reporting format geographical segments The Group s two business segments operate principally in the geographical region of Asia. The pricing of the Group s products is governed principally by international market pricing eg: Sebuku coal is benchmarked to the Newcastle Barlow Jonker Index (BJI) and adjusted for transport charges and relative calorific value. Hence the Group is not materially subject to risk and returns arising in differing economic environments in Asia. Primary reporting function business segments Financial year ended 31 December 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Segment assets Segment Assets... 41,858 9,240 51,098 Unallocated assets ,996 14,996 41,858 9,240 14,996 66,094 Segment Liabilities Segment Liabilities... 24,026 3,128 27,154 Unallocated Liabilities... 9,339 9,339 24,026 3,128 9,339 36,493 Financial period ended 31 March 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales... 21,479 1,047 22,526 Other revenue/income ,735 Segment results Net Segment result... 8, ,931 Net unallocated income/(cost)... (11) (11) Profit before income tax.... 8, (11) 8,920 Income tax expense... (1,908) (1,908) Total profit... 8, (1,919) 7,012 Other segment items Acquisition of PP&E, Intangibles and other non current assets Depreciation and amortisation F-83

342 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Segment information (continued) Financial period ended 31 March 2006 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales... 37,583 25,361 62,944 Other revenue/income ,456 Segment results Net Segment result... 15,036 2,679 17,715 Net unallocated income/(cost)... (117) (117) Profit before income tax ,036 2,679 (117) 17,598 Income tax expense... (2,782) (2,782) Total profit... 15,036 2,679 (2,899) 14,816 Other segment items Acquisition of PP&E, Intangibles and other non current assets... 1,606 5,055 6,661 Depreciation and amortisation Segment assets Segment Assets... 47,009 9,826 5,055 61,890 Unallocated assets ,650 18,650 47,009 9,826 23,705 80,540 Segment Liabilities Segment Liabilities... 28,375 8,022 36,397 Unallocated Liabilities... 12,226 12,226 28,375 8,022 12,226 48, New accounting standards and FRS interpretations Certain new accounting standards and FRS interpretations have been published that are mandatory for accounting periods beginning on or after 1 January The Group s assessment of those standards and interpretations that are relevant to the Group is set out below: FRS 107, Financial Instruments: Disclosures and a complementary amendment to FRS 1, Presentation of Financial Statements Capital Disclosures FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces FRS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in FRS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under FRS. The amendment to FRS 1 introduces disclosures about the level of an entity s capital and how it manages capital. F-84

343 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March New accounting standards and FRS interpretations (continued) FRS 107, Financial Instruments: Disclosures and a complementary amendment to FRS 1, Presentation of Financial Statements Capital Disclosures (continued) The Group assessed the impact of FRS 107 and the amendment to FRS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of FRS1. The Group will apply FRS 107 and the amendment to FRS 1 from annual periods beginning 1 January Event occurring after balance sheet date (a) On 20 September, 2006, the shareholders passed resolutions to approve, amongst other things, the following: the subdivision of every one ordinary share in the issued and paid-up share capital of the Company into 30 ordinary shares ( Subdivision ); the conversion of the Company into a public limited company and the change of name to Straits Asia Resources Limited ; the adoption of a new set of Articles of Association; the adoption of the Straits Employee Share Option Plan and the Straits Executive Share Acquisition Plan, and the issue of shares thereunder; that authority be and is hereby given pursuant to Section 161 of the Act to our Directors to: (A) (i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; and/or (B) (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and upon such terms and conditions and for such purposes and to such persons the Directors may in their absolute discretion deem fit; and (notwithstanding the authority conferred by this authority may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this authority was in force, F-85

344 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Event occurring after balance sheet date (continued) provided that: (1) the aggregate number of shares to be issued pursuant to such authority (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 50% of the post-combined Offering issued share capital of the Company (as calculated in accordance with subparagraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to Shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 20% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of post-combined Offering issued share capital shall be based on the issued share capital immediately following the close of the Combined Offering of the Company at the time this authority is passed, after adjusting for: (b) (i) (ii) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this authority is passed; and any subsequent consolidation or sub-division of shares; (3) in exercising the authority conferred by this authority, the Company shall comply with the provisions of the Listing Manual for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and (4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this authority shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. On 21 July 2006, the Indonesian Supreme Court issued a ruling stipulating that Regulation 95 was contrary to a higher level of prevailing Indonesian laws and regulations because the duty imposed double taxation on coal through both a royalty and an export duty on the same goods and, therefore, held that Regulation 95 was void. The Supreme Court also stated that coal companies previously subject to Regulation 95 were no longer obliged to pay that duty. However, the Supreme Court did not rule the Government is required to refund the duty that had been paid by the coal companies from the date of issuance of Regulation 95 until the ruling was issued. F-86

345 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Event occurring after balance sheet date (continued) On 13 September 2006, the Directorate General of Customs and Duty issued Circular Letter No. SE-28/BC/2006 on coal export duty which states that from 13 September 2006, no export duty will be applied on coal exports. The Government may file a request to the Supreme Court to re-examine the ruling. However, the Company is not aware of any announcement by the Government to take this action in response to the ruling, including whether it intends to file a request for re-examination of the ruling. (c) (d) Subsequent to 31 March 2006, a total of US$9,000,000 of tax exempt (one-tier) interim dividends have been declared and paid in respect of the financial year ending 2006 to Straits Bulk Industrial Pty Ltd. On 27 September 2006, the Company entered into a revolving facility agreement with Bayerische Hypo- Und Vereinsbank AG, Singapore Branch ( HVB ) in which HVB granted to the Company a US$50.0 million revolving loan and performance bond facility (the HVB facility ). The purpose of obtaining the HVB facility was to enable the Company to pay off the existing group debts, to fund capital expenditure in respect of the Sebuku coal project, to purchase a power station which the Company intends to lease to PT IMK and to obtain performance bonds. The HVB facility will be secured including by way of: (1) a guarantee from BCS, Straits Global Trading, SIL, RWD and SMI, (2) an assignment of insurances relating to the vessel, Straits Dragon, given by SMI, (3) a charge over proceeds account given by Straits Global Trading, (4) a charge over account given by the Company, (5) a deed of charge over all assets of our Company (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables), (6) a mortgage over the vessel, Straits Dragon, given by SMI, (7) a share charge over all the shares of and dividends received from Straits Global Trading and SIL given by the Company, (8) a corporate guarantee given BCS, (9) a corporate guarantee given by RWD, (10) a pledge of shares of BCS given by the Company and RWD, (11) a pledge of shares of RWD given by SIL and Mr Ginarsa Tandinegara, (12) a conditional assignment of contracts given by BCS including the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract among other agreements relating to BCS coal operations, (13) a fiduciary security over insurance proceeds given by BCS, (14) a fiduciary security over receivables given by BCS, F-87

346 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months period ended 31 March Event occurring after balance sheet date (continued) (15) a fiduciary security over movable assets given by BCS, (16) a deed of charge over all assets of Straits Global Trading (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies), and receivables, and (17) a deed of charge over all assets of SIL (including real property, book debts, bank acounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables. In the event that the security that the Group has provided to secure the Company s obligations under the HVB facility is enforced, the Company may be required to relinguish and transfer the Company s interests in various subsidiaries, including BCS, Straits Global Trading, SIL, SET, SMI, PT SCS, SGH, RWD and RWDP, as well as the Company s rights under the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract, among other assets charged or pledged under the security documents described above. Therefore, if the Company was to default under the HVB facility, and HVB enforces its security interests over the Company s assets, including the Company shares in the Company s subsidiaries, the Company may lose control of the Group and the other principal assets. 35. Authorisation of financial statements These financial statements were authorized for issue in accordance with a resolution of the Board of Director of Straits Asia Resources Limited on 29 September F-88

347 STRAITS ASIA RESOURCES LIMITED ( Formerly known as Straits Sebuku Pte Ltd ) (Incorporated in Singapore) AND ITS SUBSIDIARIES PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and the three months period ended 31 March 2006 F-89

348 REPORT ON EXAMINATION OF THE PROFORMA FINANCIAL STATEMENTS OF THE GROUP The Board of Directors Straits Asia Resources Limited 80 Robinson Road #22-04, Singapore September 2006 Dear Sirs This Report has been prepared for inclusion in the Prospectus (the Prospectus ) in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ). We report on the proforma financial statements of the Company and its subsidiaries (referred to collectively as the Group ) set out on pages F-92 and F-138 of the Prospectus, which have been prepared, for illustrative purposes only, in accordance with the provisions set out in the Fifth Schedule of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 and are based on certain assumptions and basis (as set out in Notes 4 and 5 to the proforma financial statements of the Group) to show what: (a) (b) (c) the financial results of the Group for the financial year ended 31 December 2005 and for the three months period ended 31 March 2006 would have been if the Acquisition and Restructuring Exercise (as described in Note 3 to the proforma financial statements of the Group) had occurred on 1 January 2005; the financial position of the Group as at 31 December 2005 and as at 31 March 2006 would have been if the Acquisition and Restructuring Exercise had occurred on 31 December 2005 and 31 March 2006; and the changes in equity, and the cash flows of the Group for the financial year ended 31 December 2005 and for the three months period ended 31 March 2006 would have been if the Acquisition and Restructuring Exercise had occurred on 1 January The proforma financial statements of the Group, because of their nature, may not give a true picture of the actual financial results, financial position, changes in equity, and cash flows of the Group. The proforma financial statements are the responsibility of the Directors of the Company. Our responsibility is to express an opinion on the proforma financial statements of the Group based on our work. It should be noted that the proforma financial statements was not prepared in connection with an offering registered with the United States Securities and Exchange Commission (SEC) under the Securities Act and consequently is not compliant with the SEC s rules on presentation of proforma financial statements. Furthermore, our work has not been carried out in accordance with auditing standards generally accepted in the United States of America and accordingly should not be relied upon as if it has been carried out in accordance with those standards. As such, a US investor should not place reliance on the proforma financial statements included in the Prospectus. F-90

349 REPORT ON EXAMINATION OF THE PROFORMA FINANCIAL STATEMENTS OF THE GROUP (continued) We carried out procedures in accordance with Singapore Statement of Auditing Practice: SAP 24 Auditors and Public Offering Documents. Our work, which involved no independent examination of the underlying financial statements, consisted primarily of comparing the proforma financial statements to the financial statements of the Company and its subsidiaries (or where information is not available in the financial statements of the Company and its subsidiaries to accounting records) considering the evidence supporting the adjustments and discussing the proforma financial statements with the Directors of the Company. In respect of the unaudited financial information of the companies in the Group, which has been used in the compilation of the interim proforma financial statements of the Group for the three months period ended 31 March 2006, we have performed a review of the unaudited financial information of the companies in the Group for the three months period ended 31 March The unaudited financial information is the responsibility of the Directors of the respective companies. We conducted the review in accordance with the Singapore Standard on Review Engagements This standard requires that we plan and perform the review to obtain moderate assurance as to whether the unaudited financial information is free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to the financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the unaudited financial information of the companies in the Group for the three months period ended 31 March 2006, is not suitable, in all material respects, for the purpose of the compilation of the interim proforma financial statements of the Group. In our opinion, (a) (b) the proforma financial statements have been properly prepared: (i) (ii) on the basis set out in Notes 4 and 5 to the proforma financial statements of the Group; and in a manner consistent with both the format of the financial statements and the accounting policies of the Group; and each material adjustment made to the information used in the preparation of the proforma financial statements of the Group is appropriate for the purpose of preparing such financial statements. Yours faithfully PricewaterhouseCoopers Certified Public Accountants Singapore Partner-in-charge: Tham Tuck Seng F-91

350 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES PROFORMA INCOME STATEMENTS Notes Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Sales revenue ,665 64,825 Cost of sales of goods (105,052) (46,010) Gross Profit ,613 18,815 Other revenue from ordinary activities , Other losses/gains (397) 12 Expenses... Other expenses from ordinary activities... Marketinganddistribution (3,850) (676) Corporate expense. 9. (4,386) (870) Finance cost (189) (104) Profit before income tax... 55,787 17,646 Income tax expense (10,106) (2,764) Total profit for the year... 45,681 14,882 Attributable to: Equity holders of the Company... 45,681 14,882 Earnings per share for profit attributable to the ordinary equity holder of the Company: 13. Basic earnings per share Diluted earnings per share The accompanying notes form an integral part of these proforma financial statements. F-92

351 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES PROFORMA BALANCE SHEETS As at Notes 31 December March 2006 US$ 000 US$ 000 ASSETS Current assets Cash and cash equivalents ,669 14,513 Trade and other receivables ,950 29,755 Inventories ,641 1,718 Non-current assets 37,260 45,986 Receivables ,227 3,279 Available for sale financial asset Property, plant and equipment ,906 12,753 Exploration and evaluation expenditure Mine properties ,410 11,892 Deferred income tax assets ,058 1,125 24,225 29,795 Total assets ,485 75,781 LIABILITIES Current liabilities Trade and other payables ,233 34,768 Current income tax liabilities ,472 4,843 Borrowings interestbearing Provisions for other liabilities and charges ,549 40,667 Non-current liabilities Provisions for other liabilities and charges ,525 1,563 Borrowings interestbearing ,533 Borrowingsnoninterestbearing Deferred income tax liabilities ,234 1,294 2,996 7,627 Total liabilities... 36,545 48,294 NET ASSETS... 24,940 27,487 EQUITY Capital and reserves attributable to the Company s equity holder ,940 27,487 The accompanying notes form an integral part of these proforma financial statements. F-93

352 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES PROFORMA STATEMENTS OF CHANGES IN EQUITY Total US$ 000 Total at 1 January ,453 Profit for the year and total recognized gain for the year... 45,681 Issuance of share by a subsidiary... 6 Dividends paid... (36,200) Total equity at 31 December ,940 Total at 1 January ,105 Profit for the period and total recognized gain for the period... 14,882 Dividends paid... (12,500) Total equity at 31 March ,487 The accompanying notes form an integral part of these proforma financial statements. F-94

353 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES PROFORMA CASH FLOW STATEMENTS Notes Year ended 31 December 2005 Period ended 31 March 2006 US$ 000 US$ 000 Cash flows from operating activities Receipts from customers ,211 60,935 Payments to suppliers and employees... (107,310) (36,940) 56,901 23,995 Interest received Interestpaid... (57) (104) Income taxes paid... (9,637) (4,400) Net cash inflow from operating activities ,313 19,546 Cash flows from investing activities Net effect on acquisition of subsidiaries and restructuring exercise. 14. (6,883) (5,495) Purchase of available-for-sale financial asset... (500) (500) Payments for purchase of property, plant and equipment... (4,100) (6,486) Payments for exploration expenditure... (266) (175) Net cash outflow from investing activities... (11,749) (12,656) Cash flows from financing activities Proceeds from issues of shares and other equity securities... 6 Loans to related parties... (6,648) Loans to non related parties... (4,256) 4,485 Proceeds from borrowings.... 5,000 Repayment of borrowings... (66) Dividends paid... (36,200) (12,500) Net cash outflow from financing activities... (47,098) (3,081) Net (decrease)/increase in cash and cash equivalents... (11,534) 3,809 Cash and cash equivalents at the beginning of the financial year/ period... 16,012 10,704 Cash and cash equivalents at end of year/period ,478 14,513 The accompanying notes form an integral part of these financial statements. F-95

354 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Introduction The proforma financial statements, comprising the proforma income statements for the financial year ended 31 December 2005 and the three months period ended 31 March 2006, the proforma balance sheet as of 31 December 2005 and 31 March 2006, the proforma statements of changes in equity and proforma cash flow statements for the year ended 31 December 2005 and the three months period ended 31 March 2006 and the notes thereto, have been prepared for inclusion in the Prospectus of the Company ( the Prospectus ) in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ). 2. The Company The Company was incorporated in Singapore on 10 June 1995 under the Companies Act as a private company limited by shares under the name of Straits Sebuku Pte Ltd. At the date of incorporation, the authorised share capital of the Company was S$100,000, comprising 100,000 ordinary shares at par value of S$1 each. 2 ordinary shares were issued upon incorporation of par value at S$1 each. On 20 September 2006, the Company changed its name to Straits Asia Resources Limited and converted into a public limited company pursuant to a shareholder resolution. The registered office of the Company is located at 80 Robinson Road #22-04 Singapore The Group The proforma financial statements of the Group were compiled based on the Acquisition and Restructuring Exercise as follows: (a) Acquisition The details of the Acquisition are as follows: (i) Pursuant to a Share Purchase Agreement dated June 30, 2006 between Straits Marine Infrastructure Pte. Ltd. ( SMI ) and Gerald Alain Denis Keet (a substantial shareholder of Straits Resources Limited)(the Arapa Agreement ), and a Share Sale and Purchase Agreement dated June 30, 2006 between Arapa Leasing Pte Ltd ( Arapa ) and PT Tiyandi Utama Mandiri (the PTIS Agreement ), the Company acquired 95% of the shareholding interest in PT Indo Straits ( PTIS ) in the manner as follows: in accordance with the Arapa Agreement, the Company acquired from Gerald Alain Denis Keet, through SMI, all the issued and paid up shares of Arapa, comprising 100,000 ordinary shares, for a cash consideration of A$6.0 million. At the time of acquisition, Arapa was the beneficial owner of 80% of the shares in PTIS; and in accordance with the PTIS Agreement, the Company acquired from PT Tiyandi Utama Mandiri, through Arapa, the remaining 15% of the shares in PTIS, comprising 150 shares, for a cash consideration of A$0.75 million. F-96

355 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March The Group (continued) (a) Acquisition (continued) The consideration for the transfer of the shares in Arapa to SMI and for the transfer of the shares in PTIS to Arapa was arrived at based on normal commercial terms, with reference to the net book asset value of PT Indo Straits as at 30 June Although Arapa is registered as holder of 95% of the issued shares in the capital of PTIS, the Group have 100% effective interest in PTIS, through ownership and contractual arrangement with PT Tiyandi Utama Mandiri, pursuant to which Arapa is entitled to exercise all rights attaching to the 5% shares held by PT Tiyandi Utama Mandiri, including the right to vote on the shares, to transfer or sell the shares, to pledge the shares as security and to receive dividends. (ii) In September 2006, shares of SMI, were transferred to the Company for a cash consideration equal to the net book asset value of SMI as at 31 August, 2006 as part of the restructuring exercise described in note 3(b) below. (b) Restructuring Exercise In September 2006, the Company acquired from Straits Bulk and Industrial Pty Ltd ( SBI ), the holding corporation of the Company, the entire issued and paid up shares held by SBI in Straits Global Trading Pte Ltd ( SGT ), Straits Energy Trading Pte Ltd ( SET ), Straits Gold Holdings Pte Limited ( SGH ) and Straits Marine & Infrastructure Pte Ltd ( SMI ) respectively (the Sale Shares ), for an aggregate cash consideration determined based on the net book values of each of SGT, SET, SGH and SMI as at 31 August The aggregate net book values of these entities as at 31 August 2006 was approximately US$7,752,000. In September 2006, in satisfaction of the consideration for the transfer of the Sale Shares, SBI transferred to the Company 10,000 ordinary shares in SGT and two ordinary shares in each of SET, SGH and SMI, respectively. As a result of the transfer of the Sale Shares, the Company owned, through the acquisition of SET, an indirect 10% shareholding interest in Xanadu Mines Ltd ( Restructuring Exercise ). Xanadu Mines Ltd was acquired by SET on 21 April The historical consolidated balance sheet present the financial position of the Group as at 31 December 2005 as if the restructuring of the Group had occurred on 1 January However, the historical financial statements do not reflect the exchange of cash consideration for the acquisition of the 100% interest in SGT, SGH, SET and SMI. For the purpose of the Proforma balance sheet, the cash consideration is computed based on the net book asset values of each of SGT, SET, SGH and SMI as at 31 December 2005 and 31 March 2006 respectively, assuming the Restructuring Exercise occurred on 31 December 2005 and 31 March 2006 respectively. Pursuant to the sales and purchase agreement, the net cash settlement has to be net-off against certain non-trade balances with the holding corporation as at 31 August F-97

356 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March The Group (continued) (b) Restructuring Exercise (continued) The Company and its subsidiaries (the Group ), acquired pursuant to the Acquisition and Restructuring Exercise are collectively referred to in this report as the Group. The Acquisition and Restructuring Exercise was completed in September 2006, resulting in the Company holding the following subsidiaries: Name of entity Country of incorporation Principal activities Effective equity interest Straits Global Trading Pte Ltd Singapore Trading 100% Straits Gold Holdings Pte Ltd Singapore Dormant 100% Rayka Wahana Dipdjaya Pte Ltd Singapore Dormant 100% Straits Energy Trading Pte Ltd Singapore Investment Holdings 100% PT Bahari Cakrawala Sebuku Indonesia Coal Mining 100% PT Straits Consultancy Services Indonesia Management services 99% Sebuku Investments Ltd Isle of Man Investment holding 100% PT Reyka Wahana Digdjaya Indonesia Investment holding 100% (includes 10% indirect interest) Straits Marine Infrastructure Pte Ltd Singapore Investment holding 100% PT Indo Straits Indonesia Construction 100% (includes 5% indirect interest) Arapa Leasing Pte Ltd Singapore Investment holding 100% 4. Basis of preparation and compilation of the proforma financial statements of the Group The objective of the proforma financial statements of the Group is to show what (i) (ii) the financial results of the Group for the financial year ended 31 December 2005 and for the three months period ended 31 March 2006 would have been if the Acquisition and Restructuring Exercise as described in Note 3 above had occurred on 1 January 2005; the financial position of the Group as at 31 December 2005 and as at 31 March 2006 would have been if the Acquisition and Restructuring Exercise had occurred on 31 December 2005 and 31 March 2006; The proforma financial statements of the Group, because of their nature, may not give a true picture of the Group s actual financial results, financial positions, changes in shareholder s equity and cash flows. The proforma financial statements of the Group is not necessarily indicative of results of the operations, related effects on the financial position, changes in equity and reserves or cash flows that would have been attained had the Acquisition and Restructuring Exercise actually occurred earlier. Hence, the proforma financial statements are for illustrative purposes only. F-98

357 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Basis of preparation and compilation of the proforma financial statements of the Group (continued) The proforma financial statements have been prepared in accordance with the historical cost convention, except as disclosed in the accounting policies below, and are expressed in United States Dollars ( US$ ). They have been compiled from financial statements which are prepared based on accounting policies of the Group as set out in Note 6 to the proforma financial statements and are in accordance with Singapore Financial Reporting Standards ( FRS ). All material intercompany transactions, and balances have been eliminated in the preparation of the proforma financial statements of the Group. The proforma financial statements have been compiled based on the following: (i) (ii) The audited consolidated financial statements of the Company for the financial year ended 31 December 2005 which were prepared in accordance with FRS and audited by PricewaterhouseCoopers, Singapore, a member of The Institute of Certified Public Accountants of Singapore in accordance with Singapore Standards on Auditing. The audited consolidated financial statements of Arapa Leasing Pte Ltd and its subsidiary for the financial year ended 31 December 2005 which were prepared in accordance with FRS and audited by PricewaterhouseCoopers, Singapore in accordance with Singapore Standards on Auditing. The auditors report on these consolidated financial statements was unqualified. (iii) The unaudited consolidated accounts of the Company for the three months period ended 31 March 2006, which were prepared in accordance with FRS and reviewed by PricewaterhouseCoopers, Singapore. (iv) The unaudited consolidated accounts of Arapa Leasing Pte Ltd and its subsidiary for the three months period ended 31 March 2006, which were prepared in accordance with FRS and reviewed by PricewaterhouseCoopers, Singapore. 5. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements by the Group for the financial year ended 31 December 2005 and 31 March 2006 are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires the use of certain critical accounting estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 6. F-99

358 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) In 2006, the Group adopted the new and revised FRS and Interpretations to FRS ( INT FRS ) that are applicable to the current period. The 2005 proforma financial statements have been amended as required, in accordance with the relevant transitional provisions in the respective FRS and INT FRS. The following are the FRS and INT FRS that are relevant to the Group: FRS 19 (Amendment), Employee Benefits INT FRS 104, Determining whether an Arrangement contains a Lease The adoption of the above FRS and INT FRS did not result in substantial changes to the Group s accounting policies. (a) Revenue recognition Revenue for the Group comprises the fair value of the consideration received or receivable for the sale of goods and rendering of management and agency services, net of goods and services tax, rebates and discounts, and after eliminating sales within the Group. Revenue is recognised as follows: (1) Sale of goods Sales revenue comprises revenue earned from the sale of products to entities outside the company. Sales revenue is recognized when the product is delivered and: (i) (ii) (iii) (iv) (v) risk and reward has been passed to the customer; the product is in a form suitable for delivery; the quantity of the product can be determined with reasonable accuracy; the product has been despatched to the customer and is no longer under the physical control of the company; the selling price can be determined with reasonable accuracy. (2) Rendering of services Revenue from management, agency and logistic services is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be performed. F-100

359 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (a) Revenue recognition (continued) (3) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cashflow discounted at original effective interest rate of the instrument, and thereafter amortising the discount as interest income. (4) Dividend income Dividend income is recognised when the right to receive payment is established. (b) Group accounting (1) Subsidiaries Subsidiaries are entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Acquisition of entities that are under common control have been consolidated using the pooling-of-interest method. The purchase method of accounting is used to account for the acquisition of other subsidiaries. The cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. Subsidiaries are consolidated from the date on which control is transferred to the Group to the date on which that control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. F-101

360 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (b) Group accounting (continued) Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured as the minorities share of the fair value of the subsidiaries identifiable assets and liabilities at the date of acquisition by the Group and the minorities share of changes in equity since the date of acquisition, except when the losses applicable to the minority in a subsidiary exceed the minority interest in the equity of that subsidiary. In such cases, the excess and further losses applicable to the minority are attributed to the equity holders of the Company, unless the minority has a binding obligation to, and is able to, make good the losses. When that subsidiary subsequently reports profits, the profits applicable to the minority are attributed to the equity holders of the Company until the minority s share of losses previously absorbed by the equity holders of the Company has been recovered. Changes in the Group s ownership interest in a subsidiary after control is obtained that do not result in a loss of control are accounted for by adjusting the carrying amount of minority interest to reflect the change in the Group s interest in the subsidiary s net assets. The difference between the amount of adjustment to minority interest and the fair value of the consideration paid or received, if any, is brought to equity. (2) Transaction costs Costs directly attributable to an acquisition are included as part of the cost of acquisition. (c) Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of an item of property, plant and equipment also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred. Land is not depreciated. Depreciation on mine property, plant and equipment (excluding land) is calculated on a unit-of-production basis so as to write off the cost of each asset in proportion to the depletion of the proved and probable mineral reserves, or on a straight line basis over the estimated useful life of the asset. F-102

361 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (c) Property, plant and equipment (continued) Depreciation on other property, plant and equipment is calculated on a straight line basis to write off the net cost over its expected useful life to the consolidated entity. The expected useful lives are as follows: Buildings 3 10 years Plant and equipment 3 5 years Motor vehicles 5 years Vessels 10 years The accumulated costs of the construction of buildings and plant and the installation of machinery are capitalised as construction in progress. These costs are reclassified to property, plant and equipment accounts when the construction or installation is complete. Depreciation is charged from the date when assets are brought into use. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (d) Exploration and evaluation expenditure Exploration and evaluation expenditure are capitalized in the balance sheet, in respect of areas of interest for which the rights of tenure are current and where: (i) (ii) Such costs are expected to be recouped through successful development and exploitation of the area of interest, or alternatively, by its sale; or Exploration and/or evaluation activities in the area have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area are continuing. Exploration expenditure incurred that does not satisfy the policy stated above is expensed in the period in which it is incurred. Exploration expenditure that has been capitalised which no longer satisfies the policy stated above is written off in the period in which that decision is made. Upon the commencement of mining activities, deferred exploration and development expenditures are reclassified to mine properties and then amortised in accordance with the accounting policy for mine properties as detailed at note 5(e) below. F-103

362 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (d) Exploration and evaluation expenditure (continued) The net carrying value of each area of interest is reviewed regularly and, to the extent to which this value exceeds its recoverable value, that excess is provided for or written off in the year in which this is determined. (e) Mine properties Mine properties represent the acquisition costs and/or accumulation of exploration, evaluation and development expenditure in respect of areas of interest in which mining has commenced. When further development expenditure is incurred in respect of a mine property after the commencement of production, such expenditure is carried forward as part of the mine property only when substantial future economic benefits are thereby established, otherwise such expenditure is classified as part of the cost of production. Amortisation is provided on a unit of production basis so as to write off the cost in proportion to the depletion of the proved and probable mineral reserves. Reserve and life of mine estimates are reviewed on an annual basis, and amortization rates are adjusted accordingly where necessary. (f) Deferred mining expenditure Certain mining costs, principally those that relate to the stripping of waste and which relate to future economically recoverable ore to be mined, have been capitalised and included in mine properties as deferred mining. These costs are deferred or taken to the cost of production as the case may be, so that each tonne of ore mined bears the average costs of waste removal per tonne of ore, as determined by the waste to ore ratio derived from the current pit design and incurs the associated variable contract mining costs specific to the production area from which that ore is mined. The waste to ore ratio and the remaining life of the mine are regularly assessed by the Directors and senior management to ensure the carrying value and rate of deferral is appropriate. (g) Impairment of assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). F-104

363 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (h) Financial assets (1) Classification The Group classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the Investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet. (ii) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. (2) Recognition and derecognition Purchases and sales of financial assets are recognized on the trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from those financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (3) Initial measurement Financial assets are initially recognised at fair value plus transaction costs. F-105

364 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (h) Financial assets (continued) (4) Subsequent measurement Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in the fair value reserve within equity. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the fair value reserve within equity are included in the income statement. (5) Determination of fair value The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. (6) Impairment The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale investments, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss is removed from equity and recognized in the income statement. Impairment losses recognised in the income statement on equity investments are not reversed through the income statement. (i) Trade and other receivables Trade receivables and other receivables are recorded at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Collectibility of receivables is reviewed on an ongoing basis. F-106

365 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (i) Trade and other receivables (continued) Debts which are known to be uncollectible are written off. An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the allowance is recognized in the income statement. (j) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months from the reporting date. (k) Fair value estimation The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (l) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid at the reporting date. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method. (m) Operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the income statement on a straight-line basis over the period of the lease. F-107

366 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (n) Inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (o) Income taxes The income tax expense or credit for the period is the tax payable on the current period s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognized for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognized in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognized for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. F-108

367 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (p) Provisions Provisions for asset dismantlement and removal or restoration are recognised when the Group has a legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provision is not recognised for future operating losses. Provision for restoration and rehabilitation The Group has obligations to dismantle, remove, restore and rehabilitate certain items of property, plant and equipment. The Group recognizes the estimated costs of dismantlement, removal or restoration of items of property, plant and equipment arising from the acquisition or use of assets [Note 5(c) & (e)]. This provision is estimated based on the best estimate of the expenditure required to settle the obligation, taking into consideration time value. The estimated costs are discounted using the pre-tax discount rate that reflects the time value of money. As the value of the provision represents the discounted value of the present obligation to restore, dismantle and rehabilitate, the increase in the provision due to the passage of time is recognized in the income statement as a borrowing cost. Changes in estimated timing or amount of the expenditure or discount rate which affect the discounted cost is adjusted against the cost of the related property, plant and equipment unless the decrease in the liability exceeds the carrying amount of the asset or the asset has reached the end of its useful life. In such cases, the excess of the decrease over the carrying amount of the asset or the changes in the liability is recognised in profit or loss immediately. (q) Employee benefits (1) Wages and salaries and annual leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognized in other payables in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognized when the leave is taken and measured at the rates paid or payable. (2) Termination benefits Liabilities for termination benefits are recognized when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. The liabilities for termination benefits are recognized in other creditors unless the amount or timing of the payments is uncertain, in which case they are recognized as provisions. F-109

368 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (q) Employee benefits (continued) (2) Termination benefits (continued) Liabilities for termination benefits expected to be settled within 12 months are measured at the amounts expected to be paid when they are settled. Amounts expected to be settled more than 12 months from the reporting date are measured as the estimated cash outflows, discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future payments, where the effect of discounting is material. (3) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as Central Provident Fund, and will have no legal or constructive obligation to pay further contributions if any of the funds does not hold sufficient assets to pay all employee benefits relating to employee service in the current and preceding financial years. The Group s contribution to defined contribution plans are recognised in the financial year to which they relate. (r) Foreign currency translation (1) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in United States Dollars. (2) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. F-110

369 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (r) Foreign currency translation (continued) (3) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and All resulting exchange differences are recognized in the foreign currency translation reserve. (s) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. (t) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits with financial institutions and bank overdrafts. Bank overdrafts are included in borrowings on the balance sheet. (u) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds. (v) Dividend Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at the Balance Sheet Date. F-111

370 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Significant accounting policies (continued) (w) Contract work in progress A contract work in progress is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a contract work in progress cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by using the percentage of completion method. The percentage of completion is measured by reference to the contract costs incurred to date to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Costs incurred during the financial year in connection with future activity on a contract are excluded from costs incurred to date when determining the stage of completion of a contract. Such costs are shown as construction contract work in progress. The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the financial period-end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as due from customers on construction contracts, under trade receivables. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as due to customers on construction contracts, under trade and other payables. (x) Rounding of amounts The board has determined that the financial reports of the Group are more clearly presented when rounded to the nearest thousand dollars. Amounts reported in the financial report have been rounded on this basis as permitted by paragraph 48 of FRS Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on management s historical experience and knowledge of relevant facts and circumstances at that time. The Group makes estimates and judgements concerning the future. The resulting accounting estimates and judgements may differ from the related actual results and may have a significant effect on the carrying amounts of assets and liabilities within the next financial year and on the amounts recognized in the financial statements. Information on such estimates and judgements is contained in the accounting policies and/or notes to the financial statements. F-112

371 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Critical accounting estimates and judgements (continued) (a) (b) Estimation for the provision for rehabilitation and dismantling Provision for rehabilitation and dismantling of property, plant and equipment is estimated taking into consideration facts and circumstances available at the balance sheet date. This estimate is based on the expenditure required to undertake the rehabilitation and dismantling, taking into consideration time value. Please refer to note 5(p) for details. Impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties The Group reviews for impairment of property, plant and equipment, deferred exploration and development expenditure and mine properties in accordance with the accounting policy stated in note 5(g). The recoverable amount of these assets has been determined based on the higher of the assets fair value less costs to sell and value in use. These calculations require the use of estimates and judgements. Please refer to note 5(c), (e), (f) and (g) for details. (c) Income taxes Judgement is required in determining the provision for income taxes. The Group recognizes liabilities for anticipated tax based on estimates of taxes due. Where the final tax outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the year in which such determination is made. (d) Revenue recognition The Group uses the percentage-of-completion method in accounting for its certain sales of services. Use of the percentage-of-completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. F-113

372 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Statement of adjustments (a) Proforma income statement (i) The following adjustments have been made in arriving at the Proforma income statement for the financial year ended 31 December 2005: Per audited consolidated income statement of the Company Proforma adjustments Proforma Income Statement US$ 000 US$ 000 US$ 000 US$ 000 Note a Note b Revenue Sales revenue ,182 9,469 (986) 167,665 Cost of sales of goods... (100,080) (5,958) 986 (105,052) Gross Profit ,102 3,511 62,613 Other revenue from ordinary activities. 1,996 1,996 Other losses... (116) (281) (397) Expenses Other expenses from ordinary activities Marketinganddistribution... (3,735) (115) (3,850) Corporate expense... (3,261) (1,125) (4,386) Finance costs... (189) (189) Profit before income tax... 53,797 1,990 55,787 Income tax expense... (9,438) (668) (10,106) Total profit for the year... 44,359 1,322 45,681 Notes: (a) (b) Inclusion of the audited consolidated income statement of Arapa Leasing Pte Ltd and its subsidiary for the financial year ended 31 December 2005, assuming that the Acquisition as disclosed in Note 3(a) to the proforma financial statements had occurred on 1 January Being adjustment to eliminate the inter-company transactions. F-114

373 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Statement of adjustments (continued) (a) Proforma income statement (continued) (ii) The following adjustments have been made in arriving at the Proforma income statement for the financial period ended 31 March 2006: Per unaudited consolidated income statement of the Group Proforma adjustments Proforma Income Statement US$ 000 US$ 000 US$ 000 Note a Revenue Sales revenue... 62,944 1,881 64,825 Cost of sales of goods... (44,472) (1,538) (46,010) Gross Profit , ,815 Other revenue from ordinary activities Other gains/(losses) (31) 12 Expenses Other expenses from ordinary activities Marketinganddistribution... (643) (33) (676) Corporate expense... (639) (231) (870) Finance costs... (104) (104) Profit/(loss) before income tax... 17, ,646 Income tax expense... (2,782) 18 (2,764) Total profit for the period... 14, ,882 Notes: (a) Inclusion of the unaudited consolidated income statement of Arapa Leasing Pte Ltd and its subsidiary for the three months period ended 31 March 2006, assuming that the Acquisition as disclosed in Note 3(a) to the proforma financial statements had occurred on 1 January F-115

374 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Statement of adjustments (continued) (b) Proforma balance sheet (i) The following adjustments have been made in arriving at the Proforma balance sheet of the Group as at 31 December 2005: Per audited consolidated balance sheet of the Group Proforma adjustments Proforma balance sheet US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Note a Note b Note c Note d Current assets: Cash and cash equivalents ,704 1,706 (5,136) (2,605) 4,669 Trade and other receivables ,225 2,725 29,950 Inventories ,641 2,641 40,570 37,260 Non-current assets Receivables , (39) (3,944) 3,227 Available for sale financial asset Property, plant and equipment ,224 3,586 (1,904) 6,906 Exploration and evaluation expenditure Mine properties ,410 12,410 Deferred income tax assets ,058 25,524 24,225 Total assets 66,094 61,485 Current liabilities Trade and other payables , (39) 26,233 Current income tax liabilities , ,472 Borrowings interest bearing Borrowings non interest bearing ,388 (1,388) Provisions for other liabilities and charges ,679 33,549 Non-current liabilities Provisions for other liabilities and Charges... 1, ,525 Borrowings non interest bearing Deferred income tax liabilities ,234 1,234 2,814 2,996 Total liabilities ,493 36,545 NET ASSETS/TOTAL EQUITY ,601 7,040 (7,040) (4,661) 24,940 Notes: (a) Inclusion of the audited consolidated balance sheet of Arapa Leasing Pte Ltd and its subsidiary for the financial year ended 31 December 2005, assuming that the Acquisition as disclosed in Note 3(a) to the proforma financial statements had occurred on 31 December (b) Being adjustments to eliminate the inter-company balances. (c) Being adjustments to effect the Acquisition as described in Note 3(a), taking into account the cash consideration of the Acquisition and fair value adjustment of the property, plant and equipment of the acquired entities assuming the Acquisition had occurred on 31 December (d) Being adjustments to effect the cash consideration settlement of the Restructuring Exercise as described in Note 3(b), taking into account the settlement of non-trade balances with the holding corporation as per the Sale and Purchase agreement and the investment in Xanadu, assuming the Restructuring Exercise had occurred on 31 December F-116

375 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Statement of adjustments (continued) (b) Proforma balance sheet (continued) (ii) The following adjustments have been made in arriving at the Proforma balance sheet of the Group as at 31 March 2006: Per audited consolidated balance sheet of the Group Proforma adjustments Proforma balance sheet US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Note a Note b Note c Note d Current assets: Cash and cash equivalents ,087 1,936 (5,136) (2,374) 14,513 Trade and other receivables ,422 2,333 29,755 Inventories ,718 1,718 49,227 45,986 Non-current assets Receivables , (39) (3,944) 3,279 Available for sale financial asset Property, plant and equipment ,395 3,328 (1,970) 12,753 Exploration and evaluation expenditure Mine properties ,892 11,892 Deferred income tax assets ,125 31,313 29,795 Total assets ,540 75,781 Current liabilities Trade and other payables , (39) 34,768 Current income tax liabilities , ,843 Borrowings interest bearing Borrowings non interest bearing ,388 (1,388) Provisions for other liabilities and charges ,193 40,667 Non-current liabilities Provisions for other liabilities and charges... 1, ,563 Borrowings interest bearing ,533 4,533 Borrowings non interest bearing Deferred income tax liabilities ,294 1,294 7,430 7,627 Total liabilities ,623 48,294 NET ASSETS/TOTAL EQUITY ,917 7,106 (7,106) (4,430) 27,487 Notes: (a) Inclusion of the unaudited consolidated balance sheet of Arapa Leasing Pte Ltd and its subsidiary for the three months period ended 31 March 2006, assuming that the Acquisition as disclosed in Note 3(a) to the proforma financial statements had occurred on 31 March (b) Being adjustments to eliminate the inter-company balances. (c) Being adjustments to effect the Acquisition as described in Note 3(a), taking into account the cash consideration of the Acquisition and fair value adjustment of the property, plant and equipment of the acquired entities, assuming the Acquisition had occurred on 31 March (d) Being adjustments to effect the cash consideration settlement of the Restructuring Exercise as described in Note 3(b), taking into account the settlement of non-trade balances with the holding corporation as per the Sale and Purchase agreement and the investment in Xanadu, assuming the restructuring had occurred on 31 March F-117

376 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Revenue Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Sales of goods 167,665 64,825 Other revenue from operation: Management fees... 1, Logistics services Agency fees , Other gains/(losses) Net foreign exchange losses... (256) (43) Interest income Impairment loss... (222) Others... (26) (397) ,264 65, Expenses by nature Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Commodities purchases... 38,801 22,681 Contract costs... 44,185 13,351 Depreciation of plant and equipment... 1, Equipment rental... 3,598 1,447 Amortisation of mine properties.... 1, Royalties to government... 9,981 3,095 Export levy Movement in coal inventories... (2,023) 924 Rental on operating leases Bad-debt written-off Value added tax Employee benefits (Note 10)... 3,947 1,315 Other expenses... 10,794 2,691 Total cost of sales, marketing and distribution costs and administrative expenses ,288 47,556 F-118

377 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Employee benefits Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Wages and salaries... 3,916 1,315 Post retirement benefits Definedcontributionplans Others ,947 1, Finance costs Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Bank charges and interest.... (57) (104) Other finance costs.... (132) (189) (104) 12. Income tax expense (a) Income tax expense Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Currenttax... 9,989 2,771 Deferredtax... (267) (127) Under provided in prior years Current Deferred ,106 2,764 Deferred income tax expense included in income tax expense comprises: Increase in deferred tax assets (note 21)... (110) (67) (Decrease)/Increase in deferred tax liabilities (note21)... (157) 60 (267) (7) F-119

378 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Income tax expense (continued) (b) Numerical reconciliation of income tax expense to prima facie tax payable Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Profit before income tax expense... 55,787 17,646 Tax at the Singapore tax rate of 20%... 11,157 3,529 Tax effect on: Non deductible expenses Income subject to tax incentive... (3,845) (1,364) Sundry items Difference in overseas tax rates... 1, Under provision in prior years Total income tax expense... 10,106 2,764 (c) Movements in current income tax liabilities Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 At beginning of financial year/period.... 5,708 5,977 Provision for current year... 9,989 2,771 Under provision in respect of prior years Taxpaid... (9,637) (4,400) Acquisition of subsidiaries At end of financial year/period... 6,472 4, Earnings Per Share Basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year: Year ended 31 December 2005 Period ended 31 March 2006 Net profit attributable to members of Straits Asia Resources Limited (US$ 000)... 45,681 14,882 Weighted average number of ordinary shares in issue for basic earnings per share ,407, ,765,220 Basic earnings per share (cents) F-120

379 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Earnings Per Share (continued) The weighted average number of shares for the financial year/period has been adjusted to reflect the sub-division and consolidation of shares as part of restructuring [(note 33)]. Diluted earnings per share is the same as basic earnings per share. As at the balance sheet dates, the Company does not have any potential ordinary shares that have a dilutive effect on earnings per share. 14. Cash and cash equivalents 31 December March 2006 US$ 000 US$ 000 Cash at bank and on hand... 4,255 13,483 Fixed deposits with financial institutions.... 1,214 1,830 5,469 15,313 Restricted cash - Deposit pledge with a bank for banking facilities... (800) (800) Bank overdrafts (Note 23)... (191) Cash and cash equivalents... 4,478 14,513 The fixed deposit has a maturity date of three months (2005: three months) with an average effective interest rate of 4.0% per annum (2005: 2.8% per annum) Cash and cash deposits are denominated in the following currencies 31 December March 2006 US$ 000 US$ 000 Indonesian Rupiah Singapore Dollar UnitedStatesDollar... 4,747 14,720 AustralianDollar ,469 15,313 F-121

380 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Cash and cash equivalents (continued) The carrying amount of cash and cash equivalents approximate their fair value. The aggregate effects of Acquisition and Restructuring Exercise are as follows: 31 December March 2006 US$ 000 US$ 000 Net fair value of the subsidiaries acquired at date of acquisition Cash and cash equivalent ,706 Trade and other receivables... 10,617 2,474 Property, plant and equipment.... 3,890 2,053 Trade and other payables... (9,829) (611) Bank overdrafts... (191) Others (295) Total cash consideration... (5,136) (5,136) Less: cash and cash equivalents, net of bank overdrafts ,515 Net cash outflow from acquisition of subsidiaries... (4,778) (3,621) Cash outflow from Restructuring Exercise... (2,105) (1,874) (6,883) (5,495) 15. Trade and other receivables 31 December March 2006 US$ 000 US$ 000 Trade debtors nonrelated... 14,532 18,674 Trade debtors relatedcorporations... 2,418 2,775 Other debtors... 2,018 1,119 Less: Provision for impairment of doubtful receivables... (257) (257) 18,711 22,311 Receivable from ultimate holding corporation... 3,020 3,833 Receivable from related corporations Long term contract receivables (Note 16) Loans to non-related parties Advance to a non-related party... 5,094 Restricted cash (Note 14) Prepayments Other receivables ,521 29,950 29,755 Receivable from ultimate holding corporation and related corporations are interest free and repayable on demand. Loans to non-related parties are interest-free and repayable on demand. Advance to a non-related party represents a short-term advance which has been repaid subsequent to 31 December The carrying amount of trade and other receivables approximate their fair value. Trade and other receivables are denominated in United States Dollars. F-122

381 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Contract work in progress 31 December March 2006 US$ 000 US$ 000 Aggregate amount of cost incurred and recognized profit up to date on uncompleted projects Less: Progress billing... (140) (151) Net amount due from contract customers at year-end (Note15) Inventories 31 December March 2006 US$ 000 US$ 000 Coal inventories, at cost Finished goods.... 2,641 1, Receivables Non-current 31 December March 2006 US$ 000 US$ 000 Receivable from ultimate holding corporation... 2,920 2,946 Other receivables ,227 3,279 The amounts receivable are interest-free and are not expected to be repaid within 12 months from the balance sheet dates and are denominated in United States Dollars. The carrying amount approximates the fair value. F-123

382 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Property, plant and equipment Land & Buildings Plant & equipment Motor vehicles Vessels Construction in progress Total US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,739 3, ,578 Additions ,766 3,993 Transfers... 2, (3,231) Acquisition of subsidiaries ,284 1,682 At 31 December ,254 6, , ,253 Accumulated depreciation At 1 January (1,993) (1,731) (540) (4,264) Depreciation expense... (271) (715) (97) (1,083) At 31 December (2,264) (2,446) (637) (5,347) Net book value At 31 December , , ,906 Buildings Plant & equipment Motor vehicles Vessels Construction in progress Total US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,856 6, ,571 Additions , ,486 Transfer (237) Acquisition of subsidiaries ,358 At 31 March ,254 7, ,015 1,128 18,415 Accumulated depreciation At 1 January (2,264) (2,446) (637) (5,347) Depreciation expense... (59) (234) (22) (315) At 31 March (2,323) (2,680) (659) (5,662) Net book value At 31 March , ,015 1,128 12,753 As at 31 December 2005 and 31 March 2006, the net book value of property, plant and equipment mortgaged as securities for banking facilities amounted to US$5,165,000 and US$110,000 respectively (Note 23). F-124

383 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Exploration and evaluation, development and mine properties (a) Exploration and evaluation 31 December March 2006 US$ 000 US$ 000 Opening balance Expenditure incurred Transferred to mine properties... (17) Closing balance (b) Mine Properties in use Mining right Deferred mining expenditure Deferred exploration and development expenditure Total US$ 000 US$ 000 US$ 000 US$ Cost At 1 January ,679 5,283 12,291 35,253 Expenditure transferred from exploration Expenditure during the year At 31 December ,679 5,283 12,574 35,536 Accumulated Amortisation At 1 January (12,768) (401) (8,164) (21,333) Amortisation for the year.... (811) (656) (326) (1,793) At 31 December (13,579) (1,057) (8,490) (23,126) Net book value At 31 December ,100 4,226 4,084 12, Cost At 1 January ,679 5,283 12,574 35,536 Expenditure during the year At 31 March ,679 5,283 12,627 35,589 Accumulated Amortisation At 1 January (13,579) (1,057) (8,490) (23,126) Amortisation for the year.... (224) (201) (146) (571) At 31 March (13,803) (1,258) (8,636) (23,697) Net book value At 31 March ,876 4,025 3,991 11,892 F-125

384 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Deferred income tax Deferred tax assets Provision Tax losses Other Total US$ 000 US$ 000 US$ 000 US$ December 2005 At 1 January Charged to income statement (28) At 31 December , March 2006 At 1 January Charged to income statement Acquisition of subsidiaries At 31 March , December March 2006 US$ 000 US$ 000 Represented by: to be recovered after one year... 1,058 1,125 Deferred tax liabilities Accelerated tax depreciation < > Mine properties Property, plant and equipment Total US$ 000 US$ 000 US$ At 1 January , ,391 (Credited)/charged to income statement... (180) 23 (157) At 31 December , , At 1 January , ,234 Charged to income statement At 31 March , , December March 2006 US$ 000 US$ 000 Represented by:- to be recovered after one year... 1,234 1,294 F-126

385 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Trade and other payables 31 December March 2006 US$ 000 US$ 000 Trade payables to: third parties... 13,453 15,299 relatedcorporations... 1,600 8,646 Other payables Accrued operating expenses... 10,522 10,168 26,233 34,768 The carrying amounts of current trade and other payables approximate their fair value. Trade and other payables are denominated in United States Dollars. 23. Borrowings (a) Interest bearing 31 December March 2006 US$ 000 US$ 000 Bank overdraft (secured) Bank loan (secured)... 4, ,933 Represented by: Current Non-current... 4, ,933 The bank overdrafts bear an interest at a rate of 13.5% per annum and secured by certain property, plant and equipment of the Group (Note 19) The bank loan is a structured finance facility. Interest is charged at the calculated rate of SIBOR plus 23 percent, and the effective interest rate for the period ending 31 March 2006 was 6.906%. The bank loan is secured by: (i) a mortgaged over certain property, plant and equipment of the Group (Note 19). (ii) (iii) Corporate guarantee from a subsidiary An assignment of service contract (b) Non interest bearing 31 December March 2006 US$ 000 US$ 000 Payable to ultimate holding corporation Payable to ultimate holding corporation are unsecured, interest free and not expected to be repaid in the next twelve months from the balance sheet date. F-127

386 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Provisions for other liabilities and charges Provision for employee benefits Provision for rehabilitation and dismantling Total US$ 000 US$ 000 US$ December 2005 At 1 January ,367 2,034 Additional provisions Increase in provision discount Used during the year.... (168) (91) (259) Acquisition of subsidiaries At 31 December ,408 2, March 2006 At 1 January ,408 1,996 Additional provisions Acquisition of subsidiaries At 31 March ,408 2,219 Provisions are all non current as they are not expected to be repaid within the next twelve months. 31 December March 2006 US$ 000 US$ 000 Represented by: Current Non-current... 1,525 1,563 2,178 2, Dividends Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Ordinary dividends paid Interim exempt (one-tier) dividend paid in respect of current year/period ,200 12,500 F-128

387 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Related party transactions (a) Transactions with related parties: Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Dividends paid to holding corporation... 36,200 12,500 Agency fees receivable from a related corporation Management fees paid to holding corporation... 1, Commodities and services sold/rendered to related corporations.. 5, Commodity purchases from related corporations... 35,571 22,451 Related party balances are disclosed at note 22. (b) Key management personnel compensation: Year ended 31 December 2005 US$ 000 Period ended 31 March 2006 US$ 000 Salaries and other short term employee benefits... 1, Post-employment benefits contributiontocpf , Commitment (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognized as liabilities is as follows: 31 December March 2006 US$ 000 US$ 000 Later than one year but not later than five years: Property, plant and equipment F-129

388 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Commitment (continued) (b) Operating leases Commitments for minimum lease payments in relation to non-cancelable operating leases are payable as follows: 31 December March 2006 US$ 000 US$ 000 Within one year Later than one year but not later than five years Contingent liabilities On 11 October 2005, the Indonesian Minister of Finance ( MoF ) issued Regulation no.95/ PMK.02/2005 ( Regulation 95 ) which imposes a 5% duty on coal exports based on a US$28/metric tonne coal price. The regulation became effective on the date of issuance. No amount has been provided in the financial statements of PTBCS as of 31 December 2005 and 31 March 2006 relating to this matter. The Company s position is similar to other coal industry participants, the majority of whom elected not to comply with Regulation 95 as of 31 December 2005 and 31 March 2006, pending the outcome of request for the regulation to be revised, and potential legal challenges to the regulation. PTBCS therefore has a contingent liability for the unpaid duty of approximately US$0.8 million and US$1.5 million at 31 December 2005 and 31 March 2006 respectively (note 34(b)). PTBCS has commitments in respect of certain arrangements for the mining, processing and handling of coal and related activities. These arrangements include penalties in respect of early termination of the arrangements. Provision for these penalties has not been made in the financial statements as there are no present intentions to terminate these agreements. An action for land compensation of Rp 3.5 billion (approximately US$0.42 million) has been raised against PTBCS in the Indonesian Supreme Court. This action is an appeal of the decisions of the provincial high court and regional court which both found in the favour of PTBCS. No amount has been recognised in the financial statements as management is confident that the appeal will not succeed. F-130

389 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Reconciliation of profit after income tax to net cash inflow from operating activities 31 December March 2006 US$ 000 US$ 000 Profit for the year... 45,681 14,882 Depreciation and amortisation... 3,686 1,143 Impairment loss (Increase) in receivables.... (5,450) (4,359) (Increase)/decrease in inventories... (2,023) 924 Increase in deferred tax assets.... (109) (67) Increase in trade/other creditors... 4,728 8,592 Increase in current tax liabilities (1,629) Increase/(decrease) in deferred tax liabilities.... (157) 60 Net cash inflow from operating activities... 47,313 19, Financial risk management The Group s operations are exposed to market risk (including currency risk, commodity price risk and interest rate risk), credit risk and liquidity risk. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group may use derivative financial instruments such as foreign exchange contracts and commodity contracts to hedge certain risk exposures. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the entity s functional currency. (ii) Commodity price risk Commodity price risk is the risk of financial loss resulting from movements in the price of the Group s commodity inputs and outputs. The Group is exposed to commodity price risk arising from revenue derived from sales of coal as well as to the impact of crude oil prices on the cost of fuel consumed in the mining and processing of coal. The coal price risk is managed through contractual arrangements with customers and derivative instruments such as forward sales contracts may be used. However, no derivative instruments were used during the financial years. F-131

390 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Financial risk management (continued) (a) Market risk (continued) (ii) Commodity price risk (continued) Fuel is currently acquired at the spot rate available at time of acquisition, which exposes the Group to the impact of changes to world prices for crude oil. However, the Group continues to assess the potential financial risk associated with rising crude oil prices and whether the risk requires management through contractual arrangements or the use of derivative instruments. (iii) Interest rate risk The Group is not exposed to significant interest rate risk as it has no significant external borrowings as it relies on cash generated from its normal business activities to fund its operations. (b) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any one financial institution. (c) Liquidity risk Prudent liquidity risk management implies maintaining at all times sufficient cash, liquid investments and committed credit facilities to meet the Group s commitments as they arise. Liquidity risk management covers daily, short-term and long-term needs. The appropriate levels of liquidity are determined by both the nature of the Group s business and its risk profile. 31. Segment information Primary reporting format business segments Business Segments The consolidated entity is organised into the following divisions by product: Coal Mining: Exploration, development, mining and marketing of coal. Commodity Trading: Trading of gold, copper and other minerals. F-132

391 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Segment information (continued) Other operations of the Group mainly comprise of management services and investment holding, neither of which constitutes a separately reportable segment. Unallocated costs represent corporate expense. Segment assets consist primarily of property, plant and equipment, mine properties, exploration and evaluation expenditure, inventories, receivables and cash and cash equivalents, but exclude deferred income tax assets and non trade receivables from the ultimate holding corporation and related corporations. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities and non trade payables to the ultimate holding corporation and related corporations. Capital expenditure comprises additions to property, plant and equipment and mine properties. Secondary reporting format geographical segments The Group s two business segments operate principally in the geographical region of Asia. The pricing of the Group s products is governed principally by international market pricing eg: Sebuku coal is benchmarked to the Newcastle Barlow Jonker Index (BJI) and adjusted for transport charges and relative calorific value. Hence the Group is not materially subject to risk and returns arising in differing economic environments in Asia. Primary reporting function business segments Financial year ended 31 December 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales ,147 41,035 8, ,665 Othergains(net) ,549 1,599 Total segment revenue/income ,264 Segment results 53,229 2,234 1,990 57,453 Unallocated revenue less unallocated expenses... (1,666) (1,666) Profit before income tax... 53,229 2, ,787 Income tax expense.... (10,106) (10,106) Total profit... 53,229 2,234 (9,782) 45,681 Other segment items Acquisition of properties, plant and equipment and other non current assets... 4, ,366 Depreciation and amortisation... 2, ,686 Segment assets Segment assets... 41,858 9,240 8,365 59,463 Unallocated assets... 2,022 2,022 41,858 9,240 10,387 61,485 Segment Liabilities Segment liabilities... 24,026 3,128 1,187 28,341 Unallocated liabilities... 8,204 8,204 24,026 3,128 9,391 36,545 F-133

392 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Segment information (continued) Financial period ended 31 March 2006 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales... 37,583 25,361 1,881 64,825 Other revenue/income ,200 Segment results Net Segment result... 15,036 2,679 (58) 17,657 Net unallocated income/(cost)... (117) (117) Profit before income tax... 15,036 2,679 (175) 17,540 Income tax expense... (2,764) (2,764) Total profit 15,036 2,679 (2,939) 14,776 Other segment items Acquisition of property, plant and equipment and other non current assets... 1,606 5,055 6,661 Depreciation and amortisation ,143 Segment assets Segment Assets ,132 9,826 13,354 68,312 Unallocated assets... 7,469 7,469 45,132 9,826 20,823 75,781 Segment Liabilities Segment Liabilities... 26,498 8,022 1,058 35,578 Unallocated Liabilities... 12,716 12,716 26,498 8,022 13,774 48, New accounting standards and FRS interpretations Certain new accounting standards and FRS interpretations have been published that are mandatory for accounting periods beginning on or after 1 January The Group s assessment of those standards and interpretations that are relevant to the Group is set out below: FRS 107, Financial Instruments: Disclosures and a complementary amendment to FRS 1, Presentation of Financial Statements Capital Disclosures FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. F-134

393 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March New accounting standards and FRS interpretations (continued) It replaces FRS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in FRS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under FRS. The amendment to FRS 1 introduces disclosures about the level of an entity s capital and how it manages capital. The Group assessed the impact of FRS 107 and the amendment to FRS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of FRS 1. The Group will apply FRS 107 and the amendment to FRS 1 from annual periods beginning 1 January Event occurring after balance sheet date (a) On 20 September, 2006, the shareholders passed resolutions to approve, amongst other things, the following: the subdivision of every one ordinary share in the issued and paid-up share capital of the Company into 30 ordinary shares ( Subdivision ); the conversion of the Company into a public limited company and the change of name to Straits Asia Resources Limited ; the adoption of a new set of Articles of Association; the adoption of the Straits Employee Share Option Plan and the Straits Executive Share Acquisition Plan, and the issue of shares thereunder; that authority be and is hereby given pursuant to Section 161 of the Act to our Directors to: (A) (i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; and/or (B) (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and (notwithstanding the authority conferred by this authority may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this authority was in force, F-135

394 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Event occurring after balance sheet date (continued) provided that: (1) the aggregate number of shares to be issued pursuant to such authority (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 50% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 20% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of post-combined Offering issued share capital shall be based on the issued share capital immediately following the close of the Combined Offering of the Company at the time this authority is passed, after adjusting for: (b) (i) (ii) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this authority is passed; and any subsequent consolidation or sub-division of shares; (3) in exercising the authority conferred by this authority, the Company shall comply with the provisions of the Listing Manual for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and (4) (unless revoked or varied by the Company in General Meeting) the authority conferred by this authority shall continue in force until the conclusion of the next Annual General Meeting of the Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. On 21 July 2006, the Indonesian Supreme Court issued a ruling stipulating that Regulation 95 was contrary to a higher level of prevailing Indonesian laws and regulations because the duty imposed double taxation on coal through both a royalty and an export duty on the same goods and, therefore, held that Regulation 95 was void. The Supreme Court also stated that coal companies previously subject to Regulation 95 were no longer obliged to pay that duty. However, the Supreme Court did not rule the Government is required to refund the duty that had been paid by the coal companies from the date if issuance of Regulation 95 until the ruling was issued. F-136

395 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Event occurring after balance sheet date (continued) On 13 September 2006, the Directorate General of Customs and Duty issued Circular Letter No. SE-28/BC/2006 on coal export duty which states that from 13 September 2006, no export duty will be applied on coal exports. The Government may file a request to the Supreme Court to re-examine the ruling. However, the Company is not aware of any announcement by the Government to take this action in response to the ruling, including whether it intends to file a request for re-examination of the ruling. (c) (d) Subsequent to 31 March 2006, a total of US$9,000,000 of tax exempt (one-tier) interim dividends have been declared and paid a respect of the financial year ending 2006 to Straits Bulk Industrial Pty Ltd. On 27 September 2006, the Company entered into a revolving facility agreement with Bayerische Hypo- Und Vereinsbank AG, Singapore Branch ( HVB ) in which HVB granted to the Company a US$50.0 million revolving loan and performance bond facility (the HVB facility ). The purpose of obtaining the HVB facility was to enable the Company to pay off the existing group debts, to fund capital expenditure in respect of the Sebuku coal project, to purchase a power station which the Company intends to lease to PT IMK and to obtain performance bonds. The HVB facility will be secured including by way of: (1) a guarantee from BCS, Straits Global Trading, SIL, RWD and SMI, (2) an assignment of insurances relating to the vessel, Straits Dragon, given by SMI, (3) a charge over proceeds account given by Straits Global Trading, (4) a charge over account given by the Company, (5) a deed of charge over all assets of our Company (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables), (6) a mortgage over the vessel, Straits Dragon, given by SMI, (7) a share charge over all the shares of and dividends received from Straits Global Trading and SIL given by the Company, (8) a corporate guarantee given BCS, (9) a corporate guarantee given by RWD, (10) a pledge of shares of BCS given by the Company and RWD, (11) a pledge of shares of RWD given by SIL and Mr Ginarsa Tandinegara, (12) a conditional assignment of contracts given by BCS including the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract among other agreements relating to BCS coal operations, (13) a fiduciary security over insurance proceeds given by BCS, F-137

396 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE PROFORMA FINANCIAL STATEMENTS For the financial year ended 31 December 2005 and three months period ended 31 March Event occurring after balance sheet date (continued) (14) a fiduciary security over receivables given by BCS, (15) a fiduciary security over movable assets given by BCS, (16) a deed of charge over all assets of Straits Global Trading (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies), and receivables, and (17) a deed of charge over all assets of SIL (including real property, book debts, bank acounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables. In the event that the security that the Group has provided to secure the Company s obligations under the HVB facility is enforced, the Company may be required to relinguish and transfer the Company s interests in various subsidiaries, including BCS, Straits Global Trading, SIL, SET, SMI, PT SCS, SGH, RWD and RWDP, as well as the Company s rights under the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract, among other assets charged or pledged under the security documents described above. Therefore, if the Company was to default under the HVB facility, and HVB enforces its security interests over the Company s assets, including the Company shares in the Company s subsidiaries, the Company may lose control of the Group and the other principal assets. 34. Authorisation of financial statements These proforma financial statements were authorized for issue in accordance with a resolution of the Board of Director of Straits Asia Resources Limited on 29 September F-138

397 STRAITS ASIA RESOURCES LIMITED ( Formerly known as Straits Sebuku Pte Ltd ) (Incorporated in Singapore) AND ITS SUBSIDIARIES UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the six months period ended 30 June 2006 F-139

398 STRAITS ASIA RESOURCES LIMITED (Incorporated in Singapore) AND ITS SUBSIDIARIES UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS For the six months period ended 30 June 2006 Contents Page Condensed consolidated interim income statements F-141 Condensed consolidated interim balance sheets F-142 Condensed consolidated interim statement of changes in equity F-143 Condensed consolidated interim cash flow statement F-144 Notes to condensed consolidated interim financial information F-145 F-140

399 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS Unaudited for 6 months ended Notes 30 June June 2005 US$ 000 US$ 000 Revenue Sales revenue ,625 53,254 Cost of sales of goods... (114,021) (30,145) Gross Profit ,604 23,109 Other revenue from ordinary activities.... 1, Othergains,net Expenses Other expenses from ordinary activities Marketinganddistribution... (2,305) (612) Administrative expense... (1,402) (2,759) Finance costs... (203) (17) Profit before income tax ,917 20,457 Income tax expense... (4,442) (3,831) Total profit for the period... 26,475 16,626 Attributable to: Equity holders of the Company... 26,475 16,626 Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form an integral part of these financial statements. F-141

400 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS As at Notes 30 June December 2005 US$ 000 (unaudited) US$ 000 (audited) ASSETS Current assets Cash and cash equivalents ,813 10,704 Trade and other receivables... 36,636 27,225 Inventories ,641 58,130 40,570 Non-current assets Receivables.... 4,371 7,090 Property, plant and equipment ,505 5,224 Exploration and evaluation expenditure Available-for-sale financial asset Mine properties ,558 12,410 Deferred income tax assets ,080 25,524 Total assets... 89,210 66,094 LIABILITIES Current liabilities Trade and other payables... 31,975 25,661 Current income tax liabilities... 6,799 5,977 Borrowings(interestbearing) ,767 Borrowings(non-interestbearing)... 1,384 1,388 Provisions for other liabilities and charges.... 1, ,070 33,679 Non-current liabilities Provisions for other liabilities and charges ,343 Borrowings(non-interestbearing) Deferred income tax liabilities... 1,430 1,234 2,564 2,814 Total liabilities ,634 36,493 NET ASSETS... 40,576 29,601 EQUITY Capital and reserves attributable to the Company s equity holders Share capital and share premium ,058 33,058 Other reserves (13,227) (13,227) Retainedearnings... 20,745 9,770 Total Equity... 40,576 29,601 The accompanying notes form an integral part of these financial statements. F-142

401 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY Notes Share capital and share premium Retained earnings Other reserves Minority interest Total Unaudited US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Total at 1 January * 1,611 17,686 2,139 21,436 Profitfortheperiod... 16,626 16,626 Total recognised gain for the period. 16,626 16,626 Capitalisation of capital reserve... 17,237 (17,237) Acquisition of minority interest by parent ,821 (13,682) (2,139) Dividends paid (11,200) (11,200) Total equity at 30 June ,058 7,037 (13,233) 26,862 Total at 1 January ,058 9,770 (13,227) 29,601 Profitfortheperiod... 26,475 26,475 Total recognised gain for the period. 26,475 26,475 Dividends paid (15,500) (15,500) Total equity at 30 June ,058 20,745 (13,227) 40,576 * Less than US$1,000 The accompanying notes form an integral part of these financial statements. F-143

402 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT Unaudited for 6 months ended Notes 30 June June 2005 US$ 000 US$ 000 Cash flows from operating activities Receipts from customers ,788 47,866 Payments to suppliers and employees... (111,986) (35,343) 23,802 12,523 Interest received Interestpaid... (203) (17) Income taxes paid... (3,468) (4,928) Net cash inflow from operating activities ,191 7,628 Cash flows from investing activities Payments for purchase of property, plant and equipment... (7,548) (595) Payments for available-for-sale financial asset... (521) Cash acquired on acquisition of subsidiary Payments for exploration expenditure... (735) Net cash outflow from investing activities... (7,986) (595) Cash flows from financing activities.... Loans from related parties... 3, Loans to non related parties... (341) (3,315) Repayment of loan from non related party.... 5,021 Proceeds from bank borrowings.... 4,767 Dividends paid to company s shareholders (15,500) (11,200) Net cash outflow from financing activities... (2,096) (14,215) Net increase/(decrease) in cash and cash equivalents... 10,109 (7,182) Cash and cash equivalents at the beginning of the period... 10,704 16,012 Cash and cash equivalents at end of period ,813 8,830 The accompanying notes form an integral part of these financial statements. F-144

403 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. General The consolidated financial statements have been prepared for inclusion in the prospectus in connection with the initial public offering of the ordinary shares of Straits Asia Resources Limited (the Company ) (formerly known as Straits Sebuku Pte Ltd). The Company is incorporated and domiciled in Singapore. The address of its registered office is 80 Robinson Road, #22-04, Singapore The principal activity of the Company is that of investment holding. The Group is principally engaged in the business of mining, exploration and the marketing and trading of commodities. The Company s immediate holding corporation is Straits Bulk and Industrial Pty Ltd, a company incorporated in Australia. The Company s ultimate holding corporation is Straits Resources Limited, a company incorporated in Australia. The address of Straits Resources Limited, is Level 1, 35 Ventor Avenue, West Perth, Western Australia, This condensed consolidated interim financial information was approved for issue on 29 September Basis of preparation This condensed interim financial information for the half year ended 30 June 2006 has been prepared in accordance with FRS 34, Interim financial reporting. The interim condensed financial report should be read in conjunction with the consolidated financial statements for the year ended 31 December Significant accounting policies The accounting policies adopted are consistent with those of the consolidated financial statements for the year ended 31 December 2005, as described in the consolidated financial statements for the year ended 31 December The following are the new/revised FRS and INT FRS that are relevant to the Group for the financial year ending 31 December 2006: FRS 19 (Amendment) INT FRS 104 Employee Benefits Determining whether an Arrangement contains a Lease The adoption of the above FRS and INT FRS did not result in substantial changes to the Group s accounting policies. 4. Segment information Primary reporting format business segments Business Segments The consolidated entity is organised into the following divisions by product: Coal Mining: Exploration, development, mining and marketing of coal. Commodity Trading: Trading of gold, copper and other minerals. F-145

404 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. Segment information (continued) Other operations of the Group mainly comprise of management services and investment holding, neither of which constitutes a separately reportable segment. Unallocated costs represent corporate expense. Segment assets consist primarily of property, plant and equipment, mine properties, exploration and evaluation expenditure, inventories, receivables and cash and cash equivalents, and exclude deferred income tax assets. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities. Capital expenditure comprises additions to property, plant and equipment and mine properties. Secondary reporting format geographical segments The Group s two business segments operate principally in the geographical region of Asia. The pricing of the Group s products is governed principally by international market pricing eg: Sebuku coal is benchmarked to the Newcastle Barlow Jonker Index (BJI) and adjusted for transport charges and relative calorific value. Hence the Group is not materially subject to risk and returns arising in differing economic environments in Asia. Primary reporting function business segments Financial period ended 30 June 2006 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales... 74,690 72, ,625 Other revenue/income ,126 1, ,848 Segment results Net Segment result... 29,175 3,061 32,236 Net unallocated income/(cost)... (1,319) (1,319) Profit before income tax... 29,175 3,061 (1,319) 30,917 Income tax expense... (4,442) (4,442) Total profit... 29,175 3,061 (5,761) 26,475 Other segment items Acquisition of property, plant and equipment... 7,548 7,548 Depreciation and amortisation... 1,414 1,414 Segment assets Segment assets ,968 18,249 68,217 Unallocated assets... 20,993 20,993 49,968 18,249 20,993 89,210 Segment liabilities Segment liabilities... 17,807 11,595 29,402 Unallocated liabilities... 19,232 19,232 17,807 11,595 19,232 48,634 F-146

405 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 4. Segment information (continued) Financial year ended 31 December 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Segment assets Segment assets ,858 9,240 51,098 Unallocated assets... 14,996 14,996 41,858 9,240 14,996 66,094 Segment liabilities Segment liabilities... 24,026 3,128 27,154 Unallocated liabilities... 9,339 9,339 24,026 3,128 9,339 36,493 Financial period ended 30 June 2005 Coal Other Commodities Other and Unallocated Total US$ 000 US$ 000 US$ 000 US$ 000 Sales: externalsales... 49,564 3,690 53,254 Other revenue/income ,990 Segment results Net Segment result... 21, ,903 Net unallocated income/(cost)... (1,446) (1,446) Profit before income tax... 21, (1,446) 20,457 Income tax expense... (3,831) (3,831) Total profit... 21, (5,277) 16,626 Other segment items Acquisition of property, plant and equipment Depreciation and amortisation... 1,431 1, Property, plant and equipment Movement Six months ended 30 June 2005 Opening net book amount at 1 January ,314 Additions Disposal/written off... (529) Depreciation... (264) Closing net book amount at 30 June ,116 Six months ended 30 June 2006 Opening net book amount at 1 January ,224 Acquisition of subsidiary... 1,049 Additions... 7,548 Depreciation... (316) Closing net book amount at 30 June ,505 F-147

406 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 6. Available-for-sale financial asset 30 June December 2005 US$ 000 US$ 000 Investment unquoted On 11 April 2006, Straits Energy Trading Pte. Ltd., a subsidiary of the Company, acquired 10% equity interest of Xanadu Mines Ltd for a consideration of A$685, Mine properties Movement Six months ended 30 June 2005 Opening net book amount at 1 January ,920 Additions... 1 Amortisation... (1,167) Closing net book amount at 30 June ,754 Six months ended 30 June 2006 Opening net book amount at 1 January ,410 Additions Amortisation... (1,098) Closing net book amount at 30 June , Borrowings (interest bearing) 30 June December 2005 US$ 000 US$ 000 Bank loan (current)... 4,767 The facility is a structured finance facility denominated in United States Dollars. Interest is charged at the calculated rate of SIBOR plus 2.3 percent, and the effective interest rate for the period ending 30 June 2006 was 7.4%. The bank loan is secured by: (i) (ii) (iii) a mortgaged over the plant and equipment corporate guarantee from a subsidiary an assignment of service contract F-148

407 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 9. Share capital and share premium No. of shares Issued share capital Amount < > Share capital Share premium Total share capital and share premium US$ 000 US$ 000 US$ Balance at 1 January * * Capitalisation of capital reserve**... 24,546,635 17,237 17,237 Proceeds from share issue... 6,145,537 3,787 12,034 15,821 Balance at 31 December ,692,174 21,024 12,034 33, Balance at 1 January ,692,174 21,024 12,034 33,058 Effect of Companies (Amendment) Act 2005 (seenote(a)below)... 12,034 (12,034) Balance at 30 June ,692,174 33,058 33,058 * Less than US$1,000 ** The Company capitalised the sum of US$17,237,000 in the capital reserve by paying up in full the aggregate par value of 24,546,635 new ordinary shares of S$1 each in the capital of the Company. (a) Under the Companies (Amendment) Act 2005 that came into effect on 30 January 2006, the concepts of par value is abolished and the amount in the share premium account as of 30 June 2006 is required to become part of the company s share capital. 10. Other reserves Unaudited 30 June December 2005 US$ 000 US$ 000 Composition General reserve (a) Capital reserve (b)... (13,526) (13,526) (13,227) (13,227) (a) General reserve The Indonesian Limited Company Law No. 1/1995 dated 7 March 1995 requires Indonesian companies to set up a general reserve amounting to 20% of the company s issued and paid up share capital. PT Bahari Cakrawala Sebuku ( PTBCS ), a subsidiary in the Group has appropriated an amount to the value of 20% of issued and paid up capital from retained earnings to a general reserve in compliance with this law during the financial year ended 31 December 2004, however at balance sheet date this appropriation had not yet been approved by the shareholders of the company. Subsequent to balance date, on 13 June 2006, the shareholders of the company approved the appropriation. This reserve is non-distributable. F-149

408 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 10. Other reserves (continued) (b) Capital reserve Unaudited 30 June December 2005 US$ 000 US$ 000 At beginning of financial period/year (i)... (13,526) 17,387 Issued of shares by a subsidiary... 6 Capitalised as share capital (Note 9)... (17,237) Acquisition of minority interest (ii)... (13,682) At end of financial period/year... (13,526) (13,526) (i) (ii) The capital reserve at the beginning of financial year represents the aggregate amount of share capital of the subsidiaries prior to the restructuring and a capital reserve of US$17,237,000 of the Company. This represents the difference between the value of the consideration paid for the acquisition of the 20% minority interest in PTBCS and the amount that these minority interests were recognised in the financial statements. See Note Minority interest In January 2005, the Group acquired 20% equity interest of PT Bahari Cakrawala Sebuku ( PT BCS ) for a consideration of US$15,798,000. The acquisition consideration was satisfied by the allotment and issuance of 6,136,659 shares of S$1 each in the share capital of the Company. The acquisition has been treated an as equity transaction between shareholders, and accordingly, the difference between the value of the consideration paid for these minority interests (in shares) and the amount that minority interests were recognised in the financial statements at the time of acquisition has been treated as a return of capital. 12. Operating profit There were no unusual items have been charged to the operating profit during the interim period. Non-financial assets that have an indefinite life are not subjected to amortisation but are tested for impairment annually at year-end (31 December) or whenever there is any indication of impairment. At 30 June 2006, there was no indication of impairment for non-financial assets with indefinite lives. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. As at 30 June 2006, there was no indication of impairment for these assets. Financial assets were reviewed for impairment as at 30 June There was no indication of impairment. F-150

409 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 13. Earnings per share Earnings per share attributable to equity holders of the company arises from continuing and discontinued operations as follows: Unaudited Six months ended 30 June (cents per share) 2006 US$ 2005 US$ Earnings per share for profit from continuing operations attributable to the equity holders of the company (expressed in cents per share) basic diluted Business combinations (a) Summary of acquisition On 30 June 2006 the Group acquired 100% of the issued shares in Straits Marine Industries Pte Ltd which operate a marine engineering business situated in Indonesia which provides services to a number of international companies. Details of net assets acquired are as follows: US$ 000 Purchase consideration Cash paid Deferred cash consideration... 4,725 Total purchase consideration... 5,166 Fair value of net identifiable assets acquired (see below)... 5,166 (b) Purchase consideration 30 June December 2005 US$ 000 US$ 000 Outflow of cash to acquire business, net of cash acquired Cash consideration Less: Balances acquired Cash... 1,259 (Inflow) of cash... (818) F-151

410 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 14. Business combinations (continued) (c) Assets and liabilities acquired The assets and liabilities arising from the acquisition are as follows: Acquiree s carrying amount US$ 000 Fair value US$ 000 Cash and cash equivalents... 1,259 1,259 Receivables, property, plant and equipment... 5,750 4,947 Payables and provisions.... (1,005) (1,005) Non current non-interest bearing liabilities... (35) (35) Net identifiable assets acquired... 5,969 5, Dividends 30 June June 2005 US$ 000 US$ 000 Ordinary dividends paid Interim exempt (one-tier) dividend Paid in respect of current year... 15,500 11, Reconciliation of profit after income tax to net cash inflow from operating activities 30 June June 2005 US$ 000 US$ 000 Profitfortheperiod... 26,475 16,626 Depreciation and amortisation... 1,414 1,431 Unrealised exchange (gain)/loss... (26) Increase in receivables... (15,414) (12,292) Decrease in inventories... 1, Property, plant and equipment written off (Increase)/decrease in deferred tax assets... (44) 254 Increase in deferred mining... (246) (1) Decrease in other operating assets Increase in trade/other payables... 4,447 3,137 Increase/(decrease) in current tax liabilities (1,301) Increase/(decrease) in deferred tax liabilities (50) Increase/(decrease) in other provisions (893) Net cash inflow from operating activities... 20,191 7,628 F-152

411 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 17. Contingent liabilities On 11 October 2005, the Indonesian Minister of Finance ( MoF ) issued Regulation no.95/ PMK.02/2005 ( Regulation 95 ) which imposes a 5% duty on coal exports based on a regulated coal price. The regulation became effective on the date of issuance. No amount has been provided in the financial statements of PTBCS as of 31 March 2006 relating to this matter. The Company s position is similar to other coal industry participants, the majority of whom elected not to comply with Regulation 95 as of 31 March 2005, pending the outcome of request for the regulation to be revised, and potential legal challenges to the regulation. PTBCS therefore has a contingent liability for the unpaid duty of approximately US$1.5 million at 31 March 2006 (note 19(b)). PTBCS has commitments in respect of certain arrangements for the mining, processing and handling of coal and related activities. These arrangements include penalties in respect of early termination of the arrangements. Provision for these penalties has not been made in the financial statements as there are no present intentions to terminate these agreements. An action for land compensation of Rp 3.5 billion (approximately US$0.42 million) has been raised against PTBCS in the Supreme Court of Indonesia. This action is an appeal of the decisions of the provincial high court and regional court which both found in the favour of PTBCS. No amount has been recognised in the financial statements as management is confident that the appeal will not succeed. 18. Related party transactions 30 June June 2005 US$ 000 US$ 000 Dividends paid to immediate holding corporation... 15,500 11,200 Agency fees receivable from a related corporation... 1, Management fees paid to ultimate holding corporation Commodities and services sold /rendered to related corporations... 52,662 37, Subsequent Event (a) On 20 September, 2006, the shareholders passed resolutions to approve, amongst other things, the following: the subdivision of every one ordinary share in the issued and paid-up share capital of the Company into 30 ordinary shares ( Subdivision ); the conversion of the Company into a public limited company and the change of name to Straits Asia Resources Limited ; the adoption of a new set of Articles of Association; the adoption of the Straits Employee Share Option Plan and the Straits Executive Share Acquisition Plan, and the issue of shares thereunder; F-153

412 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 19. Subsequent Event (continued) that authority be and is hereby given pursuant to Section 161 of the Act to the Directors to: (A) (i) issue shares in the capital of the Company whether by way of rights, bonus or otherwise; and/or (B) (ii) make or grant offers, agreements or options (collectively, Instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares, at any time and upon such terms and conditions and for such purposes and to such persons as the Directors may in their absolute discretion deem fit; and (notwithstanding the authority conferred by this authority may have ceased to be in force) issue shares in pursuance of any Instrument made or granted by the Directors while this authority was in force, provided that: (1) the aggregate number of shares to be issued pursuant to such authority (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 50% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro rata basis to Shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to this authority) does not exceed 20% of the post-combined Offering issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of post-combined Offering issued share capital shall be based on the issued share capital immediately following the close of the Combined Offering of the Company at the time this authority is passed, after adjusting for: (i) (ii) new shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time this authority is passed; and any subsequent consolidation or sub-division of shares; (3) in exercising the authority conferred by this authority, the Company shall comply with the provisions of the Listing Manual for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and (4) (unless revoked or varied by our Company in General Meeting) the authority conferred by this authority shall continue in force until the conclusion of the next Annual General Meeting of our Company or the date by which the next Annual General Meeting of the Company is required by law to be held, whichever is the earlier. F-154

413 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 19. Subsequent Event (continued) (b) On 21 July 2006, the Indonesian Supreme Court issued a ruling stipulating that Regulation 95 was contrary to a higher level of prevailing Indonesian laws and regulations because the duty imposed double taxation on coal through both a royalty and an export duty on the same goods and, therefore, held that Regulation 95 was void. The Supreme Court also stated that coal companies previously subject to Regulation 95 were no longer obliged to pay that duty. However, the Supreme Court did not rule the Government is required to refund the duty that had been paid by the coal companies from the date of issuance of Regulation 95 until the ruling was issued. On 13 September 2006, the Directorate General of Customs and Duty issued Circular Letter No. SE-28/BC/2006 on coal export duty which states that from 13 September 2006, no export duty will be applied on coal exports. The Government may file a request to the Supreme Court to re-examine the ruling. However, the Company is not aware of any announcement by the Government to take this action in response to the ruling, including whether it intends to file a request for re-examination of the ruling. (c) (d) Subsequent to 30 June 2006, a total of US$6,000,000 of tax exempt (one-tier) interim dividend have been declared and paid in respect of the financial year ending 2006 to Straits Bulk Industrial Pty Ltd. On 27 September 2006, the Company entered into a revolving facility agreement with Bayerische Hypo- Und Vereinsbank AG, Singapore Branch ( HVB ) in which HVB granted to the Company a US$50.0 million revolving loan and performance bond facility (the HVB facility ). The purpose of obtaining the HVB facility was to enable the Company to pay off the existing group debts, to fund capital expenditure in respect of the Sebuku coal project, to purchase a power station which the Company intends to lease to PT IMK and to obtain performance bonds. The HVB facility will be secured including by way of: (1) a guarantee from BCS, Straits Global Trading, SIL, RWD and SMI, (2) an assignment of insurances relating to the vessel, Straits Dragon, given by SMI, (3) a charge over proceeds account given by Straits Global Trading, (4) a charge over account given by the Company, (5) a deed of charge over all assets of our Company (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables), (6) a mortgage over the vessel, Straits Dragon, given by SMI, (7) a share charge over all the shares of and dividends received from Straits Global Trading and SIL given by the Company, (8) a corporate guarantee given BCS, (9) a corporate guarantee given by RWD, (10) a pledge of shares of BCS given by the Company and RWD, (11) a pledge of shares of RWD given by SIL and Mr Ginarsa Tandinegara, F-155

414 STRAITS ASIA RESOURCES LIMITED AND ITS SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 19. Subsequent Event (continued) (12) a conditional assignment of contracts given by BCS including the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract among other agreements relating to BCS coal operations, (13) a fiduciary security over insurance proceeds given by BCS, (14) a fiduciary security over receivables given by BCS, (15) a fiduciary security over movable assets given by BCS, (16) a deed of charge over all assets of Straits Global Trading (including real property, book debts, bank accounts, plant and equipment and investments (including all shares in subsidiaries and other companies), and receivables, and (17) a deed of charge over all assets of SIL (including real property, book debts, bank acounts, plant and equipment and investments (including all shares in subsidiaries and other companies) and receivables. In the event that the security that the Group has provided to secure the Company s obligations under the HVB facility is enforced, the Company may be required to relinguish and transfer the Company s interests in various subsidiaries, including BCS, Straits Global Trading, SIL, SET, SMI, PT SCS, SGH, RWD and RWDP, as well as the Company s rights under the Coal Cooperation Contract, the mining contract with BUMA, the Boot Contract, the Mitra Transshipment Contract, among other assets charged or pledged under the security documents described above. Therefore, if the Company was to default under the HVB facility, and HVB enforces its security interests over the Company s assets, including the Company shares in the Company s subsidiaries, the Company may lose control of the Group and the other principal assets. F-156

415 APPENDIX A John T. Boyd Company (Australia) Pty. Ltd. Mining and Geological Consultants 8 August 2006 Level Eagle Street Brisbane, QLD 4000 Australia The Directors Straits Asia Resources Limited 80 Robinson Road #22-04 Singapore Dear Sirs INDEPENDENT TECHNICAL REVIEW OF THE SEBUKU MINE AND INFRASTRUCTURE 1. SUMMARY John T. Boyd Company (Australia) Pty. Ltd. [BOYD] conducted an Independent Technical Review of Sebuku Coal Mine [Sebuku or Sebuku Mine] located on Sebuku Island, East Kalimantan, Indonesia. We understand this report will be used in an offering document prepared by Straits Resources Limited [SRL] for a partial sale of its shares in Straits Asia Resources Limited [SARL]. The objective of this report is to provide an independent review of the Sebuku Mine assets and operations by generating an independent assessment based on information provided by SRL and SARL in conjunction with BOYD s expertise. Sebuku is operated by PT Bahari Cakrawala Sebuku [PTBCS], a subsidiary of SARL, and is a well organised mining operation as demonstrated by its history and steady production levels. Operations, including mining, coal handling, transportation and port infrastructure, have been developed to sustain the nominated coal production and sales forecasts. Resulting from our review of Sebuku, BOYD makes the following observations: Coal resource and reserve estimation is an ongoing process as a result of current and planned geologic exploration activities. JORC Code 1 compliant resources and reserves are progressively reported as each stage of exploration is finalised. Sebuku coal resources of 73.3 million tonnes, and coal reserves of 28.3 million ROM tonnes as of 31 May 2006 are adequate to support mining operations for the next five years through to 2011 at the planned output level of 4 million tonnes per annum. Mine management has a high degree of knowledge, experience, and control of the process from the planning stage to the implementation of mining activities. The process is well organised and coordinated. The mining method is appropriately designed and implemented to address the specific geological and mining conditions that exist at Sebuku. 1 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, December 2004 A-1

416 Waste excavation, coal mining, and other support operations are conducted by a capable contractor who follows PTBCS staff-generated mine plans. All equipment owned by contractors, as well as the PTBCS owned infrastructure, is sufficient to meet production levels of 4 million tonnes per annum. A preliminary conceptual study has been produced by PTBCS that considers a staged increase in production to a rate of 6 million tonnes per annum by This preliminary conceptual study remains the subject of further analysis and will require the preparation of a comprehensive feasibility study and, in particular, the identification and confirmation of sufficient coal reserves to support any such increase in production. Sebuku is a low operating cost coal mine. BOYD believes there are possibilities for further operating cost improvements. PTBCS maintains strong working relationships with the local communities through a series of programs designed to provide both immediate assistance and longer term post-mining benefits. An international standard Environmental Management System has been implemented and there is no history of material adverse environmental incidents. An international standard Safety Management System is in place at Sebuku. Personal injury statistics are commendably low. 2. INTRODUCTION 2.1 Purpose of the report BOYD understands this report will be used in an offering document to be prepared by SRL for the sale of a portion of its shares in SARL. This Independent Technical Review Report presents findings, conclusions, and recommendations derived from our technical due diligence review of the coal mining, and related activities, of the Sebuku Mine, operated by SARL. BOYD has relied upon source data provided by SRL, which was supplemented by our extensive experience in the Indonesian coal mining industry. 2.2 Conflict of Interest BOYD is an independent consulting company experienced in preparing independent technical reviews, resource, and reserve evaluations and mining operations valuations. Our reports are recognised and accepted by international financing groups and government regulatory bodies. BOYD has no vested interest in SRL, and no future work or earnings is contingent upon the outcome of this report. We have no conflict of interest regarding this project. 2.3 Disclaimer BOYD does not have, nor has had, any relationship with SRL or its associated companies (including SARL) other than as a result of providing independent consulting services in the ordinary course of business. BOYD has no relevant interest in any securities of SRL or its associated companies (including SARL). BOYD, its officers, and engineers will not receive any pecuniary or other benefits in connection with the preparation of this report other than normal time based consultancy fees based on normal professional services rates (including expenses). A-2

417 2.4 Scope of work BOYD conducted an Independent Technical Review on the Sebuku Mine and associated infrastructure in accordance with the following scope of work: Resources and Reserves Opine on whether sufficient reserves at Sebuku exist to meet the production profile as described in the offering document; Mining Review the mine operating layouts and design, equipment quality and performance, mine development, and ongoing production and life of mine plans; Infrastructure Check and confirm that the coal processing and handling facilities and transport infrastructure at the Sebuku Mine are capable of supporting stated production rates; Environmental Review and confirm that documented and effective environmental management systems at the Sebuku Mine are in place; Occupational Health and Safety Review the occupational health and safety program at the Sebuku Mine; Financial Confirm that estimates for current, and proposed, operating and capital costs are reasonable and achievable; Risk Assessment Review the risks and issues facing the operation; and Potential Upside Assess potential expansion/optimization opportunities. 2.5 Mining Risk BOYD reviewed the risk analysis commentary in the 2006 PTBCS budget document. Coupled with observations at the time of the site inspection and comments from the SRL and PTBCS staffs, BOYD is of the opinion that the risks to the Sebuku Mine are well understood by management and that suitable procedures are in place to minimise the likelihood of disruptions to its operations. 3. BACKGROUND Pulau Sebuku (Sebuku Island) is located south of the equator and to the southeast of the island of Kalimantan, approximately five kilometres east of Pulau Laut (see Figure 1). The island is 35 kilometres from north to south and is 10 kilometres wide at its widest point. 3.1 Concession description On 15 August 1994, PTBCS and PT Tambang Batubara Bukit Asam (Persero) (PTBA), a company owned by the Government of the Republic of Indonesia, signed Coal Mining Cooperation Contract No. 009/PK/PTBA-BCS/1994. PTBA s rights and obligations were subsequently transferred to the Government (Minister of Mines and Energy) by an Amendment to the Coal Mining Cooperation Contract signed on 27 June 1997, effective 1 July The contract area is situated in Sebuku District, Kotabaru regency in South Kalimantan Province, in the southwest area of Sebuku Island (see Figure 2). It has a total area of 5,871 hectares remaining in the concession area Accessibility and Climate A series of hills, with a maximum elevation of up to 125 metres, forms the elevated eastern part of the Sebuku Island. To the west of the line of hills, the gradually undulating topography forms a series of grassy freshwater swamps bordered by a well-developed coastal mangrove zone of up to 500 metres in width. A-3

418 Topography in the concession area varies from a 20 metre elevation in the centre of the concession area to sea level near the coastal swamps at the Tanah Putih pit, to the north of the concession area. Following the commencement of its operations, PTBCS constructed all access roads and other infrastructure as part of its mining operations and as a community development program. PTBCS built all access roads, the airfield, the port, the new jetty and the market complex. Scheduled flights from Balikpapan, four times a week, are organised for staff transfers, with a chartered speedboat service used as a second option. Climatic conditions are tropical with a typical wet season from November to May, although heavy rainfall can occur during other months. Average annual rainfall is 2,400 millimetres, however recent years have not followed the typical pattern with heavy rainfall also occurring outside the wet season. 4. RESOURCES AND RESERVES 4.1 Coal resources A resource statement was prepared for the Tanah Putih area by Mr. Peter Storey, General Manager of Projects and Technical, SRL and was released on 20 July The statement reported coal resources for Sebuku Mine, Tanah Putih area as at 31 May Coal resources were upgraded from earlier statements, based on a recently completed exploration program and geological modelling conducted by consultants. The geological modelling by the consultants was reviewed and is deemed to be in accordance with the 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves [JORC Code] and the Guidelines. The estimating procedures comply with the JORC Code Geologic Setting Coal seams at the Sebuku Island occur within the lower part of the Eocene-aged Tanjung Formation (see Figure 3). The Tanjung Formation is composed of low strength mudstone and shale with interbedded coal seams (see Figure 4). This formation unconformably overlies the Cretaceous Pitap Formation, which is composed of indurated siltstones, and a Mesozoic basement composed of ultramafic serpentinites. Structurally, the coal seams at Sebuku are preserved in a broad fault-controlled north-south trending synclinal basin. The syncline is down-thrown to the west, has gentle dips of approximately 10 degrees, and is truncated along the eastern boundary by the major Kanibungan Fault (see Figure 5) Geologic Modelling Geologic modelling for Sebuku was conducted by SMG Consultants using the commercially available Minex modelling software which is widely utilised in the mining industry. The procedure used to create the geologic model utilised gridded surfaces to represent the roof and floor of each coal seam. The grid spacing of 25 m was adequate for the number and spacing of drill holes in Sebuku. This procedure was appropriate. A-4

419 The drill-hole database contained a total of 2,437 drill-holes. A total of 795 drill-holes were used as points of observation and met the JORC requirements they were geophysically logged, and the core was analysed. The remaining 1,642 drill-holes were used during re-correlation of the seams. The exclusion of these drill-holes is an industry-standard procedure which is acceptable Coal Resource Estimate The following updated JORC coal resource statement was issued by SRL on 20 July 2006: Area Measured (million tonnes) Indicated (million tonnes) Inferred (million tonnes) Total (million tonnes) Tanah Putih The changes in this update from the previous statement are: An increase of 18.7 million tonnes of Measured resources An increase of 3.9 million tonnes of Indicated resources A decrease of 1.9 million tonnes of Inferred resources Coal resources were estimated using the following selection criteria for the points of observation: Geophysically corrected cored drill-holes with analysed samples Limit extension to the Coal Contract of Work (CCOW) area Minimum working section seam thickness of 0.3 m Measured relative density of the coal, or a default density of 1.35 gm/cc Coal resources were classified using the following criteria: Measured resources: points of observation no further than 250 m apart Indicated resources: points of observation between 250 m and 500 m apart Inferred resources: points of observation between 500 m and 1,000 m apart The distance criteria used are within the distance criteria described in the JORC Code Coal Quality Sufficient data exists to model and report on most seams. Coal resources in the Tanah Putih area contain the following estimate of coal quality, based on weighted averages: Ash (%) adb Relative Density (gm/cc) adb Inherent Moisture (%) adb Specific Energy (kcal/kg) adb Sulfur (%) adb , Notes: adb = air dried basis gm/cc = grams per cubic centimetre kcal/kg = kilocalories per kilogram A-5

420 The overall sulfur content is low (0.52%), although some seams contain higher sulfur, e.g. Seam %, and Seam %. This is an estimate of in situ coal quality and is not representative of the final Sebuku coal product, which exhibits lower ash and higher energy values following beneficiation (see Section 7). 4.2 Coal Reserves A reserve statement was prepared in July 2006 for the Tanah Putih area by Mr. Peter Storey of SRL, based on work undertaken by mining consultants, MineConsult as at 31 May The reserves were estimated in accordance with the 2004 edition of the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves [JORC Code] and the Guidelines Mining Factors The following mining factors and constraints were used by MineConsult: Loss and Dilution Factors Factors used in the estimation of coal reserves Geology Loss: 2%, Mining Loss: 2%, Minimum Mining Thickness: 0.3 metres appear reasonable and are similar to other comparable coal operations. Other mining assumptions such as the in-situ moisture of 12.5%, ROM moisture of 14.5%, and product moisture of 15.5%, are appropriate. The average inherent moisture of 10.3% appears slightly higher than reported in the table (10.18%) see above. The quality parameters of the dilution material are: ash 75%, specific energy 500 kcal/kg and relative density 2.1 gm/cc. These are appropriate. Mining recovery A yield of 85.8% was calculated from recoverable (ROM) and marketable reserves. This yield is considered appropriate. The calculated product coal mining recovery is 86%. Hence a potential reserve loss of approximately 14% occurs between in situ coal and the product stockpile. This potential loss was compared to historical information which ranged from 10% to 18% and is therefore considered appropriate. PTBCS management understands and has planned for this potential loss. Financial Factors Appropriate financial factors were used by MineConsult. Costs for coal mining and waste removal were forecast by the PTBCS planning department based on the existing Contract Mining Agreement with PT Bukit Makmur Mandiri Utama (BUMA). An assumed coal sales price of US$36/tonne (FOB delivery) was adopted based on industry precedence and assessment of future market conditions. A-6

421 4.2.2 Coal Reserve Estimate The July 2006 reserve statement classified coal reserves into recoverable (or ROM) and marketable reserves according to the following category description: Recoverable reserves are those coal quantities which include losses and dilution during mining. Recoverable reserves are also called ROM reserves. Marketable reserves are coal quantities which allow for the performance of the beneficiation plant and its yields. Marketable reserves are also called Product coal. Based on the above classification, assumptions and mining factors used to estimate new coal reserves are as follows: Tanah Putih Area Proved (million tonnes) Reserves Probable (million tonnes) Total (million tonnes) Ash (% adb) Yield (%) Sulfur (% adb) Specific Energy (kcal/kg adb) Recoverable (ROM) Marketable (Product) % ,223 Note: The coal reserves stated in this table are inclusive of the coal resources stated previously and are not additional. No coal was classified as Probable due to the lack of indicated coal resources. These reserves are dated as of 31 May 2006 and hence are inclusive of production in the first half of The reserves represent an increase of approximately 5 million tonnes of marketable coal (a 20% increase) from the previous March 2006 reserve statement. The increase is due to the result of the latest drill program of 130 drill-holes which enabled an upgrade of resources into reserves. BOYD reviewed mining plans and schedules developed for Sebuku and we consider that the reserves are adequate for the scheduled timeframe to 2011, or a 5 year mine life. 5. PRESENT MINING OPERATIONS PTBCS operates the mid-sized Sebuku Mine. Production levels have continued to increase from 2.0 million tonnes in 2003 to 2.6 million tonnes in 2004 and 3.0 million tonnes in Output from Sebuku is planned to continue to increase in 2006 and Mining Methodology More then 90% of production is sourced from Tanah Putih Pit which is now the primary site of mining activities. In % of production was obtained from non-tanah Putih pit areas while in 2006 this quantity is planned to be less than 10%. PTBCS uses conventional shovel-truck equipment and adjusts activities accordingly to address specific conditions as encountered at Sebuku. Enhancements to the waste removal process are focused on improving the removal of mud. It was apparent during our site visit that PTBCS has successfully addressed the issue of mud excavation and dumping by implementation of appropriate mining techniques. Perimeter bunds, constructed from pit waste, and drainage networks protect the working areas from high tides and establish future mining areas. Excavating equipment is located on the top of the claystone layer which provides a stable, safer excavation allowing continuous operations. No significant delays are A-7

422 caused due to the high quantity of mud required to be moved. PTBCS are considering further improvements to mud excavation and dumping through the use of other methods such as hydraulic mining. Waste dumps are developed as classical ex-pit dumps and, when conditions are appropriate, as in-pit dumps. The dump height and location is carefully designed and controlled in accordance with environmental plans. All mining and hauling activities are the responsibility of one contractor which operates a fleet of various equipment types. Coal quality parameters vary from seam to seam. PTBCS has a high level of confidence in the reserve and uses in-pit selective mining to separate coal to be washed from that to be directly crushed, sized and hauled to the port. This results in lower production costs, and delivers consistent quality to Sebuku customers. The mining methods, excavation techniques and selective coal mining practices, together with the mining knowledge and experience of PTBCS technical staff, are appropriate to the mining of the deposit. 5.2 Administrative Structure and Organisation PTBCS is a separate Indonesian registered corporate entity, 100% indirectly owned by SRL, and managed through SRL s Singapore subsidiary, SARL. The planning, strategic development and operating management functions of Sebuku are conducted at three offices: Perth, Australia; Singapore and Balikpapan, Indonesia which direct and support the activities at the mine site office. BOYD visited all three offices, contacting personnel involved in all levels of management. In our opinion there is: a high level of coordination between the three offices; a core of competent senior technical staff who have been involved with Sebuku for a long period of time; and a high level of knowledge, experience and control of the operating process, from the planning to the implementation phase. 5.3 Work Force The PTBCS work force split is designed to meet company organisational needs. While the production related activities are undertaken by contractors, technical and operations control staff are employed by PTBCS. In accordance with company policy to maximise the use of local personnel, the level of local workers working at the Sebuku Mine is maintained at 75% currently. PTBCS is continuing efforts to employ more local (Indonesian) tertiary educated personnel, to be involved in technical and management roles. A-8

423 5.4 Contractors Most activities at Sebuku are undertaken by contractors, including mining, hauling, processing and port operations. Planning and monitoring is undertaken by PTBCS personnel. PTBCS mining contractor, BUMA, commenced operations in 2003 and the contract ends in September BUMA s scope of work includes: waste removal and replacement, coal mining, ROM coal handling, stockpile management and crusher feed, the removal of coarse Coal Preparation Plant [CPP] rejects, product coal transport to port and stockpile management. BUMA s performance has been satisfactory during the period of operation, with no failures to meet its coal delivery obligations. Leighton Contracting Indonesia [LCI] currently satisfactorily operates the crushing and coal washing facilities. PT.Mitra Bahtera Segarasejati [Mitra] is contracted to provide barging and transhipment services. The company is a well known port contractor in Kalimantan. 5.5 Equipment BUMA operates a fleet of mining equipment which is assigned to specific mining tasks. The number of units available on site are higher than might be expected, but provide a degree of security and reduce operating delays. The equipment is suited to the mine size, height of benches, material type and level of mine production. During the site visit BOYD had an opportunity to observe equipment operations. The overburden fleets consist of hydraulic excavators supported by mid-size 50-tonne capacity trucks. The coal fleets consist of hydraulic excavators supported by 20-tonne and 30-tonne rear dump trucks. Equipment is assigned to auxiliary tasks such as road development, construction of dewatering trenches, ponds and bunds. The contractor is required to provide sufficient equipment to meet contract production levels. 5.6 Production Scheduling PTBCS production scheduling is based on long and short term plans, which is a mining industry standard. The life of mine plan reflects the general company strategy, with annual production schedules based on the most recent reserve statement, future mining improvements, existing and projected infrastructure and a market assessment. A three month rolling plan and a weekly plan is developed by the short term planning department of PTBCS, guided by the processing department and in coordination with marketing personnel. To obtain greater control, the working schedule is updated daily using feedback from the production and barging operations and the monitoring of stockpile quantities and qualities. BOYD found the methods applied provided appropriate control to the production process and enabled PTBCS to successfully meet customer quantity and quality requirements. A-9

424 5.7 Historic Production Details of historical production data were reviewed by BOYD and summarised in the following table. Year Unit Jan-Mar Waste kbcm 533 3,168 5,161 6,269 7,869 7,060 6,071 10,026 12,459 3,618 Coal Mined kt 1,272 1,750 1,753 2,248 2,457 2,146 2,862 3, Processed coal kt 1,201 1,798 1,749 2,403 2,492 2,241 2,814 3, Product Coal kt 1,086 1,590 1,525 1,969 2,065 1,964 2,558 3, Process Yield % 90% 88% 87% 82% 83% 88% 91% 85% 87% Strip Ratio bcm/t Coal Sales kt 1,025 1,576 1,533 2,000 2,005 1,991 2,654 2, Extensive geological exploration has been undertaken during the last few years and the resultant increase in marketable reserves became the main driver to increase production in the Tanah Putih pit from 2004 onwards. Lesser amounts of coal have been mined in smaller pits within the concession boundary. 6. FUTURE MINING OPERATIONS BOYD reviewed PTBCS s Life of Mine Plan [LOM] covering the period from 2006 to Additional available information including historical performance and costs, existing infrastructure, the terms of the Coal Cooperation Agreement, and social aspects were also reviewed in order to assess PTBCS s production projections. 6.1 Project Mining Areas and Methodology During the period from 2006 to 2011, SRL expects that the main coal mining area will be the Tanah Putih Pit, which has been in operation since The pit is well developed with properly formed benches and dumps. In 2006, SRL expects that 254,000 tonnes of coal will be mined from the Kanibungan Pit. After 2006, SRL does not expect any coal to be mined from locations other than the Tanah Putih Pit. The proposed mining method will continue to be shovel-truck. After considering the geological, geotechnical, hydrological, mining, coal quality and other relevant design and operational factors this technique is a satisfactory solution for mining in the Tanah Putih Pit. The mine design criteria appear reasonable. The design criteria represent a continuity of the current proven successful methods into the future. 6.2 Production Schedule The level of production was guided by several key factors: The wash plant annual capacity of 2.5 million tonnes per annum. This limit is not expected to constrain PTBCS s plans to increase production to 4 million tonnes per annum. Generally 50% of coal is expected to be treated by the wash plant, dependent on ash content. The projected operating costs drawn from historical costs updated by reasonable cost forecasts. Production of 4 million tonnes per annum product coal does not require significant additional capital expenditure except necessary sustaining capital (maintenance, land compensation, etc). A-10

425 A market assessment was developed by SRL. Present and future thermal coal demand in the world and future Sebuku coal quality forecasts were reviewed in the document. The current saleable coal production forecast for Sebuku mine is for approximately 3.5 million tonnes in 2006 and approximately 4.0 million tonnes in The rate of 4.0 million tonnes per annum is forecast to persist from 2007 onward while sufficient coal remains available for extraction. The strip ratio (measured as bank cubic metres of waste per tonne of coal) is forecast to remain below 4.0 for the life of the mine. This forecast gradual increase in production is reasonable and in accordance with general mining practice. 6.3 Further Opportunities Over the past three years PTBCS has expanded production at Sebuku. The level of geological exploration has resulted in increased coal resources to 73.3 million tonnes and ROM reserves to 28.3 million tonnes (as at 31 May 2006). The increased reserve base has been followed by increased output. Plans are under way for further mine expansion. PTBCS is continuing an intensive geological exploration program aiming to better delineate additional coal resources Production schedule A preliminary conceptual study has been developed to explore the possibility of increasing production up to a rate of 6 million tonnes per annum by The decision to proceed with such a production increase is dependent on the outcome of a comprehensive feasibility study that has not yet been undertaken. This feasibility analysis is expected to include an assessment of the operating costs (see Section 6.3.2), capital requirements (see Section 6.3.3) and medium term coal market outlook. In order to justify a production rate of 6 million tonnes per annum BOYD believes that the Sebuku coal reserves will need to be increased. This increase in coal reserves is expected to result from the conversion of existing coal resources, however this is largely dependent on government approvals being granted to mine in the protected Cagar Alam mangrove zone that overlies the majority of existing coal resources. The ability of PTBCS to obtain the necessary government approvals to mine in the Cagar Alam mangrove zone is uncertain Operating Costs BOYD has reviewed detailed historical costs which were provided by SRL in order to compare operating costs for the possibility of a 6 million tonnes per annum production schedule. PTBCS has adopted a realistic approach to minimise cost increases in the coal chain and power supply Capital Requirements Several investment decisions would need to be studied and made in order to meet the target of 6 million tonnes per annum production by The following capital requirements have been identified by SRL as required in order to meet an increased production schedule of 6 million tonnes per annum: Upgrade the coal processing capacity. Further analysis is required to determine whether to upgrade the existing plant or build a new one. Upgrade the port to meet the proposed capacity. A-11

426 Construct a second spur barge, enabling faster ship loading. Construct a coal-fired thermal power plant to: reduce operating costs, provide essential levels of electricity, and add value to the local community. Install an overland belt conveyor connecting the coal processing plant and port to reduce coal haulage costs and provide a more stable port stockpile supply throughout the year. BOYD recommends that a formal cost benefit analysis and a comprehensive feasibility study should be undertaken prior to PTBCS embarking on such an expansion. 7. COAL PREPARATION OPERATIONS AND INFRASTRUCTURE Product coal at Sebuku is typically a blend of up to 12 separate seams and sub-seams at Sebuku and individual seam qualities can vary widely in quality; ash and sulfur content in particular. Approximately 60% of coal is scheduled in the forecast period to be mined at, or better than, product quality specification. Typical product quality parameters adopted for product coal are as shown in the following table: Quality Parameter Unit Value Ash % (adb) 9.3 Sulfur % (adb) 0.7 Calorific Value kcal/kg (adb) 6,350 Total Moisture % (arb) 15 Inherent Moisture % (adb) 9 Hardgrove Grindability Index Ash Fusion Temperature o C > 1,600 The coal handling, processing and ship loading facilities are operated by LCI under the terms of a Build-Operate-Own-Transfer [BOOT] contract. The LCI contract provides for a final transfer payment to LCI in September 2007 when ownership of the CPP related facilities will transfer to PTBCS. PTBCS already owns the port infrastructure. 7.1 Coal Transportation ROM coal is hauled by the mining contractor [BUMA] some 8 kilometres on average from the Tanah Putih Pit to the CPP facilities. Product coal from the crushers and CPP is transported by truck from either the bypass product bin or the washed product bin (which also accepts bypass product) some 8 kilometres to the product stockpile area. 7.2 Crushing Facilities Bypass circuit 1, the associated ROM and crushed coal stockpile areas and the coal crushing and conveyor system was constructed for PTBCS. Coal passes through two stages of size reduction to produce a 50 millimetres by 0 size product. This coal is then directed either to the product coal bin or to the crushed coal stockpile for washing if quality is not within product specifications. Original design specification was for a 400 tonnes per hour facility. However, PTBCS has been able to achieve a rate 500 tonnes per hour under favourable operating conditions. Nominal capacity is now quoted (and budgeted) at 450 tonnes per hour. Bypass circuit 2, constructed in 2005, comprises a ROM hopper and primary and secondary crushing and associated screening using locally sourced components. As for Bypass 1, ROM coal is sized to 50 millimetres by 0. Crushed coal is directed to a second 150 tonne capacity bin for loading into the trucks for hauling to the product stockpile. This facility A-12

427 is not connected to the crushed coal stockpile. Design capacity was for a 400 tonnes per hour facility but early performance was below this. An ongoing upgrading and optimising program is targeted at achieving design capacity be the end of Coal Preparation Plant The CPP is a typical dense medium cyclone/spirals plant where the 50 x 1.0 millimetre feed material from the crushed coal stockpile is treated in a dense medium circuit (DMC) and a four bank spirals circuit. The two circuit products are separately dewatered and then recombined into the Bypass circuit 1 product bin for haulage to the port. Slimes and the waste stream from the spirals circuit are pumped to the tailings impoundment area. Rejects from the DMC circuit are hauled to old pit workings for disposal. The annual ROM coal capacity of the processing infrastructure is calculated at 4.2 million tonnes per annum for 6,000 hours of working time. During the site visit on 10 May 2006 the BOYD team observed that the plant area was clean, tidy and functional, the plant itself relatively free of leaks and rust and generally considered to be in good condition for a 9 year old plant. 7.4 Stockpiles The ROM stockpile had an initial design capacity of 40,000 tonnes but PTBCS has been able to exceed 100,000 tonnes capacity from time to time. The crushed coal stockpile capacity was estimated to be 40,000 tonnes while the product coal stockpile is in the order of 200,000 tonnes when needed. 7.5 Port Infrastructure Operations of the port infrastructure, comprising the product reclaim and the barge loader is included in the LCI BOOT contract. Current reclaim rate is 1,200 tonnes per hour to barges of up 8,000 tonne capacity but at the time of the BOYD visit works were underway to increase capacity to 1,600 1,800 tonnes per hour. Ships up to Panamax sized, geared or ungeared, are loaded from the transhipment barges at an area approximately 8 kilometres south of the barge loading facilities. PTBCS is commissioning a spur barge which will allow direct loading from the barge into the holds of gearless ships. 8. ENVIRONMENT SAFETY AND COMMUNITY 8.1 Environmental Management A formal Environmental Management System [EMS] for the operation at Sebuku was implemented in This EMS covers all aspects of environmental management from planning, risk assessment, monitoring and reporting (both internal and external) to auditing and checking. System performance is assessed regularly by both internal and external auditing. The focus of the mine rehabilitation plan is to progressively rehabilitate areas as mining is completed. Older worked out areas around the first excavations have been re-contoured and selectively planted. The hot humid climate is conducive to regrowth and reclaimed areas show strong evidence of this. In the opinion of BOYD the procedures outlined in PTBCS s environmental plans reasonably match those environmental management procedures that would normally be required by the appropriate regulatory Indonesian and Australian authorities on mining sites of a similar nature. A-13

428 8.2 Safety Procedures and Performance SRL policy requires that Sebuku Mine be operated to international standards for safety. The SRL company wide safety management system was implemented at Sebuku in mid Safety objectives and performance targets have been set the key objective is zero lost time injuries and a safety management plan has been established. At least annually the site safety management system is subject to a third party performance audit with the results reported to senior management. Key safety performance measures, Lost Time Injury Frequency Rate [LTIFR] (calculated as the number of injuries per million man hours worked) and Lost Time Injury Severity Rate [LTISR] (calculated as the number of hours lost by accidents per million man hours worked) for the site are as shown in the table below. Results show a significant improvement in performance since 2003 and reflect the impact of the introduction of the company wide safety management system in At the time of the site visit by the BOYD team, Sebuku had achieved 835 continuous days of no lost time due to workplace injuries. Year LTIFR LTISR Community Relations The community relations philosophy at the Sebuku Mine is to minimise the disruption to, while attempting to maximise the benefits for, the local communities of Sebuku Island. To implement this philosophy, PTBCS has formulated a number of community development programs, including infrastructure construction projects, educational assistance, community health programs, agricultural improvement initiatives and direct economic assistance in terms of both employment and the development of local support industries to improve the living standards of the local inhabitants. PTBCS site community personnel hold regular liaison meetings with the district authorities and village councils to plan implement and monitor these programs and projects. 9. RISK ASSESSMENT BOYD has reviewed the risk analysis commentary in the 2006 PTBCS budget document. Coupled with observations at the time of the site inspection and comments from SRL and PTBCS staff, BOYD is of the opinion that the risks to the Sebuku operation are well understood by management and that suitable procedures are in place to minimise the likelihood of disruptions to the Sebuku Mine operations and the consequences thereof. PTBCS identified the following operations related risks with the attendant likelihood and consequences. BOYD considers that the management measures in place are appropriate to the risk profile. Identified Risk Likelihood Consequence Management measure Contractor Performance Low High Continue closely monitoring contractor performance Geological Uncertainty Low High Maintain exploration effort Mud Related Mining Difficulties Tanah Putih Pit flooding bund wall failure Medium Medium Monitor mining performance and new mud removal techniques Low High Ensure adequate design, construction and maintenance of bund wall is maintained A-14

429 Identified Risk Likelihood Consequence Management measure Tanah Putih Pit flooding major rainfall event Low Med./High Maintain pit pumping capability to dewater pits Access to land for future mining Low/Med. Med./High Conclude access agreements in a timely manner Environmental incident Low Medium Pro-active management of issues Safety serious accident Low High Enforce Safety Management System Serious Property damage Low Med./High Ensure operational and maintenance practices to minimise risk of major damage Community relations Low Medium Maintain and improve on current good practices Respectfully submitted, JOHN T. BOYD COMPANY (Australia) PTY. LTD By: George Cumplido Senior Geologist MAusIMM Peter Isles Senior Associate Vlado Kusovski Senior Mining Engineer Ian Alexander Managing Director Australia MAusIMM A-15

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431 RULES OF THE STRAITS EMPLOYEE SHARE OPTION PLAN APPENDIX B 1. Objective The objective of the Plan is to provide employees of the Company and its subsidiaries with the opportunity of participating in the equity of the Company so as to provide an incentive for employees to achieve greater success and profitability for the Company and to maximize the long-term performance of the Company. 2. Interpretation 2.1 In these terms and conditions unless the context otherwise requires the following terms and expressions shall have the following meanings: Auditors means the auditors of the Company for the time being; Board means the Board of Directors of the Company; CDP means The Central Depository (Pte) Limited; CPF means the Central Provident Fund; Committee means a committee comprising directors of the Company duly authorised, appointed and nominated by the Board pursuant to the rules of the Plan to administer the Plan, which shall be the Remuneration Committee of the Company from time to time; Companies Act means the Companies Act, Chapter 50 of Singapore, as amended, modified or supplemented from time to time; Company or Straits Asia means Straits Asia Resources Limited (Registration No R); Controlling Shareholder means a Shareholder exercising control over the Company and unless rebutted, a person who controls directly or indirectly a shareholding of 15% or more of the Company s issued share capital shall be presumed to be a Controlling Shareholder of the Company; Director means a person holding office as a director for the time being of the Company; Eligible Employee means any full or part-time employee (excluding any Director of the Company) of the Group and who is determined by the Committee at its absolute discretion, to be eligible to participate in the Plan, and such person must: (i) be confirmed in his/her employment with the Group; (ii) have attained the age of twenty-one years on or before the date of offer of the Option; and (iii) not be an undischarged bankrupt and must not have entered into a composition with his creditors; Exercise Price means the average of the last dealt prices of Shares sold on SGX-ST during the five consecutive Trading Days immediately prior to the date of offer of Options by the Committee to Eligible Employees, as determined by the Committee by reference to the daily official list or any other publication published by the SGX-ST, rounded to the B-1

432 nearest whole cent in the event of fractional prices, plus an amount equal to 10% of such average price or Singapore twenty (20) cents, whichever is higher; Group means the Company and its subsidiaries; Issued Capital means issued ordinary Shares in the capital of the Company; Market Day means a day on which the SGX-ST is open for trading in securities in Singapore; Memorandum and Articles of Association means the Memorandum and Articles of Association of the Company, as amended from time to time; Option means a right to subscribe for Shares offered or to be offered to an Eligible Employee pursuant to the Plan and for the time being subsisting; Option Period means a period of five years from the date on which an Option is granted to an Eligible Employee under the Plan; Option holding Statement means a statement detailing, inter alia, the number of Options held by the Participant as a result of the acceptance of an offer made under Clause 3; Participant means an Eligible Employee who has accepted an offer from the Committee to hold Options under the Plan; Plan means this Employee Share Option Plan approved by shareholders of the Company in general meeting on September 20, 2006 as amended from time to time; Qualifying Options means Options which are eligible to be exercised under these terms and conditions; Securities Accounts means the securities accounts maintained by a Depositor with CDP; SGX-ST means the Singapore Exchange Securities Trading Limited; SGX-ST Listing Rules mean the rules of the SGX-ST Listing Manual as amended from time to time; Share means a fully paid ordinary share in the capital of the Company; Shareholders means registered holders of Shares, except where the registered holder is CDP, the term Shareholders shall, in relation to such Shares, mean the Depositors whose Securities Accounts are credited with Shares; S$ means the lawful currency of Singapore; and Trading Day means a day on which the Shares are traded on the SGX-ST. 2.2 In this Plan, an Option is deemed to have been granted on the date on which an offer of options is made in accordance with Clause Words denoting the singular number shall include the plural number and, vice versa, words denoting any gender shall include all other genders and the headings herein are for the purpose of reference only and shall not affect the construction hereof. B-2

433 2.4 Words used in these terms and conditions which are defined in the Companies Act have the same meaning in these terms and conditions. 2.5 These terms and conditions shall be governed by and construed in accordance with the laws for the time being in force in the Republic of Singapore. 2.6 These terms and conditions and the entitlements of Participants under these terms and conditions are subject to the SGX-ST Listing Rules and the Memorandum and Articles of Association of the Company. 2.7 The terms Depositor and Depository Agent shall have the meanings ascribed to them respectively by Section 130A of the Companies Act and the term associate shall have the meaning ascribed to it by the SGX-ST Listing Rules or any other publication prescribing rules or regulations for corporations admitted to the Official List of the SGX-ST (as modified, supplemented or amended from time to time). 2.8 Any reference to a time of a day in the Plan is a reference to Singapore time. 2.9 Any reference in the Plan to any enactment is a reference to that enactment as for the time being amended or re-enacted. 3. Offer 3.1 Subject to the terms and conditions of the Plan, the Committee may in its absolute discretion offer Options to Eligible Employees during the period which the Plan is in force, provided that in the event that an announcement on any matter of any exceptional nature involving unpublished price sensitive information is made, Options may only be granted on or after the second Market Day from the date on which such announcement is made. 3.2 The Directors of the Company or its subsidiaries, and persons who are Controlling Shareholders and their associates, shall not be eligible to participate in the Plan. 3.3 An offer shall be in writing and shall specify the following: (a) the name and address of the Eligible Employee to whom the offer is made; (b) the number of Options being offered; (c) the Exercise Price; (d) the date of the offer; (e) the date, being not more than 30 days after the date of the offer, by which the offer must be accepted; (f) the consideration payable for the Options; and (g) any other terms and conditions attaching to the offer, and shall be substantially in the form set out in Annex-1, subject to such modification as the Committee may from time to time determine. 3.4 The offer shall be accompanied by an acceptance form in or substantially in the form set out in Annex-2, subject to such modification as the Committee may from time to time determine. 3.5 A copy of the terms and conditions of the Plan must be provided forthwith to an Eligible Employee to whom an offer has been made on the request of that person. 3.6 Unless the Committee otherwise determines, a consideration of S$1.00 shall be payable by the offeree for the grant of an Option. 3.7 An offer may be accepted in whole or in part by the offeree signing and returning to the Secretary of the Company the acceptance form attached to or otherwise accompanying the offer together with payment for the consideration (if any) for the grant of the Options B-3

434 no later than 5.00pm on the closing date specified in the offer, failing which such offer shall automatically lapse and become null and void and of no effect. 3.8 An Eligible Employee may only accept the offer in his or her name. 3.9 An offer to an Eligible Employee is personal to him or her and shall not be transferred (other than to a Participant s personal representative on the death of that Participant), charged, assigned pledged or otherwise disposed of, in whole or in part, except with the prior approval of the Committee As soon as reasonably practicable after the closing date of the offer, an Option holding statement will be issued by the Company to the Participant. 4. Exercise of Options 4.1 Subject to clause 4.4, a Participant may only exercise Options which have been granted to that Participant if the Participant is entitled to do so in accordance with the following provisions: (a) Between the first anniversary and the second anniversary of the date on which the Options were granted to the Participant, the Participant may exercise up to, but not more than, 50% of the total number of Options that were so granted, subject to the terms and conditions of this Plan; and (b) After the second anniversary of the date on which the Options were granted to the Participant and before the Option Period expires, the Participant may exercise any of the Options which remain unexercised, subject to the terms and conditions of this Plan. 4.2 To exercise Options a Participant must lodge with the Company: (a) a written notice of exercise of Option, substantially in the form set out in Annex-3 herein subject to such modification as the Committee may from time to time determine, specifying the number of Options being exercised; and (b) a cheque, cashier s order, bankers s draft or postal order in favour of the Company or such other mode of payment as may be acceptable to the Company for an amount equal to the Exercise Price in relation to the Options multiplied by the number of Options being exercised. An Option shall be deemed to be exercised upon receipt by the Company of the said notice, duly completed, and the total amount payable for Shares which may be acquired on the exercise of the Option. 4.3 Options can only be exercised if as a result of their exercise the number of Shares which will be allotted will be a minimum of 1,000 Shares. 4.4 Notwithstanding Clause 4.1: (a) subject to Clause 4.4(e), in the event of a take-over offer being made for the Shares, all or any Options which are held by a Participant and as yet unexercised, may, in respect of such number of Shares comprised in the Option as may be determined by the Committee in its absolute discretion, be exercised by the Participant at any time after the date upon which such offer is made, or if such offer is conditional, the date on which such offer becomes or is declared unconditional as the case may be, and ending on the earlier of; (i) the expiry of six (6) months thereafter, unless prior to the expiry of such six-month period, at the recommendation of the offeror and with the approvals of the Committee and the SGX-ST, such expiry date is extended to a later date (in either case, being a date falling not later than the expiry of the Option Period relating thereto); or B-4

435 (b) (c) (d) (e) (f) (ii) the date of expiry of the Option Period relating thereto, whereupon the Option then remaining unexercised shall lapse. Provided that if during such period the offeror becomes entitled or bound to exercise the rights of compulsory acquisition of the Shares under the Companies Act and, being entitled to do so, gives notice to the Participants that it intends to exercise such rights on a specified date, all Options shall remain exercisable by the Participants until such specified date or the expiry of the respective Option Periods relating thereto, whichever is earlier. Any Option not so exercised by the said specified date shall lapse and become null and void provided that the rights of acquisition or obligation to acquire stated in the notice shall have been exercised or performed, as the case may be. If such rights of acquisition or obligations have not been exercised or performed, all Options shall, subject to this Clause 4, remain exercisable until the expiry of the Option Period. if under any applicable laws, the court sanctions a compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the reconstruction of the Company or its amalgamation with another company or companies, each Participant shall be entitled subject to Clause 4.4(e), to exercise any Option then held by that Participant which has not then expired or lapsed, in respect of such number of Shares comprised in that Option as may be determined by the Committee in its absolute discretion, during the period commencing from the date upon which the compromise or arrangement is sanctioned by the court and ending either on the expiry or 60 days thereafter or the date upon which the compromise or arrangement becomes effective, whichever is later, whereupon the Option shall lapse and become null and void; if an order is made for the winding-up of the Company on the basis of its insolvency, all Options to the extent unexercised, shall lapse and become null and void; if notice is given by the Company to its members to convene a general meeting for the purpose and if thought fit, approving a resolution for the voluntary winding-up of the Company, the Company shall on the same date or as soon after it dispatches such notice to each member of the Company give notice thereof to all Participants (together with a notice of the existence of the provision of this Clause 4.4(d) and thereupon, each Participant (or his personal representative) may exercise all or any Option then held by that Participant which has not then expired or lapsed at any time not later than two business days prior to the proposed general meeting of the Company by giving notice to the Company accompanied by a remittance for the total amount payable upon the exercise of the Option whereupon the Company shall as soon as possible and no later than the business day immediately prior to the date of the proposed general meeting allot the relevant Shares to the Participant credited as fully paid; if in connection with the making of a general offer referred to in Clause 4.4(a) or the scheme referred to in Clause 4.4(b) or the winding-up referred to in Clause 4.4(d), arrangements are made (which are confirmed in writing by the Auditors, acting only as experts and not as arbitrators, to be fair and reasonable) for the compensation of Participants, whether by the continuation of their Options or the payment of cash or the grant of other options or otherwise, a Participant holding an Option, as yet not exercised, may not, at the discretion of the Committee, be permitted to exercise that Option as provided for in this Clause 4.4; and to the extent that an Option is not exercised within the periods referred to in this Clause 4.4, it shall lapse and become null and void. 4.5 Subject to the provisions of the Memorandum and Articles of Association of the Company and such consents or other required action of any competent authority under any regulations or enactment for the time being in force as may be necessary and compliance B-5

436 with the terms of the Plan, the Committee shall, within 14 Market Days after receipt of a notice of exercise and a cheque referred to in Clause 4.2, allot and issue to the Participant the number of Shares which is equal to the number of Options being exercised and despatch to CDP the relevant share certificates by ordinary post or such other mode as the Committee thinks fit. 4.6 Shares to be allotted and issued upon the exercise of Options will, upon issue: (a) be subject to all the provisions of the Companies Act and the Memorandum and Articles of Association of the Company; and (b) rank in full in all entitlements, including dividends or other distributions declared or recommended in respect of the then existing Shares, the Record Date for which is on or after the relevant date upon which such exercise occurred, and shall in all other respects rank pari passu with other existing Shares then in issue. Record Date means the date fixed by the Company for the purpose of determining entitlements to dividends or other distributions to or rights of holders of Shares. 4.7 As soon as practicable after allotment of Shares pursuant to the exercise of Options, the Company will apply for permission to deal in and for quotation of such Shares on the Official List of the SGX-ST if necessary. Shares which are allotted on the exercise of an Option by a Participant shall be issued in the name of CDP to the credit of the securities account of that Participant maintained with CDP, the securities sub-account of that Participant maintained with a Depository Agent or, where applicable, the CPF investment account maintained with a CPF agent bank. 4.8 The Options shall not be quoted on SGX-ST. 4.9 The Company shall keep available sufficient unissued Shares to satisfy the full exercise of all Options for the time being remaining capable of being exercised. 5. Lapse of Options 5.1 If an Eligible Employee s employment with the Company or a subsidiary of the Company terminates then the following provisions of this clause apply. 5.2 If the Options are Qualifying Options then, subject to clauses 5.3 and 5.4, the Participant may exercise those Options within the period of 6 months (or other period not exceeding 24 months, as determined by the Committee in its absolute discretion) after termination of the Eligible Employee s employment, failing which those Options will lapse. 5.3 If the Options are not Qualifying Options or the Eligible Employee s employment is terminated as a result of fraud or misconduct then the Options shall lapse as the date of termination. 5.4 If termination of the Eligible Employee s employment or cessation as an employee of the Company or its subsidiaries arises from: (i) retirement or resignation after the age of 50 years; (ii) retrenchment; (iii) death; or (iv) incapacity, the Committee may, in its absolute discretion, on the request of the Eligible Employee or his or her personal representatives, extend the period referred to in clause 5.2 for up to two years after such termination or cessation (as the case may be), provided that the extended period does not expire after the expiry of the Option Period. B-6

437 5.5 The Committee may, in its absolute discretion, determine that on an Eligible Employee s termination of employment, any Options held by the Eligible Employee that are otherwise not Qualifying Options, be deemed to be Qualifying Options, and in such case, clause 5.2 shall apply to those Options. 6. Limitation on Size of the Plan, Maximum Entitlement and Adjustment Events 6.1 The aggregate number of new Shares granted under the Plan shall be limited to 5% of the issued share capital of the Company from time to time. The restriction on the size of the Plan shall not be amended without the prior approval of the Shareholders of the Company and provided that the aggregate number of new Shares granted under the Plan on any date, when added to the number of new Shares issued and issuable in respect of (a) all Options granted under the Plan, and (b) all awards granted under any other share option, share incentive, performance share or restricted share plan implemented by the Company and for the time being in force, shall not exceed fifteen percent (15%) of the issued share capital of the Company on the day preceding that date. 6.2 Subject to the terms and conditions of the Plan, the aggregate number of Shares in respect of which Options may be offered to an Eligible Employee for subscription in accordance with the Plan shall be determined at the discretion of the Committee, which would be exercised judiciously, who shall take into account criteria such as rank and responsibilities within the Group, performance, years of service/appointment and potential for future development of the Eligible Employee and the performance of the Company. 6.3 The Options shall not be transferable or assignable to any person, except where the transferee or assignee (as the case may be) is a Participant and with the prior approval of the Committee. Immediately upon the purported transfer or assignment of an Option in contravention of this clause, the Option shall be of no further force or effect. 6.4 In the event of any variation (whether by way of capitalization of profits or reserves or rights issue, consolidation, sub-division, reduction, distribution or otherwise) of the share capital of the Company the number of Options to which each holder is entitled and/or the Exercise Price of the Options shall be adjusted, or in such other manner as the Committee may determine to be appropriate. 6.5 Nothing in this section shall prevent the rights of an Option holder being changed to the extent necessary to comply with the SGX-ST Listing Rules applying to a reorganisation of capital at the time of the reorganisation. 6.6 Unless the Committee considers an adjustment to be appropriate, the issue of securities as consideration for an acquisition or a private placement of securities, or the cancellation of issued Shares purchased or acquired by the Company by way of a market purchase of such Shares undertaken by the Company on the SGX-ST during the period when such share purchase mandate granted by the Shareholders (including any renewal of such mandate) is in force, shall not be regarded as a circumstance requiring adjustment. 6.7 Notwithstanding Clause 6.4, no adjustment shall be made if as a result, the Participant receives a benefit that a Shareholder does not receive. Any adjustment (except in relation to a capitalization issue) must be confirmed in writing by the Auditors to be in their opinion, fair and reasonable. 6.8 Upon any adjustment required to be made pursuant to this Clause 6.8, the Company shall notify the Participant (or his duly appointed personal representatives where applicable) in writing and deliver to him (or his duly appointed personal representatives where applicable) a statement setting forth the Exercise Price thereafter in effect and the class and/or number of Shares thereafter to be issued on the exercise of the Option. Any adjustment shall take effect upon such written notification being given. B-7

438 7. Powers of the Committee and Administration of the Plan 7.1 The Plan shall be administered by the Committee in its absolute discretion with such powers and duties as are conferred on it by the Board. In the event that the Plan is varied to include directors of the Company as Eligible Employees, no member of the Committee shall participate in any deliberation or decision in respect of Options granted to him or held by him. 7.2 The Committee shall have the power, from time to time, to: (a) determine appropriate procedures for administration of the Plan consistent with these terms and conditions; and (b) resolve and determine conclusively any matter, questions of fact or interpretation in connection with, pertaining or pursuant to the Plan and any dispute and any uncertainty as to the interpretation of the Plan, any rule, regulation or procedure thereunder or any rights under the Plan. 7.3 Neither the Plan nor the grant of Options under the Plan shall impose on the Company or the Committee any liability whatsoever in connection with: (a) the lapsing or early expiry of any Options pursuant to any provision of the Plan; (b) the failure or refusal by the Committee to exercise, or the exercise of the Committee of, any discretion under the Plan; and/or (c) any decision or determination of the Committee made pursuant to any provision of the Plan. 7.4 Any decision or determination of the Committee made pursuant to any provision of the Plan (other than a matter to be certified by the Auditors) shall be final, binding and conclusive. 8. Commencement and Termination of the Plan 8.1 Subject to the passing of any necessary resolution approving the establishment of the Plan, the Plan shall take immediate effect and shall thereafter continue to be in force at the discretion of the Committee, subject to a maximum period of 10 years, provided always that the Plan may continue beyond the above period with the approval the Shareholders by ordinary resolution in general meeting and of any relevant authorities which may then be required. 8.2 The Plan may be terminated at any time by resolution of the Committee or by resolution of the Company in general meeting, subject to all relevant approvals which may be required but any such termination shall not affect the rights of any of the then existing holders of Options. If the Scheme is terminated, no further Options shall be offered by the Company thereafter. 9. Overriding Restrictions on Grant of Options Notwithstanding any term of this Plan or the terms of any Option, no Option may be granted or exercised if to do so would contravene the Companies Act or the SGX-ST Listing Rules. 10. Governing Law The Options are governed by and construed in accordance with the laws of the Republic of Singapore. The Participants by accepting Options in accordance with the Plan, and the Company submit to the exclusive jurisdiction of the courts of the Republic of Singapore. B-8

439 11. Duties and Taxes and Expenses 11.1 All taxes (including income tax) arising from the exercise of any Option granted to any Participant under the Plan shall be borne by that Participant Each Participant shall be responsible for all fees of CDP relating to or in connection with the issue and allotment of any Shares pursuant to the exercise of any Option in CDP s name, the deposit of share certificate(s) with CDP, the Participant s securities account with CDP, or the Participant s securities sub-account with a Depository Agent or CPF investment account with a CPF agent bank Save as provided above, all fees, costs and expenses incurred by the Company in relation to the Plan shall be borne by the Company. 12. Disclosure in Annual Report 12.1 The following disclosures (as applicable) will be made by the Company in its annual report for so long as the Plan continues in operation: (a) the names of the members of the Committee administering the Plan; (b) the information in respect of Options granted to the following Participants who receive five (5) per cent. or more of the total number of Shares available under the Plan, as shown in the table set out below: Name of Participant Number of Shares comprised in Options granted during financial year under review (including terms) Aggregate number of Shares comprised in Options granted since commencement of Plan to end of financial year under review Aggregate number of Shares comprised in Options exercised since commencement of Plan to end of financial year under review Aggregate number of Shares comprised in Options outstanding as at end of financial year under review (c) (i) The names of and number and terms of Options granted to each employee of the parent company and its subsidiaries who receives five (5) per cent. or more of the total number of Shares comprised in Options available to all employees of the parent company and its subsidiaries under the Plan, during the financial year under review; and (ii) The aggregate number of Options granted to the employees of the parent company and its subsidiaries for the financial year under review, and since the commencement of the Plan to the end of the financial year under review. 13. Modifications to the Plan 13.1 Any or all the provisions of the Plan may be modified and/or altered at any time and from time to time by resolution of the Committee, except that: (a) no modification or alteration shall alter adversely the rights attaching to any Option granted prior to such modification or alteration except with the consent in writing of such number of Participants who, if they exercised their Options in full, would thereby become entitled to not less than three-quarters in the number of all the Shares which would fall to be allotted upon exercise in full of all outstanding Options; (b) any modification or alteration which would be to the advantage of Participants under the Plan shall be subject to the prior approval of the Shareholders in general meeting; B-9

440 (c) (d) no modification or alteration which does not comply with the provisions and/or requirements of the SGX-ST Listing Manual shall be made; and no modification or alteration shall be made without the prior approval of any regulatory authorities as may be necessary Notwithstanding anything to the contrary contained in Rule 13.1, the Committee may at any time by resolution (and without other formality, save for the prior approval of the SGX-ST) amend or alter the Plan in any way to the extent necessary to cause the Plan to comply with any statutory provision or the provision or the regulations of any regulatory or other relevant authority or body (including the SGX-ST) Written notice of any modification or alteration made in accordance with this Rule 13 shall be given to all Participants. 14. Disclaimer of Liability Notwithstanding any provisions of this Plan, the Committee and the Company shall not under any circumstances be held liable for any costs, losses, expenses and damages howsoever arising, including but not limited to the Company s delay in issuing the Shares or applying for or procuring the listing of the Shares on the SGX-ST. 15. Abstention from Voting Participants who are Shareholders are to abstain from voting on any Shareholders resolution relating to the Scheme. B-10

441 Annex-1 LETTER OF OFFER Serial No: Date: To: [Name] Designation [Address] Dear Sir/Madam 1. We have the pleasure of informing you that, pursuant to the Straits Asia Resources Limited Share Option Scheme (the Plan ), you have been nominated to participate in the Plan by the Committee appointed by the Board of Straits Asia Resources Limited (the Company ) to administer the Plan. Terms as defined in the Plan have the same meaning when used in this letter. 2. Accordingly, in consideration of the payment of a sum of [S$1.00], an offer is hereby made to grant you an option (the Option ) to subseribe for and be allotted Shares at the price of S$ for each Share. 3. The Option is personal to you and shall not be transferred, charged, pledged, assigned or otherwise disposed of by you, in whole or in part, except with the prior approval of the Committee. 4. The Option shall be subject to the terms of the Scheme, a copy of which is available for inspection at the business address of the Company. 5. If you wish to accept the offer of the Option on the terms of this letter, please sign and return the enclosed Acceptance Form with a sum of [S$1.00] not later than 5.00 pm on failing which this offer will lapse. Yours faithfully, For and on behalf of Straits Asia Resources Limited By: Name: Title: B-11

442 ANNEX-2 ACCEPTANCE FORM Serial No: Date: To: The Committee, Employee Share Option Plan, Straits Asia Resources Limited Closing Date for Acceptance of Offer: Number of Shares Offered: Exercise Price for each Share: S$ Total Amount Payable: S$ I have read your Letter of Offer dated and agree to be bound by the terms of the Letter of Offer and the Employee Share Option Plan referred to therein. Terms defined in your Letter of Offer shall have the same meanings when used in this Acceptance Form. I hereby accept the Option to subscribe for Shares at S$ for each Share. I understand that I am not obliged to exercise the Option. I confirm that my acceptance of the Option will not result in the contravention of any applicable law or regulation in relation to the ownership of shares in the Company or options to subscribe for such shares. I agree to keep all information pertaining to the grant of the Option to me confidential. I further acknowledge that you have not made any representation to induce me to accept the offer and that the terms of the Letter of Offer and this Acceptance Form constitutes the entire agreement between us relating to the offer. B-12

443 Please print in block letters Name in full : Designation : Address : Nationality : *NRIC/Passport No : CDP Account No. : Signature : Date : Note: * Delete accordingly B-13

444 ANNEX-3 STRAITS ASIA RESOURCES LIMITED Reg No: R EMPLOYEE SHARE OPTION PLAN NOTICE OF EXERCISE Total number of shares offered at S$ for each: Share (the Exercise Price ) under the Plan on (Date of Grant) Number of Shares Previously allotted there under: Outstanding balance of Shares to be allotted thereunder: Number of Shares now to be subscribed: To: The Committee Straits Asia Resources Limited, Employee Share Option Plan I/We of hereby exercise my/our options to subscribe for (in words) (in figures) ordinary fully paid shares in Straits Asia Resources Limited at the exercise price of per share and enclose my/our subscription moneys of $. I agree to subscribe for the said Shares subject to the terms of the Straits Asia Resources Limited Employee Share Option Plan and the Memorandum and Articles of Association of the Company. I request that you allot and issue the Shares in the name of The Central Depository (Pte) Limited ( CDP ) for credit of my *Securities Account with CDP/Sub-Account with the Depository Agent/CPF investment account with my Agent Bank specified below and I hereby agree to bear such fees and charges as may be imposed by CDP in respect thereof. B-14

445 Please print in block letters Name in full : Designation : Address : Nationality : *NRIC/Passport No : CDP Account No. : Signature : Date : OR *CPF Investment Account No : Name of Agent Bank : Signature : Date : Note: * Delete accordingly DATED this day of 200. (Signature) B-15

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447 APPENDIX C STRAITS EXECUTIVE SHARE ACQUISITION PLAN 1. Purpose 1.1 The purpose of the Plan is to attract, retain, motivate and reward key Executive employees (other than Directors). The Plan provides Eligible Participants with an opportunity to acquire an ownership interest in the Company, thereby aligning their interests with those of other shareholders as a means of encouraging them to ensure that the Company s performance increases shareholder value through long-term growth. 1.2 The Plan is designed to reward individual and Company performance. In order to achieve this, participation in the Plan is conditional on the achievement of appropriate key performance indicators set by the Remuneration Committee. 1.3 The manner in which the Plan is to operate is set out in these Rules. 2. Definitions and Interpretation 2.1 In these Rules, the following terms have these meanings unless the contrary intention appears: Application means an application for Shares by an Eligible Participant. Auditors means the auditors for the time being of the Company. Award means a right conferred by the Company on an Eligible Participant to be issued Shares in accordance with the Rules. Board means the Board of Directors of the Company from time to time. CDP means The Central Depository (Pte) Limited. Claim means any allegation, debt, cause of action, liability, claim, proceeding, suit or demand of any nature howsoever arising and whether present or future, fixed or unascertained, actual or contingent and whether at law, in equity, under statute or otherwise. Company means Straits Asia Resources Limited Registration No R. Companies Act means the Companies Act, Chapter 50 of Singapore, as amended, modified or supplemented from time to time. Controlling Shareholder means a Shareholder who (a) holds directly or indirectly fifteen (15%) per cent. or more of the Shares or (b) in fact exercises control over the Company. Director means a director of the Company. Dividend means any amount paid or credited or any property distributed for the benefit of a Participant by the Company by way of dividend of return or capital payable on any Plan Shares held by the Participant. Eligible Participant means an Executive who is declared by the Remuneration Committee to be an Eligible Participant for the purposes of the Plan but shall not include any Director. C-1

448 Encumber means to grant any mortgage, charge, lien, pledge, assignment by way of security, security interest, title retention, preferential right or trust arrangement, Claim, covenant, profit a prendre, easement or any other security arrangement or any other arrangement having the same effect. Executive means a full-time employee of the Company or of a Subsidiary of the Company with executive responsibilities (as determined by the Remuneration Committee). Financial Year means the financial year adopted by the Company for the purpose of making up the profit and loss account and balance sheet of the Company pursuant to the Companies Act. Group means the Company and its Subsidiaries. Listing Rules means the rules of SGX-ST Listing Manual. Loan means the loan made or to be made by the Company to an Eligible Participant under Rule 10 to finance the acquisition of Shares pursuant to the Plan. Market Day means a day on which the SGX-ST is open for trading in securities. Market Value means the price determined by the Remuneration Committee as being the weighted average sale price of Shares traded on SGX-ST over the period of five consecutive Trading Days prior to the date of grant of an Award to an Eligible Employee, as determined by the Remuneration Committee by reference to the daily official list or any other publication published by the SGX-ST or if, in the opinion of the Remuneration Committee, the average sale price referred to above is unrepresentative or otherwise distorted an alternative price fixed by the Remuneration Committee by reference to the sale price of Shares on SGX-ST on such other number of days or such other basis as the Remuneration Committee deems appropriate. Participant means an Eligible Participant to whom Shares have been issued under the Plan. Plan means the Straits Asia Resources Limited Executive Share Acquisition Plan established and operated in accordance with these Rules. Plan Share means a Share issued to a Participant under the Plan. Record Date means the date as at the close of business on which the shareholders must be registered in order to participate in any dividends, rights, allotments or other distributions. Remuneration Committee means a committee of persons appointed by the Board for the purpose, among other things, of determining and recommending to the Board suitable levels of remuneration for Executives and shall comprise entirely of non-executive Directors, the majority of whom, including the Chairman of such committee, should be independent. Rules means these Plan rules as amended from time to time. SGX-ST means Singapore Exchange Securities Trading Limited. C-2

449 Share means a fully paid ordinary share in the capital of the Company which ranks equally with and has the same rights as other fully paid ordinary shares in the capital of the Company which are quoted by SGX-ST. Shareholders means the registered holders of the Shares or in the case of Depositors, Depositors who have Shares entered against their names in the Depository Register. Subsidiary means a corporation as defined in Section 5 of the Companies Act. Vest means the issue of Shares granted under an Award to a Participant. 2.2 In the Rules, unless the contrary intention appears: (a) a reference to a rule, statute or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them; (b) the singular includes the plural and vice versa; (c) a reference to any gender includes all genders; (d) a reference to a person includes a reference to the person s legal personal representatives, executors, administrators and successors, a firm or a body corporate; (e) where an expression is defined, another part of speech or grammatical form of that expression has a corresponding meaning; (f) a reference to a currency is a reference to Singapore currency; (g) a reference to amendment includes addition, alteration, deletion, extension, modification and variation; (h) references to the exercise of a power or discretion include a decision not to exercise the power or discretion; (i) including when introducing a list of items does not exclude a reference to other items whether of the same class or genus or not; (j) the term Depositor, Depository Register and Depository Agent shall have the meanings ascribed to it by Section 130A of the Companies Act and the term associate shall have the meanings ascribed to it by the SGX-ST Listing Manual or any other publication prescribing rules or regulations for corporations admitted to the Official List of the SGX-ST (as modified, supplemented or amended from time to time); and (k) in relation to a company (including, where the context requires, the Company), control means the capacity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of that company; 2.3 Headings are for convenience only and do not affect the interpretation of these Rules. 2.4 The Board s decision as to the interpretation, effect or application of these Rules or any restrictions or other conditions relating to any Shares issued under the Plan is final and conclusive. 2.5 Any determination, decision, approval or opinion of the Remuneration Committee or the Board shall be in its absolute and unfettered discretion. C-3

450 3. Administration and Operation of the Plan 3.1 The Plan must be operated in accordance with these Rules which bind the Company and each Participant. 3.2 The Plan shall be administered by the Remuneration Committee with such discretion, powers and duties as are conferred to it by the Board. In exercising its discretion, the Remuneration Committee must act in accordance with any guidelines that may be provided by the Board. The Remuneration Committee may from time to time make, determine or vary such regulations, arrangements, guidelines and procedures in accordance with these Rules for the proper and efficient administration and implementation of the Plan. In the event of any disagreement or dispute with respect to the interpretation of these Rules or the terms of a Loan (other than matters to be confirmed by the Auditors in accordance with the Plan), such disagreement or dispute shall, unless otherwise specified in the Rules, be referred to the Board and the decision of the Board shall, in the absence of manifest error, be final and binding upon all parties. 3.3 Any power or discretion which is conferred on the Company, the Board, or the Remuneration Committee under these Rules may be exercised by any person or persons appointed by the Company, the Board or the Remuneration Committee, as the case may be, to act on its behalf. 3.4 The Remuneration Committee shall refer any matter not falling within the scope of its terms of reference to the Board. Shareholders who are eligible to participate in the Plan shall abstain from voting in any resolution relating to the Plan. 4. Eligibility and Awards 4.1 All Executives, excluding Directors, shall be eligible to participate in the Plan at the absolute discretion of the Remuneration Committee. 4.2 Persons who are Controlling Shareholders or their associates shall not participate in the Plan. 4.3 The Remuneration Committee shall have absolute discretion to decide whether a person who is participating in this Plan shall be eligible to participate in any other share plan or share option plan implemented by the Company or any of its subsidiaries. 4.4 The eligibility of an Executive to participate in the Plan and the number of Shares which are the subject of each Award to an Eligible Participant in accordance with the Plan shall be determined at the absolute discretion of the Remuneration Committee which shall take into account the performance of the Eligible Participant and such other general criteria as the Remuneration Committee may consider appropriate, subject to any limitations set forth under the Listing Rules and these Rules. 4.5 Awards represent the right conferred by the Company to an Eligible Participant to be issued Shares in the Company, in accordance with the Rules. 4.6 The Remuneration Committee may issue Awards at any time, provided that in the event that an announcement on any matter of an exceptional nature involving unpublished price sensitive information is made, Awards may only be issued on or after the second Market Day from the date on which such announcement is made. 4.7 The Award to each Eligible Participant must be in writing and include (or be accompanied by) the following details: (a) the number of Shares for which the Eligible Participant may apply; (b) the subscription price for each Plan Share under an Award which shall be the Market Value, and which shall be funded exclusively by way of a Loan from the Company; C-4

451 (c) a statement that an application for Shares will be effective at the time of issue of Shares to the Eligible Participant; (d) any restrictions or other conditions relating to Plan Shares as determined by the Remuneration Committee; and (e) any other information required by applicable law, including the Companies Act and/or the Listing Rules, and shall be substantially in the form set out in Annex 1, subject to such modification as the Remuneration Committee may from time to time determine. 4.8 An Award shall be personal to the Eligible Participant to whom it is issued and any Award granted and accepted by a Participant under the Plan shall not be transferred, charged, assigned, pledged or otherwise disposed of or encumbered in whole or in part unless approved by the Remuneration Committee, but may be vested to the Eligible Participant s duly appointed personal representative in the event of the death of the Eligible Participant. 4.9 An Award shall be personal to the Eligible Participant to whom it is granted and no Award or any rights thereunder shall be transferred, charged, assigned, pledged, mortgaged, encumbered or otherwise disposed of, in whole or in part, and if an Eligible Participant shall do, suffer or permit any such act or thing as a result of which he would or might be deprived of any rights under an Award that Award shall immediately lapse The Company shall, as soon as practicable after the Plan Shares have been allotted to a Participant, apply to the SGX-ST for the listing and quotation of such Shares if necessary. 5. Share Applications 5.1 The Eligible Participant may make an Application for the Shares specified in the Award. The Application must be in the name of the Eligible Participant and not that of a nominee. 5.2 The Eligible Participant may apply for the whole number of Shares specified in the Award by completing and returning the signed Application Form in the form set out in Annex 2 within such time as specified in the Award to the person. The Remuneration Committee may specify in an Award that an Eligible Participant may apply for part only of the Shares specified in the Award, provided that an Award may only be accepted once, whether in whole or (as the case may be) in part. 5.3 The Application must be received by the Remuneration Committee (or person specified) before the end of the time set out in the Award. If an Award is not accepted in the manner as specified in this Plan, the Award shall automatically lapse and shall be null and void. 5.4 The number of Shares (if any) which an Eligible Participant may apply for in respect of any Financial Year under the Plan shall be determined by the Remuneration Committee. 5.5 No brokerage, commission, stamp duty or other transaction cost will be payable by Participants in respect of any issue of Shares under the Plan. 6. Eligible Participant s Application 6.1 The acceptance of an Application by an Eligible Participant is effective at the time of issue of Plan Shares to the Eligible Participant. 6.2 An Eligible Participant s Application will not be accepted if, at the date of the acceptance: (a) he or she is not an Eligible Participant; or (b) he or she has been given notice of dismissal from employment by the Company or if, in the opinion of the Company he or she has tendered his or her resignation to avoid such a dismissal. C-5

452 6.3 The Remuneration Committee has the discretion to determine that an Application by an Eligible Participant who otherwise would be eligible to acquire Plan Shares will not be accepted. 7. Share Issue 7.1 Upon acceptance of a duly signed and completed Application and subject to: (a) such consents (including any approvals required by the SGX-ST) as may be necessary; (b) compliance with the terms of the Award, the Plan and the Memorandum and Articles of Association of the Company; (c) the Eligible Participant having a securities account with CDP and compliance with the applicable requirements of CDP; and (d) the Company being satisfied that the Shares which are the subject of the Vested Award will be listed for quotation on the SGX-ST, the Company may issue the number of Shares applied for to the Eligible Participant with effect from such date as the Remuneration Committee determines or as may be determined in accordance with the resolution of the Remuneration Committee. 7.2 As soon as reasonably practicable after the issue of Shares under the Plan, the Remuneration Committee must advise each relevant Participant that Plan Shares have been issued to that Participant and the value of the Loan provided to fund the acquisition of the Plan Shares by the Participant. 7.3 Subject to Rule 10, a Participant shall have legal and beneficial ownership of Plan Shares issued to him or her, but any disposal of those Plan Shares shall be restricted in accordance with Rule Plan Shares which are issued to a Participant shall be registered in the name of, or transferred to, CDP to the credit of the securities account of that Participant maintained with CDP or the securities sub-account of that Participant maintained with a Depository Agent. 7.5 Without prejudice to any other provisions of this Plan, if before the allotment and issue of shares under an Award to a Participant, any of the following occurs: (a) a Eligible Participant does or suffers any act or thing whereby he would or might be deprived of the legal or beneficial ownership of his Award; (b) a Participant commits an act of bankruptcy or is subject to a petition for bankruptcy; (c) a scheme of arrangement or compromise between the Company and its Shareholders being sanctioned by a court under the Act; (d) a take-over offer (whether conditional or unconditional) is made for all or any part of the Shares of the Company; (e) an order for the compulsory winding up of the Company is made; or (f) a resolution for a voluntary winding up (other than for amalgamation or reconstruction) of the Company being made, the Remuneration Committee may consider, at its discretion, whether or not to issue shares under any Award. Where shares under Awards are to be issued, the Remuneration Committee will, as soon as practicable after the decision to issue shares under the Award, procure the issue and allotment to each Eligible Participant of the number of Shares awarded. C-6

453 8. Plan Limit 8.1 The aggregate number of new Shares granted under the Plan shall be limited to 5% of the issued share capital of the Company from time to time. The restriction on the size of the Plan shall not be amended without the prior approval of the Shareholders of the Company and provided that the aggregate number of Shares over which the Remuneration Committee may issue under the Plan on any date, when added to the number of Shares issued and issuable in respect of all Shares granted under this Plan and all awards granted under any other share option, share incentive, performance share or restricted share plan implemented by the Company and for the time being in force, shall not exceed fifteen (15) per cent. of the issued share capital of the Company on the day preceding that date. 9. Rights of Participants 9.1 Subject to Rule 10.6 and subject to the Memorandum and Articles of Association of the Company, Plan Shares allotted and issued pursuant to an Award shall rank in full for any dividend, right, allotment or other distribution the Record Date of which is on or after the relevant date of allotment and issue and (subject as aforesaid) will rank pari passu in all respects with the Shares then existing. 9.2 Any restriction on the disposal of Plan Shares under Rule does not apply to the following, provided that in each case the Participant is treated in the same way and has the same rights and obligations as any other shareholder in the Company (whether or not an Eligible Participant): (a) any bonus entitlements in relation to Plan Shares, unless the bonus entitlement forms part of the allotment of Shares under the Plan, in which case the restriction on disposal of Plan Shares will apply; and (b) any right to participate in any new issue of securities of the Company. 9.3 Subject to the Listing Rules and the terms of issue of the Plan Shares, a Participant may exercise any voting rights attaching to Plan Shares held by him or her or may appoint a proxy to represent and vote for him or her at any meeting of members of the Company. 10. Loan 10.1 The acquisition of Plan Shares will be exclusively and fully funded by a Loan advanced to the Participant by the Company The Loan made available to a Participant shall be applied by the Company directly towards payment of the subscription price of the Shares to be acquired by the Participant The Loan shall be interest free The Loan shall be made to a Participant on a limited recourse basis, in that the Company will not be entitled to require a Participant to repay a Loan other than in accordance with, and to the extent provided by, Rules 10.6, and and will not be entitled to have recourse to any assets of the Participant other than the Plan Shares held by the Participant The Company may not require a Participant to give security in respect of the repayment of a Loan otherwise than in accordance with these Rules. C-7

454 10.6 (a) Subject to Rule 10.6 (b) below, until such time as a Loan is repaid in full (in accordance with these Rules), the Participant will authorize the Company and the Company will retain all Dividends payable to a Participant in respect of Plan Shares acquired by that Participant utilising the proceeds of the Loan, which Dividends shall be applied in reduction of the Loan. (b) If the Dividend payable on Plan Shares referred to in Rule 10.6 (a) above is franked, the franked portion of the Dividend will be applied in reduction of the Loan; and if the Dividend payable on the Plan Shares is unfranked, 70% of the Dividend will be applied in reduction of the Loan and the remaining 30% will be paid to the Participant. These figures will be adjusted according to any changes in the applicable corporate tax rate, if any Participants will be unable to participate in any dividend reinvestment plan in relation to Plan Shares until the Loan is repaid in full Subject to Rules and Participants may not make additional Loan repayments No fees or charges will be payable by a Participant in respect of the Loan and all stamp duty, if any, in respect of the Loan will be paid by the Company Until such time as a Loan is repaid in full (in accordance with these Rules): (a) a moratorium (by way of a written undertaking by the Participant to the Company) will be placed on all Plan Shares issued to the Participant under the Plan to which the Loan relates, and for so long as a moratorium remains in place, the Participant will effectively be prevented from having the Plan Shares to which the Loan relates transferred to another person; and (b) the Participant may not Encumber the Plan Shares As soon as reasonably practicable after a Loan has been repaid in full (in accordance with these Rules), the Company must procure that any moratorium on Plan Shares (to which the Loan related) is removed, so that the Participant will be free to transfer any of those Plan Shares to any other person If, prior to the repayment of the Loan in accordance with Rule 10.6: a Participant: (i) ceases to be employed by the Company for any reason, including due to resignation, retirement or redundancy or the termination of employment; (ii) dies or is totally or permanently disabled; or (iii) becomes bankrupt, then the Participant (or their personal representative) shall forthwith repay the Loan and have the Plan Shares fully vested in their name, free from the restrictions in this Rule Notwithstanding any other Rule, a Participant may elect to repay a Loan in full and have the relevant Plan Shares fully vested in their name, free from the restrictions in this Rule 10 at any time while a loan balance exists, and prior to termination of employment. 11. Amendment of Rules 11.1 Any or all of the provisions of the Plan may be modified and/or altered at any time and from time to time by resolution of the Board on the recommendation of the Remuneration Committee, save that: (a) any modification or alteration which materially and adversely affects the rights of the Participants in respect of the Plan Shares held by them without first obtaining the written consent of the Participants affected; C-8

455 (b) any modification or alteration which would be to the advantage of the Eligible Participants under the Plan shall be subject to the prior approval of the Company s Shareholders in general meeting; (c) no modification or alteration which does not comply with the provisions and/or requirements of the Listing Rules of the SGX-ST shall be made; and (d) no modification or alteration shall be made without the prior approval of any regulatory authorities as may be necessary. For the purposes of Rule 11.1, the opinion of the Remuneration Committee as to whether any modification or alteration would materially and adversely alter the rights of the Participants in respect of the Plan Shares held by them or be to the advantage of the Eligible Participants, shall be final and conclusive Notwithstanding anything to the contrary contained in Rule 11.1, the Remuneration Committee may at any time by resolution (and without other formality or approval of the Eligible Participants, save for the prior approval of the SGX-ST) amend or alter the Plan in any way to the extent necessary to cause the Plan to comply with any statutory provision or the provision of the regulations of any regulatory or other relevant authority or body (including the SGX-ST) Written notice of any modification or alteration made in accordance with this Rule 11 shall be given to all Eligible Participants but accidental omission to give notice to any Eligible Participant(s) shall not invalidate any such modifications or alterations. 12. Suspension or Termination of the Plan 12.1 The Remuneration Committee may suspend or terminate the Plan in respect of further issues of Plan Shares at any time by notice in writing to the Eligible Participants. Thereafter, the Remuneration Committee shall not issue any further Awards during the suspended or terminated period but shall otherwise continue to administer the Plan in accordance with the terms of these Rules. 13. Connection with Other Schemes 13.1 The Company is not restricted to using the Plan as the only method of providing incentive rewards to employees or directors. The Company may, subject to applicable laws and the rules and regulations of any regulatory or other relevant authority, approve other incentive schemes Participation in the Plan does not affect, and is not affected by, participation in any other incentive or other scheme of the Company unless the terms of that scheme provide otherwise. 14. Relationship of Parties 14.1 The Remuneration Committee acts as principal in the operation of the Plan and not as trustees or agents of Participants These Rules: (a) do not confer on any Participant the right to continue as an Executive; (b) do not affect any rights which the Company may have to terminate the employment of, or dismiss, that Executive; and (c) may not be used to increase damages in any action brought against the Company in respect of that termination. C-9

456 15. Certificate A certificate signed by the secretary of the Company or his delegate stating: (a) (b) whether an Eligible Participant has left the employment of the Company, and when and why; or any determination of the Remuneration Committee pursuant to any of these Rules shall be conclusive for all purposes in the absence of demonstrable bad faith. 16. Notices Any notice in connection with the Plan may be given by personal delivery or by sending the same by post at the person s last known address, or in such other manner as the Remuneration Committee determines. 17. Governing Laws The Plan is governed by the laws of the Republic of Singapore. 18. Overriding Restrictions on Dealing with Shares Notwithstanding any Rule, Plan Shares may not be dealt with under the Plan if to do so would contravene any applicable law, including the Companies Act or the Listing Rules. 19. Adjustment Events 19.1 If a variation in the issued ordinary share capital of the Company (whether by way of a capitalisation of profits or reserves or rights issue, reduction, subdivision, consolidation, or distribution, or otherwise howsoever) shall take place, then: (a) the class and/or the number of Shares which are the subject of an Award to the extent not yet accepted and the subscription price for the Shares the subject of an Award to the extent not yet accepted; and/or (b) the class and/or the maximum number of shares over which Shares may be granted under the Plan, may at the option of the Remuneration Committee be adjusted and in such manner as the Remuneration Committee may determine to be appropriate Notwithstanding the provisions of Rule 19.1 no adjustment shall be made if, as a result the Participant receives a benefit that a Shareholder does not receive and any adjustment (except in relation to a capitalisation issue) must be confirmed in writing by the Auditors (acting only as experts and not as arbitrators) to be in their opinion, fair and reasonable Unless the Remuneration Committee considers an adjustment to be appropriate, the issue of securities as consideration for a private placement of shares or as consideration for or in connection with an acquisition of any assets or upon the exercise of any options or conversion of any loan stock or any other securities convertible into shares or subscription rights of any warrants or the cancellation of issued shares purchased or acquired by the Company by way of a market purchase of such shares undertaken by the Company on the SGX-ST during the period when a share purchase mandate granted by Shareholders of the Company (including any renewal of such mandate) is in force, will not be regarded as a circumstance requiring adjustment When any adjustment has to be made pursuant to this Rule 19, the Company shall notify the Eligible Participant (or his duly appointed personal representatives where applicable) in writing and deliver to him (or his duly appointed personal representatives where C-10

457 applicable) a statement setting forth the class and number of Shares thereafter to be issued and the date on which any adjustment shall take effect Notwithstanding the provisions of Rule 19.1 or that no adjustment is required under the provisions of the Plan, the Remuneration Committee may, in any circumstances where it considers that no adjustment should be made or that it should take effect on a different date or that an adjustment should be made to any of the matters referred to in Rule 19.1 notwithstanding that no adjustment is required under the said provisions (as the case may be), request the Auditors to consider whether for any reasons whatsoever the adjustment or the absence of an adjustment is appropriate or inappropriate as the case may be, and, after such consideration, no adjustment shall take place or the adjustment shall be modified or nullified or an adjustment made (instead of no adjustment made) in such manner and on such date as shall be considered by such Auditors (acting only as experts and not as arbitrators) to be in their opinion appropriate. 20. Disclosure in Annual Report 20.1 The Company shall make the following disclosures in its annual report: (a) The names of the members of the Remuneration Committee; (b) The information in the table below for Participants who receive 5% or more of the total number of Shares available under the Plan: Name of Participant Number of Shares comprised in Awards granted during the financial year under review Aggregate number of Shares comprised in Awards granted since commencement of Plan to end of financial year under review Aggregate number of Shares subscribed for under Awards granted since commencement of the Plan to end of financial year under review Aggregate number of Shares comprised in outstanding Awards not as yet subscribed for as at end of financial year under review (c) (i) the names of and the terms and number of shares which are the subject of an Award to each employee of the parent company and its subsidiaries who receives 5% or more of the total number of Shares available to all employees of the parent company and its subsidiaries under the Plan, during the financial year under review; and (ii) the aggregate number of shares which are the subject of Awards granted to the employees of the parent company and its subsidiaries for the financial year under review, and since the commencement of the Plan to the end of the financial year under review. C-11

458 ANNEX-1 LETTER OF OFFER SERIAL NO: DATE: To: [Name] Designation [Address] Dear Sir/Madam 1. We have the pleasure of informing you that, pursuant to the Straits Asia Resources Limited Executive Share Acquisition Plan (the Plan ), you have been nominated to participate in the Plan by the Remuneration Committee appointed by the Board of Straits Asia Resources Limited (the Company ) to administer the Plan. Terms as defined in the Plan have the same meaning when used in this letter. 2. We hereby grant you an Award to subscribe for and be allotted and issued Shares at the subscription price of S$ for each Share, being the Market Value of the shares of the Company. 3. Any subscription of Plan Shares under an Award will be funded exclusively by way of Loan from the Company on the terms and subject to the conditions as set out in the Plan. 4. The Award is personal to you and shall not be transferred, charged, pledged, assigned or otherwise disposed of by you, in whole or in part, except with the prior approval of the Remuneration Committee. 5. The Plan shall be subject to the terms of the Plan, a copy of which is available for inspection at the business address of the Company. 6. You may accept the Award once in whole [and not in part/or in part]* on the terms of this letter by signing and returning the enclosed Acceptance Form not later than 5.00 pm on failing which the Award will lapse. Your acceptance of the Award is will become effective only upon the allotment and issue to you of Shares you have subscribed for pursuant to the Award. Yours faithfully, For and on behalf of Straits Asia Resources Limited By: Name: Title: * Delete accordingly C-12

459 ANNEX-2 ACCEPTANCE FORM Serial No: Date: To: The Committee, Executive Share Acquisition Plan, Straits Asia Resources Limited Number of Shares Offered under Award: Subscription Price for each Share: S$ Number of Shares now to be subscribed: Total Amount Payable: S$ I have read your Letter of Offer dated and agree to be bound by the terms of the Letter of Offer and the Executive Share Acquisition Plan referred to therein. Terms defined in your Letter of Offer shall have the same meanings when used in this Acceptance Form. I hereby accept the Award to subscribe for Shares at S$ for each Share. I understand that I am not obliged to accept the Award. I confirm that my acceptance of the Award will not result in the contravention of any applicable law or regulation in relation to the ownership of shares in the Company or options to subscribe for such shares. I agree to keep all information pertaining to the grant of the Award to me confidential. I further acknowledge that you have not made any representation to induce me to accept the offer and that the terms of the Letter of Offer and this Acceptance Form constitute the entire agreement between us relating to the offer. I agree to subscribe for the said Shares subject to the terms of the Straits Asia Resources Limited Executive Share Acquisition Plan and the Memorandum and Articles of Association of the Company. I request that you allot and issue the Shares in the name of The Central Depository (Pte) Limited ( CDP ) for credit of my *Securities Account with CDP/Sub-Account with the Depository Agent/CPF investment account with my Agent Bank specified below and I hereby agree to bear such fees and charges as may be imposed by CDP in respect thereof. C-13

460 Please print in block letters Name in full : Designation : Address : Nationality : *NRIC/Passport No : CDP Account No. : Signature : Date : OR *CPF Investment Account No : Name of Agent Bank : Signature : Date : Note: * Delete accordingly DATED this day of 200. (Signature) C-14

461 APPENDIX D LETTER FROM KPMG CORPORATE FINANCE TO THE INDEPENDENT DIRECTORS DATED 26 OCTOBER 2006 IN RESPECT OF THE SHAREHOLDERS MANDATE FOR INTERESTED PERSON TRANSACTION The Independent Directors Straits Asia Resources Limited 80 Robinson Road, #22-04 Singapore October 2006 Dear Sirs THE PROPOSED ADOPTION OF A SHAREHOLDERS MANDATE FOR INTERESTED PERSON TRANSACTIONS 1. INTRODUCTION Straits Asia Resources Limited (the Company or Straits ) is proposing to adopt a shareholders mandate (the Shareholders Mandate ) to enable the entering into of certain categories of transactions with specified classes of the Company s Interested Persons. This letter has been prepared for the use of Dr Chua Yong Hai and Mr Han Eng Juan (the Independent Directors ) of the Company to be incorporated into the prospectus of the Company to be issued in relation to the proposed listing (the Prospectus ), which provides, inter alia, the details of the Shareholders Mandate and the recommendation of the Independent Directors thereon. Unless otherwise defined, all terms in this letter have the same meaning in the Prospectus. To comply with the requirements of Chapter 9 of the Listing Manual, KPMG Corporate Finance Pte Ltd ( KPMG Corporate Finance ) has been appointed as the independent financial adviser to provide an opinion on whether the methods and procedures set out in the Shareholders Mandate as described in pages 181 to 183 of the Prospectus for determining the transacting prices of the Interested Person Transactions are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. 2. TERMS OF REFERENCE The objective of this letter is to provide an independent opinion, for the purposes of Chapter 9 of the Listing Manual, on whether the methods and procedures set out in the Shareholders Mandate for determining transacting prices of the Interested Person Transactions are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. KPMG Corporate Finance is not and was not involved in any aspect of the discussions on the scope of the Shareholders Mandate, nor were we involved in the deliberations leading up to the decision by the Directors to obtain the Shareholders Mandate or the methods or procedures adopted by the Company for determining the prices of Interested Person Transactions. In the course of our evaluation of the methods and procedures adopted for determining transaction prices in connection with the Shareholders Mandate, we have held discussions with certain members of the senior management team of the Company (the Senior Management ). We have also relied on the information contained in the Prospectus. We have not independently verified such information furnished by the Senior Management of the Company or any D-1

462 representation or assurance made by them, whether written or verbal, and accordingly cannot and do not warrant or accept responsibility for the accuracy or completeness of such information, representation or assurance. Nevertheless, the Senior Management have confirmed to us that, to the best of their knowledge and belief, the information provided to us (whether written or verbal) as well as the information contained in the Prospectus constitutes a full and true disclosure, in all material respects, of all material facts relating to the Shareholders Mandate and there is no material information the omission of which would make any of the information contained herein or in the Prospectus inaccurate, incomplete or misleading in any material respect. We have also made reasonable enquiries and used our judgment in assessing such information and have found no reason to doubt the reliability of such information. We have further assumed that all statements of fact, belief, opinion and intention made by the Directors in the Prospectus have been reasonably made after due and careful enquiry. We have not conducted a comprehensive review of the business, operations or financial condition of the Company or the transactions described in pages 171 to 176 of the Prospectus. Our opinion is delivered to the Independent Directors for their deliberation on the Shareholders Mandate, and the recommendations made by the Independent Directors shall remain the responsibility of the Independent Directors. Our opinion should not be relied on as a recommendation to any shareholder of the Company ( Shareholder ) as to how such Shareholder should vote on the Shareholders Mandate or any matter related thereto. Each Shareholder may have different investment objectives and considerations and should seek professional advice. The Directors collectively and individually accept full responsibility for the accuracy of the information given in this Prospectus, and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the facts stated and the opinions expressed in this Prospectus are fair and accurate and that there are no material facts the omission of which would make any statement in this Prospectus misleading. Our opinion in relation to the Shareholders Mandate should be considered in the context of the entirety of this letter and the Prospectus. 3. SHAREHOLDERS MANDATE (a) Background It is envisaged that, in the ordinary course of business of the Company, its subsidiaries and associated companies which are considered to be entities at risk within the meaning of Chapter 9 of the Listing Manual (together the EAR Group ), transactions between the EAR Group and its Interested Persons are likely to occur with some degree of frequency and may arise at any time and from time to time. The categories of Interested Person Transactions are described in page 180 of the Prospectus. In view of the time-sensitive and frequent nature of such Interested Person Transactions, the Directors are seeking the approval of Shareholders, pursuant to Chapter 9 of the Listing Manual, for the Shareholders Mandate to enable the EAR Group to enter into Interested Person Transactions with the classes of Interested Persons (as set out in page 179 of the Prospectus), provided that such Interested Person Transactions are made on at arm s length and on normal commercial terms, and are not prejudicial to the interests of the Company and its minority shareholders. The Shareholders Mandate does not cover any Interested Person Transaction which has a value of less than S$100,000 as the threshold and aggregation requirements of Chapter 9 of the Listing Manual do not apply to such transactions. D-2

463 (b) Interested Person Transactions Salient information on the Interested Person Transactions including: (i) the Classes of Interested Persons; (ii) the Categories of Interested Person Transactions; (iii) the Rationale for and Benefits of the Shareholders Mandate; and (iv) the Review Procedures for Interested Person Transactions is set out in pages 179 to 183 of the Prospectus. (c) Validity Period of the Shareholders Mandate The Shareholders Mandate will be effective until the earlier of the following: (i) the Company s first annual general meeting ( AGM ) following its admission to the Official List of the SGX-ST; or (ii) the first anniversary of the date of the Company s admission to the Official List of the SGX-ST. Thereafter, the Company will seek the approval of its shareholders for a renewal of the Shareholders Mandate at each subsequent AGM. (d) Disclosure In accordance with the requirements of Chapter 9 of the Listing Manual, disclosure is required to be made in the Company s annual report ( Annual Report ) of the aggregate value of all Interested Person Transactions conducted with Interested Persons pursuant to the Shareholders Mandate during the current financial year, and in the Annual Reports for subsequent financial years that the Shareholders Mandate continues in force. The Company will also announce the aggregate value of transactions conducted pursuant to the Shareholders Mandate for the financial periods that it is required to report on pursuant to Rule 705 of the Listing Manual within the time required for the announcement of such report. (e) Other Interested Person Transactions The Independent Directors should note that transactions with Interested Persons which do not fall within the ambit of the Shareholders Mandate (as set out in pages 171 to 184 of the Prospectus) shall be subject to the relevant provisions of Chapter 9 of the SGX-ST Listing Manual and/or other applicable provisions of the SGX-ST Listing Manual. Such transactions will, unless specifically excluded from the ambit of Chapter 9 of the Listing Manual, require an immediate announcement where: (i) (ii) the transaction is of a value equal to, or more than, 3% of the Group s latest audited consolidated net tangible assets; or the aggregate value of all transactions entered into with the same Interested Person during the same financial year amounts to 3% or more of the Group s latest audited consolidated net tangible assets. Shareholders approval (in addition to an immediate announcement) is required where: (i) (ii) the transaction is of a value equal to, or more than, 5% of the Group s latest audited consolidated net tangible assets; or the transaction, when aggregated with other transactions entered into with the same Interested Person during the same financial year, is of a value equal to, or more than, 5% of the Group s latest audited consolidated net tangible assets. D-3

464 4. CONCLUSION In arriving at our opinion on whether the methods and procedures for determining transaction prices of Interested Person Transactions for the purposes of the Shareholders Mandate, as set out in pages 181 to 183 of the Prospectus, are sufficient to ensure that the Interested Person Transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders, we have considered the following: (i) (ii) (iii) the classes of Interested Persons and the categories of Interested Person Transactions covered by the Shareholders Mandate; the rationale for and benefits of the Shareholders Mandate; and the review procedures for future Interested Person Transactions. Based on the analysis undertaken and subject to the qualifications and assumptions made herein, KPMG Corporate Finance is of the opinion that the current methods and procedures for determining transaction prices of Interested Person Transactions as set out in pages 181 to 183 of the Prospectus are, if applied strictly, sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. We have prepared this letter for the use of the Independent Directors of the Company in connection with and for the purposes of their consideration of the Shareholders Mandate and for inclusion in the Prospectus. No other person may reproduce, disseminate or quote this letter (or any part thereof) for any other purpose at any time and in any manner except with KPMG Corporate Finance s prior written consent in each specific case. The opinion is governed by, and construed in accordance with, the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter. Yours faithfully For and on behalf of KPMG Corporate Finance Pte Ltd Satyanarayan R. Director Hertanu Wahyudi Manager D-4

465 APPENDIX E TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE OF THE OFFERING SHARES UNDER THE SINGAPORE PUBLIC OFFER Applications are invited for the purchase of the Offering Shares at the Maximum Offering Price or, as the case may be, the Offering Price on the terms and conditions set out below and in the relevant Application Forms or, as the case may be, the Electronic Applications (as defined below). Investors applying for Offering Shares offered in the Public Offer by way of Application Forms or Electronic Applications are required to pay the Maximum Offering Price of S$0.72 for each Offering Share, subject to a refund of the full amount or, as the case may be, the balance of the applications monies (in each case without interest or any share of revenue of other benefit arising therefrom) where (i) an application is rejected or accepted in part only, or (ii) if the Combined Offering does not proceed for any reason, or (iii) if the Offering Price is less than the Maximum Offering Price. Investors applying for Offering Shares offered in the International Offering are required to pay the Offering Price. 1. YOUR APPLICATION MUST BE MADE IN LOTS OF 1,000 OFFERING SHARES OR INTEGRAL MULTIPLES THEREOF. YOUR APPLICATION FOR ANY OTHER NUMBER OF OFFERING SHARES WILL BE REJECTED. 2. Your application for the Offering Shares under the Public Offer may be made by way of the printed WHITE Singapore Public Offer Application Forms or by way of Automated Teller Machine ( ATMs ) belonging to the Participating Banks ( ATM Electronic Applications ) or the Internet Banking ( IB ) web-site of the Participating Banks ( Internet Electronic Applications ) (collectively referred to as Electronic Applications ). Applications for Offering Shares under the International Offering may be made by way of the printed BLUE International Offering Application Forms (or in such other manner as the Global Coordinator may in its absolute discretion deem appropriate). You may not use your CPF Investible Savings ( CPF Funds ) to apply for the Offering Shares. 3. You (being other than an approved nominee company) are allowed to submit application(s) in your own name for: (a) (b) (c) a single or multiple application(s) for Offering Shares under the International Offering; a single or multiple application(s) for Offering Shares under the International Offering together with a single application for Offering Shares under the Singapore Public Offer; or a single application for Offering Shares under the Singapore Public Offer. Applications in respect of: (i) the Offering Shares under the Singapore Public Offer may be made by any one of the following: Singapore Public Offer Application Form; ATM Electronic Application; or Internet Electronic Application, E-1

466 (ii) the Offering Shares under the International Offering may be made by the International Offering Application Form (or in such other manner as the Global Coordinator may in its absolute discretion deem appropriate). A person, other than an approved nominee company, who is submitting an application for the Offering Shares under the Singapore Public Offer in his own name should not submit any other applications for the Offering Shares under the Singapore Public Offer, whether on a Singapore Public Offer Application Form or through an ATM Electronic Application or Internet Electronic Application, for any other person. Such separate applications shall be deemed to be multiple applications and shall be rejected. Joint or multiple applications for the Offering Shares under the Singapore Public Offer will be rejected. Persons submitting or procuring submissions of multiple share applications for the Offering Shares under the Singapore Public Offer may be deemed to have committed an offence under the Penal Code (Chapter 224) of Singapore and the Securities and Futures Act (Chapter 289) of Singapore and such applications may be referred to the relevant authorities for investigation. Multiple applications or those appearing to be or suspected of being multiple applications, (other than as provided herein) will be liable to be rejected at the discretion of the Selling Shareholder. 4. We will not accept applications from any person under the age of 21 years, undischarged bankrupts, sole-proprietorships, partnerships, non-corporate bodies, joint Securities Account holders of CDP and applicants whose addresses (furnished in their printed Application Forms or, in the case of Electronic Applications, contained in the records of the Participating Banks), bear post office box numbers. No person acting or purporting to act on behalf of a deceased person is allowed to apply under the Securities Account with CDP in the deceased s name at the time of application. 5. We will not recognise the existence of a trust. Any application by a trustee or trustees must be made in his/their own name(s) and without qualification or, where the application is made by way of a printed Application Form by a nominee, in the name(s) of an approved nominee company or approved nominee companies after complying with paragraph 6 below. 6. WE WILL ONLY ACCEPT NOMINEE APPLICATIONS FROM APPROVED NOMINEE COMPANIES. Approved nominee companies are defined as banks, merchant banks, finance companies, insurance companies, licensed securities dealers in Singapore and nominee companies controlled by them. Applications made by nominees other than approved nominee companies will be rejected. 7. IF YOU ARE NOT AN APPROVED NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNT WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have an existing Securities Account with CDP in your own name at the time of application, your application will be rejected (if you apply by way of an Application Form) or you will not be able to complete your Electronic Application (if you apply by way of an Electronic Application). If you have an existing Securities Account but fail to provide your Securities Account number or provide an incorrect Securities Account number in the section B of the Application Form or in your Electronic Application, as the case may be, your application is liable to be rejected. Subject to paragraph 10 and 11 below, your application shall be rejected if your particulars such as name, NRIC/passport number or company registration number, nationality, permanent residence status and CDP Securities Account number, provided in your Application Form, or in the case of an Electronic Application, contained in the records of the Participating Banks at the time of your Electronic Application, differ from those particulars in your Securities Account as maintained by CDP. If you have more than one individual direct Securities Account with CDP, your application shall be rejected. E-2

467 8. If your address as stated in the Application Form or, in the case of an Electronic Application, contained in the records of the Participating Banks, as the case may be, is different from the address registered with CDP, you must inform CDP of your updated address promptly, failing which the notification letter on successful allocation will be sent to your address last registered with CDP. 9. This Prospectus and its accompanying documents (including the Application Forms) have not been registered in any jurisdiction other than in Singapore. The distribution of this Prospectus and its accompanying documents (including the Application Forms) may be prohibited or restricted (either absolutely or unless various securities requirements, whether legal or administrative, are complied with) in certain jurisdictions under the relevant securities laws of those jurisdictions. The Offering Shares have not been and will not be registered under the US Securities Act 1933 (the Securities Act ) and subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act ( Regulation S )), unless the Offering Shares are offered or sold to US persons who receive this Prospectus (or any other offering materials) and communicate their investment decisions while outside the US. The Offering Shares are being offered outside the United States to non-us persons (including institutional and other investors in Singapore) in reliance on Regulation S and within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act. The Selling Shareholder reserves the right to reject any application for Offering Shares where the Selling Shareholder believes or has reason to believe that such application may violate the securities laws of the United States or any other jurisdiction or any applicable legal or regulatory requirements. No person in any jurisdiction outside Singapore receiving this Prospectus or its accompanying documents (including the Application Forms) may treat the same as an offer or invitation to purchase any Offering Shares unless such an offer or invitation could lawfully be made without compliance with any regulatory or legal requirements in those jurisdictions. 10. The Selling Shareholder reserves the right to reject any application which does not conform strictly to the instructions set out in the Application Forms and this Prospectus or which does not comply with the instructions for Electronic Applications or with the terms and conditions of this Prospectus or, in the case of an application by way of an Application Form, which is illegible, incomplete, incorrectly completed or which is accompanied by an improperly drawn up or improper form of remittance. 11. The Selling Shareholder reserves the right to treat as valid any applications not completed or submitted or effected in all respects in accordance with the instructions set out in the Prospectus (including Application Forms and in the ATMs and IB websites of the Participating Banks), and also to present for payment or other processes all remittances at any time after receipt and to have full access to all information relating to, or deriving from, such remittances or the processing thereof. Without prejudice to the rights of the Selling Shareholder, the Global Coordinator, as agent of the Selling Shareholder, has been authorised to accept for, and on behalf of, the Selling Shareholder, such other forms of application as the Global Coordinator may, in consultation with the Selling Shareholder, deem appropriate. E-3

468 12. The Selling Shareholder reserves the right to reject or to accept, in whole or in part, or to scale down or to ballot any application, without assigning any reason therefor, and we will not entertain any enquiry and/or correspondence on the decision of the Selling Shareholder. This right applies to applications made by way of Application Forms and by way of Electronic Applications. In deciding the basis of allotment, the Selling Shareholder will give due consideration to the desirability of allotting the Offering Shares to a reasonable number of applicants with a view to establishing an adequate market for the Shares. 13. Share certificates will be registered in the name of CDP or its nominees and will be forwarded only to CDP. It is expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the combined offering, a statement of account stating that your Securities Account has been credited with the number of Offering Shares allotted to you. This will be the only acknowledgement of application moneys received and is not an acknowledgement by the Selling Shareholder. You irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any instrument of transfer and/or other documents required for the issue or transfer of the Offering Shares allotted to you. This authorisation applies to applications made by way of printed Application Forms and by way of Electronic Applications. 14. The Offering Shares may be reallocated between the Singapore Public Offer and the International Offering, for example, in the event of excess applications in one and a deficit of applications in the other. 15. You irrevocably authorise CDP to disclose the outcome of your application, including the number of Offering Shares allotted to you pursuant to your application, to the Selling Shareholder, the Global Coordinator and the coordinator of the Singapore Public Offer and any other parties so authorised by CDP, the Selling Shareholder and the Global Coordinator. 16. Any reference to you or the Applicant in this section shall include an individual, a corporation, an approved nominee company and trustee applying for Offering Shares under the Singapore Public Offer by way of an Application Form or by way of an Electronic Application and an individual, a corporation, an approved nominee company and trustee applying for Offering Shares under the International Offering. 17. By completing and delivering an Application Form and, in the case of an ATM Electronic Application, by pressing the Enter or OK or Confirm or Yes key or any other relevant key on the ATM or, in the case of an Internet Electronic Application, by clicking Submit or Continue or Yes or Confirm or any other button on the IB web-site of the Participating Banks in accordance with the provisions herein, you: (a) (b) (c) irrevocably agree and undertake to purchase the number of Offering Shares specified in your application (or such smaller number for which the application is accepted) at the Maximum Offering Price for each Offering Share under the Singapore Public Offer and the Offering Price for each Offering Share under the International Offering and agree that you will accept such Offering Shares as may be allocated to you, in each case on the terms of, and subject to the conditions set out in, this Prospectus and the Memorandum and Articles of Association of our Company; agree that in the event of any inconsistency between the terms and conditions for application set out in this Prospectus and those set out in the IB web-sites or ATMs of the Participating Banks, the terms and conditions set out in this Prospectus shall prevail; agree that the aggregate Maximum Offering Price for the Offering Shares under the Singapore Public Offer, and the aggregate Offering Price for the Offering Shares under the International Offering, applied for is due and payable to the Selling Shareholder upon application; E-4

469 (d) (e) warrant the truth and accuracy of the information contained, and representations and declarations made, in your application, and acknowledge and agree that such information, representations and declarations will be relied on by the Selling Shareholder in determining whether to accept your application and/or whether to allot or allocate any Offering Shares to you; and agree and warrant that if the laws of any jurisdictions outside Singapore are applicable to your application, you have complied with all such laws and none of the Selling Shareholder or the Global Coordinator will infringe any such laws as a result of the acceptance of your application. 18. Our acceptance of applications will be conditional upon, inter alia, the Selling Shareholder being satisfied that: (a) (b) permission has been granted by the SGX-ST to deal in, and for quotation of, all the issued Shares (including the Offering Shares) and the new Shares to be issued pursuant to the exercise of the options under the Straits Employee Share Option Plan and the grant of awards under the Straits Executive Share Acquisition Plan on the Official List of the SGX-ST; and the Offer Agreement, and the Purchase Agreement referred to in the section on Plan of Distribution in this Prospectus have become unconditional and have not been terminated. 19. We will not hold any application in reserve. 20. We will not allot any Shares on the basis of this Prospectus later than six months after the date of registration of this Prospectus. 21. Additional terms and conditions for applications by way of Application Forms are set out in the section entitled Additional Terms and Conditions for Application using Printed Application Forms on pages E-5 to E-8 of this Prospectus. 22. Additional terms and conditions for applications by way of Electronic Applications are set out in the section entitled Additional Terms and Conditions for Electronic Applications on pages E-9 to E-14 of this Prospectus. ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATION FORMS Applications by way of Application Forms shall be made on and subject to the terms and conditions of this Prospectus, including but not limited to the terms and conditions appearing below as well as those set out under the section TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE OF THE OFFERING SHARES UNDER THE SINGAPORE PUBLIC OFFER on pages E-1 to E-17 of this Prospectus, as well as the Memorandum and Articles of Association of our Company. 1. Your application for Offering Shares under the Singapore Public Offer must be made using the WHITE Offering Shares under the Singapore Public Offer Application Forms and WHITE official envelopes A and B, accompanying and forming part of this Prospectus. Applications for Offering Shares under the International Offering by way of Application Forms must be made using the BLUE International Offering Application Forms, accompanying and forming part of this Prospectus. E-5

470 Without prejudice to the rights of the Selling Shareholder, the Global Coordinator, as agent of the Selling Shareholder, has been authorised to accept, for and on behalf of the Selling Shareholder, such other forms of application, as the Global Coordinator may (in consultation with the Selling Shareholder) deem appropriate. We draw your attention to the detailed instructions contained in the respective Application Forms and this Prospectus for the completion of the Application Forms which must be carefully followed. The Selling Shareholder reserves the right to reject applications which do not conform strictly to the instructions set out in the Application Forms and this Prospectus or to the terms and conditions of this Prospectus or which are illegible, incomplete, incorrectly completed or which are accompanied by improperly drawn remittances. 2. You must complete your Application Forms in English. Please type or write clearly in ink using BLOCK LETTERS. 3. You must complete all spaces in your Application Forms except those under the heading FOR OFFICIAL USE ONLY and you must write the words NOT APPLICABLE or N.A. in any space that is not applicable. 4. Individuals, corporations, approved nominee companies and trustees must give their names in full. If you are an individual, you must make your application using your full name as it appears in your identity card (if you have such an identification document) or in your passport and, in the case of corporations, in your full names as registered with a competent authority. If you are not an individual, you must complete the Application Form under the hand of an official who must state the name and capacity in which he signs the Application Form. If you are a corporation completing the Application Form, you are required to affix your Common Seal (if any) in accordance with your Memorandum and Articles of Association or equivalent constitutive documents. If you are a corporate Applicant and your application is successful, a copy of your Memorandum and Articles of Association or equivalent constitutive documents must be lodged with our Company s Singapore Share Transfer Agent. Our Company and the Selling Shareholder reserves the right to require you to produce documentary proof of identification for verification purposes. 5. (a) You must complete Sections A and B and sign on page 1 of the Application Form. (b) (c) You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Form. Where paragraph 7(a) is deleted, you must also complete Section C of the Application Form with particulars of the beneficial owner(s). If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, on page 1 of the Application Form, your application is liable to be rejected. 6. You (whether an individual or corporate Applicant, whether incorporated or unincorporated and wherever incorporated or constituted) will be required to declare whether you are a citizen or permanent resident of Singapore or a corporation in which citizens or permanent residents of Singapore or any body corporate constituted under any statute of Singapore having an interest in the aggregate of more than 50% of the issued share capital of or interests in such corporations. If you are an approved nominee company, you are required to declare whether the beneficial owner of the Offering Shares is a citizen or permanent resident of Singapore or a corporation, whether incorporated or unincorporated and wherever incorporated or constituted, in which citizens or permanent residents of Singapore or any body corporate incorporated or constituted under any statute of Singapore have an interest in the aggregate of more than 50% of the issued share capital of or interests in such corporation. 7. You may apply for the Offering Shares using only cash. Each application must be accompanied (or, in the case of applications for Offering Shares under the International Offering, followed) by a cash remittance in Singapore currency for the full amount payable at the Maximum Offering E-6

471 Price for each Offering Share under the Singapore Public Offer and the Offering Price for each Offering Share under the International Offering, in respect of the number of Offering Shares applied for, in the form of a BANKER S DRAFT or CASHIER S ORDER drawn on a bank in Singapore, made out in favour of STRAITS SHARE ISSUE ACCOUNT crossed A/C PAYEE ONLY with your name and address written clearly on the reverse side. Applications not accompanied by any payment or accompanied by any other form of payment will not be accepted. Remittances bearing Not Transferable or Non-Transferable crossings will be rejected. No acknowledgement of receipt will be issued for applications and application monies received. 8. Monies paid in respect of unsuccessful applications are expected to be returned (without interest or any share of revenue or other benefit arising therefrom) to you within 24 hours of the balloting at your own risk. Where your application is rejected or is accepted in part only, the full amount or the balance, respectively, of the application moneys (including the excess monies arising from the difference between the Offering Price and the Maximum Offering Price should the Offering Price be lower than the maximum Offering Price), as the case may be, will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by ordinary post at your own risk within 14 Market Days after the close of the Singapore Public Offer, provided that the remittance accompanying such application which has been presented for payment or other processes has been honoured and the application moneys have been received in the designated share issue account. If the Combined Offering does not proceed for any reason, the full amount of application monies (without interest or any share of revenue or other benefit arising therefrom) will be returned to you within three Market Days after the Combined Offering is discontinued. 9. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the meanings assigned to them in this Prospectus. 10. By completing and delivering the Application Form, you agree that: (a) (b) (c) (d) (e) in consideration of the Selling Shareholder having distributed the Application Form to you and by completing and delivering the Application Form before the close of the Combined Offering or such other time or date as the Selling Shareholder may, in consultation with the the Global Coordinator, decide: (i) (ii) (iii) your application is irrevocable; your remittance will be honoured on first presentation and that any moneys returnable may be held pending clearance of your payment without interest or any share of revenue or other benefit arising therefrom; and you represent and agree that you are not a U.S. person (within the meaning of Regulation S) and/or a qualified institutional buyer (with the meaning of Rule 144A); all applications, acceptances or contracts resulting therefrom under the Invitation shall be governed by and construed in accordance with the laws of Singapore and that you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts; in respect of the Offering Shares for which your application has been received and not rejected, acceptance of your application shall be constituted by written notification by or on behalf of the Selling Shareholder and not otherwise, notwithstanding any remittance being presented for payment by or on behalf of the Selling Shareholder; you will not be entitled to exercise any remedy of rescission for misrepresentation at any time after acceptance of your application; reliance is placed solely on information contained in this Prospectus and that none of the Selling Shareholder, the Global Coordinator or any other person involved in the Combined Offering shall have any liability for any information not so contained; E-7

472 (f) (g) you consent to the disclosure of your name, NRIC/passport number or company registration number, address, nationality, permanent resident status, CDP Securities Account number, CDP Securities Account number (if applicable) and share application amount from your account with the relevant Participating Bank to our Singapore Share Transfer Agent, SGX-ST, CDP, SCCS, the Selling Shareholder, the Global Coordinator and the coordinator for the Singapore Public Offer; and you irrevocably agree and undertake to purchase the number of Offering Shares applied for as stated in the Application Form or any smaller number of such Offering Shares that may be allocated to you in respect of your application. In the event that the Selling Shareholder decides to allocate or allot any smaller number of Offering Shares or not to allocate or allot any Offering Shares to you, you agree to accept such decision as final. Applications for Offering Shares under the Singapore Public Offer by Way of Printed Application Forms 1. Your application for Offering Shares under the Singapore Public Offer by way of printed Application Forms MUST be made using the WHITE Singapore Public Offer Application Forms and WHITE official envelopes A and B. 2. You must: (a) (b) (c) (d) (e) enclose the WHITE Singapore Public Offer Application Form, duly completed and signed, together with your correct remittance for the full amount payable at the Maximum Offering Price in Singapore Currency, in accordance with the terms and conditions of this Prospectus, in the WHITE official envelope A provided; in appropriate spaces on the WHITE official envelope A : (i) (ii) (iii) write your name and address; state the number of Offering Shares under the Singapore Public Offer applied for; and affix adequate Singapore postage; SEAL THE WHITE OFFICIAL ENVELOPE A ; write, in the special box provided on the larger WHITE official envelope B addressed to DBS Bank Ltd, 6 Shenton Way, #36-01, DBS Building Tower One, Singapore , the number of Offering Shares under the Singapore Public Offer you have applied for; and insert WHITE official envelope A into WHITE official envelope B, seal WHITE official envelope B, affix adequate Singapore postage on WHITE official envelope B (if despatching by ordinary post) and thereafter DESPATCH BY ORDINARY POST OR DELIVER BY HAND the documents at your own risk to DBS Bank Ltd, 6 Shenton Way, #36-01, DBS Building Tower One, Singapore , so as to arrive by noon on October 31, 2006 or such other time or date as the Selling Shareholder may, in consultation with the the Global Coordinator, decide. Local Urgent Mail or Registered Post must NOT be used. No acknowledgement of receipt will be issued for any application or remittance received. 3. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or which are not honoured upon their first presentation are liable to be rejected. 4. ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement of receipt will be issued for any application or remittance received. E-8

473 Applications for Offering Shares under the International Offering by Way of Printed Application Forms 1. Your application for Offering Shares under the International Offering must be made using the BLUE International Offering Application Forms (or in such other manner as the Global Coordinator may in its absolute discretion deem appropriate). 2. The completed and signed BLUE International Offering Application Form and your remittance, in accordance with the terms and conditions of the Prospectus, for the full amount payable at the Offering Price in respect of the number of Offering Shares under the International Offering applied for with your name, CDP Securities Account number and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be provided by you. You must affix adequate Singapore postage on the envelope (if despatching by ordinary post) and thereafter the sealed envelope must be DESPATCHED BY ORDINARY POST OR DELIVERED BY HAND at your own risk to Macquarie Securities (Asia) Pte Limited, 23 Church Street, #11-11 Capital Square, Singapore , for the attention of Equity Capital Markets, to arrive by noon on October 31, 2006 or such other time or date as the Selling Shareholder may, in consultation with the Global Coordinator, decide. Local Urgent Mail or Registered Post must NOT be used. No acknowledgement receipt will be issued for any application or remittance received. 3. Applications that are illegible, incomplete or incorrectly completed or accompanied by improperly drawn remittances or which are not honoured upon their first presentation may be rejected. 4. ONLY ONE APPLICATION should be enclosed in each envelope. No acknowledgement of receipt will be issued for any application or remittance received. 5. Alternatively, you may remit your application moneys by electronic transfer to the account of DBS Bank Ltd, 6 Shenton Way Branch, Current Account No in favour of STRAITS SHARE ISSUE ACCOUNT for the number of Offering Shares under the International Offering applied for by noon on October 31, Applicants who remit their application moneys through electronic transfer should send a copy of the telegraphic transfer advice slip to Macquarie Securities (Asia) Pte Limited, 23 Church Street, #11-11 Capital Square, Singapore , for the attention of Equity Capital Markets, to arrive by noon on October 31, 2006, or such other time or date as the Selling Shareholder may, in consultation with the Global Coordinator, decide. ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS The procedures for Electronic Applications are set out on the ATM screens (in the case of ATM Electronic Applications) and in the case of Internet Electronic Applications on the IB web-site screens of the Participating Banks (the Steps ). Currently, DBS Bank and UOB Group are the only Participating Banks through which the Internet Electronic Applications through the IB web-site may be made. For illustration purposes, the procedures for Electronic Applications for Offering Shares under the Singapore Public Offer through ATMs and the IB web-site of DBS Bank (together, the Steps ) are set out in the Steps for ATM Electronic Applications for Offering Shares under the Singapore Public Offer through ATMs of DBS Bank (including POSB ATMs) and the Steps for Internet Electronic Applications for Offering Shares under the Singapore Public Offer through the IB web-site of DBS Bank appearing on pages E-16 to E-17 of this Prospectus. Please read carefully the terms of this Prospectus, the Steps and the terms and conditions for Electronic Applications set out below carefully before making an Electronic Application. Any reference to you or the Applicant in the Additional Terms and Conditions for Electronic Applications and the Steps shall refer to you making an application for Offering Shares under the Singapore Public Offer through an ATM or the IB web-site of the Participating Bank. E-9

474 The Steps set out the actions that you must take at ATMs or the IB web-site of DBS Bank to complete an Electronic Application. You must have an existing bank account with and be an ATM cardholder of one of the Participating Banks before you can make an ATM Electronic Application at the ATMs of the Participating Bank. Upon the completion of your ATM Electronic Application transaction, you will receive an ATM transaction slip ( Transaction Record ), confirming the details of your ATM Electronic Application. The Transaction Record is for your retention and should not be submitted with any printed Application Form. An ATM card issued by one Participating Bank cannot be used to apply for Shares at an ATM belonging to other Participating Banks. You must ensure that you enter your own Securities Account Number when using the ATM card issued to you in your own name. If you fail to use your own ATM card or do not key in your own Securities Account number, your application will be rejected. If you operate a joint bank account with the Participating Bank, you must ensure that you enter your own Securities Account number when using the ATM card issued to you in your own name. Using your own Securities Account number with an ATM card which is not issued to you in your own name will render your ATM Electronic Application liable to be rejected. For an Internet Electronic Application, you must have a bank account with and/or a User Identification ( User ID ) and a Personal Identification Number ( PIN ) given by the relevant Participating Bank. Upon completion of your Internet Electronic Application through the IB web-site of DBS Bank, there will be an on-screen confirmation ( Confirmation Screen ) of the application which can be printed out by you for your record. This printed record of the Confirmation Screen is for your retention and should not be submitted with any printed Application Form. If you are making an Internet Electronic Application, you must ensure that the mailing address of your account selected for the application is in Singapore and you must declare that the application is being made in Singapore. Otherwise, your application is liable to be rejected. In this connection, you will be asked to declare that you are in Singapore at the time when you make the application. Your Electronic Application shall be made on the terms and subject to the conditions of this Prospectus, including but not limited to, the terms and conditions appearing below and those set out under the section on TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE OF THE OFFERING SHARES UNDER THE SINGAPORE PUBLIC OFFER on pages E-1 to E-17 of this Prospectus, as well as the Memorandum and Articles of Association of our Company. 1. In connection with your Electronic Application for the Offering Shares under the Singapore Public Offer, you are required to confirm statements to the following effect in the course of activating the Electronic Application: (a) (b) that you have received a copy of this Prospectus (in the case of ATM Electronic Applications only) and have read, understood and agreed to all the terms and conditions of application for the Offering Shares under the Singapore Public Offer and this Prospectus prior to effecting the Electronic Application and agree to be bound by the same; that you consent to the disclosure of your name, NRIC/passport number or company registration number, address, nationality, permanent resident status, CDP Securities Account number and share application amount (the Relevant Particulars ) from your account with the Participating Bank, to our Share Registrar, Singapore Share Transfer Agent, SGX-ST, CDP, SCCS, the Selling Shareholder, the Global Coordinator and the coordinator for the Singapore Public Offer (the Relevant Parties ); and E-10

475 (c) where you are applying for the Offering Shares under the Singapore Public Offer, that this is your only application for the Offering Shares under the Singapore Public Offer and it is made in your name and at your own risk. Your application will not be successfully completed and cannot be recorded as a completed transaction unless you press the Enter or OK or Confirm or Yes or any other relevant key in the ATM or click Confirm or OK or Submit or Continue or Yes or any other relevant button on the Internet screen. By doing so, you shall be treated as signifying your confirmation of each of the above three statements. In respect of statement 1(b) above, your confirmation, by pressing the Enter or OK or Confirm or Yes or any other relevant key or by clicking Confirm or OK or Submit or Continue or Yes or any other relevant button, shall signify and shall be treated as your written permission, given in accordance with the relevant laws of Singapore, including Section 47(2) of the Banking Act (Chapter 19) of Singapore, to the disclosure by the Participating Bank, of the Relevant Particulars of your account(s) with the Participating Bank to the Relevant Parties. 2. You must have sufficient funds in your bank account with the Participating Bank at the time you make your Electronic Application at the ATM or IB web-site of the Participating Bank, failing which such Electronic Application will not be completed. Any Electronic Application made at the ATM or IB web-site of the Participating Bank which does not conform strictly to the instructions set out in this Prospectus or on the screens of the ATM or IB web-site of the Participating Banks, as the case may be, through which your Electronic Application is being made shall be rejected. 3. You may apply for the Offering Shares under the Singapore Public Offer through any ATM or the IB website (as the case may be) of the Participating Bank using only cash by authorising the Participating Bank to deduct the full amount payable from your bank account(s) with the Participating Bank. 4. You irrevocably agree and undertake to purchase and to accept the number of Offering Shares under the Singapore Public Offer applied for as stated on the Transaction Record or the Confirmation Screen or any lesser number of such Offering Shares under the Singapore Public Offer that may be allotted to you in respect of your Electronic Application. In the event that the Selling Shareholder decides to allot any lesser number of such Offering Shares under the Singapore Public Offer or not to allot any Offering Shares under the Singapore Public Offer to you, you agree to accept such decision as final. If your Electronic Application is successful, your confirmation (by your action of pressing the Enter or OK or Confirm or Yes or any other relevant key on the ATM or clicking Confirm or OK or Submit or Continue or Yes or any other relevant button on the Internet screen) of the number of Offering Shares under the Singapore Public Offer applied for shall signify and shall be treated as your acceptance of the number of Offering Shares under the Singapore Public Offer that may be allotted to you and your agreement to be bound by the Memorandum and Articles of Association of our Company. 5. We will not keep any application in reserve. Where your Electronic Application is unsuccessful, the full amount of the application moneys will be refunded (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with the relevant Participating Bank, at your risk within 24 hours of the balloting provided that the remittance in respect of such application which has not been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account. Trading on a when-issued basis, if applicable, is expected to commence after such refund has been made. E-11

476 Where your ATM Electronic Application or Internet Electronic Application is rejected or is accepted in part only, the full amount or the balance, respectively, of the application moneys (including the excess monies arising from the difference between the Offering Price and the Maximum Offering Price should the Offering Price be lower than the Maximum Offering Price), as the case may be, will be returned (without interest or any share of revenue or other benefit arising therefrom) to you by being automatically credited to your account with the Participating Bank, at your own risk, within 14 Market Days after the close of the Singapore Public Offer provided that the remittance in respect of such application which has been presented for payment or other processes has been honoured and the application monies have been received in the designated share issue account. If the Combined Offering does not proceed for any reason, the full amount of application monies (without interest or any share of revenue or other benefit arising therefrom) will be returned to you within three Market Days after the Combined Offering is discontinued. Responsibility for timely refund of application moneys from unsuccessful or partially successful Electronic Applications lies solely with the respective Participating Banks. Therefore, you are strongly advised to consult the relevant Participating Bank as to the status of your Electronic Application and/or the refund of any money to you from unsuccessful or partially successful Electronic Application, to determine the exact number of Shares allotted to you before trading the Shares on the SGX-ST. None of the SGX-ST, the CDP, the SCCS, the Participating Banks, the coordinator for the Singapore Public Offer, the Selling Shareholder and the Global Coordinator assumes any responsibility for any loss that may be incurred as a result of you having to cover any net sell positions or from buy-in procedures activated by the SGX-ST. If your Electronic Application is unsuccessful, no notification will be sent by the Participating Banks. 6. Applicants who make ATM Electronic Applications for the Offering Shares under the Singapore Public Offer through the ATMs of the Participating Banks may check the provisional results of their ATM Electronic Applications as follows: Bank Telephone Available at ATM/ INTERNET Operating Hours Service expected from DBS (for POSB Account holders) (for DBS Account holders) Internet Banking (2) 24 hours a day Evening of the balloting day UOB Group ATM (Other Transactions IPO Enquiry ) (1)(2) ATM/Phone Banking 24 hours a day Internet Banking 24 hours a day Evening of the balloting day OCBC Bank ATM/Internet Banking/ 24 hours Evening of the Phone Banking (3) balloting day Notes: (1) If you have made your Electronic Application through the ATMs or IB website of the UOB Group, you may check this results of your application through UOB Personal Internet Banking, ATMs of the UOB Group or UOB PhoneBanking services. (2) If you have made your Internet Electronic Application through the IB website of DBS or the UOB Group, you may also check the results of your application throught the same channels listed in the table above in relation to ATM Electronic Applications made at ATMs of DBS or the UOB Group. (3) If you have made your Electronic Application through ATMs of OCBC Bank, you may check the result of your application through the same channels listed in the table above. E-12

477 7. Electronic Applications shall close at noon on October 31, 2006 for the Offering Shares under the Singapore Public Offer or such other time and date as the Selling Shareholder may, in consultation with the Global Coordinator, decide. Subject to paragraph 9 below, an Internet Electronic Application is deemed to be received when it enters the designated information system of the relevant Participating Bank. 8. You are deemed to have irrevocably requested and authorised the Selling Shareholder to: (a) (b) (c) (d) register the Offering Shares under the Singapore Public Offer allotted to you in the name of CDP for deposit into your Securities Account; send the relevant Share certificate(s) to CDP; return or refund (without interest or any share of revenue earned or other benefit arising therefrom) the application moneys, should your ATM Electronic Application or Internet Electronic Application be rejected or if the Combined Offering does not proceed for any reason, by automatically crediting your bank account with the relevant Participating Bank at your risk, within 24 hours of the balloting, or within three Market Days if the application does not proceed for any reason, after the close or discontinuation of the Combined Offering; and return or refund (without interest or any share of revenue or other benefit arising therefrom) the balance of the application moneys (including the excess monies arising from the difference between the Offering Price and the Maximum Offering Price should the Offering Price be lower than the Maximum Offering Price), should your ATM Electronic Application or Internet Electronic Application be accepted in full or in part only, by automatically crediting your bank account with the relevant Participating Bank, at your risk, within 14 Market Days after the close of the Singapore Public Offer. 9. You irrevocably agree and acknowledge that your Electronic Application is subject to risks of electrical, electronic, technical and computer-related faults and breakdown, fires, acts of God and other events beyond the control of the Participating Banks, the coordinator for the Singapore Public Offer, the Selling Shareholder and the Global Coordinator and in any such event the Selling Shareholder, the Global Coordinator, the coordinator for the Singapore Public Offer and/or the relevant Participating Bank do not receive your Electronic Application, or data relating to your Electronic Application or the tape or any other devices containing such data is lost, corrupted or not otherwise accessible, whether wholly or partially for whatever reason, you shall be deemed not to have made an Electronic Application and you shall have no claim whatsoever against the Selling Shareholder, the Global Coordinator and the coordinator for the Singapore Public Offer and/or the Participating Bank for Offering Shares under the Singapore Public Offer applied for or for any compensation, loss or damage. 10. We do not recognise the existence of a trust. Any Electronic Application by a trustee must be made in his own name and without qualification. We will reject any application by any person acting as nominee (other than approved nominee companies). 11. All your particulars in the records of the Participating Banks at the time you make your Electronic Application shall be deemed to be true and correct and the relevant Participating Bank and any other Relevant Parties shall be entitled to rely on the accuracy thereof. If there has been any change in your particulars after making your Electronic Application, you shall promptly notify the Participating Bank. E-13

478 12. You should ensure that your personal particulars as recorded by both CDP and the relevant Participating Bank are correct and identical, otherwise, your Electronic Application is liable to be rejected. You should promptly inform CDP of any change in address, failing which the notification letter on successful allotment will be sent to your address last registered with CDP. 13. By making and completing an Electronic Application, you are deemed to have agreed that: (a) (b) (c) (d) (e) (f) in consideration of the Selling Shareholder making available the Electronic Application facility, through the Participating Banks acting as agents of the Selling Shareholder, at the ATMs and the IB web-site of the relevant Participating Bank: (i) (ii) (iii) your Electronic Application is irrevocable; you represent and agree that you are not a US person (as defined in Regulation S); and your Electronic Application, the acceptance by the Selling Shareholder and the contract resulting therefrom under the Combined Offering shall be governed by and construed in accordance with the laws of Singapore and you irrevocably submit to the non-exclusive jurisdiction of the Singapore courts; none of the Selling Shareholder, the Global Coordinator, the Participating Banks or the coordinator for the Singapore Public Offer shall be liable for any delays, failures or inaccuracies in the recording, storage or in the transmission or delivery of data relating to your Electronic Application to the Selling Shareholder or CDP due to breakdowns or failure of transmission, delivery or communication facilities or any risks referred to in paragraph 10 above or to any cause beyond their respective controls; in respect of the Offering Shares under the Singapore Public Offer, for which your Electronic Application has been successfully completed and not rejected, acceptance of your Electronic Application shall be constituted by written notification by or on behalf of the Selling Shareholder and not otherwise, notwithstanding any payment received by or on behalf of the Selling Shareholder; you will not be entitled to exercise any remedy for rescission for misrepresentation at any time after acceptance of your application; and reliance is placed solely on information contained in this Prospectus and that none of the Selling Shareholder, the Global Coordinator nor any other person involved in the Combined Offering shall have any liability for any information not so contained. you irrevocably agree and undertake to purchase and to accept the number of Offering Shares applied for as stated in your Electronic Application or any smaller number of Offering Shares that may be allotted and/or allocated to you in respect of your Electronic Application. In the event the Selling Shareholder decides to allot and/or allocate any smaller number of such Offering Shares or not to allot and/or allocate any Offering Shares to you, you agree to accept such decision as final. Steps for ATM Electronic Applications for Offering Shares under the Singapore Public Offer through ATMs of DBS Bank (Including POSB ATMs) Instructions for ATM Electronic Applications will appear on the ATM screens of the respective Participating Bank. For illustration purposes, the steps for making an ATM Electronic Application through a DBS Bank or POSB ATM are shown below. Certain words appearing on the screen are in abbreviated form ( A/c, amt, appln, &, I/C, SGX and No. refer to Account, amount, application, and, NRIC, SGX-ST and Number respectively. E-14

479 Step 1. Insert your personal DBS Bank or POSB ATM Card. 2. Enter your Personal Identification Number. 3. Select CASHCARD & MORE SERVICES. 4. Select ESA-IPO SHARE/INVESTMENTS. 5. Select ELECTRONIC SECURITY APPLN (IPOS/BOND/ST-NOTES/SECURITIES). 6. Read and understand the following statements which will appear on the screen: THE OFFER OF SECURITIES (OR UNITS OF SECURITIES) WILL BE MADE IN, OR ACCOMPANIED BY, A COPY OF THE PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT (AND IF APPLICABLE, A COPY OF THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT) WHICH CAN BE OBTAINED FROM ANY DBS/POSB BRANCH IN SINGAPORE AND, WHERE APPLICABLE, THE VARIOUS PARTICIPATING BANKS DURING BANKING HOURS, SUBJECT TO AVAILABILITY. (IN THE CASE OF SECURITIES OFFERING THAT IS SUBJECT TO A PROSPECTUS/ OFFER INFORMATION STATEMENT/DOCUMENT REGISTERED WITH THE MONETARY AUTHORITY OF SINGAPORE) ANYONE WISHING TO ACQUIRE THESE SECURITIES (OR UNITS OF SECURITIES) SHOULD READ THE PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE) BEFORE SUBMITTING HIS APPLICATION WHICH WILL NEED TO BE MADE IN THE MANNER SET OUT IN THE PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT (AS SUPPLEMENTED OR REPLACED, IF APPLICABLE). A COPY OF THE PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT, AND IF APPLICABLE, A COPY OF THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT HAS BEEN LODGED WITH AND REGISTERED BY THE MONETARY AUTHORITY OF SINGAPORE WHO ASSUMES NO RESPONSIBILITY FOR ITS OR THEIR CONTENTS. Press the ENTER key to confirm that you have read and understood. 7. Select STRAITS to display details. 8. Press the ENTER key to acknowledge: YOU HAVE READ, UNDERSTOOD AND AGREED TO ALL TERMS OF THE APPLICATION AND PROSPECTUS/DOCUMENT OR PROFILE STATEMENT, AND IF APPLICABLE, THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT. YOU CONSENT TO DISCLOSE YOUR NAME, NRIC/PASSPORT NO., ADDRESS, NATIONALITY, CDP SECURITIES A/C NO., CPF INVESTMENT A/C NO. AND SECURITY APPLN AMOUNT FROM YOUR BANK A/C(S) TO SHARE REGISTRARS, SGX, SCCS, CDP, CPF AND THE ISSUER. FOR FIXED AND MAX PRICE SECURITY APPLICATION, THIS IS YOUR ONLY APPLICATION AND IT IS MADE IN YOUR OWN NAME AND AT YOUR OWN RISK. E-15

480 THE MAXIMUM PRICE FOR EACH SHARE IS PAYABLE IN FULL ON APPLICATION AND SUBJECT TO REFUND IF THE FINAL PRICE IS LOWER. FOR TENDER SECURITY APPLICATIONS, THIS IS YOUR ONLY APPLICATION AT THE SELECTED TENDER PRICE AND IT IS MADE IN YOUR OWN NAME AND AT YOUR OWN RISK. YOU ARE NOT A US PERSON AS REFERRED TO IN THE PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT AND IF APPLICABLE, THE REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT OR PROFILE STATEMENT. 9. Select your nationality. 10. Select your payment method. 11. Select the DBS account (Autosave/Current/Savings/Savings Plus) or the POSB account (Current/ Savings) from which to debit your application monies. 12. Enter the number of securities you wish to apply for using cash. 13. Enter or confirm (if your CDP Securities Account number has already been stored in DBS Bank s records) your own 12-digit CDP Securities Account number. (Note: This step will be omitted automatically if your CDP Securities Account number has already been stored in DBS s records). 14. Check the details of your securities application, your NRIC or passport number and CDP Securities Account number and number of securities on the screen and press the ENTER key to confirm your application. 15. Remove the Transaction Record for your reference and retention only. Steps for Internet Electronic Applications for Offering Shares under the Singapore Public Offer through the IB web-site of DBS Bank For illustrative purposes, the steps for making an Internet Electronic Application through the DBS Bank IB web-site is shown below. Certain words appearing on the screen are in abbreviated form ( A/c, amt, &, I/C, SGX and No. refer to Account, amount, and, NRIC, SGX-ST and Number respectively). Step 1. Click on to DBS Bank web-site ( 2. Login to Internet banking. 3. Enter your User ID and PIN. 4. Select Electronic Security Application (ESA). 5. Click Yes to proceed and to warrant that you have observed and complied with all applicable laws and regulations. 6. Select your country of residence and click I confirm. 7. Click on STRAITS and click the Submit button. E-16

481 8. Click I Confirm to confirm, inter alia; (a) (b) (c) (d) (e) (f) You have read, understood and agreed to all terms of this application and the Prospectus/ Document or Profile Statement and if applicable, the Supplementary or Replacement Prospectus/Document or Profile Statement. You consent to disclose your name, I/C or Passport number, address, nationality, CDP Securities Account number, CPF Investment account number (if applicable) and securities application amount from your DBS/POSB Bank Account(s) to registrars of securities, SGX, SCCS, CDP, CPF Board and issuer. You are not a US Person (as such term is defined in Regulation S under the United States Securities Act of 1933, as amended). You understand that the securities mentioned herein have not been and will not be registered under the U.S. Securities Act of 1993, as amended (the U.S. Securities Act ) or the securities laws of any state of the United States and may not be offered or sold in the United States, or for the account or benefit of, any U.S. person (as defined in Regulation S under the U.S. Securities Act) except pursuant to an exemption from or in a transaction subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. There will be no public offer of the securities mentioned herein in the United States. Any failure to comply with this restriction may constitute a violation of the United States securities laws. This application is made in your own name and at your own risk. For FIXED/MAX price securities application, this is your only application. For TENDER price securities application, this is your only application at the selected tender price. 9. Fill in details for share application and click Submit. 10. Check the details of your securities application, your NRIC or passport number and click OK to confirm your application. 11. Print Confirmation Screen (optional) for your reference & retention only. E-17

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