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1 30 July 2013 Kangaroo Resources Limited ABN: ASX Code: KRL JUNE 2013 QUARTERLY ACTIVITIES REPORT HIGHLIGHTS COAL PROJECTS INDONESIA Mamahak Coal Project: Production at MCM remains suspended pending identification of additional mineable reserves, construction of new road and port and improvement in market conditions. MCM coal sales of 61,758 tonnes, reduction in coal stockpile inventory down to 71,940 tonnes. Exploration Program now commenced at MEL. MEL is the second concession out of the four Mamahak mining concessions. 159 Drill holes completed totalling 7,389m of exploration drilling completed at primarily at MCM and a small proportion at MEL. Pakar Coal Project: Continuation of the regulatory process required to obtain Government signoff for the transfer of outstanding equity in the Pakar Project to the remaining 4 concessions to be transferred to the Company. Corporate: Cash reserves of AU$3.825M at Quarterend with US$10.5M due to be transferred once the project equity component of the Pakar transaction is completed. Legal Action has been commenced in the Supreme Court of Victoria against the Company by former advisors, Chimaera and Empire, relating to an engagement in The Company has engaged legal firm Clayton Utz to defend the case. A Freezing Order against Kangaroo which was issued in April 2012 has now been discharged following a ruling by the Supreme Court of Western Australia on 26 June MAMAHAK COAL PROJECT (four concessions MCM, BKL, MEL & MBE) Mamahak project contains 4 individual mining concessions which are now located in the newly formed Mahakam Hulu regency in East Kalimantan, Indonesia (formerly Kutai Barat).

2 Production at MCM remains suspended pending identification of additional mineable reserves from MCM, MEL, MBE and BKL, construction of new road and port along with improvements in the international coal market. A work program is in place to identify additional coal reserves. Coal stockpiles will be sold down as soon as river levels allow barging from the existing port location. During the March 2013 Quarter mining operations were suspended at the Mamahak Coal project in Indonesia. This decision was taken to enable the completion of an operational review and also to await an improvement in international coal market conditions. During the June 2013 Quarter the suspension was continued and no mining production activity was carried out, however coal crushing and coal hauling activity was continued to build up coal product stockpiles at the Long Hubung port area on the Mahakam River. The MCM mining agreement established in the March 2013 Quarter with mining contractor PT Hero Krida Utama (HKU), under which Kangaroo will notify HKU three months before the date it wishes to start the new mining contract is still in place. The deadline for initiating mobilization is 30 September During the June Quarter Coal Barging recommenced and a total of 61,758 tonnes was barged to Balikpapan Coal Terminal utilising a 2 stage barging process. Barging throughout the June 2013 Quarter was intermittent due to seasonal variations to the river levels. Barging form Long Hubung port was eventually halted in June due to the onset of a prolonged dry weather period which reduced river levels to below the minimum required for barging. All coal barged to Balikpapan Coal Terminal during the June 2013 Quarter has been sold for export markets and revenues used to offset project debt. Coal Sales were all to Bayan using a prorata index linked contract based on the Indonesian coal price index. Site investigation & exploration activities were also continued and expanded during the June 2013 Quarter. A total of 4 exploration drill rigs were in operation at MCM and MEL for resource definition and exploration. In the September 2013 Quarter, the Company will continue its exploration drilling programme to increase the coal resources & reserves at Mamahak. During the June 2013 Quarter, a total of 159 boreholes were drilled for an aggregate total of 7,389 linear metres. (drilling for MCM & MEL combined) The MEL concession which covers an area of 5,000 hectares is within an area designated for Production Forestry. A forestry usage permit known locally as Pinjam Pakai was obtained for MEL on 30 October 2012 for a total area of 1,516 Hectares which covers the Western and Eastern areas of the MEL concession area. The remaining Central area of the MEL concession area is still pending submission of a revised forestry usage permit application, due to the existence of a former forestry logging licence held by others. During the June 2013 Quarter, physical access was established to the Western Pinjam Pakai area and 1 drilling rig was able to commence initial exploration drilling on 16 June A total of 6 holes equating to 297 linear metres of drilling were completed at MEL concession area during the June 2013 Quarter. 2

3 Access to MBE for exploration is subject to establishing a new road access. A forestry usage permit for MBE is already in place since 6 March 2013 covering 1,420 Hectares of the 5,000 Hectare mining concession. As with MEL, the approved area covers a Western and an Eastern area only the remaining Central area will require a further submission to be made due to the existence of a former forestry logging permit held by others. An application for forestry usage permit Pinjam Pakai for BKL is also being prepared by the Company for submission. The Pinjam Pakai process requires the company to obtain a number of other supporting documents and recommendation letters from other government departments prior to submission of an application. The Company s focus at Mamahak for the remainder of 2013 will be in continuing ongoing exploration in MCM & MEL concession areas and also in establishing new vehicular access to the eastern areas of MEL and also to the easternmost MBE concession to allow access for drilling rigs to commence exploration drilling. The Company s primary objective is to increase the current Mamahak Coal Resource and provide the basis for the definition of a Coal Reserve to justify the additional capital expenditure required to overcome the barging issues caused by the seasonal river level variations at the current Long Hubung port location. PAKAR COAL PROJECT Pakar project contains 9 individual coal mining concessions which are located in the Kutai Kartanegara (Kukar) regency in East Kalimantan, Indonesia. Pakar North has 3 projects (TA, TJ and DE) while Pakar South has 6 projects (OM, SA, CA, BS, AU, SK). There is also one other assetholding company associated with the 9 Pakar mining concessions (SAU). The Company has previously announced the execution of direct foreign ownership of five separate concessions and one assetholding company at the Pakar Project. These are TJ and DE from Pakar North, OM, SA and SK from Pakar South and the separate asset company SAU. The remaining 4 projects (TA, AU, BS and CA) are now in the process of legal hand over between BAYAN and the Company. Previous legal issues which prevented these projects from being transferred from the original vendors to BAYAN have now been resolved and (as of the date of this update) the 4 projects are in the hands of BAYAN who have now commenced the various legal processes necessary to have these transferred to the Company. The Pakar Coal Project is a cornerstone asset in the Company s Indonesian coal production strategy, and the transfer of outstanding equity for direct ownership will secure the Company s exposure to future cash flows to be generated by the Project, complementing its existing portfolio of thermal and coking coal projects in Indonesia. A new exploration strategy and individual exploration programs for each concession are being prepared along with budget estimates in readiness for access to the Pakar areas. 3

4 In addition, the Company is continuing the preparation of feasibility studies and environmental impact studies (based on site investigation data obtained previously) to submit to the regulatory authority to convert all the Pakar concessions from exploration status to exploitation status. The Company must also wait on receipt of several forestry usage permits, Pinjam Pakai, before any onsite works can proceed at the Pakar Project concessions. Pakar Infrastructure (SAU) BAYAN currently has two coal mining concessions in production adjoining the northern boundary of the Company s Pakar (North) concessions. BAYAN is currently barging coal from these concessions to the Gunung Sari port to the west on the Belayan River. BAYAN is planning to construct a new road from these concessions to a new port location on the larger capacity Kedang Kepala River to enable a major expansion in production capacity from these mines. Discussions were held with Bayan during the June 2013 Quarter to enable the Company s Pakar projects to also access the proposed new haul road, conveyor and barge loading facilities once constructed. These facilities will connect all 9 Pakar coal projects to a new large scale port area on the Senyiur River. BAYAN and the Company have identified an opportunity to utilise some currently unused SAU infrastructure, including haul roads, buildings and land in the establishment of the proposed new Infrastructure. Such an arrangement would enable the Company to: recover capital cost already expended on infrastructure that will not be utilised in the immediate future progressively develop and exploit the Pakar concessions and get coal to market without any major upfront capital expenditure thereby giving a significant advantage to improve economic outcomes for the Company. Further discussion between the Company and BAYAN will continue in the September 2013 Quarter to establish a cooperation framework and commercial agreements under which cooperation can be formalized for the long term benefit of both parties. GRAHA PANCA KARSA COAL PROJECT (GPK) GPK is located near Long Hiram, in the Kutai Barat regency, East Kalimantan, Indonesia. During the June 2013 Quarter, the Company continued to progress the Pinjam Pakai permitting process required to enable it to carry out further exploration activities at the GPK Project. The Company is required to secure the necessary forestry usage permits which will enable additional confirmation exploration to be carried out prior to the selection of a mining contractor and award of a mining contract. Inprinciple approval has been given, however activity cannot be commenced until the formal permit documentation has been issued. 4

5 The Company remains firmly committed to the development of the GPK project but, in light of current coal markets, the Company is currently evaluating the timing of the development of this project. To enhance tenure, the Company is also continuing the legal process of acquiring direct foreign ownership of the GPK asset by converting GPK into an Indonesian PMA company (a foreign investment company) and transferring approximately per cent of the shares in GPK directly to the Company. Under the terms on an existing commercial agreement with KAL Energy dating back to April 2010, upon receipt of the shares in GPK, the Company will issue approximately 8 per cent of its shares in GPK to KAL Energy leaving its total direct ownership at per cent. MT RUBY PROJECT Mt Ruby tenement lies approximately 90km SW of Cairns and is around 120km from the Mourilyan Bulk Loading Terminal at Innisfail, in Queensland. An application to renew the Mt Ruby tenement was submitted in the March 2013 Quarter. The tenement is held by a subsidiary KML. The Company has applied for an extension of the exploration permit and is awaiting formal documentation being processed. Further discussions were held in the June 2013 Quarter with other tenement lease holders in the area of Mt Ruby with a view to assessing joint development opportunities. The Company is currently arranging for the engagement of an independent Geological consultant to review existing data and conduct an appraisal of the tenement to assist the Board of Directors in reviewing development options and determining the best strategy. CORPORATE During the June 2013 Quarter three Board Directors resigned and were replaced by three new Directors on 1 May These changes were ratified at the Company s AGM held in Perth on 31 May The Company also relocated the Perth Head Office to 14 Emerald Terrace in West Perth and engaged 2 new individuals as joint Company Secretary. During the June 2013 Quarter, the Company continued to monitor the Supreme Court of Western Australia proceedings initiated by a subsidiary of WEC (BCBC Singapore Pte Ltd) against BAYAN for freezing orders. Freezing orders against BAYAN and the Company were made by the Court on 5 April The Company had only been joined as a third party to these proceedings to enable the freezing orders against BAYAN to be made. The freezing orders made against the Company were discharged following an order by the Supreme Court of Western Australia judgment which was delivered on 26 June The Court held that this was not a case in which the Court should have made a freezing order against a third party, such as the Company. The Company received its costs of this proceeding and has liberty to make an application to ask for an inquiry as to damages that it has sustained by reason of the freezing orders being granted on 5 April

6 During the June 2013 Quarter, legal action was commenced against the Company by former advisors, Chimaera Capital Markets Pte Ltd and Empire Equity Limited in the Supreme Court of Victoria. The proceedings relate to payment for an engagement commenced on 17 November 2010 and terminated on 8 February The former advisors are seeking relief in the quantum of AU$28 million plus Company shares & warrants for services allegedly provided over the three month period. The Company has engaged legal firm Clayton Utz to defend the case on its behalf. Cash at bank at the end of the March Quarter was ~AU$3.825 million, with a total of up to US$10.5 million due to be received once the complete project equity component of the Pakar transaction has been finalised. KEY OBJECTIVES FOR SEPTEMBER 2013 QUARTER Commercial Sale of remaining coal stockpiles at Mamahak Exploration 1 Monitor progress on existing exploration program at the 4 Mamahak concessions, including increasing areas of existing forestry usage permits to widen the overall exploration footprint. Exploration 2 Develop additional exploration programs, work plans and budgets for Pakar Projects, along with a new confirmation drilling program for GPK. Legal Continue the regulatory process and obtain Government signoff for the transfer equity of the 4 outstanding Pakar projects to the Company. Licensing & Permitting 1 Continue the process of acquiring Pinjam Pakai for GPK and also of acquiring direct foreign ownership of the GPK Project. Licensing & Permitting 2 Commence Pinjam Pakai process for the Pakar projects. Business Development 1 Establish any necessary legal and commercial agreements to enable the Company s Pakar projects to enable access to and use of the new haul road, conveyor and barge loading facility to be constructed by BAYAN. Business Development 2 Identify opportunity and optimal timing to bring GPK concession into production. Business Development 3 Formalise a new business strategy and market the Company as a long term Investment opportunity. ENDS 6

7 GLOSSARY CORPORATE Company Kangaroo Resources Limited (ASX KRL) BAYAN PT Bayan Resources Tbk KML Kangaroo Minerals Pty Limited WEC White Energy Company Limited (ASX WEC) PMA Perusahaan Model Asing (local term used for a foreign investment company) MAMAHAK MCM PT Mamahak Coal Mining BKL PT Bara Karsa Lestari MEL Mahakam Energi Lestari MBE Mahakam Bara Energi Long Hubung Current Port location on Mahakam River for MAMAHAK projects PAKAR (NORTH) TA PT Tiwi Abadi (currently pending share transfer from BAYAN to KRL) TJ PT Tanur Jaya DE PT Dermaga Energi PAKAR (SOUTH) OM PT Orkida Makmur SA PT Sumber Api CA PT Cahaya Alam (currently pending share transfer from BAYAN to KRL) BS PT Bara Sejati (currently pending share transfer from BAYAN to KRL) AU PT Apira Utama (currently pending share transfer from BAYAN to KRL) SK PT Silau Kencana PAKAR (NORTH & SOUTH) SAU PT Sumber Aset Utama Senyuir Proposed port location on Kedang Kepala River for PAKAR projects GRAHA PANCA GPK PT Graha Panca Karsa Further information: Ian Ogilvie Managing Director T E info@kangarooresources.com W 7

8 DISCLAIMER: The information concerning production targets in this announcement are not intended to be forecasts. They are internally generated goals set by the board of directors of Kangaroo Resources Limited. The ability of the company to achieve these targets will be largely determined by the company s ability to secure adequate funding, implement mining plans, resolve logistical & permitting issues associated with mining and enter into off take arrangements with reputable third parties. It is common practice for a company to comment on and discuss its exploration in terms of target size and type. The information above relating to the exploration target should not be misunderstood or misconstrued as an estimate of Mineral Resources or Ore Reserves. Hence the terms Resource(s) or Reserve(s) have not been used in this context. The potential quantity and grade is conceptual in nature, since there has been insufficient exploration to define a Mineral Resource. It is uncertain if further exploration will result in the determination of a Mineral Resource. ABOUT KANGAROO RESOURCES Kangaroo Resources Limited (ASX: KRL) is an emerging international mining Company with a portfolio of 14* coal projects in the East Kalimantan province of Indonesia and one Mineral exploration project in Queensland Australia The Company s Indonesian projects host significant thermal coal resources, some with coking coal properties, which will see the Company emerge as a significant Indonesian coal producer. The Company is committed to building a sustainable midtier mining house, focusing on Indonesian coal and using the considerable experience and expertise of its exceptional incountry majority shareholder to enable it to fast track development and production. The Company s strategy entails continuing to develop its resources and reserves and progressively build production in the short term from within its current portfolio of 14* existing Indonesian projects. * assumes successful transfer of the remaining 4 Pakar concessions ABOUT BAYAN RESOURCES Bayan Resources PT. Bayan Resources Tbk is a leading Indonesian coal producer which has integrated coal mining, processing and logistics operations. The Group is engaged in the business of surface open cut mining of thermal coal located primarily in East and South Kalimantan. Bayan has a total of 22 concessions which have a JORC certified reserves of 0.87 billion tonnes and JORC resources of 4.10 billion tonnes. Coal production also includes other grades of coal which comprise of environmentallyfriendly, low sulfur, subbituminous coal and semisoft coking coal. Having diverse coal quality, the Group is able to blend its products to meet various customers specifications. In addition, Bayan has access to cost effective and superior logistics with significant expansion possibility; ownership of port loading infrastructure is a key strategy. The Group owns and operates port loading facilities such as the Balikpapan Coal Terminal (BCT) which is one of the largest coal terminals in East Kalimantan with a handling throughput capacity of 15.0 million tonnes per annum. The BCT is able to blend from up to four stockpiles to desired specification and can fully load large scale Panamax vessels. It also owns and operates two Floating Transfer Stations (KFT) which can accept up to Capesize vessels as well as barge loading facilities in the various mine sites. Bayan has the necessary resources, experience and expertise to help Kangaroo manage issues on the ground and drive forward its Indonesian coal strategy 8

9 Appendix 1: Project Location Map East Kalimantan, Indonesia 9

10 Appendix 5B Mining exploration entity quarterly report Appendix 5B Rule 5.3 Mining exploration entity quarterly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001, 01/06/10. Name of entity KANGAROO RESOURCES LIMITED ABN Quarter ended ( current quarter ) June 2013 Consolidated statement of cash flows Cash flows related to operating activities Current quarter $A 000 Year to date (6 months) $A Receipts from product sales and related debtors 4,913 4, Payments for (a) exploration & evaluation (b) development (c) production (d) administration (130) (3,897) (1,101) (212) (9,467) (1,568) 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other (provide details if material) Net Operating Cash Flows Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) tenement acquisition (c) other fixed assets (d) equity investments 1.9 Proceeds from sale of: (a) prospects (b) equity investments (184) (6,270) (651) (c) other fixed assets 1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other (provide details if material) Net investing cash flows 1.13 Total operating and investing cash flows (carried forward) 14 (767) 14 (637) (753) (821) (7,023) + See chapter 19 for defined terms. 30/9/2001 Appendix 5B Page 1

11 Appendix 5B Mining exploration entity quarterly report 1.13 Total operating and investing cash flows (brought forward) (821) (7,023) Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 5,373 11, Repayment of borrowings (4,913) (4,913) 1.18 Dividends paid 1.19 Other (provide details if material) Net financing cash flows 460 6,669 Net increase (decrease) in cash held (361) (354) 1.20 Cash at beginning of quarter/year to date 3,820 3, Exchange rate adjustments to item Cash at end of quarter 3,825 3,825 Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities Current quarter $A' Aggregate amount of payments to the parties included in item Aggregate amount of loans to the parties included in item 1.10 NIL 1.25 Explanation necessary for an understanding of the transactions The amount above includes payments to Directors and their associated companies. Noncash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows NIL 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest NIL + See chapter 19 for defined terms. Appendix 5B Page 2 30/9/2001

12 Appendix 5B Mining exploration entity quarterly report Financing facilities available Add notes as necessary for an understanding of the position. Amount available Amount used $A 000 $A Loan facilities 3.2 Credit standby arrangements Estimated cash outflows for next quarter $A Exploration and evaluation Development 4.3 Production 3, Administration 500 Total 3,700 Reconciliation of cash Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Current quarter $A 000 Previous quarter $A Cash on hand and at bank 3,825 3, Deposits at call 5.3 Bank overdraft 5.4 Other (provide details) Total: cash at end of quarter (item 1.22) 3,825 3,820 Changes in interests in mining tenements 6.1 Interests in mining tenements relinquished, reduced or lapsed Tenement reference Nature of interest (note (2)) Interest at beginning of quarter Interest at end of quarter 6.2 Interests in mining tenements acquired or increased + See chapter 19 for defined terms. 30/9/2001 Appendix 5B Page 3

13 Appendix 5B Mining exploration entity quarterly report Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total number Number quoted Issue price per security (see note 3) (cents) Amount paid up per security (see note 3) (cents) 7.1 Preference + securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks, redemptions Ordinary securities 3,434,430,012 3,434,430,012 Fully Paid Fully Paid 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) 128,103,448 Exercise Price $0.133 Expiry Date 29 June See chapter 19 for defined terms. Appendix 5B Page 4 30/9/2001

14 Appendix 5B Mining exploration entity quarterly report Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 4). 2 This statement does give a true and fair view of the matters disclosed. Sign here:... Date: 30 July 2013 Company secretary Print name: Michael Loh Notes 1 The quarterly report provides a basis for informing the market how the entity s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report. 2 The Nature of interest (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 1022: Accounting for Extractive Industries and AASB 1026: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International Accounting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with. == == == == == + See chapter 19 for defined terms. 30/9/2001 Appendix 5B Page 5