ADAVALE RESOURCES LIMITED

ACN 008 719 015

NOTICE OF GENERAL MEETING

TIME: 12.00pm (AEDT) DATE: 20 December 2012 PLACE: The offices of Arthur Phillip Pty Ltd Colonial Centre Level 33 52 Martin Place Sydney NSW 2000

All Shareholders should refer to the Independent Expert’s Report enclosed with this Notice of General Meeting.

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting.

Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary on (+61 2)9227 8900.

CONTENTS PAGE

Business of the Meeting (setting out the proposed resolutions)	3
Explanatory Statement (explaining the proposed resolutions)	6
Glossary	27
Schedules 1 – 3	29
Annexure – Independent Expert’s Report	36
Proxy Form	Attached

IMPORTANT INFORMATION

TIME AND PLACE OF MEETING

Notice is given that the general meeting of the Shareholders to which this Notice of Meeting relates will be held at 12.00pm (AEDT) on 20 December 2012 at:

The offices of Arthur Phillip Pty Ltd Colonial Centre Level 33 52 Martin Place Sydney NSW 2000

YOUR VOTE IS IMPORTANT

The business of the General Meeting affects your shareholding and your vote is important.

VOTING ELIGIBILITY

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders at 12.00pm (AEDT) on 18 December 2012.

VOTING IN PERSON

To vote in person, attend the General Meeting at the time, date and place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the enclosed Proxy Form and return by the time and in accordance with the instructions set out on the Proxy Form.

In accordance with section 249L of the Corporations Act, members are advised that:

each member has a right to appoint a proxy;
the proxy need not be a member of the Company; and
a member who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to

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exercise. If the member appoints 2 proxies and the appointment does not specify the proportion or number of the member’s votes, then in accordance with section 249X(3) of the Corporations Act, each proxy may exercise one-half of the votes.

New sections 250BB and 250BC of the Corporations Act came into effect on 1 August 2011 and apply to voting by proxy on or after that date. Shareholders and their proxies should be aware of these changes to the Corporations Act, as they will apply to this General Meeting. Broadly, the changes mean that:

if proxy holders vote, they must cast all directed proxies as directed; and
any directed proxies which are not voted will automatically default to the Chair, who must vote the proxies as directed.

Further details on these changes is set out below.

Proxy vote if appointment specifies way to vote

Section 250BB(1) of the Corporations Act provides that an appointment of a proxy may specify the way the proxy is to vote on a particular resolution and, if it does:

the proxy need not vote on a show of hands, but if the proxy does so, the proxy must vote that way (i.e. as directed); and
if the proxy has 2 or more appointments that specify different ways to vote on the resolution – the proxy must not vote on a show of hands; and
if the proxy is the chair of the meeting at which the resolution is voted on – the proxy must vote on a poll, and must vote that way (i.e. as directed); and
if the proxy is not the chair – the proxy need not vote on the poll, but if the proxy does so, the proxy must vote that way (i.e. as directed).

Transfer of non-chair proxy to chair in certain circumstances

Section 250BC of the Corporations Act provides that, if:

an appointment of a proxy specifies the way the proxy is to vote on a particular resolution at a meeting of the Company's members; and
the appointed proxy is not the chair of the meeting; and
at the meeting, a poll is duly demanded on the resolution; and
either of the following applies:
the proxy is not recorded as attending the meeting;
the proxy does not vote on the resolution,

the chair of the meeting is taken, before voting on the resolution closes, to have been appointed as the proxy for the purposes of voting on the resolution at the meeting.

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BUSINESS OF THE MEETING

AGENDA

ORDINARY BUSINESS

1. RESOLUTION 1 – APPROVAL FOR MR HARYONO EDDYARTO TO ACQUIRE A RELEVANT INTEREST

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

“That, subject to and conditional on the passing of Resolutions 2 and 3 (inclusive), for the purpose of Section 611 (Item 7) of the Corporations Act and for all other purposes, approval is given for Mr Haryono Eddyarto to acquire a relevant interest in up to 214,727,273 voting Shares and increase his voting power to a maximum of 64.21% on the terms and conditions set out in the Explanatory Statement accompanying this Notice.”

Expert’s Report: Shareholders should carefully consider the report prepared by the Independent Expert for the purposes of the Shareholder approval required under Section 611 (Item 7) of the Corporations Act. The Independent Expert’s Report comments on the fairness and reasonableness of the transactions the subject of Resolution 1 to the nonassociated Shareholders in the Company.

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Mr Haryono Eddyarto, Arthur Phillip Nominees Pty Ltd, Ranchland Holdings Pty Ltd, Mr Roger Steinepreis, Mr David Paganin, Blueknight Corporation Pty Ltd, Sing Capital Pty Ltd and any of their respective associates or any other person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed. However the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the directions on the Proxy Form, or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

2. RESOLUTION 2 – APPROVAL TO ISSUE MILESTONE OPTIONS TO MR HARYONO EDDYARTO - RELATED PARTY

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

“That, subject to and conditional on the passing of Resolution 1, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Directors to allot and issue 60,000,000 Options to Mr Haryono Eddyarto on the terms and conditions set out in the Explanatory Statement.”

ASX Voting Exclusion: The Company will disregard any votes cast on this Resolution by Mr Haryono Eddyarto, Arthur Phillip Nominees Pty Ltd, Ranchland Holdings Pty Ltd, Mr Roger Steinepreis, Mr David Paganin, Blueknight Corporation Pty Ltd, Sing Capital Pty Ltd and any of their respective associates. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

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Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either:
(i) a member of the Key Management Personnel; or
(ii) a Closely Related Party of such a member; and
(b) the appointment does not specify the way the proxy is to vote on this Resolution.

However, the above prohibition does not apply if:

(c) the proxy is the Chair of the Meeting; and
(d) the appointment expressly authorises the Chair to exercise the proxy even if the Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

3. RESOLUTION 3 – APPROVAL TO ISSUE LOAN CONVERSION SHARES TO MR HARYONO EDDYARTO - RELATED PARTY

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

“That, subject to and conditional on the passing of Resolution 1, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to allot and issue up to 23,200,000 Shares to Mr Haryono Eddyarto upon conversion of the convertible loan on the terms and conditions set out in the Explanatory Statement.”

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either:
(i) a member of the Key Management Personnel; or

(ii) a Closely Related Party of such a member; and

(b) the appointment does not specify the way the proxy is to vote on this Resolution.

However, the above prohibition does not apply if:

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(d) the appointment expressly authorises the Chair to exercise the proxy even if the Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

DATED: 8 NOVEMBER 2012

BY ORDER OF THE BOARD

==> picture [175 x 34] intentionally omitted <==

MS SYLVIE DIMARCO COMPANY SECRETARY

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EXPLANATORY STATEMENT

This Explanatory Statement has been prepared to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions which are the subject of the business of the Meeting.

1. BACKGROUND TO AGREEMENTS WITH MR HARYONO EDDYARTO

1.1 Introduction

On 1 August 2012, the Company announced that certain shareholders of the Company had entered into various agreements with Mr Haryono Eddyarto, a Director of the Company, where Mr Eddyarto agreed to acquire Shares from certain existing Shareholders. The first of these agreements was a share sale agreement with Arthur Phillip Nominees Pty Ltd (Arthur Phillip), where Mr Eddyarto agreed to acquire 24,000,000 shares (Tranche 1 Shares) in the Company (Unconditional Share Sale Agreement). Completion on the Unconditional Share Sale Agreement has occurred increasing Mr Eddyarto’s voting power in the Company to 19.8%.

Completion under the remaining agreements is conditional on the receipt of Shareholder approval, which is the reason for this Meeting.

Resolution 1 of this Notice seeks approval for Mr Eddyarto to increase his relevant interest in the Company (up to a maximum voting power of 64.21%) as a result of the following transactions:

(a) the sale and transfer of up to 99,522,838 shares and 22,004,435 Shares Options from existing shareholders (including existing Directors Richard Poole and Roger Steinepreis) to Mr Eddyarto (see section 1.3 for further details);
(b) the grant of 60,000,000 Milestone Options (see section 1.4 for further details);
(c) the provision of a funding facility by Mr Eddyarto to the Company which may result in up to 23,200,000 Shares being issued to Mr Eddyarto (see section 1.5 for further details); and
(d) the potential exercise of the 10,000,000 Transfer Options (see section 1.2 below);

Mr Eddyarto is acquiring Shares and Options from a number of different entities (ie transfers from various Shareholders) and these were provided for in separate, independent agreements. The share transfers have been structured to include put and call options. This is to ensure the respective vendors can sell out a minimum number of shares, while allowing Mr Eddyarto to choose whether to purchase the maximum number. The actual number of Shares sold will likely be dependent upon the Company’s performance prior to the exercise dates of the respective put and call options. The nature of those agreements, being put and call options, means that Mr Eddyarto could potentially acquire a relevant interest in the Company based on different scenarios and various percentages. These scenarios are complex and are explained in section 1.3.

As a result of the above, Mr Richard Poole and Mr Roger Steinepreis, Directors of the Company, will potentially be disposing of their respective relevant interests in the Company. The maximum potential benefits derived by Mr Poole and Mr

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Steinepreis as a result of the sale of their respective relevant interests in the Company are outlined below:

(a) Arthur Phillip Nominees Pty Ltd, an entity associated with Mr Poole, will receive up to a maximum of $2,664,316 in consideration for the sale of up to 68,057,155 Shares and 17,004,435 Options to Mr Eddyarto; and
(b) Ranchland Holdings Pty Ltd and Blueknight Corporation Pty Ltd (entities associated with Mr Steinepreis) and Mr Roger Steinepreis will together receive up to a maximum of $678,706 in consideration for the sale of up to 17,336,838 Shares and 2,500,000 Options to Mr Eddyarto.

The benefits received by Mr Steinepreis and Mr Poole may be less than the maximum benefits outlined above, as these numbers represent the maximum consideration received for the maximum number of Shares and Options that could be transferred to Mr Eddyarto by Mr Roger Steinepreis, and each of the entities associated with Mr Poole and Mr Steinepreis under the respective agreements. Please refer to section 1.3 of this Notice for full details regarding these agreements.

Mr Eddyarto will derive a benefit from the transaction contemplated by Resolution 1, by virtue of his voting power in the Company increasing from 19.8%, up to a maximum of 64.21%.

The following sections 1.2 to 1.5 set out the agreements, as announced on 1 August 2012.

1.2 Transfer Options

Arthur Phillip entered into a letter agreement with Mr Eddyarto to transfer to Mr Eddyarto 10,000,000 options to acquire Shares in the Company (Transfer Options) (which had previously been issued to Arthur Phillip by the Company under the terms of the convertible loan previously approved by Shareholders under AGM Resolution 6 dated 26 November 2010 to Arthur Phillip (Arthur Phillip Loan)), as consideration for Mr Eddyarto entering in a convertible loan agreement (Loan) in place of the Arthur Phillip Loan (Option Transfer Agreement).

Completion on the Option Transfer Agreement has occurred but it should be noted that the Transfer Options have not been exercised and do not carry any voting rights. The terms and conditions of the Transfer Options are set out in Schedule 1.

While Mr Eddyarto currently holds the Transfer Options, Mr Eddyarto will not be able to exercise the Transfer Options unless approval is obtained pursuant to Resolution 1 of this Notice for the purpose of 611 (item 7).

1.3 Conditional Share Sale Agreements

Mr Eddyarto has entered into separate and conditional share sale agreements (Conditional Share Sale Agreements) with other parties, including interests associated with Mr Richard Poole and Mr Roger Steinepreis (directors of the Company) (Vendors), whereby Mr Eddyarto has agreed, subject to obtaining the necessary shareholder approvals, to acquire up to an additional 99,522,838 Shares as follows:

(a) 36,000,000 Shares on 31 December 2012 at A$0.02 per Share (Tranche 2);

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(b) 15,000,000 Shares on exercise of a call option by Mr Eddyarto at A$0.05 per Share, on or before 31 March 2013 (Tranche 3 Call Option);
(c) in the event that the Tranche 3 Call Option is not exercised, 7,500,000 Shares on exercise of a put option by the Vendors, at A$0.04 per Share on or before 20 April 2013 (Tranche 3 Put Option);
(d) 48,522,838 Shares on exercise of a call option by Mr Eddyarto, at A$0.05 per Share, on or before 31 May 2013 (Tranche 4 Call Option);
(e) in the event that the Tranche 4 Call Option is not exercised, 12,500,000 Shares on exercise of a put option by the Vendors at A$0.04 per Share on or before 20 June 2013 (Tranche 4 Put Option).

Additionally, a total of 22,004,435 options will be transferred to Mr Eddyarto by the separate Vendors on 31 December 2012, being the settlement date of Tranche 2 (Tranche 2 Settlement Date) (Tranche 2 Options).

The Vendors comprise:

Vendors	Tranche 1 Shares issued under Uncondition al Share Sale Agreement1	Conditional Share Agreements	Sale	Total number of securities to be acquired by Mr Eddyarto3
		Number of Shares to be acquired2	Number of Tranche 2 Options to be acquired
Arthur Phillip Nominees Pty Ltd4	24,000,000	Up to 68,057,155	17,004,435	109,061,590
Mr Roger Steinepreis, Blueknight Corporation Pty Ltd6and Ranchland Holdings Pty Ltd5	-	Up to 17,336838	2,500,000	19,836,838
Mr David Paganin	-	Up to 5,728,845	2,500,000	8,228,845
Sing Capital Pty Ltd	-	Up to 8,400,000	-	8,400,000
Total	24,000,000	Up to 99,522,838	22,004,435	145,527,273

Notes:

1 Completion on Unconditional Share Sale Agreement has already occurred.
2 Assumes that the Tranche 3 and Tranche 4 Call Options included for the purpose of calculating the maximum amount of Shares that Mr Eddyarto may acquire under the Conditional Share Sale Agreements have been exercised.
3 Total does not include Shares acquired by Mr Eddyarto under full acquisition.
4 An entity associated with Richard Poole, a Director of the Company.
5 An entity associated with Roger Steinepreis, a Director of the Company.
6 An entity associated with Roger Steinepreis, a Director of the Company.

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If the Tranche 3 Call Option is exercised, then the Tranche 3 Put Option will lapse. The same goes for the Tranche 4 Put Option, in that if the Tranche 3 Call Option is exercised, then the Tranche 4 Put Option will lapse. Conversely, the Tranche 4 Put Option and the Tranche 3 Put Option will only be exercisable in the event that the Tranche 3 Call Option and the Tranche 4 Call Option respectively, are not exercised.

Therefore, while the maximum number of securities Mr Eddyarto may acquire under the Conditional Share Sale Agreements is 99,522,838 Shares and 22,004,435 Tranche 2 Options, the actual number of Shares acquired could be less in the event that either or both of the Tranche 3 Put Option, or the Tranche 4 Put Option are exercised, rather than the Tranche 3 Call Option or the Tranche 4 Call Option.

A summary of the four scenarios are set out in the table below:

	Tranche 1 Shares	Tranche 2 Shares	Shares on exercise of Tranche 2 Options	Shares on exercise of Tranche 3 Call Option	Shares on exercise of Tranche 3 Put Option	Shares on exercise of Tranche 4 Call Option	Shares on exercise of Tranche 4 Put Option	Total Shares1	Maximum potential voting power2
1	24,000,000	36,000,000	22,004,435	15,000,000	-	48,522,838	-	145,527,273	64.21%
2	24,000,000	36,000,000	22,004,435	15,000,000	-	-	12,500,000	109,504,435	55.87%
3	24,000,000	36,000,000	22,004,435	-	7,500,000	48,522,838	-	138,027,273	62.47%
4	24,000,000	36,000,000	22,004,435	-	7,500,000		12,500,000	102,004,435	54.14%

Notes:

1 Total does not include Shares acquired by Mr Eddyarto under full acquisition.
2 Potential voting power includes the exercise by Mr Eddyarto of Milestone Options (outlined below), and the Transfer Options, and issue of Loan Conversion Shares to Mr Eddyarto.

1.4 Milestone Option Agreement

Subject to obtaining Shareholder approval, the Company has agreed to allot and issue a total of 60,000,000 options (as described in Resolutions 2 and 3 below) to Mr Eddyarto. The exercise of these options (Milestone Options) is conditional on the Company attaining certain milestones. The number of Milestone Options that may be exercised and the actual milestones are as follows:

(a) Milestone 1: 20 million options are exercisable when the Company enters into a binding contract to purchase or operate a coal project or concession with a minimum reserve of 2 (two) million tonnes. This tranche will have an exercise price of A$0.05 per option and an expiry date of 31 July 2014;
(b) Milestone 2: 20 million options are exercisable when the Company sells and ships its first load of coal. This tranche will have an exercise price of A$0.06 and an expiry date of 31 July 2015; and
(c) Milestone 3: 20 million options are exercisable when the Company ships its first 500,000 tonnes of coal. This tranche will have an exercise price of A$0.07 and an expiry date of 31 July 2016.

(together, the Milestones).

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The full terms and conditions of the Milestone Options are set out in Schedule 2. The Milestone Options were valued by the Independent Expert at $298,000. Refer to Schedule 3 for the Milestone Option valuation.

The primary purpose of the grant of Milestone Options to Mr Eddyarto is to provide additional consideration for his commitment and contribution to the Company in his role as director and, on obtaining shareholder approval, his appointment as Chairman of the Company. The Milestones also create a performance linked incentive to Mr Eddyarto to assist the Company in delivering a producing mine.

1.5 Convertible Loan Agreement

The Company has entered into a Convertible Loan Agreement with Mr Eddyarto for an amount of $1,000,000 (Loan).

As mentioned in section 2.1 above, the Company announced on ASX on 15 October 2010 that it had entered into a convertible loan agreement with Arthur Phillip (Arthur Phillip Loan Agreement). The Arthur Phillip Loan Agreement was previously approved at the AGM in November 2010. The Arthur Phillip Loan Agreement was due to terminate on or about 26 November 2012. As a result of the Arthur Phillip Loan Agreement being near to the end of its term, the Convertible Loan Agreement was entered into to provide the Company with sufficient funding.

The Loan may be drawn down at the election of the Company and the conversion rights under the Loan are subject to Shareholder approval. The total value of the option component of the Loan is $141,520. The valuation is set out in Schedule 4 of this Notice.

The terms of the Loan are summarised as follows:

(a) the Loan has a face value of up to $1,000,000;
(b) the Loan has a term of 24 months;
(c)
the Company may make multiple draw downs under the Loan;
(d) interest shall accrue on the Loan at the rate of 8%, or at a rate of 15% on any default amount (Interest);
(e) if the Loan has not been repaid or converted, the Company will repay any or all of the Loan (including Interest) on the date which is 24 months after the date of execution of the Loan agreement;
(f) where an event of default occurs, Mr Eddyarto may require the Company to repay any or all of the Loan plus any interest;
(g) the Loan and Interest is convertible into Shares at a conversion price of 5 cents per Share, being a maximum of 23,200,000 Shares (Loan Conversion Shares).
(h) at the Lender’s discretion, the Interest or a portion of the Interest, may be converted into Shares or paid in cash;
(i) the conversion of the Loan (and if elected by the Lender, any Interest) into Shares as outlined in section (g) above is subject to and conditional

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upon the Company obtaining Shareholder approval for the issue of the Shares; and

(j) the Loan is an unsecured debt instrument ranking alongside general secured creditors.

2. RESOLUTION 1 – APPROVAL FOR MR HARYONO EDDYARTO TO ACQUIRE A RELEVANT INTEREST

2.1 General

Resolution 1 seeks Shareholder approval pursuant to Item 7 of Section 611 of the Corporations Act, in order for Mr Haryono Eddyarto’s voting power in the Company to increase from 20% or below to more than 20% when Mr Eddyarto is issued Shares pursuant to the:

(a) Option Transfer Agreement;
(b) Conditional Sale Agreements;
(c) Milestone Option Agreement; and
(d) Loan,

(together, the Eddyarto Agreements) details of which are set out in this document.

As a result of the Eddyarto Agreements the voting power of Mr Eddyarto could increase to a maximum of 64.2% (assuming that no exercise/conversion other than pursuant to the Eddyarto Agreements occurs) following approval of Resolutions 1, 2 and 3. The minimum voting power that Mr Eddyarto may acquire as a result of the Eddyarto Agreements following approval of Resolutions 1, 2 and 3 is 31.2%, which reflects the transfer of the Tranche 2 Shares, and assumes no Options are exercised by Mr Eddyarto, and the amounts drawn under the Loan are not converted to Shares.

Shareholders should note that:

(a) if Shareholders approve the acquisitions resulting from the Eddyarto Agreements (Proposed Transaction), Mr Eddyarto will have a maximum voting power up to 64.21% with a control premium being paid to the Vendors, and without a control premium being paid to Non-Associated Shareholders; and
(b) Mr Eddyarto’s voting power in Adavale will increase above 25%, and could increase above 50% if the Proposed Transaction is approved by Non-Associated Shareholders. If Mr Eddyarto’s interest is above 25% but less than 50%, Mr Eddyarto will have the ability to block special resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution. Should Mr Eddyarto’s interest exceed 50% he will have the ability pass and block general resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution.

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Please see the advantages and disadvantages of the Proposed Transaction outlined in section 2.4(h) of this Notice, and the Independent Expert’s Report attached to this Notice.

2.2 Item 7 of Section 611 of the Corporations Act

Section 606 of the Corporations Act – Statutory Prohibition

Pursuant to Section 606(1) of the Corporations Act, a person must not acquire a relevant interest in issued voting shares in a listed company if the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person and because of the transaction, that person’s or someone else’s voting power in the company increases:

(a) from 20% or below to more than 20%; or
(b) from a starting point that is above 20% and below 90%.

Voting Power

The voting power of a person in a body corporate is determined in accordance with Section 610 of the Corporations Act. The calculation of a person’s voting power in a company involves determining the voting shares in the company in which the person and the person’s Associates have a relevant interest.

Associates

For the purposes of determining voting power under the Corporations Act, a person (second person) is an “associate” of the other person (first person) if:

(a) the first person is a body corporate and the second person is:
(i) a body corporate the first person controls;
(ii) a body corporate that controls the first person; or
(iii) a body corporate that is controlled by an entity that controls the person;
(b) the second person has entered or proposed to enter into a relevant agreement with the first person for the purpose of controlling or influencing the composition of the company’s board or the conduct of the company’s affairs; or
(c) the second person is a person with whom the first person is acting or proposed to act, in concert in relation to the company’s affairs.

Mr Eddyarto does not have any Associates with relevant interests in the Company’s Shares.

Relevant Interests

Section 608(1) of the Corporations Act provides that a person has a relevant interest in securities if they:

(a) are the holder of the securities;
(b) have the power to exercise, or control the exercise of, a right to vote attached to the securities; or

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It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power.

In addition, Section 608(3) of the Corporations Act provides that a person has a relevant interest in securities that any of the following has:

(a) a body corporate in which the person’s voting power is above 20%;
(b) a body corporate that the person controls.

Mr Eddyarto currently has a relevant interest in the Company’s issued share capital set out in Section 2.3, Table 1, below.

2.3 Reason why Section 611 approval required

Item 7 of Section 611 of the Corporations Act provides an exception to the prohibition described in Section 7.2 above, whereby a person may acquire a relevant interest in a company’s voting shares with shareholder approval.

Pursuant to the Eddyarto Agreements, Mr Eddyarto will potentially acquire the following:

Agreement	Maximum Number of Shares1
Option Transfer Agreement	10,000,000 Shares2
Conditional Share Sale Agreements	99,522,838 Shares3 22,004,435 Shares4
Milestone Option Agreement	60,000,000 Shares5
Convertible Loan Agreement	23,200,000 Shares6
Total	214,727,273 Shares7

Notes:

1 Fully diluted basis (assuming that no exercise/conversion other than pursuant to the Eddyarto Agreements occurs)
2 Number of shares issued on exercise of Transfer Options.
3 Assumes the maximum number of Shares is transferred under the Conditional Share Sale agreement.
4 Number of shares issued on exercise of Tranche 2 Options.
5 Number of shares issued on exercise of Milestone Options.
6 Assumes that a maximum of 23,200,000 Shares are issued on conversion of the Convertible Loan Agreement, and that all interest payable is paid in cash.

resulting in the voting power of Mr Eddyarto being a maximum of 64.2% (assuming that no exercise/conversion other than pursuant to the Eddyarto Agreements occurs) following approval of Resolutions 2 and 3, and this Resolution 1. The minimum voting power that Mr Eddyarto may acquire as a result of the Eddyarto Agreements is 31.2%, which reflects the transfer of the Tranche 2 Shares, and assumes no Options are exercised by Mr Eddyarto, and the amounts drawn under the Loan are not converted to Shares.

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2.4 Specific Information Required by Section 611 Item 7 of the Corporations Act and ASIC Regulatory Guide 74

The following information is required to be provided to Shareholders under the Corporations Act and ASIC Regulatory Guide 74 in respect of obtaining approval for Item 7 of Section 611 of the Corporations Act. Shareholders are also referred to the Independent Expert’s Report prepared by RSM Bird Cameron in Annexure A.

(a) Acquirer

Mr Haryono Eddyarto is acquiring Shares pursuant to the Eddyarto Agreements on the terms and conditions set out Section 1 and Resolutions 2 and 3 below.

(b) Relevant Interests and Voting Power

As at the date of this Notice, Mr Haryono Eddyarto has a relevant interest in Shares as set out above.

The relevant interest of Mr Haryono Eddyarto and his voting power immediately before and after the issue of the Shares pursuant to the Eddyarto Agreements is 62,772,585 Shares, and a voting power of 19.8%. This is set out in the tables below.

Table 1 has been prepared on an undiluted basis, ie, not including unexercised options currently held by Mr Eddyarto and not including unexercised options currently held by Shareholders who are not associated with the Eddyarto Agreements (Non-associated Shareholders).

Table 1: Current Shareholding (undiluted)

Event	Shares held by Mr Eddyarto (current)	Adavale Shares on Issue (current)	Voting Power (current)
As at the date of this Notice of Meeting	62,772,585	316,990,035	19.8%
Total	62,772,585	316,990,035	19.8%

Table 2: Potential Shareholding pursuant to Eddyarto Agreements

Each column in Table 2 assumes that all Shares pursuant to the Eddyarto Agreements the subject of this Notice of Meeting are issued but:

(i) no other options other than the Transfer Options, Options and Milestone Options are exercised at the relevant time (ie, includes the dilutionary effect upon exercise as contemplated by this Notice of Meeting, but does not include the dilutionary effect upon exercise of options currently held by Nonassociated Shareholders); and
(ii) no conversion to Shares other than pursuant to the Loan occurs at the relevant time (ie, only includes the dilutionary effect upon conversion as contemplated by this Notice of Meeting).

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Event	Shares acquired by Mr Eddyarto1	Adavale Shares on Issue2	Voting Power3
Shares held as at the date of this Notice of Meeting	62,772,585	316,990,035	19.8%
Exercise of options currently held by Mr Eddyarto	10,000,0004	326,990,0356	22.26%
Settlement of Conditional Sale Agreements (maximum number of Shares)	99,522,8385	326,990,035	52.69%
Exercise of Options on Tranche 2 Settlement Date	22,004,4357	348,994,470	55.67%
Satisfaction of Milestones under Milestone Option Agreement and exercise of Milestone Options	60,000,0008	408,994,470	62.18%
Conversion in to Shares under the Convertible Loan Agreement5	23,200,0009	432,194,470	64.21%
Total	277,499,858	432,194,470	64.21%

Notes:

1 Excluding the Shares held by Mr Eddyarto at the date of this Notice of Meeting (first row of Table 2), this column assumes that all Shares are issued pursuant to the Eddyarto Agreements (ie, including exercise/conversion pursuant the Eddyarto Agreements).
2 Excluding Shares on issue at the date of this Notice of Meeting (first row of Table 2), this column assumes that all Shares are issued pursuant to the Eddyarto Agreements (ie, including exercise/conversion pursuant the Eddyarto Agreements).
3 Excluding the voting power held by Mr Eddyarto at the date of this Notice of Meeting (first row of Table 2), this column assumes that all Shares are issued pursuant to the Eddyarto Agreements (ie, including exercise/conversion pursuant the Eddyarto Agreements).
4 Mr Eddyarto holds 10,000,000 Transfer Options exercisable at $0.04 each on or before 31 July 2014, which do not have any voting rights, and at the date of this Notice, have not been exercised.
5 The maximum number of shares transferable under the Conditional Share Sale Agreements, totalling up to 99,522,838 comprising:
(a) 36,000,000 Shares on 31 December 2012 at A$0.02 per Share (Tranche 2);
(b) 15,000,000 Shares on exercise of a call option by Mr Eddyarto at A$0.05 per Share, on or before 31 March 2013 (Tranche 3 Call Option); and
(c) 48,522,838 Shares on exercise of a call option by Mr Eddyarto, at A$0.05 per Share, on or before 31 May 2013 (Tranche 4 Call Option).
6 The number Adavale Shares on issue will not increase as the 99,522,838 Shares pursuant to the Conditional Share Sale Agreements are being transferred, not issued.
7 A total of 22,004,435 Tranche 2 Options, to be transferred on the Tranche 2 settlement date of the Conditional Share Sale Agreements.
8 Pursuant to the Milestone Option Agreement, Mr Eddyarto will acquire a total of 60,000,000 options to acquire Shares (Milestone Options) as follows:

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(a) 20 million options with an exercise price of A$0.05 per option, and an expiry date of 31 July 2014, exercisable when the Company enters into a binding contract to purchase or operate a coal project or concession with a minimum reserve of 2 (two) million tonnes;
(b) 20 million options with an exercise price of A$0.06 and an expiry date of 31 July 2015, exercisable when the Company sells and ships its first load of coal; and
(c) 20 million options with an exercise price of A$0.07 and an expiry date of 31 July 2016, exercisable when the Company ships its first 500,000 tonnes of coal.
9 This figure assumes a maximum number of 23,200,000 Shares are issued on conversion of the Convertible Loan Agreement, being up to $1,000,000, plus interest at 8% per annum over 2 years (assuming no default) of $160,000, at a conversion rate of $0.05 per Share.

Assuming that Mr Eddyarto exercises the Transfer Options he currently holds, completion occurs under the Conditional Share Sale Agreements and Milestone Option Agreement, and the Loan Conversion Shares are issued, Mr Eddyarto will hold a relevant interest in 277,499,858 Shares. This will result in the voting power of Mr Eddyarto being a maximum of 64.21%. This represents an increase of 19.80% to 64.21%.

Shareholders should refer to the Independent Experts’ Report which set out, in further detail, the dilutionary effect of the Eddyarto Agreements.

(c) Other Relevant Agreements

There are no additional agreements relevant to this transaction.

(d) Mr Haryono Eddyarto’s Intentions

Other than as disclosed elsewhere in this Explanatory Statement, Mr Haryono Eddyarto has informed the Company that his intentions are as follows:

(i) Mr Eddyarto has no intention of making any significant changes to the business of the Company other than set out in this Notice;
(ii) Mr Eddyarto does not intend to significantly change the financial or dividend distribution policies of the Company.

These are Mr Haryono Eddyarto’s intentions as at the date of this Notice and on information concerning the Company, its business and the business environment which is known to Mr Haryono Eddyarto at the date of this document, which is limited to the information available to the Mr Eddyarto in his capacity as a Director.

Although Mr Eddyarto does not intend to make any significant changes to the business of the Company, it is important for Shareholders to be aware that the Company has agreed with Mr Eddyarto that he also provide commodity trading services for the Company’s future coal production in Indonesia. To this end, Mr Eddyarto (via his trading business) is to be engaged as the exclusive agent to market and sell the coal produced in Indonesia by the Company and any associated company. The fees associated with engaging Mr Eddyarto or his trading business in this capacity will be on standard commercial terms and accordingly, while this is a related party transaction, there is no requirement for a separate shareholder approval.

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Final decisions regarding these matters will only be made by Mr Haryono Eddyarto in light of material information and circumstances at the relevant time. Accordingly, the statements set out above are statements of current intention only, which may change as new information becomes available to it or as circumstances change.

(e)

Particulars of proposed transfer and timing

The particulars and timing for the transfer of Shares pursuant to the Eddyarto Agreements to Mr Haryono Eddyarto are outlined above in Section 2.4(d) and Resolutions 2 and 3 below.

(f) Reason for the proposed transfer and issue

Shares are to be transferred and issued pursuant to the Eddyarto Agreements.

(g) Directors’ Interests

Mr Haryono Eddyarto is a Director of the Company, and therefore a related party. Mr Richard Poole and Mr Roger Steinepreis, Directors of the Company will potentially be disposing of their respective relevant interests in the Company. The maximum potential benefits derived by Mr Poole and Mr Steinepreis as a result of the Proposed Transaction are outlined below:

(i) Arthur Phillip Nominees Pty Ltd, an entity associated with Mr Poole, will receive up to a maximum of $2,664,316 in consideration for the sale of up to 68,057,155 Shares and 17,004,435 Options to Mr Eddyarto;
(ii) Ranchland Holdings Pty Ltd and Blueknight Corporation Pty Ltd (entities associated with Mr Steinepreis) and Mr Roger Steinepreis will together receive up to a maximum of $678,706 in consideration for the sale of up to 17,336,838 Shares and 2,500,000 Options to Mr Eddyarto; and
(iii) Steinepreis Paganin, a law firm associated with Mr Roger Steinepreis, has acted as legal adviser to the Company in relation to the preparation of this Notice and documents associated with the Proposed Transaction. It is estimated that Steinepreis Paganin will be paid approximately $25,000 for these services.

The benefits received by Mr Steinepreis and Mr Poole as a result of the Conditional Share Sale Agreements may be less than the maximum benefits outlined in (i) and (ii) above, as these numbers represent the consideration received for the maximum number of Shares and Options that could be transferred to Mr Eddyarto by Mr Steinepreis, and entities associated with Mr Poole and Mr Steinepreis under the relevant Conditional Share Sale Agreements. Please refer to section 1.3 of this Notice for full details regarding the Conditional Share Sale Agreements.

(h)

Directors’ Recommendation

The Directors of the Company who are not associated with the transaction as sellers or buyers (being Mr Risinger and Mr Stevenson) recommend that Shareholders vote in favour of Resolution 1. They

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consider that the transfer of Shares pursuant to the Eddyarto Agreements to Mr Haryono Eddyarto is, on balance, in the best interests of the Company and will have the following advantages and disadvantages:

Advantages

(i) Cornerstone Investor with Indonesian Experience - The effect of the proposal is that it provides the Company with a key cornerstone shareholder with significant experience in Indonesia, who is sufficiently incentivised to move the business of the Company forward in that country. Mr Eddyarto is an Indonesian national who is a well-known businessman with over 34 years experience in the mining and coal trading industries. His current business activities include mining, media, property development and commodity trading. He has been actively involved in promoting Indonesian business, having represented the Indonesian Chamber of Commerce and Industry in G-15, G- 77 and the Indian Ocean Rim ARG Business Forum. Mr Eddyarto maintains strong business relationships in Asian, European, African and Middle East countries and has strong and established relationships within the Indonesian political and business community. It is these relationships that the Board considers will assist the Company in furthering its activities in Indonesia.
(ii) Operating in Indonesia generally – The Company has been operating in Indonesia for approximately 3 years, and in that time has only secured 1 project, the Tapan project. It has been a difficult and costly exercise to date, however the view of the non-associated Directors is that the processes now put in place over that time should assist with the identification and delineation of projects that will add value in the future. This has been a result of the assistance of Mr Eddyarto and it is important that he remains engaged and directly involved in the Company, which the increased shareholding will ensure.
(iii) Alignment of Interests - At present, Mr Eddyarto has a shareholding of approximately 20%. This is considered by Mr Eddyarto to be an insufficient incentive for him to drive the business forward, notwithstanding his 60% interest in the joint venture entity in Indonesia, Adavale Harner. In Mr Eddyarto’s opinion, the controlling stake in the listed public vehicle (mitigated of course by the disadvantage referred to below) will provide a strong incentive for him to devote substantial time and energy to seek to ensure the success of the Company and the joint venture vehicle. In the view of the Directors, this controlling stake will further align his success with that of all other shareholders.
(iv) Working Capital - The proposal allows the Company to access a convertible loan up to $1,000,000, which will be used to fund the ongoing activities and development of the Company. As outlined in section 1.5 the Arthur Phillip Loan Agreement has been terminated. The Loan provides secure funding for the Company for an addition 24 months.

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Disadvantages

(i) Ability to pass or block resolutions: Mr Eddyarto’s voting power in Adavale will increase above 25%, and could increase above 50% if the Proposed Transaction is approved by Non-Associated Shareholders. If Mr Eddyarto’s interest is above 25% but less than 50%, Mr Eddyarto will have the ability to block special resolutions, expect in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution. Should Mr Eddyarto’s interest exceed 50% he will have the ability pass and block general resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution. Therefore, in the event that Shareholders approve the Proposed Transaction, the remaining shareholders will be considered minority shareholders, and Mr Eddyarto may cause the Company to be managed in accordance with his own interests (to the extent permitted by law).
(ii) Loss of Control Premium – If Shareholders approve the Proposed Transaction, Mr Eddyarto will have a voting power of up to 64.21% in the Company with a control premium being paid to the Vendors, and without a control premium being paid to the Non-Associated Shareholders. Further, the acquisition of this controlling stake is likely to detract from the attractiveness of the Company as a takeover target.
(iii) Illiquidity – It is likely that the Proposed Transaction will result in the shares of the Company being more thinly traded. Mr Eddyarto has been a buyer of shares in the past, however with the Proposed Transaction and his taking an interest in over 20% of the Company, his ability to acquire further shares is restricted by the Corporations Act. This is likely to result in thin trading in shares, when coupled with the reduction in the attractiveness of the Company as a takeover target.

Other Considerations

Shareholders should also be aware that if the Proposed Transaction does not proceed:

(i) Mr Eddyarto has indicated it would be his current intention to review his shareholding. If he were to sell his shareholding, this would likely to create an overhang in the market and it would be expected that this will have a further downward effect on the Share price;
(ii) the $1,000,000 facility to be provided by Mr Eddyarto, although it will remain in existence, will need to be repaid in cash to the extent it is drawn, and not in Shares as preferred via the conversion mechanism. It is expected that this will mean the Company would be unlikely to draw down on the facility, and, accordingly in order to continue its operations, the Company would need to undertake a capital raising, likely to be at a substantial discount to the current market price. The preferred method would be via a rights issue for all Shareholders to

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participate, but the Company could not be confident that the rights issue would be well supported by all Shareholders; and

(iii) notwithstanding the $1,000,000 facility to be provided by Mr Eddyarto, it is likely that the Company will need to raise further funds in the future, and that a capital raising may need to undertaken to raise additional funds in the future;
(iv) Mr Eddyarto will acquire a significant portion of his interest through the exercise of Options (as outlined in this Notice), however, Mr Eddyarto is only likely to exercise those Options if the Company’s share at the time of exercise, exceeds the exercise price of the respective Options;
(v) if a rights issue was not well supported, the Company would need to place the shortfall or seek alternative funding. In the current climate, this may be difficult and if sufficient funds were not raised, it would mean the Company would place its operations in Indonesia on hold, conserve its existing cash and make payment of its administrative and listing costs, pending any funding being completed.

The non-associated Directors refer Shareholders to the Independent Expert’s Report which sets out additional information in respect of the transaction. The end decision is for Shareholders, who must judge the proposal on its merits.

(i)

Independent Expert’s Report

The Independent Expert’s Report assesses whether the acquisition of Shares pursuant to the Eddyarto Agreements as outlined in Resolution 1 is fair and reasonable to the Shareholders who are not associated with Eddyarto Agreements.

The Independent Expert’s Report also contains an assessment of the advantages and disadvantages of Eddyarto Agreements. This assessment is designed to assist all Shareholders in reaching their voting decision.

The Independent Expert has concluded that the advantages of the transaction related to the Acquisition the subject of Resolution 1 outlined in this Notice of General Meeting outweigh the disadvantages for the Shareholders not associated with the Eddyarto Agreements. It is recommended that all Shareholders read the Independent Expert’s Report in full.

The Independent Expert's Report is enclosed with this Notice of Meeting in Annexure A.

3. RESOLUTION 2 – APPROVAL TO ISSUE MILESTONE OPTIONS TO MR HARYONO EDDYARTO – RELATED PARTY

3.1 General

As announced on 1 August 2012, and as summarised in this Notice, the Company has agreed, subject to obtaining Shareholder approval, to allot and issue a total of 60,000,000 Milestone Options to Mr Haryono Eddyarto, on the terms and conditions set out below.

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For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company, the public company or entity must:

(a) obtain the approval of the public company’s members in the manner set out in Sections 217 to 227 of the Corporations Act; and
(b) give the benefit within 15 months following such approval,

unless the giving of the financial benefit falls within an exception set out in Sections 210 to 216 of the Corporations Act.

The grant of the Milestone Options constitutes giving a financial benefit and Mr Eddyarto is a related party of the Company by virtue of being a Director of the Company (Related Party).

In addition, ASX Listing Rule 10.11 also requires shareholder approval to be obtained where an entity issues, or agrees to issue, securities to a related party, or a person whose relationship with the entity or a related party is, in ASX’s opinion, such that approval should be obtained unless an exception in ASX Listing Rule 10.12 applies.

It is the view of the Directors that the exceptions set out in Sections 210 to 216 of the Corporations Act and ASX Listing Rule 10.12 do not apply in the current circumstances. Accordingly, Shareholder approval is sought for the grant of Milestone Options to Mr Eddyarto.

3.2 Shareholder Approval (Chapter 2E of the Corporations Act and Listing Rule 10.11)

Pursuant to and in accordance with the requirements of Section 219 of the Corporations Act and ASX Listing Rule 10.13, the following information is provided in relation to the proposed grant of Milestone Options:

(a) the related party is Mr Eddyarto and he is a related party by virtue of being a Director of the Company;
(b) the maximum number of Milestone Options (being the nature of the financial benefit being provided) to be granted Mr Eddyarto is 60,000,000 Milestone Options;
(c) the Milestone Options will be granted to Mr Eddyarto no later than 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated the Milestone Options will be issued on one date;
(d) the Milestone Options will be granted for nil cash consideration, accordingly no funds will be raised;
(e) the terms and conditions of the Milestone Options are set out in Schedule 2;
(f) the value of the Milestone Options is $298,000 and the pricing methodology is set out in Schedule 3;
(g) the interest of Mr Eddyarto in securities of the Company as at the date of this Notice are set out below:

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Related Party	Shares	Options
Mr Haryono Eddyarto	62,772,585	10,000,0001

Notes:

1 10,000,000 Transfer Options exercisable at $0.04 each on or before 31 July 2014.
(h) the remuneration and emoluments from the Company to the Mr Eddyarto for the previous financial year and the proposed remuneration and emoluments for the current financial year (to date) are set out below:

Related Party	Current Financial Year	Previous Financial Year
Mr Haryono Eddyarto	$26,678	$53,251

(i) if the Milestone Options are granted to and exercised by Mr Eddyarto, a total of 60,000,000 Shares would be allotted and issued. This will increase the number of Shares on issue from 316,990,035 to 376,990,035 (assuming that no other options are exercised and no Shares other than those contemplated by this Resolution 2 are issued) with the effect that the shareholding of existing Shareholders would be diluted by an aggregate of 15.92%.

(j) The market price for Shares during the term of the Milestone Options would normally determine whether or not the Milestone Options are exercised. If, at any time any of the Milestone Options are exercised and the Shares are trading on ASX at a price that is higher than the exercise price of the Milestone Options, there may be a perceived cost to the Company.

(k) the trading history of the Shares on ASX in the 12 months before the date of this Notice is set out below:

	Price	Date
Highest	2.5 cents	17 and 18 October 2011
Lowest	1 cent	11 January 2012
Last	1.8 cents	16 October 2012

(l) the Board acknowledges the grant of Milestone Options to Mr Eddyarto (a non-executive director) is contrary to Recommendation 8.2 of the ASX Corporate Governance Principles and Recommendations. However, the Board considers the grant of Milestone Options to Mr Eddyarto reasonable in the circumstances for the reason set out in subparagraph 3.2(n)(i);

(m) the primary purpose of the grant of Milestone Options to Mr Eddyarto is to provide cost effective consideration for his commitment and contribution to the Company in his role as director, and in on obtaining shareholder approval, his appointment as Chairman of the Company. It also creates a performance linked incentive to Mr Eddyarto to assist the Company in delivering a producing mine;

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(n) the Board (other than Mr Eddyarto) considers:
(i) the grant of the Milestone Options to Mr Haryono Eddyarto, in particular the vesting conditions of the Milestone Options, will align the interests of Mr Haryono Eddyarto with those of Shareholders;
(ii) the grant of the Milestone Options is a reasonable and appropriate method to provide cost effective remuneration as the non-cash form of this benefit will allow the Company to spend a greater proportion of its cash reserves on its operations than it would if alternative cash forms of remuneration were given to Mr Haryono Eddyarto; and
(iii) there are no significant opportunity costs to the Company foregone by the Company in granting the Milestone Options upon the terms proposed;
(o) Mr Haryono Eddyarto declines to make a recommendation to Shareholders in relation to Resolution 2 due to his material personal interest in the outcome of the Resolution on the basis that he is to be granted Milestone Options in the Company should Resolution 2 be passed;
(p) with the exception of Mr Haryono Eddyarto, no other Director has a personal interest in the outcome of Resolution 2;
(q) each Director, with the exception of Mr Haryono Eddyarto, recommends that Shareholders vote in favour of Resolution 2 and for the reasons set out in subparagraphs 4.2(m) and 4.2 (n);
(r) in forming their recommendations, each Director considered the experience of Mr Haryono Eddyarto, the current market price of Shares, the current market practices when determining the number of Milestone Options to be granted as well as the vesting conditions, exercise price and expiry date of those Milestone Options; and
(s) the Board is not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolution 2.

Approval pursuant to ASX Listing Rule 7.1 is not required in order to issue the Milestone Options to Mr Eddyarto as approval is being obtained under ASX Listing Rule 10.11. Accordingly, the issue of Milestone Options to Mr Eddyarto will not be included in the 15% calculation of the Company’s annual placement capacity pursuant to ASX Listing Rule 7.1.

4. RESOLUTION 3 – APPROVAL TO ISSUE LOAN CONVERSION SHARES TO MR HARYONO EDDYARTO – RELATED PARTY

4.1 General

On 1 August 2012, the Company announced that it had entered into a Convertible Loan Agreement with Mr Haryono Eddyarto to the value of up to $1,000,000. A convertible loan was previously approved at the AGM in November 2010 to Arthur Phillip Pty Ltd. The Arthur Phillip Loan Agreement has now being terminated and the Convertible Loan Agreement being on substantially the same terms as the Arthur Phillip Loan Agreement.

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The Loan may be converted into Shares in accordance with the terms and conditions of the Convertible Loan Agreement, which are summarised below.

Mr Eddyarto is a related party of the Company by virtue being a Director of the Company (Related Party). Resolution 3 seeks Shareholder approval pursuant to and in accordance with section 208 of the Corporations Act and Listing Rule 10.11 to issue Shares to Mr Eddyarto upon conversion of the Loan (Loan Conversion Shares).

4.2 Chapter 2E

For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company, the public company or entity must:

(a) obtain the approval of the public company’s members in the manner set out in Sections 217 to 227 of the Corporations Act; and
(b) give the benefit within 15 months following such approval,

unless the giving of the financial benefit falls within an exception set out in Sections 210 to 216 of the Corporations Act.

The grant of the Shares to Mr Eddyarto upon conversion of the Loan (and any interest) constitutes giving a financial benefit.

4.3 Terms of the Loan

The terms of the Loan are summarised as follows:

(a) the Loan has a face value of up to $1,000,000;
(b)
the Company may make multiple draw downs under the Loan;
(c) interest shall accrue on the Loan at the rate of 8%, or at a rate of 15% on any default amount (Interest);
(d) if the Loan has not been repaid or converted, the Company will repay any or all of the Loan (including Interest) on the date which is twenty four months after the date of execution of the agreement;
(e) where an event of default occurs, Mr Eddyarto may require the Company to repay any or all of the Loan plus any Interest;
(f) the Loan and Interest is convertible into Shares at a conversion price of 5 cents per Share (Loan Conversion Shares);

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(g) at the Lender’s discretion, the Interest or a portion of the Interest, may be converted into Shares or paid in cash;
(h) the conversion of the Loan (and if elected by the Lender, any Interest) into Shares as outlined in this section 4.3 is subject to and conditional upon the Company obtaining Shareholder approval for the issue of the Shares; and
(i) the Loan is an unsecured debt instrument ranking alongside general secured creditors.

4.4 Shareholder Approval (Chapter 2E of the Corporations Act and Listing Rule 10.11)

(a) the related party is Mr Eddyarto and he is a related party by virtue of being a Director of the Company;
(b) the maximum number of Loan Conversion Shares (being the nature of the financial benefit being provided) to be granted to Mr Eddyarto is a maximum of 23,200,000 Loan Conversion Shares, assuming a full draw down of up to $1,000,000 plus interest at 8% per annum over 2 years (assuming no default) of $160,000;
(c) the Loan Conversion Shares will be issued in the event Mr Eddyarto elects to convert the then drawn down amount of the Loan (or any relevant Interest) into Shares at a price of 5 cents during the term of the facility and in accordance with its terms.
(d) unless the Company is granted an ASX waiver or modification of the ASX Listing Rules to permit the issue of the Loan Conversion Share more than one month from the date of the Meeting, fresh shareholder approval will be sought if the Loan Conversion Shares are to be issued, and the date of issue is more than one month after the date of the Meeting. As at the date of this Notice, the Company has applied for a waiver of ASX Listing Rule 10.13.3 to permit Loan Conversion Shares to be issued more than one month from the date of the Meeting (in the event that the Loan is converted);
(e) the terms and conditions of the Loan are set out in section 4.3;
(f) the interest of Mr Eddyarto in securities of the Company as at the date of this Notice, the remuneration and emoluments from the Company paid to Mr Eddyarto for the previous financial year and the proposed remuneration and emoluments for the current financial year are set out in Section 4.2;
(g) if the Loan and Interest (assuming no default) is converted, a maximum total of 23,200,000 Loan Conversion Shares would be allotted and issued. This will increase the number of Shares on issue from 316,990,035 to 340,190,035 (assuming that no other conversions occur and no Shares other than those contemplated by this Resolution 3 are issued) with the effect that the shareholding of existing Shareholders would be diluted by an aggregate of 6.82%.

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(h) The market price for Shares during the term of Loan would normally determine whether or not the Loan and Interest is converted to Shares. If, at any time the Loan and Interest is converted to Shares and the Shares are trading on ASX at a price that is higher than the conversion price, there may be a perceived cost to the Company.
(i) the trading history of the Shares on ASX in the 12 months before the date of this Notice is set out in Section 4.2;
(j) the purpose of the Loan is to provide funding to provide working capital until the Company can generate cash or able to raise fund for its projects;
(k) Mr Haryono Eddyarto declines to make a recommendation to Shareholders in relation to Resolution 3 due to his material personal interest in the outcome of the Resolution on the basis that he is to be granted Loan Conversion Shares in the Company upon conversion of the Loan should Resolution 3 be passed;
(l) with the exception of Mr Haryono Eddyarto, no other Director has a personal interest in the outcome of Resolution 3; and
(m) each Director, with the exception of Mr Haryono Eddyarto, recommends that Shareholders vote in favour of Resolution 3 and for the reasons set out above in paragraph (l); and
(n) the calculation of the intrinsic value of the embedded share option within the convertible loan is set out in Schedule 4;

Approval pursuant to ASX Listing Rule 7.1 is not required in order to issue the Loan Conversion Shares to the Mr Eddyarto as approval is being obtained under ASX Listing Rule 10.11. Accordingly, the issue of Loan Conversion Shares to Mr Eddyarto will not be included in the 15% calculation of the Company’s annual placement capacity pursuant to ASX Listing Rule 7.1.

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GLOSSARY

$ means Australian dollars.

AEDT means Eastern Daylight Savings Time as observed in Sydney, New South Wales.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited.

ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of directors of the Company.

Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.

Closely Related Party of a member of the Key Management Personnel means:

Company means Adavale Resources Limited(ACN 008 719 015).

Constitution means the Company’s constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Explanatory Statement means the explanatory statement accompanying the Notice.

General Meeting or Meeting means the meeting convened by the Notice.

Independent Expert means RSM Bird Cameron Corporate Pty Ltd.

Loan Conversion Share is given the meaning set out in section 5.1.

Milestone Option means an option to acquire a Share in accordance with the terms and conditions set out in Schedule 2.

Non-Associated Shareholders means Shareholders who are not associated with the Eddyarto Agreements.

Notice or Notice of Meeting or Notice of General Meeting means this notice of general meeting including the Explanatory Statement and the Proxy Form.

Optionholder means a holder of a Transfer Option, Milestone Option or Tranche 2 Option as the context requires.

Proxy Form means the proxy form accompanying the Notice.

Resolutions means the resolutions set out in the Notice of Meeting, or any one of them, as the context requires.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

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Tranche 2 Option means an option to acquire a Share in accordance with the terms and conditions set out in Schedule 1.

Transfer Option means an option to acquire a Share in accordance with the terms and conditions set out in Schedule 1.

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SCHEDULE 1 – TERMS AND CONDITIONS OF TRANSFER OPTIONS

The Transfer Options entitle the holder to subscribe for Shares on the following terms and conditions:

(a) Entitlement

Each Transfer Option gives the Optionholder the right to subscribe for one Share.

(b) Exercise Price

The amount payable upon exercise of each Transfer Option will be $0.04 (Exercise Price).

(c) Expiry Date

The Transfer Options will expire at 5.00pm on 31 July 2014 (Expiry Date). Any Transfer Option not exercised before the Expiry Date will automatically lapse on the Expiry Date.

(d) Exercisable parcels

The Transfer Options held by each Optionholder may be exercised in whole or in part, and if exercised in part, multiples of 1,000 must be exercised on each occasion.

(e) Exercise Notice

An Optionholder may exercise their Transfer Options by lodging with the Company, before the Expiry Date:

(i) a written notice of exercise of Transfer Options specifying the number of Options being exercised; and
(ii) a cheque or electronic funds transfer for the Exercise Price for the number of Transfer Options being exercised,

(Exercise Notice).

(f) Exercise Date

An Exercise Notice is only effective when the Company has received the full amount of the Exercise Price in cleared funds.

(g)

Timing of issue of Shares on exercise

Within 10 Business Days of receipt of the Exercise Notice accompanied by the Exercise Price, the Company will allot the number of Shares required under these terms and conditions in respect of the number of Transfer Options specified in the Exercise Notice.

(h) Transferability

Subject to the Corporations Act 2001, the ASX Listing Rules and the Company’s Constitution, the Transfer Options are freely transferable.

(i) Shares issued on Exercise

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All Shares allotted upon the exercise of Transfer Options will upon allotment rank paripassu in all respects with other Shares.

(j) Quotation of Shares issued on Exercise

The Company will not apply for quotation of the Transfer Options on ASX. However, The Company will apply for quotation of all Shares allotted pursuant to the exercise of Transfer Options on ASX within 10 Business Days after the date of allotment of those Shares.

(k) Reconstruction of capital

If at any time the issued capital of the Company is reconstructed, all rights of an Optionholder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

(l) Participation in new issues

There are no participating rights or entitlements inherent in the Transfer Options and Optionholders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Transfer Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Optionholders the opportunity to exercise their Transfer Options prior to the date for determining entitlements to participate in any such issue.

(m) Change in exercise price

A Transfer Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Transfer Option can be exercised.

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SCHEDULE 2 – TERMS AND CONDITIONS OF MILESTONE OPTIONS

(a) Entitlement

Milestone	Number of Milestone Options
Milestone 1	20,000,000
Milestone 2	20,000,000
Milestone 3	20,000,000

Each Milestone Option entitles the holder to subscribe for one Share upon exercise of the Milestone Option.

(b) Exercise Price

Subject to paragraph (j), the amount payable upon exercise of each Milestone Option (Exercise Price) will be as follows:

Milestone	Exercise Price
Milestone 1	A$0.05
Milestone 2	A$0.06
Milestone 3	A$0.07

(c) Expiry Date

Each Milestone Option will expire at 5.00pm (WST)on the relevant date set out in the table below (Expiry Date). A Milestone Option not exercised before its Expiry Date will automatically lapse on the Expiry Date.

Milestone	Expiry Date
Milestone 1	31 July 2014
Milestone 2	31 July 2015
Milestone 3	31 July 2016

(d) Exercise Period

The Milestone Options are exercisable upon achieving the following Milestones up until the Expiry Date (Exercise Period):


Milestone
Milestone 1	When the Company enters into a binding contract to purchase or operate a coal project or concession with a minimum reserve of 2 (two) million tonnes.
Milestone 2	When the Company sells and ships its first load of coal.
Milestone 3	When the Company ships its first 500,000 tonnes of coal.

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(e) Notice of Exercise

The Milestone Options may be exercised during the Exercise Period by notice in writing to the Company in the manner specified on the Milestone Option certificate (Notice of Exercise) and payment of the Exercise Price for each Milestone Option being exercised in Australian currency by electronic funds transfer or other means of payment acceptable to the Company.

(f) Exercise Date

A Notice of Exercise is only effective on and from the later of the date of receipt of the Notice of Exercise and the date of receipt of the payment of the Exercise Price for each Milestone Option being exercised in cleared funds (Exercise Date).

(g) Timing of issue of Shares on exercise

(h) Shares issued on exercise

Shares issued on exercise of the Milestone Options rank equally with the then issued shares of the Company.

(i) Quotation of Shares issued on exercise

If admitted to the official list of ASX at the time, application will be made by the Company to ASX for quotation of the Shares issued upon the exercise of the Milestone Options with 10 Business Days after the date of allotment of those Shares.

(j) Reconstruction of capital

(k) Participation in new issues

There are no participation rights or entitlements inherent in the Milestone Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Milestone Options without exercising the Milestone Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 7 Business Days after the issue is announced. This will give Optionholders the opportunity to exercise their Milestone Options prior to the date for determining entitlements to participate in any such issue.

(l) Change in exercise price

A Milestone Option does not confer the right to a change in Exercise Price or a change in the number of underlying securities over which the Milestone Option can be exercised.

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(m) Unquoted

The Company will not apply for quotation of the Milestone Options on ASX.

(n) Transferability

The Milestone Options are not transferable.

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SCHEDULE 3 – VALUATION OF MILESTONE OPTIONS

The Milestone Options to be issued to the Related Party pursuant to Resolution 2 have been independently valued by the Indepedent Expert.

Based on the assumptions set out below, the Milestone Options were ascribed the following value:

Assumptions:	Miletone 1 (Tranche1)	Miletone 2 (Tranche 3)	Miletone 3 (Tranche 3)

Valuation date	12-Oct-12	12-Oct-12	12-Oct-12
Marketprice of Shares	1.6 cents	1.6 cents	1.6 cents
Exerciseprice	5 cents	6 cents	7 cents
Expirydate (length of time from issue)	31-Jul-14	31-Jul-15	31-Jul-16
Risk free interest rate	2.45%	2.45%	2.45%
Volatility(discount)	120%	120%	120%
Number of options	20,000,000	20,000,000	20,000,000

Indicative valueper Milestone Option	0.55 cents	0.49 cents	0.45 cents

Total Value of Milestone Options	$110,000	$98,000	$90,000

Total (Tranche 1,2 and 3)	$298,000

Note: The valuation noted above is not necessarily the market price that the Milestone Options could be traded at and is not automatically the market price for taxation purposes.

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SCHEDULE 4 – VALUATION OF LOAN CONVERSION SHARES

The Loan Conversion Shares to be issued to the Related Party pursuant to Resolution 3 have been independently valued by the Indepedent Expert.

Based on the assumptions set out below, the Loan Conversion Shares were ascribed the following value:

Assumptions:	Loan Option

Valuation date	12-Oct-12
Market price of Shares	1.6 cents
Conversion price	5 cents
Expiry date (length of time from issue)	12-Oct-12
Risk free interest rate	2.45%
Volatility (discount)	120%
Maximum number of shares issued on conversion	23,200,000

Indicative valueper Option	0.61 cents

Total Value of Option Component	$141,520

Note: The valuation noted above is not necessarily the market price that the Loan Conversion Shares could be traded at and is not automatically the market price for taxation purposes.

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ANNEXURE A

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Adavale Resources Limited Financial Services Guide and Independent Expert’s Report

12 October 2012

L:\7 Clients\ACTIVE\Adavale Resources\Final Report\Adavale Resources Ltd IER - FINAL 12 Oct 2012 (INC IGL 121112).docx

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Financial Services Guide

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Independent Expert’s Report

TABLE OF CONTENTS Page

1.	Introduction ................................................................................................................................................ 2
2.	Summary and Conclusion .......................................................................................................................... 5
3.	Summary of Proposed Transaction ........................................................................................................... 9
4.	Scope of the Report .................................................................................................................................16
5.	Profile of Adavale .....................................................................................................................................20
6.	Valuation approach ..................................................................................................................................26
7.	Valuation of Adavale and an Adavale share pre the Proposed Transaction ...........................................29
8.	Analysis of the value of an Adavale share post the Proposed Transaction (minority basis) ...................34
9.	Assessment of the Proposed Transaction ...............................................................................................36

Appendix A - Declarations and Disclaimers
Appendix B - Sources of Information –
Appendix C Glossary

Appendix D – Profile of the Coal and Uranium Industries

– Appendix E Independent Technical Valuation Report prepared by Al Maynard (Mineral asset valuation expert)

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Direct Line: (08) 9261 9447 Email: [email protected]

AJG/AB 12 October 2012

The Directors Adavale Resources Limited Level 33, 52 Martin Place SYDNEY NSW 2000

Dear Directors

Independent Expert’s Report

1. Introduction

1.1. On 1 August 2012, Adavale Resources Limited (“Adavale” or “the Company”) announced that, Mr Haryono Eddyarto (“Mr Eddyarto”), a Director of the Company, had entered into various agreements with the Company and other shareholders (“Eddyarto Agreements”), which subject, to shareholder approval, will result in Mr Eddyarto increasing his interest in the issued share capital of the Company to above 20%, and provide Mr Eddyarto with the ability to potentially increase his interest to 64.2%. RSM Bird Cameron Corporate Pty Ltd (“RSMBCC”) has been engaged by the Directors to prepare an Independent Expert Report (“Report”) for the shareholders of Adavale not associated with the Eddyarto Agreements (“NonAssociated Shareholders”).
1.2. The first agreement forming part of the Eddyarto Agreements was a share sale agreement to acquire 24,000,000 shares in the Company, from Arthur Phillip Nominees Pty Ltd (“Arthur Phillip) a major shareholder in Adavale (“Unconditional Share Sale Agreement”). The Unconditional Share Sale Agreement was completed on 2 August 2012 which increased Mr Eddyarto’s interest in the issued share capital of the Company to 19.8%.
1.3. Arthur Phillip also entered into an agreement (“Option Transfer Agreement”), with Mr Eddyarto to transfer 10,000,000 options to acquire shares in the Company to Mr Eddyarto (“Transfer Options”). The Transfer Options had previously been issued to Arthur Phillip by the Company under the terms of a convertible loan previously approved by Shareholders under AGM Resolution 6 dated 26 November 2010 provided by Arthur Phillip (“Arthur Phillip Loan”), and are to be transferred to Mr Eddyarto as consideration for Mr Eddyarto entering in a convertible loan agreement in place of the Arthur Phillip Loan. The Option Transfer Agreement has occurred, but it should be noted that the Transfer Options have not been exercised. The Transfer Options are exercisable in to Adavale shares at $0.04 each, at any time on or before 31 July 2014.
1.4. The Company also announced that Mr Eddyarto has entered into separate and conditional share sale agreements (“Conditional Share Sale Agreements”) with other parties, including interests associated with Mr Richard Poole and Mr Roger Steinepreis (directors of the Company) (“Vendors”), whereby Mr Eddyarto has agreed, subject to obtaining the necessary shareholder approvals, to acquire up to an additional 99,522,838 shares and 22,004,435 share options in the Company (“Share Transfer”).
1.5. In addition the Company announced that subject to shareholder approval it had agreed to allot and issue a total of 60,000,000 share options to Mr Eddyarto, which vest upon the achievement of certain milestones

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(“Milestone Options”). Further details on the performance milestones and terms of the Milestone Options are set out at Section 3 of this Report.

1.6. The Company, subject to shareholder approval, has also entered into an agreement with Mr Eddyarto under which Mr Eddyarto will provide up to $1 million to the Company under a convertible loan note facility (“Eddyarto Loan”). The Eddyarto Loan replaces the Arthur Phillip Loan and may be drawn down at the election of the Company. The Arthur Phillip Loan has been terminated and the Company no longer has access to this facility. Any amounts drawn down on the Loan plus any accrued interest can be converted in Adavale shares at a conversion price of $0.05 per share, with the maximum number of Adavale shares to be issued upon conversion being 23,200,000 (Calculated as $1 million draw down plus maximum interest of $160,000 / $0.05).
1.7. Completion of the Eddyarto Agreements (“Proposed Transaction”) will result in Mr Eddyarto’s interest in the issued capital of the Company exceeding 20%, and a such Adavale is seeking the approval of NonAssociated Shareholders under section 611 item 7 of the Corporations Act 2001 (“Act”), in order for Mr Eddyarto’s voting power to increase from 20% or below to more than 20% when Mr Eddyarto is issued, or acquires shares, in the Company pursuant to the Eddyarto Agreements and specifically:
Shares issued upon exercise of the Transfer Options;
Shares acquired under the Share Transfer;
Shares issued upon exercise of options acquired under the Share Transfer;
Shares issued upon the exercise of the Milestone Options; and
Shares issued upon conversion of the Eddyarto Loan.
1.8. Consequently Adavale is seeking approval from their Non-Associated Shareholders at a General Meeting to be held on the 20 December 2012 for the following resolutions, which form the Proposed Transaction:

Resolution 1 – Approval for Mr Haryono Eddyarto to acquire a relevant interest

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution:

Resolution 2 – Approval to issue Milestone Options to Mr Haryono Eddyarto - related party

To consider and, if thought fit, to pass the following resolution as an ordinary resolution :

Resolution 3 – Approval to issue loan conversion shares to Mr Haryono Eddyarto - related party

To consider and, if thought fit, to pass the following resolution as an ordinary resolution :

“That, subject to and conditional on the passing of Resolution 1, for the purposes of Section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to allot and issue up to 23,200,000 Shares to Mr Haryono Eddyarto upon

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conversion of the convertible loan on the terms and conditions set out in the Explanatory Statement.”

1.9. This report has been prepared solely for use by the Non-Associated Shareholders to provide them with information relating to the Proposed Transaction and cannot be used by any other persons or for any other purpose. In this Report RSMBCC has expressed an opinion as to whether.
the advantages of the Proposed Transaction for the Non-Associated Shareholders outweigh the disadvantages; or alternatively
the disadvantages of the Proposed Transaction for the Non-Associated Shareholders outweigh the advantages.

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2. Summary and Conclusion

Purpose of the Report

2.1. This Report sets our opinion as to whether the advantages of approving the Proposed Transaction for the Non-Associated Shareholders outweigh the disadvantages. This section sets out a summary of our opinion and cannot substitute for a complete reading of this Report.

Our approach

2.2. Our Report has been prepared having regard to Australian Securities and Investment Commission (“ASIC”) Regulatory Guide 111 (“RG 111”) Content of Expert’s Reports’. In arriving at our opinion we have considered:
How the value of an Adavale share pre the Proposed Transaction on a control basis compares the value of an Adavale post the Proposed Transaction on a minority basis, after reflecting the impact of any new shares to be issued by the Company pursuant to the Eddyarto Agreements;
The advantages and disadvantages for the Non-Associated Shareholders of the Proposed Transaction and specifically the Share Transfer;
Whether a premium for control is being offered by Mr Eddyarto to the Vendors; and
Other factors which we consider to be relevant to the Non-Associated Shareholders in their assessment of the Proposed Transaction.
2.3. Further information on the content of RG 111 and the approach we have adopted in determining the form of and arriving at our opinion is set out at Section 4 of the Report.

Opinion

2.4. Our assessment of the Proposed Transaction is set out in detail in Section 9 of the Report. Based on our analysis we consider that the Vendors are receiving a premium for control, and as such the major disadvantage for Non-Associated Shareholders, as a result of approving the Proposed Transaction is that they are foregoing sharing in the premium for control. Nevertheless on balance it is our view that the advantages of the Proposed Transaction for the Non-Associated Shareholders are significant enough to outweigh the foregoing of the sharing of this control premium. Namely these advantages are that:
any new share issues to be made by the Company to Mr Eddyarto are a price which is fair to the Non-Associated Shareholders; and
the Proposed Transaction secures both funding, (which is required as the Company no longer has access to the Arthur Phillip Loan) and Mr Eddyarto’s continued involvement in the Company, which it is anticipated will bring new project opportunities, and avoid the need for an equity capital raising, which to be successful would likely be at a discount to the current market price of Adavale shares, and a such have a negative impact on the value of the Non-Associated Shareholders investment in Adavale, both through the share price and possible dilution.
2.5. Therefore we have concluded in our opinion, that in the absence of any information, after consideration of the issues set out above the advantages of the Proposed Transaction outweigh the disadvantages for the Non-Associated Shareholders.

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Summary of key advantages and disadvantages of the Proposed Transaction

2.6. We set out a summary of the advantages and disadvantages of the Proposed Transaction for the NonAssociated Shareholders below.

Advantages

New share issues by the Company pursuant to the Eddyarto Agreements is fair

2.7. In our opinion the issue of new Adavale shares by the Company which may occur pursuant to the Eddyarto Agreements, should the Non-Associated Shareholders approve the Proposed Transaction is at a price which is fair to the Non-Associated Shareholders, as we have assessed the value of an Adavale share on a non-control minority basis after reflecting these share issues, to be greater than the value of Adavale share on a control basis pre these share issues.

Cornerstone investor

2.8. The effect of the Proposed Transaction is that it provides the Company with a key cornerstone shareholder with significant experience in Indonesia, in Mr Eddyarto. The Director’s consider that Mr Eddyarto’s current shareholding of approximately 20% to be an insufficient incentive for him to drive the business forward, notwithstanding his 60% interest in the joint venture entity in Indonesia, AHR. The Directors are of the opinion that the controlling stake in the listed public vehicle will provide a strong incentive for him to devote substantial time and energy to seek to ensure the success of the Company and the joint venture vehicle and the controlling stake will align his success with that of all other shareholders.

Proposed Transaction structured to incentive growth in Adavale’s share price

2.9. The Tranche 3 and Tranche 4 Call Options have exercise prices of $0.05 and $0.04 respectively. Given these exercise prices are significantly in excess of the Company’s recent traded share price, there is an incentive for Mr Eddyarto to assist the Company with project acquisitions and project developments to drive growth in Adavale’s share price, over the short term. This will avoid Mr Eddyarto potentially having to buy Adavale shares upon the exercise of the Tranche 3 and Tranche 4 Put Options at prices which are significantly above market prices.

Retains Indonesian experience, enhancing ability of the Company to identify and pursue new projects

2.10. Mr Eddyarto has indicated that should Non-Associated Shareholders not approve the Proposed Transaction, he is likely to seek to review his investment in Adavale. If Mr Eddyarto, on review was to exit the Company the non associated Directors are of the view that, given the Company’s limited success to date in securing exploration projects in Indonesia prior to Mr Eddyarto’s involvement in the Company, and the benefits Mr Eddyarto has provided the Company since his involvement in terms of project identification, were Mr Eddyarto to exit the Company, this would have a significant detrimental impact on the ability of the Company to secure new projects in Indonesia.

Provides clarity on strategic direction of the Company

2.11. The Proposed Transaction consolidates the interests of a number of significant shareholdings in the Company into one holding. This should provide certainty and clarity over the future strategic direction of the Company, which given Mr Eddyarto’s background, will be primarily focused on identifying, acquiring and developing Indonesian coal projects.

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Access to funding

2.12. As at 30 June 2012 the Company had approximately $589,000 of cash. The Proposed Transaction allows the Company to access $1,000,000 via the Eddyarto Loan, which will be used to fund the current operating costs and commitments of the Company. Without these funds the Company would need to undertake an equity capital raising, likely to be at a discount to the current market price. A capital raising in the current market could have significant dilutive impacts on the interests of the Non-Associated Shareholders in the Company.
2.13. However, Non-Associated Shareholders should be aware that whilst the Eddyarto Loan, will avert the need to undertake an equity capital raising in the short term, it is highly likely, given the funding is capped at $1 million, that an equity capital raising will be required at some point in the future, to fund the continued exploration of existing projects and / or the acquisition and exploration of new projects.

Large parcels of shares will not be sold on market

2.14. Should Non-Associated Shareholders approve the Proposed Transaction it removes the risk of the Vendors and Mr Eddyarto potentially exiting their investment in Adavale by selling their Adavale shares on market, which is likely to put downward pressure on the Adavale share price.

Disadvantages

Dilution of Non-Associated Shareholders interest in the issued share capital of Adavale

2.15. Should Non-Associated Shareholders approve the Proposed Transaction Mr Eddyarto could hold a maximum of 64.2% of the issued share capital of Adavale. Under this scenario the Non-Associated Shareholders interest in Adavale will be diluted from 48.8% currently to 35.8%.

Increased level of control

2.16. Mr Eddyarto’s voting power in Adavale will increase above 25%, and could increase above 50% if the Proposed Transaction is approved by Non-Associated Shareholders. If Mr Eddyarto’s interest is above 25% but less than 50%, Mr Eddyarto will have the ability to block special resolutions, expect in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution. Should Mr Eddyarto’s interest exceed 50% he will have the ability to pass and block general resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution.
2.17. Should the Non-Associated Shareholders approve the Proposed Transaction, regardless of the eventual interest in Adavale held by Mr Eddyarto; his control of Adavale will be significant when compared to all other shareholders as he will be the major shareholder under all possible shareholding scenarios.

Detraction of Adavale as a takeover target

2.18. Should Non-Associated Shareholders approve the Proposed Transaction Mr Eddyarto under the Conditional Share Sale Agreements has the ability to increase his interest in Adavale to in excess of 50%. Thus in the event that the Proposed Transaction is successful any entity wishing to take control of Adavale post the Proposed Transaction is likely to require the support of Mr Eddyarto. Therefore in our opinion an

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interest of this level is likely to deter prospective purchasers making a takeover offer for Adavale and as such, the opportunity of Adavale to receive a takeover offer, is reduced should Non-Associated Shareholders approve the Proposed Transaction.

Foregoing of control premium

2.19. The Vendors are receiving a premium for control that is not being offered to the Non-Associated Shareholders. Furthermore as a result of approving the Proposed Transaction the likelihood of Adavale receiving a takeover offer is reduced. Therefore in our opinion as a result of approving the Proposed Transaction the Non-Associated Shareholder’s will be reducing the possibility of them receiving a control premium for the shares they hold in Adavale in the future.

Options granted to Mr Eddyarto

2.20. Non-Associated Shareholders should be aware that should they approve the Proposed Transaction Mr Eddyarto will have the ability to acquire a significant portion of his ultimate interest through the exercise of options and conversion of the Eddyarto Loan. These options and the Eddyarto Loan provide Mr Eddyarto with the discretion to convert these interests into Adavale shares at a price which is favourable to him. The holder of a share option or convertible security will only likely exercise their option/conversion right, if the exercise/conversion price is below the prevailing market price at that time, which, thus delivers a financial benefit to the holder.
2.21. Mr Eddyarto’s current options and the options he will acquire as a result of the Proposed Transaction have exercise prices which range from a minimum of 4 cents to a maximum of 7 cents, meaning it likely that Mr Eddyarto would not exercise his options until the Adavale share price exceeds 4 cents. We note that 4 cents represents a price which is significantly above the recent quoted prices of Adavale’s shares, and compares to a VWAP in the period since the announcement to the date of this Report of 1.6 cents. Whilst Mr Eddyarto will receive a financial benefit upon the exercise of his options/conversion right, if the prevailing Adavale share price at the point of exercise exceeds the various exercise prices, the NonAssociated Shareholders will also benefit, in that, the value of their investment in Adavale would have appreciated significantly compared to the value at the date of this Report.

Other matters Non-Associated Shareholders should consider

2.22. Before deciding whether to vote in favour or against Resolutions 1, 2 and 3 and as such the Proposed Transaction, we strongly recommend that the Non-Associated Shareholders:
Consult their own professional advisors;
Carefully read all relevant documentation provided to them, including this Report and the Notice of Annual General Meeting and Explanatory Statement; and
Consider their own specific circumstances.

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3. Summary of Proposed Transaction

Overview

3.1. On 1 August 2012, Adavale announced that, Mr Eddyarto, a Director of the Company, had entered into the various agreements with the Company and other Adavale shareholders which collectively represent the Proposed Transaction. We summarise the terms of each agreement below.

Unconditional Share Sale Agreement and Option Transfer Agreement (Settled on 2 August 2012)

3.2. Mr Eddyarto entered into the Unconditional Share Sale Agreement to acquire 24,000,000 shares in the Company, from Arthur Phillip a major shareholder in Adavale. The Unconditional Share Sale Agreement was completed on 2 August 2012.
3.3. Arthur Phillip also entered an Option Transfer Agreement with Mr Eddyarto, under which Arthur Phillip agreed to transfer 10,000,000 options to acquire shares in the Company to Mr Eddyarto (which had previously been issued to Arthur Phillip by the Company under the terms of the convertible loan previously approved by Shareholders under AGM Resolution 6 dated 26 November 2010, provided by Arthur Phillip Loan) as consideration for Mr Eddyarto providing the Eddyarto Loan, to replace the Arthur Phillip Loan. The Option Transfer Agreement has occurred, but it should be noted that the Transfer Options have not been exercised. The Transfer Options are exercisable at $0.04, at any time on or before 31 July 2014.
3.4. As a result of the settlement of the Unconditional Share Sale Agreement and Option Transfer Agreement Mr Eddyarto has a relevant interest in the Company of 19.8% or 62,772,585 Adavale shares and hold 10,000,000 Adavale share options.

Share Transfer to occur upon execution of Conditional Share Sale Agreements

3.5. Mr Eddyarto has entered into separate Conditional Share Sale Agreements with other parties, including interests associated with Mr Richard Poole and Mr Roger Steinepreis (directors of the Company), whereby Mr Eddyarto has agreed, subject to obtaining the necessary shareholder approvals, to acquire up to an additional 99,522,838 Adavale shares and 22,004,435 share options in the Company as follows:
a) 36,000,000 Shares on 31 December 2012 at $0.02 per Share (“Tranche 2”) and 22,004,435 options over shares in Adavale exercisable at $0.04 on or before 31 July 2014;
b) 15,000,000 Shares on exercise of a call option by Mr Eddyarto at $0.05 per Share, on or before 31 March 2013 (“Tranche 3 Call Option”);
c) in the event that the Tranche 3 Call Option is not exercised, 7,500,000 Shares on exercise of a put option by the Vendors, at $0.04 per Share on or before 20 April 2013 (“Tranche 3 Put Option”);
d) 48,522,838 Shares on exercise of a call option by Mr Eddyarto, at $0.05 per Share, on or before 31 May 2013 (“Tranche 4 Call Option”); and
e) in the event that the Tranche 4 Call Option is not exercised, 12,500,000 Shares on exercise of a put option by the Vendors at $0.04 per Share on or before 20 June 2013 (“Tranche 4 Put Option”).

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3.6. The number of securities in Adavale to be acquired by Mr Eddyarto under the Conditional Share Sale Agreements will be dependent upon whether or not Mr Eddyarto exercises the Tranche 3 and Tranche 4 Call Options, and should he not elect to do so whether the Vendors exercise the Tranche 3 and 4 Put Options.
3.7. The table below summaries the current interest in the securities of Adavale of the Vendors and the consideration to be paid by Mr Eddyarto to the Vendor’s to acquire the securities under the following scenarios:
Scenario 1: Mr Eddyarto exercises 100% of Tranche 3 and Tranche 4 Call Options;
Scenario 2: Mr Eddyarto does not exercise the Tranche 3 and Tranche 4 Call Options, but the Vendors exercise the Tranche 3 and 4 Put Options; and
Scenario 3: Mr Eddyarto does not exercise the Tranche 3 and Tranche 4 Call Options, and the Vendors do not exercise the Tranche 3 and 4 Put Options.

	Price per security Mr Poole and associates Mr Steinpreis and associates Other Vendors	Total
	Current shares 50,796,085 17,336,838 31,389,915 Current options 17,004,435 625,000 625,000 Total securities held 67,800,520 17,961,838 32,014,915	99,522,838 18,254,435 117,777,273 36,000,000 15,000,000 48,522,838 99,522,838 18,254,435 117,777,273 $720,000 $750,000 $2,426,142 $3,896,142 36,000,000 7,500,000 12,500,000 56,000,000 18,254,435 74,254,435 $720,000 $300,000 $500,000 $1,520,000 36,000,000 36,000,000 2,426,142 38,426,142 $720,000 $720,000
	Scenario 1:
	Tranche 2 sale $0.02 18,374,266 6,271,185 11,354,549 Tranche 3 Call Option $0.05 7,655,944 2,612,994 4,731,062 Tranche 4 Call Option $0.05 24,765,875 8,452,659 15,304,304 Total shares acquired 50,796,085 17,336,838 31,389,915 Tranche 2 option sale $0.00 17,004,435 625,000 625,000 Total securities acquired 67,800,520 17,961,838 32,014,915 Tranche 2 $367,485 $125,424 $227,091 Tranche 3 Call Option $382,797 $130,650 $236,553 Tranche 4 Call Option $1,238,294 $422,633 $765,215 Total consideration $1,988,576 $678,707 $1,228,859
	Scenario 2:
	Tranche 2 sale $0.02 18,374,266 6,271,185 11,354,549 Tranche 3 Put Option $0.04 3,827,972 1,306,497 2,365,531 Tranche 4 Put Option $0.04 6,379,953 2,177,495 3,942,552 Total shares acquired 28,582,191 9,755,177 17,662,632 Tranche 2 option sale $0.00 17,004,435 625,000 625,000 Total securities acquired 19,369,966 10,380,177 18,287,632 Tranche 2 $367,485 $125,424 $227,091 Tranche 3 Put Option $153,119 $52,260 $94,621 Tranche 4 Put Option $255,198 $87,100 $157,702 Total consideration $775,802 $264,784 $479,414
	Scenario 3:
	Tranche 2 sale $0.02 18,374,266 6,271,185 11,354,549 Total shares acquired 18,374,266 6,271,185 11,354,549 Tranche 2 option sale $0.00 1,238,294 422,633 765,215 Total securities acquired 19,612,560 6,693,818 12,119,764 Tranche 2 $367,485 $125,424 $227,091 Total consideration $367,485 $125,424 $227,091

Table 1: Summary of Shares to be acquired by Mr Eddyarto under Unconditional Sale Agreements (Source: Notice & Adavale)

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3.8. The maximum number of securities which can be acquired by Mr Eddyarto under the Conditional Share Sale Agreements is, 99,522,838 Adavale shares and 22,004,435 Adavale shares options, which will occur if Mr Eddyarto chooses to exercise the Tranche 3 and Tranche 4 Call Options (Scenario 1 per the above analysis). We note that under this scenario Mr Poole and Mr Steinepreis and the Other Vendor’s will have a relevant interest in the securities of the Company of nil.
3.9. We note that the current interests of Mr Poole, Mr Steinepreis and the Other Vendors in Adavale are held both directly and indirectly by associates.
3.10. The minimum number of securities which can be acquired by Mr Eddyarto under the Conditional Share Sale Agreements is, 36,000,000 Adavale shares and 22,004,435 Adavale options, which will occur if both Mr Eddyarto chooses not to exercise the Tranche 3 and Tranche 4 Call Options, and the Vendors choose not to exercise the Tranche 3 and Tranche 4 Put Options (Scenario 2 per the above analysis).
3.11. The actual number of securities to be acquired by Mr Eddyarto under the Unconditional Share Sale Agreements, may fall in between the maximum and minimum scenarios outlined above. The number of securities Mr Eddyarto ultimately acquires will be dependent upon Mr Eddyarto’s decision in regard to each individual Tranche 3 and Tranche 4 Call Option he has with each Vendor and each Vendors decision in relation to the Tranche 3 and Tranche 4 Put Options.

Milestone Options

3.12. Subject to obtaining shareholder approval the Company has agreed to allot and issue a total of 60,000,000 share options to Mr Eddyarto, which vest upon the achievement of the following performance milestones:
a) 20 million options are exercisable when the Company enters into a binding contract to purchase or operate a coal project or concession with a minimum reserve of 2 (two) million tonnes. This tranche will have an exercise price of A$0.05 per option and an expiry date of 31 July 2014;
b) 20 million options are exercisable when the Company sells and ships its first load of coal. This tranche will have an exercise price of A$0.06 and an expiry date of 31 July 2015; and
c) 20 million options are exercisable when the Company ships its first 500,000 tonnes of coal. This tranche will have an exercise price of A$0.07 and an expiry date of 31 July 2016.

Eddyarto Loan Agreement

3.13. The Company has entered into an agreement with Mr Eddyarto under which Mr Eddyarto will provide up to $1 million to the Company under a convertible loan note facility. The terms of the convertible loan will be as follows:

follows:
Term	2 years
Coupon	8%
Interest payments	The interest shall be settled in cash at the termination of the Eddyarto Loan, or the issue of Adavale shares should Mr Eddyarto elect to convert any funds advanced under the Eddyarto Loan and the accrued interest.
Conversion price	$0.05 per share
Conversion terms	Convertible into ordinary Adavale shares at the election of Mr Eddyarto
Maximum number of shares to be issued upon conversion	23,200,000, which assumes the maximum $1 million is immediately drawn down and all interest accrued over the 2 year life which would amount to $160,000 is converted into Adavale shares

Table 2: Summary of terms of Eddyarto Loan (Source: Notice & Eddyarto Loan Agreement)

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3.14. The Eddyarto Loan replaces The Arthur Phillip Loan a convertible note agreement which was previously approved by shareholders at the AGM in November 2010, which was terminated on completion of the Option Transfer Agreement on 2 August 2012. There has not been a need for the Company to draw-down under the Arthur Phillip Loan to date, however in order to provide additional funding to the Company and as a consequence of entering into the convertible loan agreement with Mr Eddyarto, the Company and Arthur Phillip have agreed to terminate the Arthur Phillip Loan.

Impact of Proposed Transaction on Adavale’s capital structure

Current capital structure

3.15. The current capital structure of Adavale is summarised below.

Current interests	# Shares % Undiluted Interest	# Vested Options	# Shares plus vested options % Partially Diluted	# Unvested performance options	# Shares plus vested and performance options % Partially diluted	# Shares upon convesion of Funding Facility	All securities % Fully diluted
Non-Associated Shareholders Mr Poole and associates Mr Steinepreis and associates Other Vendors Total Vendors Mr Eddyarto Total	154,694,612 48.8% 50,796,085 16.0% 17,336,838 5.5% 31,389,915 9.9% 99,522,838 31.4% 62,772,585 19.8% 316,990,035 100.0%	53,693,428 17,004,435 2,500,000 2,500,000 22,004,435 10,000,000 85,697,863	208,388,040 51.8% 67,800,520 16.8% 19,836,838 4.9% 33,889,915 8.4% 121,527,273 30.1% 72,772,585 18.1% 402,687,898 100.0%	30,000,000 - - - - - 30,000,000	238,388,040 55.1% - 67,800,520 15.7% 19,836,838 4.6% 33,889,915 7.8% 121,527,273 28.1% 72,772,585 16.8% 432,687,898 100.0%	- - - - - - -	238,388,040 55.1% 67,800,520 15.7% 19,836,838 4.6% 33,889,915 7.8% 121,527,273 28.1% 72,772,585 16.8% 432,687,898 100.0%

Table 3: Current shareholder interests in Adavale (Source: Adavale and Adavale share register 12 September 2012)

3.16. Mr Eddyarto is the largest shareholder in Adavale and currently holds an undiluted interest in the issued share capital of 19.8% and a fully diluted interest of 16.8%. Adavale directors Mr Poole and Mr Steinepreis hold undiluted interests in Adavale of 16% and 5.5%, and fully diluted interests of 15.7% and 4.6% respectively.
3.17. Collectively the Vendors currently hold a 31.4% interest in Adavale on an undiluted basis and 28.1% on a fully diluted basis.
3.18. The Non-Associated Shareholders hold an undiluted interest in Adavale of 48.8% and 55.1% on a fully diluted basis.

Maximum and minimum interest of Mr Eddyarto

3.19. The maximum relevant interest of Mr Eddyarto and his voting power immediately before and after the issue of Adavale shares pursuant to the Eddyarto Agreements is set out in the table below.

Event	Shares to be issued / transfer upon event Shares held by Mr Eddyarto post event Adavale shares on issue post event Interest
Current shareholding Share Transfer of Tranche 2 shares upon settlement of Conditional Share Sale Agreements Assumed exercise of $0.04 cent options currently held Assumed exercise of Tranche 2 $0.04 options, transferred upon settlement of Conditional Share Sale Agreements Share Transfer upon exercise of Tranche 3 Call Option under Conditional Share Sale Agreements Share Transfer upon exercise of Tranche 4 Call Option under Conditional Share Sale Agreements Vesting and assumed exercise of Milestone Options Maximum shares issued upon conversion of draw downs of Eddyarto Loan Maximum interest	62,772,585 62,772,585 316,990,035 19.8% 36,000,000 98,772,585 316,990,035 31.2% 10,000,000 108,772,585 326,990,035 33.3% 22,004,435 130,777,020 348,994,470 37.5% 15,000,000 145,777,020 348,994,470 41.8% 48,522,838 194,299,858 348,994,470 55.7% 60,000,000 254,299,858 408,994,470 62.2% 23,200,000 277,499,858 432,194,470 64.2% 277,499,858 277,499,858 432,194,470 64.2%

Event

Shares to be issued /
transfer upon event
Shares held by Mr
Eddyarto post event
Adavale shares on
issue post event
Interest

Current shareholding
Share Transfer of Tranche 2 shares upon settlement of Conditional Share Sale
Agreements
Assumed exercise of $0.04 cent options currently held
Assumed exercise of Tranche 2 $0.04 options, transferred upon settlement of
Conditional Share Sale Agreements
Share Transfer upon exercise of Tranche 3 Call Option under Conditional Share
Sale Agreements
Share Transfer upon exercise of Tranche 4 Call Option under Conditional Share
Sale Agreements
Vesting and assumed exercise of Milestone Options
Maximum shares issued upon conversion of draw downs of Eddyarto Loan
Maximum interest

62,772,585
62,772,585
316,990,035
19.8%
36,000,000
98,772,585
316,990,035
31.2%
10,000,000
108,772,585
326,990,035
33.3%
22,004,435
130,777,020
348,994,470
37.5%
15,000,000
145,777,020
348,994,470
41.8%
48,522,838
194,299,858
348,994,470
55.7%
60,000,000
254,299,858
408,994,470
62.2%
23,200,000
277,499,858
432,194,470
64.2%
277,499,858
277,499,858
432,194,470
64.2%

Table 4: Potential shareholding of Mr Eddyarto pursuant to Eddyarto Agreements (Source: Notice)

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3.20. Should Non-Associated Shareholders approve the Proposed Transaction Mr Eddyarto could hold a maximum of 64.2% of the issued share capital of Adavale. This calculation assumes:
No other options, other than the Transfer Options, options acquired under the Share Transfer and the Milestone Options (Options which will be held by Mr Eddyarto should the Proposed Transaction be approved) are exercised;
The maximum number of 99,522,838 Adavale shares are transferred to Mr Eddyarto from the Vendors under the Share Transfer;
Adavale draw down the full $1 million on the Eddyarto Loan and Mr Eddyarto elects to convert the draw down and accrued interest into Adavale shares; and
No other shares are issued by the Company.
3.21. The minimum interest to be held by Mr Eddyarto upon completion of the Proposed Transaction will be 31.2%, which reflects the 36,000,000 Tranche 2 shares which will be transferred from the Vendors under the Conditional Share Sale Agreements. This calculation assumes:
No options are exercised, including the 32,004,435 Adavale options Mr Eddyarto will hold in Adavale upon settlement of the Conditional Share Sale Agreements;
The Milestone Options do not vest and are not exercised; and
Amounts drawn under the Eddyarto Loan are not converted into Adavale shares.

Mr Eddyarto’s interest relative to other Adavale shareholders

3.22. The ownership interests of Mr Eddyarto, the Vendors and the Non-Associated Shareholders should the Proposed Transaction be approved, will be dependent on the exercise decisions of Mr Eddyarto and the Vendors with regard to the Tranche 3 and Tranche 4 Call and Put Options which form part of the Conditional Share Sale Agreements.
3.23. We set an out analysis of the capital structure of Adavale post the Proposed Transaction under the three exercise scenarios in the tables below.

Scenario 1: Mr Eddyarto exercises 100% of Tranche 3 and Tranche 4 Call Options

3.24. The capital structure of Adavale assuming Mr Eddyarto exercises the Tranche 3 and 4 Call Options and reflecting the other potential share issues under the Eddyarto Agreements is summarised in the table below.

Scenario 1:	# Shares % Undiluted Interest	# Vested Options	# Shares plus vested options % Partially Diluted	# Unvested performance options	# Shares plus vested and performance options % Partially diluted	# Shares upon conversion of Funding Facility	All securities % Fully diluted
Non-Associated Shareholders Mr Poole and associates Mr Steinepreis and associates Other Vendors Total Vendors Current Tranche 2 Tranche 3 Tranche 4 Resolution 5 - Option issue Resolution 6 - Con Note Total Mr Eddyarto Total	154,694,612 48.8% - 0.0% - 0.0% - 0.0% - 0.0% 62,772,585 36,000,000 15,000,000 48,522,838 - - 162,295,423 51.2% 316,990,035 100.0%	53,693,428 - - - - 10,000,000 22,004,435 - - - - 32,004,435 85,697,863	208,388,040 51.7% - 0.0% - 0.0% - 0.0% - 0.0% 72,772,585 58,004,435 15,000,000 48,522,838 - - 194,299,858 48.3% 402,687,898 100.0%	30,000,000 - - - - 60,000,000 - 60,000,000 90,000,000	238,388,040 48.4% - 0.0% - 0.0% - 0.0% - 0.0% 72,772,585 58,004,435 15,000,000 48,522,838 60,000,000 - 254,299,858 51.6% 492,687,898 100.0%	- - - - - - - - - - 23,200,000 23,200,000 23,200,000	238,388,040 46.2% - - 0.0% - 0.0% - 0.0% 0.0% 72,772,585 58,004,435 15,000,000 48,522,838 60,000,000 23,200,000 277,499,858 53.8% 515,887,898 100.0%

Table 5: Adavale capital structure under scenario 1 (Source: Notice, Adavale and Adavale share register 12 September 2012)

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3.25. Under scenario 1 Mr Eddyarto would have an undiluted and fully diluted interest in Adavale of 51.2% and 53.8% respectively. We note that Mr Eddyarto’s interest when reflecting the dilutive impact of current vested options on issue is below 50% at 48.3%.
3.26. The Vendors interest in Adavale will be nil on both an undiluted and fully diluted basis.
3.27. The Non-Associated Shareholders undiluted interest in the Company both pre and post the Proposed Transaction will not change and will remain at 48.8%. Their fully diluted interest will fall from 55.1% pre the Proposed Transaction to 46.2% post, as a result of the potentially dilutive impact of the Milestone Options and potential shares to be issued under the Eddyarto Loan. The Non Associated Shareholders undiluted and fully diluted interest post the Proposed Transaction will be the same under each scenario.

Scenario 2: Mr Eddyarto does not exercise Tranche 3 and Tranche 4 Call Options, but Vendors exercise Tranche 3 and 4 Put Options

3.28. The capital structure of Adavale assuming Mr Eddyarto does not exercises the Tranche 3 and 4 Call Options, but the Vendors exercise the Tranche 3 and 4 Put Options and reflecting the other potential share issues under the Eddyarto Agreements is summarised in the table below.

Scenario 2:	# Shares % Undiluted Interest	# Vested Options	# Shares plus vested options Partially Di	% luted	# Unvested performance options	# Shares plus vested and performance options % Partially diluted	# Shares upon conversion of Funding Facility	All securities % Fully diluted
Non-Associated Shareholders Mr Poole and associates Mr Steinepreis and associates Other Vendors Total Vendors Current Tranche 2 Tranche 3 Tranche 4 Resolution 5 - Option issue Resolution 6 - Con Note Total Mr Eddyarto Total	154,694,612 48.8% 22,213,894 7.0% 7,581,661 2.4% 13,727,283 4.3% 43,522,838 13.7% 62,772,585 36,000,000 7,500,000 12,500,000 - - 118,772,585 37.5% 316,990,035 100.0%	53,693,428 - - - - 10,000,000 22,004,435 - - - - 32,004,435 85,697,863	208,388,040 22,213,894 7,581,661 13,727,283	51.8% 5.5% 1.9% 3.4% 10.8% 37.4% 100.0%	30,000,000 - - - - - - - - 60,000,000 - 60,000,000 90,000,000	238,388,040 48.4% 22,213,894 4.5% 7,581,661 1.5% 13,727,283 2.8% 43,522,838 8.8% 72,772,585 58,004,435 7,500,000 12,500,000 60,000,000 - 210,777,020 42.8% 492,687,898 100.0%	- - - - - - - - - - - 23,200,000 23,200,000 23,200,000	238,388,040 46.1% - 22,213,894 4.3% 7,581,661 1.5% 13,727,283 2.7% 43,522,838 8.5% 72,772,585 58,004,435 7,500,000 12,500,000 60,000,000 23,200,000 233,977,020 45.4% 515,887,898 100.0%
			43,522,838
			72,772,585 58,004,435 7,500,000 12,500,000 - -
			150,777,020
			402,687,898

Table 6: Adavale capital structure under scenario 2 (Source: Notice, Adavale and Adavale share register 12 September 2012)

3.29. Under scenario 2 Mr Eddyarto would have an undiluted and fully diluted interest in Adavale of 37.5% and 45.4% respectively. We note that Mr Eddyarto’s interest when reflecting the dilutive impact of current vested options on issue will be 37.4%.
3.30. Adavale directors Mr Poole and Mr Steinepreis would hold undiluted interests in Adavale of 7% and 2.4%, and fully diluted interests of 4.3% and 1.5% respectively. Collectively the Vendors would hold a 13.7% interest in Adavale on an undiluted basis and 8.5% on a fully diluted basis.

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Scenario 3: Neither Mr Eddyarto nor the Vendors exercise their Tranche 3 and Tranche 4 Call and Put Options

3.31. The capital structure of Adavale assuming neither Mr Eddyarto exercises the Tranche 3 and 4 Call Options, nor the Vendors exercise Tranche 3 and 4 Put Options, and reflecting the other potential share issues under the Eddyarto Agreements is summarised in the table below.

Scenario 3	# Shares % Undiluted Interest	# Vested Options	# Shares plus vested options Partially Di	% luted	# Unvested performance options	# Shares plus vested and performance options % Partially diluted	# Shares upon conversion of Funding Facility	All securities % Fully diluted
Non-Associated Shareholders Mr Poole and associates Mr Steinepreis and associates Other Vendors Total Vendors Current Tranche 2 Tranche 3 Tranche 4 Resolution 5 - Option issue Resolution 6 - Con Note Total Mr Eddyarto Total	154,694,612 48.8% 32,421,819 10.2% 11,065,653 3.5% 20,035,366 6.3% 63,522,838 20.0% 62,772,585 36,000,000 - - - - 98,772,585 31.2% 316,990,035 100.0%	53,693,428 - - - - 10,000,000 22,004,435 - - - - 32,004,435 85,697,863	208,388,040 32,421,819 11,065,653 20,035,366	51.7% 8.1% 2.7% 5.0% 15.8% 32.5% 100.0%	30,000,000 - - - - - - - - 60,000,000 - 60,000,000 90,000,000	238,388,040 48.4% 32,421,819 6.6% 11,065,653 2.2% 20,035,366 4.1% 63,522,838 12.9% 72,772,585 58,004,435 - - 60,000,000 - 190,777,020 38.7% 492,687,898 100.0%	- - - - - - - - - - 23,200,000 23,200,000 23,200,000	238,388,040 46.2% - 32,421,819 6.3% 11,065,653 2.1% 20,035,366 3.9% 63,522,838 12.3% 72,772,585 58,004,435 - - 60,000,000 23,200,000 213,977,020 41.5% 515,887,898 100.0%
			63,522,838
			72,772,585 58,004,435 - - - -
			130,777,020
			402,687,898

Table 7: Adavale capital structure under scenario 3 (Source: Notice, Adavale and Adavale share register 12 September 2012)

3.32. Under scenario 3 Mr Eddyarto would have an undiluted and fully diluted interest in Adavale of 31.2% and 41.5% respectively. We note that Mr Eddyarto’s interest when reflecting the dilutive impact of current vested options on issue will be 32.5%.
3.33. Adavale directors Mr Poole and Mr Steinepreis would hold undiluted interests in Adavale of 10.2% and 3.5%, and fully diluted interests of 6.3% and 3.9% respectively. Collectively the Vendors would hold a 20% interest in Adavale on an undiluted basis and 12.3% on a fully diluted basis.

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4. Scope of the Report

Scope

4.1. Section 606(1) of the Corporations Act (“the Act”) prohibits the acquisition of shares of a "relevant interest" in issued voting shares in a public company, if as a result of the acquisition the person’s voting power in the company increases from below 20% to more than 20%, or from a starting point between 20% and 90%, without making an offer to all shareholders of the company[1] . In broad terms, a person has a "relevant interest" in shares if that person holds shares or has the power to control the right to vote or dispose of shares. A person’s voting power in a company is the number of voting shares in which the person (and its associates) has a relevant interest compared with the total number of voting shares in a company.
4.2. As summarised in paragraph 3.19 and 3.20 Mr Eddyarto’s maximum interest in the issued share capital of Adavale will be 64.2%, and his minimum interest will be 31.2%, as a result of the shares which could be issued or transferred pursuant to the Eddyarto Agreements.
4.3. Section 611, Item 7 of the Act provides an exemption to the rule noted in paragraph 4.1 above. Section 611, Item 7 allows a party (and its associates) to acquire a relevant interest in shares that would otherwise be prohibited under section 606(1) of the Act if the proposed acquisition is approved in advance by a resolution passed at a general meeting of the Company, and:
(i) no votes are cast in favour of the resolution by the proposed acquirers or sellers, or their respective associates; and
(ii) there was full disclosure to shareholders of all information that was known to the proposed acquirer or its associates or known to the Company that was material to a decision on how to vote on the resolution.
4.4. Consequently the Company is seeking the approval of the Non-Associated Shareholders for Mr Eddyarto’s voting power in the Company to increase from 20% or below to more than 20% when Mr Eddyarto is issued shares pursuant to the Eddyarto Agreements.
4.5. Section 611 of the Act states that shareholders must be given all information that is material to the decision on how to vote at the meeting. ASIC advises the commissioning of an Independent Expert’s Report in such circumstances and provides guidance on the content. Thus, the Directors of Adavale have requested that we prepare an Independent Expert Report.

Regulatory guidance

4.6. In forming our opinion we have given regard to the views expressed by ASIC in Regulatory Guide 111 Contents of Expert’s Reports.
4.7. RG 111 provides ASIC’s views on how an expert can help security holders make informed decisions about transactions.
4.8. RG 111 states that the expert report should focus on:
the issues facing the security holders for whom the report is being prepared; and
the substance of the transaction rather than the legal mechanism used to achieve it.
4.9. Where an issue of shares by a company otherwise prohibited under section 606 is approved under item 7 of section 611 and the effect on the company shareholding is comparable to a takeover bid, such as the

1 This prohibition excludes the acquisition of no more than 3% every six months under the “creep” provisions of the Act.

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shares to be issued to Mr Eddyarto upon exercise of the Transfer Options, Milestone Options or conversion of the Eddyarto Loan, RG 111 states that the transaction should be analysed as if it was a takeover bid.

4.10. RG 111 applies the “fair and reasonable” test as two distinct criteria in the circumstance of a takeover offer, stating:
A takeover offer is considered “fair” if the value of the offer price or consideration is equal to or greater than the value of the securities that are the subject of the offer; and
A takeover offer is considered “reasonable” if it is fair or, where the offer is “not fair”, it may still be “reasonable” if the expert believes that there are sufficient reasons for security holders to accept the offer.
4.11. RG 111 provides specific guidance (Para 111.41 – 111.46) on how an Independent Expert is to prepare a report on the sale of securities under item 7 of s611 of the Act, such as the Share Transfer which forms part of the Proposed Transaction. RG 111.42 states that the expert should identify the advantages and disadvantages of the proposal to security holders not associated with transaction and provide an opinion either:
a) That the advantages of the proposal outweigh the disadvantages; or b) That the disadvantages of the proposal outweigh the advantages.
4.12. Specifically, RG 111 states that in reaching their opinion the expert should consider:
Whether the non-associated shareholders may be foregoing the opportunity to share in a takeover premium by approving the proposal (RG 111.41);
The extent to which the vendor is to receive a premium for control (RG 111.43). ASIC suggest that the greater the control premium, the greater the advantages of the transaction to the non associated security holders would need to be to support a finding by the expert that advantages of the proposal outweighed the disadvantages (RG 111.44);
The extent to which further transactions are planned between the company and the vendor (RG 111.45); and
Whether the proposed acquisition, if approved, might deter the making of a takeover bid for the entity (RG 111.46).

Adopted basis of evaluation

4.13. The Company is seeking the approval of the Non-Associated Shareholders for Mr Eddyarto’s voting power in the Company to increase from below 20% to 20% or more, when Mr Eddyarto is issued shares pursuant to the Eddyarto Agreements, with these share issues being defined as the Proposed Transaction. We consider that the Proposed Transaction can be segmented into 4 sub transactions as follows;
Transaction 1 – The potential exercise of the 10,000,000 Adavale share options (Transfer Options) currently held by Mr Eddyarto acquired under the Option Transfer Agreement;
Transaction 2 – The sale and transfer of up to 99,522,838 shares and 22,004,435 share options from existing shareholders to Mr Eddyarto (Share Transfer);
Transaction 3 - The granting of 60,000,000 Milestone Options; and
Transaction 4 – The provision of a funding facility (Eddyarto Loan) by Mr Eddyarto to the Company which may result in up to 23,200,000 shares being issued to Mr Eddyarto.

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Were Mr Eddyarto to acquire all the shares set out in Transactions 1 to 4 above, his voting power in Adavale would increase from 19.8% currently, to a maximum of 64.21%. Further details on Mr Eddyarto’s potential voting power, as a result approval of the Proposed Transaction, is set out at Section 3.6 of this Report.

4.14. As the Non-Associated Shareholders are being requested to approve the Proposed Transaction as a whole, i.e all the potential share issues and transfers to Mr Eddyarto which could occur under the Eddyarto Agreements, our Report provides one opinion of the Proposed Transaction, rather than a number of opinions, on each element of the Proposed Transaction. In determining the form of this opinion we have considered the fact that, the Proposed Transaction is seeking approval from the Non-Associated Shareholders of two types of control transaction, under item 7 of s611 of the Act being, an issue of new Adavale shares to Mr Eddyarto (Transaction 1, 3 and 4), and the approval for the sale of securities from existing shareholders to Mr Eddyarto (Transaction 2).
4.15. As set out in detail above, RG 111 stipulates that different types of opinion are to be provided by the Independent Expert for these two types of control transactions, being a:
A “fair” and “reasonable” opinion, when opining on the issue of securities under item 7 of s611 of the Act; and
An opinion as to whether or not the advantages of a, sale of securities transaction under item 7 of s611 the Act for the non-associated shareholders, outweigh the disadvantages.
4.16. Should Non-Associated Shareholders approve the Proposed Transaction the only certain transaction in Adavale shares which will occur is the sale of the 36,000,000 Tranche 2 shares from the Vendors to Mr Eddyarto, which will provide Mr Eddyarto with a 31.2% interest in the company (A sale of securities under item 7 of s611 of the Act). The new share issues by the Company (Transaction 1, 3 and 4) are not certain to occur, and will be dependent, on the achievement of certain vesting conditions and the exercise decisions of Mr Eddyarto. In light of this, we consider it appropriate to provide an opinion as to whether or not the advantages of the Proposed Transaction for the Non-Associated Shareholders outweigh the disadvantages, rather than a “fair” and “reasonable” opinion. However, we have also considered, in determining our opinion whether the new shares to be issued by the Company under the Proposed Transaction are at a price which is “fair” to the Non-Associated Shareholders.
4.17. Thus in forming our opinion we have considered the following:
Whether the Vendors’ of the shares which are the subject of the Share Transfer are to receive a premium for control by comparing the value of an Adavale share on a minority basis and comparing this to the consideration being offered by Mr Eddyarto;
An analysis and investigation of the advantages and disadvantages of the Share Transfer and the overall Proposed Transaction;
Considered whether the Non-Associated Shareholders of Adavale may be foregoing the opportunity of receiving a takeover bid;
An analysis of other issues to which Adavale shareholders may give consideration prior to voting in favour of or against the Share Transfer and Proposed Transaction; and
An assessment as to whether the price at which the new share issues are being offered to Mr Eddyarto by the Company are at a price which is “fair”. This assessment has been based on a comparison of the fair value of an ordinary share in Adavale on a control basis pre to the Proposed Transaction, to the fair value of an Adavale share on a non control (minority) basis post the Proposed Transaction, under the following scenarios, which reflect the impact of the new shares to be issued by Adavale under sub Transactions 1,2 and 4;

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Scenario 1 - the fair value of a Adavale share on a fully diluted minority basis reflecting the exercise of the 10,000,000 Transfer Options currently held by Mr Eddyarto (Transaction 1);
Scenario 2 - the fair value of an Adavale share on a minority basis reflecting the impact of the maximum 23,200,000 shares which could be issued upon conversion of amounts drawn under the Eddyarto Loan (Transaction 3);
Scenario 3 – the fair value of an Adavale share on a minority basis reflecting the impact of the shares which may be issued under the Eddyarto Loan (Transaction 3) and the exercise of the 10,000,000 Transfer Options currently held by Mr Eddyarto (Transaction 1); and
Scenario 4 – the fair value of an Adavale share on a minority basis reflecting all the securities which could be issued under Transaction 1, 3 and 4.

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5. Profile of Adavale

History

5.1. Adavale was incorporated as a proprietary limited company on 20 March 1969 under the name of Burrill Investments Pty Ltd. The Company subsequently listed on the ASX as Burrill Investments Limited and changed its name to Mining Corporation of Australia Limited on 9 June 1970.
5.2. Following a number of subsequent name and structural changes, the Company then known as Asia Gold Mining Corporation Limited, announced on 30 November 1999 the acquisition of Pocketmail Pty Ltd and a name change to Pocketmail Group Limited. The Company changed the focus of its activities from mining and exploration to providing low-cost mobile email services.
5.3. On 22 January 2007, the Company announced the acquisition of 100% of the share capital in Adavale Minerals Pty Ltd, a uranium exploration company. On 7 December 2007 the Company announced its intention to be renamed Adavale Resources Limited and to change the focus of it activities to uranium mining and exploration, with initial exploration focusing on its exploration assets located at Lake Surprise in South Australia and Springvale in Queensland. Following approval of the changes by shareholders and compliance with ASX listing rules pursuant to the change of activities, the Company began trading as Adavale on 19 March 2008.
5.4. On 30 October 2009, Adavale announced the expansion of its mining and exploration activities beyond its Australian assets, through the acquisition of rights to two Indonesian thermal coal projects, “Tapan” and “Jambi” in South Sumatra, Indonesia. In April 2011, the Company announced further expansion within Indonesia through its wholly owned Indonesian subsidiary Adavale Nusantara Resources (“ANR”), with the signing of joint venture agreements on 8 concessions totalling 24,400 hectares, located in east and south Kalimantan.
5.5. In October 2011, Adavale acquired PT Prima Perkasa Abadi (“PPA”), the owners of the Tapan coal concession in West Sumatra. Adavale’s Kalimantan based operations are run through its 40% joint venture entity Adavale Harner Resources (“AHR”). Adavale announced on 31 July 2012 that it had reduced its stake in AHR from 60% to 40%. Mr Eddyarto is the other shareholder in AHR, as a result the aforementioned transaction he increased his stake in AHR to 60%.

Exploration Projects

5.6. Adavale has a number of exploration licences and tenements in Indonesia and Australia, which can broadly be split into 3 project areas. We provide an overview of these project area’s below.

– Tapan Project 100% owned, located in Indonesia (Sumatra)

5.7. The Tapan project hosts a medium to high grade thermal coal resource located adjacent to the village of Tapan, approximately 200km’s south of Sumatra’s capital Padang. The Company currently holds and IUP (Mining Business Licence) production permit on 198 hectares and an IUP exploration permit on 2000 hectares. In addition subject to an environmental report, approval has been granted to upgrade the IUP exploration permit to an IUP production permit. Prior to acquisition the Company carried out substantial exploration on the project and identified a resource of 2.15Mt measured 1.5Mt indicated and 5.4Mt inferred.

– Kalimantan opportunities 40% owned through investment in AHR, located in Indonesia (Kalimantan)

5.8. In FY12 AHR undertook due diligence on the two potential projects located in Kalimantan (“Kalimantan Projects”). The Kalimantan Projects consisted of the following:
Tenements prospective for coal located in South Kalimantan Astri Prima Kota Baru region, South –
Kalimantan province The Company undertook due diligence which identified that the coal concessions were uneconomic and as such, as announced in July 2012, Adavale decided not to

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proceed with a drilling program, the Company advised that negotiations were continuing with the vendor of the project to retain the project in its portfolio; and

East Kalimantan Mada Perkasa Project – AHR entered into a Memorandum Of Understanding (“MOU”) to potentially acquire the Mada Perkasa Project. A full legal due diligence was undertaken on the Mada Perkasa Project. Results of that investigation revealed that the tenements did not have a clean title because the area was subject to cross claims that were also subject to legal proceedings. A decision was therefore made to allow the MOU to lapse.
5.9. AHR at present does not have legal tittle over any exploration projects. However, recent announcements by Adavale to the ASX in June indicate that the Company is currently in the process of evaluating 3 new coal projects located in East Kalimantan, which meet the Company’s minimum resource and quality criteria.

– Lake Surprise 100% owned, located in South Australia

5.10. The Lake Surprise project comprises of two Exploration Licences (“EL”), 3622 and 3620 which cover an area of 1,836km2 which is prospective for Uranium. The Company is in the process of renewing the EL’s and complying with rehabilitation obligations. A detailed report of the project will be completed in due course, at which the point the Company has indicated it will consider whether to look for joint venture partners to continue the exploration program.

Directors

5.11. The Board of Directors of Adavale is currently composed of the following individuals:
Richard Poole Director
� John Risinger Director � Roger Steinepreis Director � Mark Stevenson Director
Philip Suriano Director
Haryono Eddyarto Non-Executive Director
5.12. It is proposed that on completion of the Proposed Transaction, Mr Haryono Eddyarto will be appointed Chairman of the Company. In addition Mr Suriano, Mr Steinepreis and Mr Poole will retire as Directors at the AGM.

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Capital Structure

5.13. As at 5 September 2012 the Company had 316,990,035 ordinary shares on issue of which 59.5% were held by the top 10 shareholders as summarised in the table below.


		Shares %
Arthur Phillip Nominees Pty Ltd2 Fontelina Pty Ltd Mr Haryono Eddyarto2 Holloman Value Holdings LLC Eagle Resources Pty Ltd Blueknight Corporation Pty Ltd Larca Pty Ltd Byron Deveson Superannuation Hudson Corporate Ltd Mr Albert Saychuan Cheok Total Top 10 Others Total Ordinary Shares on issue as at 5 September 2012		54,100,897 17.1% 34,008,870 10.7% 24,000,000 7.6% 19,333,333 6.1% 16,500,000 5.2% 9,943,733 3.1% 9,626,293 3.0% 7,628,333 2.4% 7,350,000 2.3% 6,000,000 1.9% 188,491,459 59.5% 128,498,576 40.5% 316,990,035 100.0%

Table 8: Adavale top 10 shareholders ( Source: Adavale share register 5 September 2012 )

5.14. As at 5 September 2012 Adavale had 85,697,863 vested unlisted options and 30,000,000 non vested performance options on issue, as summarised in the table below.

	Number of options Vested Vesting conditions Expiry Date Exercise Price Cash raised if exercised
	85,697,863 Yes N/A 31-Jul-14 $0.040 $3,427,915 10,000,000 No Adavale shipping first load of coal 31-Jul-14 $0.040 $400,000 10,000,000 No Adavale shipping 500,000th tonne of coal 31-Jul-15 $0.045 $450,000 10,000,000 No Adavale shipping 1,000,000th tonne of coal 31-Jul-16 $0.050 $500,000 115,697,863 $4,777,915

Table 9: Adavale unlisted options ( Source: Adavale share register 5 September 2012 )

2 We note that a portion of the shares held by Arthur Phillip Nominees Pty Ltd represent relevant interests indirectly held by Company director Mr Richard Poole. Mr Eddyarto’ has a total relevant interest in the issued share capital of Adavale as at the date of this report of 62,772,585, of which 24,000,000 are held directly by Mr Eddyarto and the remaining 38,772,585 are held by entities associated to Mr Eddyarto.

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Share Price and Performance

5.15. The chart below sets out a summary of the share price performance of Adavale and volumes traded in Adavale shares over the 12 months to 11 October 2012.

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----- Start of picture text -----

0.028 1.6
0.026 1.4
0.024
1.2
0.022
1.0
0.020
0.8
0.018
0.6
0.016
0.4
0.014
0.012 0.2
0.010 0.0
Volume Price
Price $
Volume (in millions)
Oct-2011 Nov-2011 Dec-2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012
----- End of picture text -----

Figure 1: Adavale Share Price Volume Graph ( Source: S&P Capital IQ )

5.16. During this period Adavale made a number of announcements to the market, a summary of these announcements and the movement in the share price of Adavale following these announcements is set out in the table below.

Date	Key announcement	Closing Price	Closing Price		Closing Price
		Pre	Following		3 days after
		Announcement $	Announcement $	Mvt %	Announcement $	Mvt %
1-Aug-12	Announcement of Proposed Transaction	0.020	0.020	0.0%	0.020	0.0%
19-Jun-12	Arthur Phillip Nominees Pty Limited acquired an additional 1.05%
	stake in Adavale Resources Limited (ASX:ADD) for AUD 0.05
	million.	0.014	0.014	0.0%	0.014	0.0%
20-Mar-12	Arthur Phillip Nominees Pty Limited acquired an additional 1.1%
	stake in Adavale Resources Limited (ASX:ADD) for AUD 0.05
	million.	0.013	0.014	7.7%	0.015	15.4%
25-Nov-11	Adavale Resources Limited Announces Management Changes	0.018	0.018	0.0%	0.018	0.0%

Table 10: Adavale share price movements relative to key announcements ( Source: S&P Capital IQ)

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Historical Financial Performance

5.17. The audited financial performance of Adavale for the years ended 30 June 2012 (“FY12”), 30 June 2011 (“FY11”) and 30 June 2010 (“FY10”) is set out in the table below.


	Ref:	*FY12* *FY11* *FY10*

		*Audited* *Audited* *Audited*

		$ $ $
Other Revenue 5.18 Total revenue Employee expenses Audit Fee Premises expenses Contractor and consultants expenses Legal expenses Insurance Share registry fees Management and administration Directors fees Travel Write-off of exploration expenditure Impairment of exploration licence Exchange rate difference Share based expenses Other expenses from ordinary activities Profit / (Loss) from ordinary activities before income tax expense Share of loss from equity accounted investment 5.19 Loss before Income tax expense Income tax expense relating to ordinary activities Profit / (Net Loss) from ordinary activities after income tax expense Other comprehensive income for the year Total comprehensive income/(loss) 5.18		65,058 126,266 161533 65,058 126,266 161,533 (262,415) (313,970) (126,193) (50,047) (23,000) (18,200) (34,915) (32,559) (12,000) (497,116) (353,959) (527,689) 67 (90,770) (51,443) (21,501) (21,886) - (54,636) (134,339) (68,627) (15,000) (15,000) (15,000) (120,000) (120,125) (144,000) (305,135) (33,211) - - (32,259) (739,574) - - (449,940) (21,304) (71,403) - - (52,000) - (57,639) (96,703) (78,604) (1,374,583) (1,264,918) (2,069,737) (415,197) - - (1,789,780) (1,264,918) (2,069,737) - - (1,789,780) (1,264,918) (2,069,737) - - - (1,789,780) (1,264,918) (2,069,737)

Table 11: Adavale financial performance for FY10, FY11 and FY12 (Source: Adavale FY11 and FY12 financial report)

5.18. Adavale is still in the exploration phase of its life cycle and as such is not earning any revenue, thus the entity has generated losses in FY10, FY11 and FY12. Other revenue primarily represents interest income.
5.19. Adavale accounts for its interest in AHR as an equity investment and as such does not consolidate it. In FY12 Adavale’s share of AHR’s losses was approximately $415,000.

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Historical Financial Position

5.20. The audited consolidated financial position of Adavale as at 30 June 2012 and 30 June 2011 is set out in the table below.

	Ref:	As at As at

		30-Jun-12 30-Jun-11
		*Audited* *Audited*
		$ $

Current Assets
Cash	5.21	589,014 2,908,011
Receivables		22,345 105,136
Other current assets		8,904 3,731
Total Current Assets		620,263 3,016,878

Current Assets
Receivables		15,000 16,360
Property, plant and equipment		8,149 7,259
Other non-current assets	5.21	4,765,489 4,368,197
Investment accounted for usingthe equitymethod	5.22	200,568 -
		4,989,206 4,391,816

Total Assets		5,609,469 7,408,694

Current Liabilities
Payables		169,438 174,151
Provisions		43,494 15,754
Total Current Liabilities		212,932 189,905

Total Liabilities		212,932 189,905

Net Assets	5.21	5,396,537 7,218,789


		37,326,273 37,326,273 55,871 43,433 (31,985,607) (30,150,918)


		5,396,537 7,218,788

Table 12: Adavale financial position as at 30 June 2012 and 30 June 2011 (Source: Audited FY12 and FY11 Adavale financial reports)

5.21. Adavale has net assets as at 30 June 2012 of approximately $5,396,000 which mainly comprised of exploration expenditure of approximately $4,765,000 and cash of $589,000.
5.22. Investments represent the value, as at 30 June 2012 of Adavale’s 60% interest in AHR. We note that as announced by the Company on 31 July 2012, Adavale’s interest in AHR has fallen to 40%.

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6. Valuation approach

Valuation methodologies

6.1. In assessing the fair value of an ordinary Adavale share prior to and immediately following the Proposed Transaction, we have considered a range of valuation methodologies. RG 111 proposes that it is generally appropriate for an expert to consider using the following methodologies:
the discounted cash flow (“DCF”) method and the estimated realisable value of any surplus assets;
the application of earnings multiples to the estimated future maintainable earnings or cash flows added to the estimated realisable value of any surplus assets;
the amount which would be available for distribution on an orderly realisation of assets;
the quoted price for listed securities; and
any recent genuine offers received.
6.2. We consider that the valuation methodologies proposed by RG 111 can be split into three valuation methodology categories, as follows.

Market based methods

6.3. Market based methods estimate the fair value by considering the market value of a company’s securities or the market value of comparable companies. Market based methods include;
The quoted price for listed securities; and
Industry specific methods.
6.4. The recent quoted price for listed securities method provides evidence of the fair market value of a company’s securities where they are publicly traded in an informed and liquid market.
6.5. Industry specific methods usually involve the use of industry rules of thumb to estimate the fair market value of a company and its securities. Generally rules of thumb provide less persuasive evidence of the fair market value of a company than other market based valuation methods because they may not account for company specific risks and factors.

Income based

6.6. Income based methods estimate value by calculating the present value of a company’s estimated future stream of earnings or cash flows. Income based methods include:
Capitalisation of maintainable earnings; and
Discounted cash flow methods.
6.7. The capitalisation of earnings methodology is generally considered a short form DCF, where an estimation of the Future Maintainable Earnings (“FME”) of the business, rather than a stream of cash flows is capitalised based on an appropriate capitalisation multiple. Multiples are derived from the analysis of transactions involving comparable companies and the trading multiples of comparable companies.
6.8. The DCF technique has a strong theoretical basis, valuing a business on the net present value of its future cash flows. It requires an analysis of future cash flows, the capital structure and costs of capital and an

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assessment of the residual value or the terminal value of the company’s cash flows at the end of the forecast period. This method of valuation is appropriate when valuing companies where future cash flow projections can be made with a reasonable degree of confidence.

Asset based methods

6.9. Asset based methodologies estimate the fair value of a company’s securities based on the realisable value of its identifiable net assets. Asset based methods include:
orderly realisation of assets method;
liquidation of assets method; and
net assets on a going concern basis.
6.10. The value achievable in an orderly realisation of assets is estimated by determining the net realisable value of the assets of a company which would be distributed to security holders after payment of all liabilities, including realisation costs and taxation charges that arise, assuming the company is wound up in an orderly manner. This technique is particularly appropriate for businesses with relatively high asset values compared to earnings and cash flows.
6.11. The liquidation of assets method is similar to the orderly realisation of assets method except the liquidation method assumes that the assets are sold in a shorter time frame.
6.12. The net assets on a going concern method estimates the market values of the net assets of a company but unlike the orderly realisation of assets method it does not take into account realisation costs. Asset based methods are appropriate when companies are not profitable, a significant proportion of the company’s assets are liquid, or for asset holding companies.

Selection of valuation methodologies

6.13. In assessing the fair value of Adavale and Adavale’s shares both pre and post the Post the Proposed Transaction we have chosen to employ the following methodologies:
Net assets on a going concern – primary basis;
Quoted price of listed securities – secondary basis.
6.14. We have selected these methodologies for the following reasons:
Adavale does not generate regular trading income. Therefore there are no historic profits that could be used to represent future earnings. This means that the capitalisation of FME approach is not appropriate;
Adavale has no foreseeable future net cash inflows and therefore the application of the DCF methodology is not possible;
Adavale is an early stage junior exploration company whose most significant assets are its interest in Indonesian and Australian exploration projects. In our experience the most appropriate method for determining the value of junior early stage exploration companies such as Adavale is on the basis of the fair value of their underlying net assets; and
Adavale’s securities are listed on the ASX, which provides an indication of the market value where an observable market for the securities exists.

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6.15. ASIC Regulatory Guides envisage the use by an independent expert of specialists when valuing specific assets. We determined the need for a specialists’ involvement with regard to valuing Adavale’s interest in its exploration assets, and as such we engaged Al Maynard & Associates Pty Ltd (“Al Maynard”) to prepare an independent technical valuation of the Adavale’s exploration assets.
6.16. Al Maynard’s Report has been prepared in accordance with the requirements of the VALMIN code as adopted by the Institute of Geoscientists and the Australian Institute of Mining and Metallurgy. We have satisfied ourselves of Al Maynard’s qualifications and independence from Adavale and have placed reliance on their report accordingly. A copy of Al Maynard’s Report is attached at Appendix E.
6.17. We have assessed the fair value of an Adavale share pre the Proposed Transaction on both a control and minority basis to allow:
An assessment of the control premium being offered to Vendors by Mr Eddyarto;
A comparison of the fair value of an Adavale share on a control basis pre the Proposed Transaction, to the fair value of an Adavale share post the Proposed Transaction which considers the impact of the new Adavale shares which may be issued by the Company to Mr Eddyarto pursuant to the Eddyarto Agreements.

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7. Valuation of Adavale and an Adavale share pre the Proposed Transaction

Net Assets on a Going Concern Basis

7.1. We have assessed the value of Adavale to be in the range of approximately $1.9 million to $2.8 million and the value of an Adavale share on a control basis to be in the range of $0.006 to $0.009, and on a minority basis to be in the range of $0.005 to $0.007, based on the net assets on a going concern methodology, as summarised in the table below.


		Valuation of an Adavale share pre Proposed Transaction Ref:	Assessed value

			Low High

			$ $
		Net assets of Adavale as at 30 June 2012 5.20 Fair value adjustments Less: Book value of exploration assets 5.21 Less: Book value of investment in AHR 5.22 Plus: Fair value of exploration assets as assessed by Independent Technical Expert 7.3 Plus: Fair value of investment in AHR 7.5 NET ASSETS Number of Adavale shares on issue at the date of this Report 5.13 Value per share (Control basis) Discount for lack of control (17% - 23%) 7.9 Value per share (Minority basis)	5,396,537 5,396,537 (4,765,489) (4,765,489) (200,568) (200,568) 1,180,000 2,050,000 298,121 298,121 1,908,601 2,778,601 316,990,035 316,990,035 $0.006 $0.009 ($0.001) ($0.002) $0.005 $0.007

– Table 13: Assessed value of Adavale share pre Proposed Transaction Net assets on a going concern basis

7.2. Our assessment has been based on the audited net assets of Adavale as at 30 June 2012 of $5,396,537 as per the Company’s audited financial statements filed with the ASX, adjusted for known events and other fair value adjustments which we have identified through discussions with Directors and from a review of the assets and liabilities of the Company as set out in these financial statements. We summarise the adjustments we have made to the net assets of Adavale in the following paragraphs.

7.3. We engaged independent technical specialists Al Maynard to assess the fair value of Adavale’s interest in its exploration assets, who has assessed Adavale’s interest in these assets to be in the range of $1,180,000 to $2,050,000, as summarised in the table below.

	Project	Low High
		$m $m
Tapan Lake Surprise Total		0.70 1.20 0.48 0.85 1.18 2.05

Table 14: Assessed value of Adavale’s interest in its exploration assets (Source: Al Maynard Report)

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7.4. Al Maynard has valued the Tapan Project based on the empirical approach, with the fair value being determined by the volume of JORC coal resource identified to date multiplied by an assessed dollar value per tonne of coal in the ground. The value of the Lake Surprise tenements have been determined using the multiple of Exploration expenditure methodology, where fair value is determined by reference to the historic exploration expenditure on a project to date multiplied by a prospectively enhancement multiplier / factor. A copy of Al Maynard’s Report is set at Appendix E of this Report; this provides further detail on the methodologies and the valuation of Adavale’s mineral assets.
7.5. In our assessment of the fair value of Adavale we have removed the book value of its investment in AHR and replaced it with our assessment of the fair value of its 40% interest in AHR of $298,121, which we have calculated as follows:

	Per AHR accounts Sale Adjusted	Adjusted
	30-Jun-12 Adjustment 30-Jun-12	30-Jun-12
	US$ US$ US$	A$
Cash Receivables from Adavale Receivables from Mr Eddyarto Plant and equipment Other assets Total assets Trade and other payables Total liabilities NET ASSETS Assessed value of 40% interest in AHR	211,343 150,000 361,343 300,000 (300,000) - 200,000 150,000 350,000 34,785 34,785 55,961 55,961 802,089 - 802,089 28,489 28,489 28,489 - 28,489 773,599 - 773,599	348,125 - 337,197 33,513 53,914 772,749 27,447 27,447 745,302 298,121

Table 15: Assessed value of Adavale’s 40% interest in AHR (Source: AHR management accounts and RSM analysis)

7.6. As at 30 June 2012 the Company had a 60% investment in Indonesian company AHR, with the carrying value of this investment of $200,568 reflected in Adavale’s statement of financial position. On 31 July 2012 the Company announced that Mr Eddyarto had agreed to assume the Company’s US$300,000 financial obligation to AHR, in exchange Adavale are to transfer to Mr Eddyarto a 20% interest in AHR, thus reducing their interest in AHR to 40%. We understand that to date AHR has receipted US$150,000, with the remaining US$150,000 and the share transfer to take place upon the receipt of approval of the transaction from the Coordinating Investment Board in Indonesia, the government body who overseas foreign investment. In our assessment of the fair value of Adavale’s investment in AHR we have adjusted the net assets of AHR to reflect this transaction.

7.7. We note that AHR’s financial statements are prepared in US$. We have converted the adjusted net assets of AHR as at 30 June 2012 to $A at the following exchange rate 1US$ : A$0.96342, which has been sourced from foreign currency trader oanda at www.oanda.com
7.8. In forming our opinion on the Proposed Transaction we have considered whether as a result of the Share Transfer a control premium is to be provided to the Vendors by Mr Eddyarto. Therefore we have also undertaken an assessment of the value of an Adavale share on minority interest basis, in the calculation of the control premium being paid by Mr Eddyarto.
7.9. The value per share derived using the net assets on a going concern methodology is a control value, therefore we have applied a discount to our assessed controlling value of an Adavale share of 17% to 23%, to assess the value of an Adavale share on a minority interest basis. This discount has been based

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on analysis undertaken by RSM Bird Cameron’s 2010 control premium study, and the control premium we have applied in our assessment of the value of an Adavale share using the quoted market price methodology, as summarised at paragraph 7.18.

Quoted Price of Listed Securities

7.10. To provide a comparison and cross check to our valuation of Adavale derived using the Net Assets on a Going Concern methodology we have considered the recent quoted market price for Adavale’s shares on the ASX prior to the announcement of the Proposed Transaction.
7.11. The figure below sets out a summary of the Adavale’s closing share price and volume of Adavale shares traded in the 90 trading days pre the announcement of the Proposed Transaction. The assessment only reflects trading prior to the announcement, in order to avoid the influence of any movement in price that may have occurred as a result of the announcement of the Proposed Transaction.

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0.022 0.9
0.8
0.020
0.7
0.018 0.6
0.5
0.016
0.4
0.014 0.3
0.2
0.012
0.1
0.010 0.0
Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012
Volume Unadjusted Price
Stock Price $
Volume (in millions)
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Figure 2: Adavale Share Price Volume Graph ( Source: S&P Capital IQ )

7.12. Over the 90 day trading period pre the announcement of the Proposed Transaction, Adavale shares have traded in a range from a low of $0.012 on 28 May 2012 to a high of $0.02 on 31 July 2012.
7.13. To provide further analysis of the quoted market prices for Adavale’s shares, we have considered the Volume Weighted Average Price (“VWAP”) for the 1 day 5 day, 10 day, 30 day and 60 trading day periods to 31 July 2012, as summarised in the table below.

		1 Day	5 Day	10 Day	30 Day	60 Day	90 Day
	VWAP	$0.020	$0.018	$0.018	$0.017	$0.015	$0.015

Table 16: VWAP of Adavale’s shares (Source: S&P Capital IQ)

7.14. An analysis of the volume in trading in Adavale’s shares for the 90 day trading period to 31 July 2012 is set out in the table below.

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	Trading days High Low Cumutalive volume VWAP Volume as a % of total shares on issue 1 Day $0.020 $0.020 622,540 $0.020 0.20% 5 Day $0.020 $0.014 989,210 $0.018 0.31% 10 Day $0.020 $0.014 1,149,210 $0.018 0.36% 30 Day $0.020 $0.014 1,347,710 $0.017 0.43% 60 Day $0.020 $0.012 3,710,880 $0.015 1.17% 90 Day $0.020 $0.012 7,833,220 $0.015 2.47%
	Trading days High Low Cumutalive volume VWAP Volume as a % of total shares on issue
	1 Day $0.020 $0.020 622,540 $0.020 0.20% 5 Day $0.020 $0.014 989,210 $0.018 0.31% 10 Day $0.020 $0.014 1,149,210 $0.018 0.36% 30 Day $0.020 $0.014 1,347,710 $0.017 0.43% 60 Day $0.020 $0.012 3,710,880 $0.015 1.17% 90 Day $0.020 $0.012 7,833,220 $0.015 2.47%

Table 17: Traded volumes of Adavale shares to 31 July 2012 (Source: S&P Capital IQ)

7.15. A total of 2.47% of Adavale’s current issued capital was traded in the 90 trading days pre the announcement of the Proposed Transaction, and on 45 days out of the 90, no Adavale shares were traded. We consider this analysis indicates a low level of liquidity in Adavale’s shares.
7.16. Our assessment of the fair value an Adavale share based on recent quoted market prices, and therefore on a minority basis, is $0.018.
7.17. The value derived is indicative of the value of a marketable parcel of shares assuming the shareholder does not have control of Adavale. RG 111.11 states that when considering the value of a company’s shares for the purposes of approval under Item 7 of s611 the expert should consider a premium for control. As set out in paragraph as a result of the Eddyarto Agreement’s Mr Eddyarto’s interest in the issued share capital of Adavale will exceed 20%. Therefore in our assessment of the fair value of an Adavale share, we have reflected a premium for control.
7.18. RSM Bird Cameron has undertaken a survey of control premiums paid over a 5-year period to 30 June 2010 in 212 successful takeovers and schemes of arrangements of companies listed on the ASX (“RSM Bird Cameron Control Premium Study 2010”). The findings are summarised in the table below, showing the average control premium 20 days, 10 days and 2 days prior to announcement:

	Number of
	Transactions	20 Days Pre	10 Days Pre	2 Days Pre
Average control premium - All Industries	212	30.7%	25.6%	21.9%
Average control premium - Metals & Mining	55	33.9%	29.9%	26.4%

Table 13: Average Control Premium over five years to 30 June 2010

(Source: RSM Bird Cameron Control Premium Study 2010)

7.19. We have selected a control premium of 20% and 30% and applied it to our assessed value of an Adavale share on a minority interest basis as follows:

Quoted price	Low High
Quoted market value minority interest basis Control premium Quoted market valuation including a premium for control	$0.018 $0.018 20% 30% $0.022 $0.023

Table 13: Assessed value of an Adavale share – Quoted Price of Listed Securities (Source: RSM analysis)

7.20. Our valuation of an Adavale share, on the basis of the recent quoted market price including a premium for control is between $0.022 and $0.023.

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Valuation summary and conclusion

7.21. A summary of our assessed values of an Adavale share on a controlling and minority basis is set out in the table below.

			Low High Control value Quoted market prices $0.022 $0.023 Net Assets on a going concern $0.006 $0.009 Minority value Quoted market prices $0.018 $0.018 Net Assets on a going concern $0.005 $0.007

Table 18: Adavale valuation summary (Source: RSM analysis)

7.22. In our opinion we consider that the net assets on a going concern valuation methodology provides a better indicator of the fair value of an Adavale share, as we consider, based on the analysis set out at paragraph 7.15, that the trading market for Adavale’s shares is not deep enough to provide an assessment of their fair value. Adavale’s shares have not historically traded in significant volumes or on a regular basis.
7.23. We note that there is a significant difference between the assessed values of an Adavale share derived under the two methodologies. In our opinion this difference is due to the low level of liquidity in Adavale’s securities. The underlying value of a company is often not accurately reflected in the company’s share price if the shares are thinly traded.
7.24. Therefore in our opinion the fair value of an Adavale share pre the Proposed Transaction is in the range of $0.006 to $0.009 on a control basis and in the range of $0.005 to $0.007 on a minority interest basis.

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8. Analysis of the value of an Adavale share post the Proposed Transaction (minority basis)

Overview of analysis performed

8.1. In forming our opinion, as summarised in Section 4 of this Report we have considered the theoretical underlying fair value of an Adavale share reflecting the impact of the new shares which may be issued by the Company under the Proposed Transaction (Transaction 1, 2 and 4), under the following four Scenario’s 1.
8.2. The value of Adavale under each scenario has been derived using the net assets on a going concern methodology, after reflecting the impact of each scenario on the net assets of Adavale.
Scenario 1 - the fair value of an Adavale share on a fully diluted minority basis reflecting the exercise of the 10,000,000 Transfer Options currently held by Mr Eddyarto (Transaction 1);
Scenario 2 - the fair value of an Adavale share on a minority basis reflecting the impact of the maximum 23,200,000 shares which could be issued upon conversion of amounts drawn under the Eddyarto Loan (Transaction 3);
Scenario 3 – the fair value of an Adavale share on a minority basis reflecting the impact of the shares which may be issued under the Eddyarto Loan (Transaction 3) and the exercise of the 10,000,000 Transfer Options currently held by Mr Eddyarto (Transaction 1); and
Scenario 4 – the fair value of an Adavale share on a minority basis reflecting all the securities which could be issued under Transaction 1, 3 and 4.

Minority discount

8.3. As Transaction 1, 3 and 4 represent control transactions in accordance with RG 111, our assessment of the value of an Adavale share in these scenario’s has been on a minority basis. Therefore we have applied a discount to our assessed controlling value of an Adavale share of 17% to 23%. Further information on how this discount has been derived is set out at paragraph 7.9 of this report

Valuation Analysis

8.4. The tables below summarise our assessment of the fair value of an share in Adavale on a minority basis under each of the scenario’s outlined above.

Scenario 1	Low High
Assessed value of Adavale pre Proposed Transaction Plus: Proceeds from exercise of existing Transfer Options held by Mr Eddyarto ($0.04 per option) Assessed value of Adavale (Scenario 1) Number of Adavale shares on issue Shares issued to Mr Eddyarto upon exercise of Transfer Options Total shares on issue (Scenario 1) Assessed value per share (Controlling basis) Less: Discount for lack of control (17% - 23%) Value per share (Minority basis)	$1,908,601 $2,778,601 $400,000 $400,000 $2,308,601 $3,178,601 316,990,035 316,990,035 10,000,000 10,000,000 326,990,035 326,990,035 $0.007 $0.010 ($0.001) ($0.002) $0.006 $0.008

Table 19: Assessed value of Adavale share post Proposed Transaction – Scenario 1 (Source: RSM analysis)

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	Scenario 2	Low High
Assessed value of Adavale pre Proposed Transaction Plus: Cash raised from drawn down on Eddyarto Loan Assessed value of Adavale (Scenario 2) Number of Adavale shares on issue Shares issued to Mr Eddyarto upon conversion of Eddyarto Loan Total shares on issue (Scenario 2) Assessed value per share (Controlling basis) Less: Discount for lack of control (17% - 23%) Value per share (Minority basis)		$1,908,601 $2,778,601 $1,000,000 $1,000,000 $2,908,601 $3,778,601 316,990,035 316,990,035 23,200,000 23,200,000 340,190,035 340,190,035 $0.009 $0.011 ($0.001) ($0.003) $0.008 $0.008

Table 20: Assessed value of Adavale share post Proposed Transaction – Scenario 2 (Source: RSM analysis)

	Scenario 3	Low High
Assessed value of Adavale pre Proposed Transaction Plus: Proceeds from exercise of existing Transfer Options held by Mr Eddyarto ($0.04 per option) Plus: Cash raised from drawn down on Eddyarto Loan Assessed value of Adavale (Scenario 3) Number of Adavale shares on issue Shares issued to Mr Eddyarto upon exercise of Transfer Options Shares issued to Mr Eddyarto upon conversion of Eddyarto Loan Total shares on issue (Scenario 3) Assessed value per share (Controlling basis) Less: Discount for lack of control (17% - 23%) Value per share (Minority basis)		$1,908,601 $2,778,601 $400,000 $400,000 $1,000,000 $1,000,000 $3,308,601 $4,178,601 316,990,035 316,990,035 10,000,000 10,000,000 23,200,000 23,200,000 350,190,035 350,190,035 $0.009 $0.012 ($0.002) ($0.003) $0.007 $0.009

Table 21: Assessed value of Adavale share post Proposed Transaction – Scenario 3 (Source: RSM analysis)

	Scenario 4	Low High
Assessed value of Adavale pre Proposed Transaction Plus: Proceeds from exercise of existing vested options held by Mr Eddyarto ($0.04 per option) Plus: Proceeds from exercise of Milestone Options Plus: Cash raised from drawn down on Funding Facility Assessed value of Adavale (Scenario 4) Number of Adavale shares on issue Shares issued to Mr Eddyarto upon exercise of options Shares issued to Mr Eddyarto upon conversion of Funding Facility Shares issued to Mr Eddyarto upon vesting and exercise of Milestone Options Total shares on issue (Scenario 4) Assessed value per share (Controlling basis) Less: Discount for lack of control (17% - 23%) Value per share (Minority basis)		$1,908,601 $2,778,601 $400,000 $400,000 $3,600,000 $3,600,000 $1,000,000 $1,000,000 $6,908,601 $7,778,601 316,990,035 316,990,035 10,000,000 10,000,000 23,200,000 23,200,000 60,000,000 60,000,000 410,190,035 410,190,035 $0.017 $0.019 ($0.003) ($0.004) $0.014 $0.015

Table 22: Assessed value of Adavale share post Proposed Transaction – Scenario 4 (Source: RSM analysis)

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9. Assessment of the Proposed Transaction

9.1. This section of the report sets out our opinion on whether:
The advantages of the Proposed Transaction for the Non-Associated Shareholders outweigh the disadvantages; or
The disadvantages of the Proposed Transaction for the Non Associated Shareholders outweigh the advantages.

Consideration of control premium being offered to Vendors

9.2. Subject to obtaining the necessary shareholder approvals, Mr Eddyarto can acquire up to an additional 99,522,838 Adavale shares as follows:
(a) 36,000,000 Shares on 31 December 2012 at $0.02 per Share (Tranche 2);
(b) 15,000,000 Shares on exercise of a call option by Mr Eddyarto at $0.05 per Share, on or before 31 March 2013 (Tranche 3 Call Option);
(c) in the event that the Tranche 3 Call Option is not exercised, 7,500,000 Shares on exercise of a put option by the Vendors, at $0.04 per Share on or before 20 April 2013 (Tranche 3 Put Option);
(d) 48,522,838 Shares on exercise of a call option by Mr Eddyarto, at A$0.05 per Share, on or before 31 May 2013 (Tranche 4 Call Option);
(e) in the event that the Tranche 4 Call Option is not exercised, 12,500,000 Shares on exercise of a put option by the Vendors at A$0.04 per Share on or before 20 June 2013 (Tranche 4 Put Option).
9.3. We have assessed the fair value of each tranche of consideration payable by calculating the Net Present Value (“NPV”) of the consideration that will be paid upon exercise of the Trance 3 and 4 Put and Call Options. Our assessment of the NPV has been based on the assumption that Mr Eddyarto and the Vendors will exercise the relevant Put and Call Options at the latest possible date, at the expiry date. We have used discount rates equal to the relevant London Inter-Bank Offered Rate (“LIBOR”) – A$[3,] which has a life equal to the life of the Call / Put Option, as summarised in the table below.

Element of Consideration	Tranche 3 Call	Tranche 4 Call	Tranche 3 Put	Tranche 4 Put
Call / Put Option exercise price	0.05	0.05	0.04	0.04
Expiry date of option	31-Mar-13	31-May-13	20-Apr-13	20-Jun-13
Months to expiry	6	8	7	9
Interest rate (LIBOR - A$ 6, 7, 8 & 9 month rates)	4.04%	4.12%	4.08%	4.16%
Discount factor	0.980	0.973	0.977	0.970

Table 23: Assumptions used in assessment of fair value of consideration

3 LIBOR – AUD 6, 7, 8 and 9 month interest rates as at 2 October 2012, sourced from S&P Capital IQ.

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9.4. In accordance with RG 111 we have considered whether a control premium is being paid to the Vendors in relation to the Share Transfer, by comparing our assessment of the fair value of the consideration to our assessment of the fair value of an Adavale share on a minority basis pre the Proposed Transaction, which is summarised in the table below.

		Tranche 2 Tranche 3 Call Tranche 4 Call Tranche 3 Put Tranche 4 Put $0.020 $0.049 $0.049 $0.039 $0.039 $0.006 $0.006 $0.006 $0.006 $0.006 $0.014 $0.043 $0.043 $0.033 $0.033 232% 714% 708% 549% 544% $0.020 $0.049 $0.049 $0.039 $0.039 $0.018 $0.018 $0.018 $0.018 $0.018 $0.002 $0.031 $0.031 $0.021 $0.021 11% 172% 170% 117% 116%
	Element of Consideration Ref:
Fair value of consideration 9.3 Assessed value of Adavale share (minority basis) - Net assets on a going concern 7.21 Implied premium / (discount) $ Implied premium / (discount) % Fair value of consideration 9.3 5 and 10 VWAP 7.21 Implied premium / (discount) $ Implied premium / (discount) %

Table 24: Assessment of control premium being offered to Vendors

9.5. When compared to our assessment of the fair value of an Adavale share on a net assets on a going concern basis the Vendors are receiving a significant premium from control ranging from 232% on the 36,000,000 shares to be purchased by Mr Eddyarto under Tranche 2 of the Share Transfer, and in excess of 700% on the shares to be transferred should Mr Eddyarto exercise the Tranche 3 and 4 Call Options over the remaining 63,522,838 shares he can acquire pursuant to the Conditional Share Sale Agreements.
9.6. When compared to the 5 and 10 day VWAP of Adavale’s shares pre the announcement of the Proposed Transaction the Vendors are receiving a lower control premium ranging from 11% on the 36,000,000 shares to be purchased by Mr Eddyarto under Tranche 2 of the Share Transfer, and in excess of 170% on the shares to be transferred should Mr Eddyarto exercise his Tranche 3 and 4 Call Options over the remaining 63,522,838 shares he can acquire pursuant to the Conditional Share Sale Agreements.
9.7. In our opinion collectively the Vendors are receiving a premium for control under the terms of the Proposed Transaction. In light of this we have considered if the Non-Associated Shareholders are foregoing sharing in any premium for control by comparing the premium for control to the advantages of the Proposed Transaction for the Non-Associated Shareholders. Paragraph 44 of RG 111 states the, greater the control premium being received by the vendors, the greater the advantages of a share transfer to the NonAssociated Shareholders have to be support a finding that the advantages of a share transfer transaction outweigh the disadvantages.

Stated Intentions of Mr Eddyarto following the Proposed Transaction

9.8. Mr Haryono Eddyarto has informed the Company that he:
has no intention of making any significant changes to the business of the Company other than set out in this Notice; and
does not intend to significantly change the financial or dividend distribution policies of the Company.
9.9. However the Non-Associated Shareholders should be aware that these intentions are based on the Company’s understanding of the Mr Eddyarto’s intentions as at the date of the Notice and on information concerning the Company, its business and the business environment which is known to Mr Haryono Eddyarto at this date, which is limited to the publicly available information of the Company.

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9.10. Although Mr Eddyarto does not intend to make any significant changes to the business of the Company, it is important Non-Associated Shareholders are aware that the Company has agreed with Mr Eddyarto that he also provide commodity trading services for the Company’s future coal production in Indonesia. To this end, Mr Eddyarto (via his trading business) is to be engaged as the exclusive agent to market and sell the coal produced in Indonesia by the Company and any associated company. The fees associated with engaging Mr Eddyarto or his trading business in this capacity will be on standard commercial terms and accordingly, while this is a related party transaction, there is no requirement for a separate shareholder approval.
9.11. Final decisions regarding these matters will only be made by Mr Haryono Eddyarto in light of material information and circumstances at the relevant time. Accordingly, the statements set out above are statements of current intention only, which may change as new information becomes available, or as circumstances change.

Advantages of the Proposed Transaction

New share issues under the Proposed Transaction are at a fair price

9.12. Should the Non-Associated Shareholders approve the Proposed Transaction in addition to the shares Mr Eddyarto will be able to acquire as part of the Share Transfer he will be able to acquire new shares in Adavale through the exercise of the Transfer Options, the Milestone Options and through conversion of any amounts drawn down under the Eddyarto Loan. The table below sets out an analysis of the fair value of an Adavale share pre the Proposed Transaction on a control basis compared to our assessment of the fair value of an Adavale share post the Proposed Transaction on a minority basis, reflecting the impact on the fair value of an Adavale share of the new potential share issues, under each of the scenarios set out in Section 8 of this Report.

	Ref: Low High
Value per share pre the Proposed Transaction (Control basis) 7.21 $0.005 $0.007 Scenario 1 (Minority basis) 8.4 $0.006 $0.008 Scenario 2 (Minority basis) 8.4 $0.007 $0.008 Scenario 3 (Minority basis) 8.4 $0.007 $0.009 Scenario 4 (Minority basis) 8.4 $0.014 $0.015

Table 25: Comparison of fair value of an Adavale share pre and post the Proposed Transaction

9.13. Our assessment of the fair value of an Adavale share post the Proposed Transaction on a minority basis is greater than our assessment of the fair value of an Adavale share pre the Proposed Transaction on a control basis. Therefore in our opinion the issue of new Adavale shares by the Company which may occur pursuant to the Eddyarto Agreements, is at a price which is fair to the Non-Associated Shareholders, and as such the Non-Associated Shareholders are receiving a premium for control on any issue of shares by the Company made under the Eddyarto Agreements.
9.14. Non-Associated Shareholders should be aware that should they approve the Proposed Transaction Mr Eddyarto will have the ability to acquire a significant portion of his ultimate interest through the exercise of options and conversion of the Eddyarto Loan. These options and the Eddyarto Loan provide Mr Eddyarto with the discretion to convert these interests into Adavale shares at a price which is favourable to him. The holder of a share option or convertible security will only likely exercise their option/conversion right, if the exercise/conversion price is below the prevailing market price at that time, which, thus delivers a financial benefit to the holder.

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9.15. Mr Eddyarto’s current options and the options he will acquire as a result of the Proposed Transaction have exercise prices which range from a minimum of 4 cents to a maximum of 7 cents, meaning it likely that Mr Eddyarto would not exercise his options until the Adavale share price exceeds 4 cents. We note that 4 cents represents a price which is significantly above the recent quoted prices of Adavale’s shares, and compares to a VWAP in the period since the announcement to the date of this Report of 1.6 cents. Whilst Mr Eddyarto will receive a financial benefit upon the exercise of his options/conversion right, if the prevailing Adavale share price at the point of exercise exceeds the various exercise prices, the NonAssociated Shareholders will also benefit, in that, the value of their investment in Adavale would have appreciated significantly compared to the value at the date of this Report.

Cornerstone investor

9.16. The effect of the Proposed Transaction is that it provides the Company with a key cornerstone shareholder with significant experience in Indonesia, who is sufficiently incentivised to move the business of the Company forward in that country. Mr Eddyarto is an Indonesian national who is a well-known businessman with over 34 years experience in the mining and coal trading industries. His current business activities include mining, media, property development and commodity trading. He has been actively involved in promoting Indonesian business, having represented the Indonesian Chamber of Commerce and Industry in G-15, G-77 and the Indian Ocean Rim ARG Business Forum. Mr Eddyarto maintains strong business relationships in Asian, European, African and Middle East countries and has strong and established relationships within the Indonesian political and business community. It is these relationships that the Board considers will assist the Company in furthering its activities in Indonesia.
9.17. Furthermore, the Director’s consider that Mr Eddyarto’s shareholding of approximately 20% to be an insufficient incentive for him to drive the business forward, notwithstanding his 60% interest in the joint venture entity in Indonesia, AHR. The Directors are of the opinion that the controlling stake in the listed public vehicle will provide a strong incentive for him to devote substantial time and energy to seek to ensure the success of the Company and the joint venture vehicle and the controlling stake will align his success with that of all other shareholders.

Proposed Transaction structured to incentive growth in Adavale’s share price

9.18. The Tranche 3 and Tranche 4 Call Options have exercise prices of $0.05 and $0.04 respectively. Given these exercise prices are significantly in excess of the Company’s recent traded share price, there is an incentive for Mr Eddyarto to assist the Company with project acquisitions and project developments to drive growth in Adavale’s share price, over the short term. This will avoid Mr Eddyarto potentially having to buy Adavale shares upon the exercise of the Tranche 3 and Tranche 4 Put Options at prices which are significantly above market prices.

Retains Indonesian experience, enhancing ability of the Company to identify and pursue new projects

9.19. The Company has been operating in Indonesia for approximately 3 years, and in that time has only secured 1 project, the Tapan project. We understand it has been a difficult and costly exercise to date, however the view of the non-associated Directors is that the processes now put in place over that time should assist with the identification and delineation of projects that will add value in the future, which has been a result of the assistance of Mr Eddyarto.
9.20. Mr Eddyarto has indicated that should Non-Associated Shareholders not approve the Proposed Transaction that he is likely to review his investment in Adavale. If Mr Eddyarto, on review was to exit the Company the non associated Directors are of the view that this would have a significant detrimental impact on the Company’s ability to secure new projects in Indonesia.

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Provides clarity on strategic direction of the Company

9.21. Collectively the Vendors have a 31.4% interest in the Company and Mr Eddyarto has a 19.8% interest in the Company, with each potentially having differing views on the future strategic direction of the Company. Whilst the Proposed Transaction provides Mr Eddyarto with the ability to take outright control of Adavale, which is further discussed at paragraph 9.28, it consolidates the interests of a number of significant shareholdings in the Company into one holding. This should provide certainty and clarity over the future strategic direction of the Company, which given Mr Eddyarto’s background, will be primarily focused on identifying, acquiring and developing Indonesian coal projects.

Access to funding

9.22. As at 30 June 2012 the Company had approximately $589,000 of cash. The Proposed Transaction allows the Company to access $1,000,000 via the Eddyarto Loan, which will be used to fund the current operating costs and commitments of the Company.
9.23. Should the Non-Associated shareholders not approve the Proposed Transaction the Company would not have access to these funds or any funding, and it is likely that that the Company would need to undertake an equity capital raising given their current cash position. In light of the current market conditions and the historic illiquidity in the trading of Adavale shares, it is likely that this capital raising would have to be a discount to the current market price, which would put downward pressure on the Adavale share price.
9.24. The capital raising would likely be a rights issue or private placement, with, a private placement likely to have a significant dilutive impact on the Non-Associated Shareholders interest in Adavale. Whilst a rights issue would provide the Non-Associated Shareholders with the opportunity to avoid dilution, it would require them to further invest in Adavale, at a time when they may not wish to do so.
9.25. Non-Associated Shareholders should be aware that whilst the Eddyarto Loan, will avert the need to undertake an equity capital raising in the short term, it is highly likely, given the funding is capped at $1 million, that an equity capital raising will be required at some point in the future, to fund the continued exploration of existing projects and / or the acquisition and exploration of new projects.

Large parcels of shares will not be sold on market

9.26. Should Non-Associated Shareholders not approve the Proposed Transaction, either the Vendors or Mr Eddyarto may choose to exit their investment in Adavale by selling their Adavale shares on market. Given the historic illiquidity of trading in Adavale shares this is likely to result in a significant over supply of Adavale shares which is likely to apply downward pressure on the Adavale share price, this is likely to be detrimental to the ability of Non-Associated Shareholders seeking to exit their investment in Adavale over the same period of time. Approval of the Proposed Transaction negates the risk of the downward price pressure on Adavale shares as the Vendors and Mr Eddyarto would not be selling on market.

Disadvantages of the Proposed Transaction

Dilution of Non-Associated Shareholders interest in the issued share capital of Adavale

9.27. Should Non-Associated Shareholders approve the Proposed Transaction Mr Eddyarto could hold a maximum of 64.2% of the issued share capital of Adavale. Under this scenario the Non-Associated Shareholders interest in Adavale will be diluted from 48.8% currently to 35.8%. The level of dilution to be suffered by the Non-Associated Shareholders will be dependent on whether Mr Eddyarto exercises the Transfer Options he currently holds, those he is to acquire as a result of the Share Transfer and whether

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the Milestone Options vest. Further analysis of the dilutive impact of the Proposed Transaction on the NonAssociated Shareholders is set out in section 3 of this Report.

Increased level of control

9.28. When shareholders are required to approve a matter that relates to a company there are two types of approval levels. These are general and special resolutions. A general resolution requires 50% of shares to be voted in favour to approve a matter and a special resolution requires 75% of shares on issue to be voted in favour to approve a matter. As a result of approving the Proposed Transaction Mr Eddyarto will increase his interest in Adavale from 19.8% to a minimum of 31.2%, which reflects the 36,000,000 Tranche 2 shares which will be transferred from the Vendors as a result of the Share Transfer, which will provide Mr Eddyarto with the ability to block special resolutions but not block or approve general resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution .
9.29. Should Mr Eddyarto exercise his Tranche 3 and 4 Call Options under the Conditional Share Sale Agreements and acquire an additional 63,522,838 shares in Adavale from the Vendors he will increase his interest in the issued share capital of the Company to 51.2%. This will rise to 55.7% if he exercises the Transfer Options he currently holds and those he is to acquire as a result of the Share Transfer, and his maximum interest could rise to 64.2% as set out in paragraph 4.11 above. Under each of these scenario’s Mr Eddyarto would have the ability to the pass general resolutions, except in circumstances where Mr Eddyarto is unable to vote due to a voting exclusion or voting prohibition preventing Mr Eddyarto from voting on a particular resolution.
9.30. Should the Non-Associated Shareholders approve the Proposed Transaction, regardless of the eventual interest in Adavale held by Mr Eddyarto, his control of Adavale will be significant when compared to all other shareholders as he will be the major shareholder under all possible shareholding scenarios.

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Detraction of Adavale as a takeover target

9.31. Currently Mr Eddyarto is the largest shareholder in Adavale with a 19.8% interest in the issued share capital, with the next largest shareholder in the Company being Mr Poole, a Vendor and current director of the Company with 16.8%, and collectively the Vendor’s own 31.4%. Thus at present any entity wishing to take control of Adavale at present could do so with the support of Mr Eddyarto.
9.32. Should Non-Associated Shareholders approve the Proposed Transaction Mr Eddyarto under the Conditional Share Sale Agreements has the ability to increase his interest in Adavale to in excess of 50%. Thus in the event that the Proposed Transaction is successful any entity wishing to take control of Adavale post the Proposed Transaction is likely to require the support of Mr Eddyarto. Therefore in our opinion an interest of this level is likely to deter prospective purchasers making a takeover offer for Adavale and as such, the opportunity of Adavale to receive a takeover offer, is reduced should Non-Associated Shareholders approve the Proposed Transaction.

Foregoing of control premium

9.33. Based on the analysis set out in paragraph 9.2 to 9.7 above we consider that the Vendors are receiving a premium for control that is not being offered to the Non-Associated Shareholders, and that as a result of approving the Proposed Transaction the likelihood of Adavale receiving a takeover offer is reduced. Therefore in our opinion as a result of approving the Proposed Transaction the Non-Associated Shareholder’s will be reducing the possibility of them receiving a control premium for the shares they hold in Adavale in the future.

Future transactions between the Vendors and Mr Eddyarto

9.34. RG 111.42 states that the expert should also enquire whether future transactions are planned between the subject entity (in this case Mr Eddyarto) and the vendor (in this case the Vendors) or any of the vendors’ associates. According to RG 111 this is to identify any future transactions which may not be at arm’s length or which may compensate a vendor for accepting a price for their shares which is too low.
9.35. The Vendors and Mr Eddyarto have confirmed that no future transactions between themselves are planned.

Response of the Market to the Announcement of the Proposed Transaction

9.36. The figure and table below sets out analysis of the trading in Adavale in the period post the announcement of the Proposed Transaction on 1 August 2012.

Period post announcement	Closing						Volume traded as % of
of Proposed Transaction	price	High	Low	Value	Volume	VWAP	issued shares
1-Aug-12
to 11-Oct-12	$0.016	$0.020	$0.013	$17,410	1,103,260	$0.016	0.35%

Source: Capital IQ and RSM analysis

Table 26: Adavale trading analysis (post announcement of the Proposed Transaction)

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----- Start of picture text -----

0.022 0.3
0.020 0.3
0.018 0.2
0.016 0.2
0.014 0.1
0.012 0.1
0.010 0.0
Aug-2012 Sep-2012 Oct-2012
Volume
Stock Price $
Volume (in millions)
----- End of picture text -----

– Figure 3: Adavale Share Price Volume Graph 1 August 2012 to 11 October 2012 ( Source: S&P Capital IQ )

9.37. Following the announcement of the Proposed Transaction Adavale’s shares fell to a low of $0.013, before increasing to $0.016. Subsequently the shares have traded in a tight range around $0.015 to $0.016.
9.38. Volume of shares traded post the Proposed Transaction have remained very low, at 0.35% of the total issued share capital of Adavale in the period measured after the announcement of the Proposed Transaction to 11 October 2012. The VWAP of $0.16 to 11 October 2012 is 20% lower than the VWAP of $0.02 measured 1 trading day, and 11% lower than the VWAP of $0.18 measured 10 trading days, and 6% lower than the VWAP of $0.017 measured 30 trading days before the announcement of the Proposed Transaction.

Assessment of Proposed Transaction

9.39. Based on the analysis set out above we consider that the Vendors are receiving a premium for control, and as such the major disadvantage for Non-Associated Shareholders, as a result of approving the Proposed Transaction is that they are foregoing sharing in the premium for control. Nevertheless on balance it is our view that the advantages of the Proposed Transaction for the Non-Associated Shareholders are significant enough to outweigh the foregoing of the sharing of this control premium. Namely these advantages are that:
any new share issues to be made by the Company to Mr Eddyarto are a price which is fair to the Non-Associated Shareholders; and
the Proposed Transaction secures both funding and Mr Eddyarto’s continued involvement in the Company, which it is anticipated will bring new project opportunities, and avoid the need for an equity capital raising, which to be successful would likely be at a discount to the current market price of Adavale shares, and a such have a negative impact on the value of the Non-Associated Shareholders investment in Adavale, both through the share price and possible dilution.

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9.40. Therefore we have concluded in our opinion, after consideration of the issues set out above the advantages of the Proposed Transaction outweigh the disadvantages for the Non-Associated Shareholders.

Yours faithfully

RSM BIRD CAMERON CORPORATE PTY LTD

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A J GILMOUR G YATES Director Director

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APPENDIX A

Declarations and Disclosures

RSM Bird Cameron Corporate Pty Ltd holds Australian Financial Services Licence 255847 issued by ASIC pursuant to which they are licensed to prepare reports for the purpose of advising clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate reconstructions or share issues.

Qualifications

Our report has been prepared in accordance with professional standard APES 225 “Valuation Services” issued by the Accounting Professional & Ethical Standards Board.

RSM Bird Cameron Corporate Pty Ltd is beneficially owned by the partners of RSM Bird Cameron (RSMBC) a large national firm of chartered accountants and business advisors.

Mr Andrew Gilmour and Mr Glyn Yates are directors of RSM Bird Cameron Corporate Pty Ltd. Both Mr Gilmour and Mr Yates are Chartered Accountants with extensive experience in the field of corporate valuations and the provision of independent expert’s reports for transactions involving publicly listed and unlisted companies in Australia.

Reliance on this Report

This report has been prepared solely for the purpose of assisting the Non-Associated Shareholders of Adavale Resources Limited in considering the Proposed Transaction. We do not assume any responsibility or liability to any party as a result of reliance on this report for any other purpose.

Reliance on Information

Statements and opinions contained in this report are given in good faith. In the preparation of this report, we have relied upon information provided by the directors and management of Adavale Resources Limited and we have no reason to believe that this information was inaccurate, misleading or incomplete. However, we have not endeavoured to seek any independent confirmation in relation to its accuracy, reliability or completeness. RSM Bird Cameron Corporate Pty Ltd does not imply, nor should it be construed that it has carried out any form of audit or verification on the information and records supplied to us.

The opinion of RSM Bird Cameron Corporate Pty Ltd is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.

In addition, we have considered publicly available information which we believe to be reliable. We have not, however, sought to independently verify any of the publicly available information which we have utilised for the purposes of this report.

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Disclosure of Interest

At the date of this report, none of RSM Bird Cameron Corporate Pty Ltd, RSMBC, Andrew Gilmour, Glyn Yates, nor any other member, director, partner or employee of RSM Bird Cameron Corporate Pty Ltd and RSMBC has any interest in the outcome of the Proposed Transaction, except that RSM Bird Cameron Corporate Pty Ltd are expected to receive a fee of $22,000 based on time occupied at normal professional rates for the preparation of this Report. In addition RSM Bird Cameron Partners will invoice Adavale Resources Limited fees for the provision of due diligence services, taxation and accounting advice in relation to the Proposed Transaction. All fees are payable regardless of whether Adavale Resources Limited receives Shareholder approval for the Proposed Transaction, or otherwise.

Consents

RSM Bird Cameron Corporate Pty Ltd consents to the inclusion of this report in the form and context in which it is included with the Explanatory Memorandum to be issued to Shareholders. Other than this report, none of RSM Bird Cameron Corporate Pty Ltd, RSM Bird Cameron Partners or RSMBC has been involved in the preparation of the Notice of General Meeting and Explanatory Statement. Accordingly, we take no responsibility for the content of the Notice of General Meeting and Explanatory Statement as a whole.

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APPENDIX B

Sources of Information

In preparing this report we have relied upon the following principal sources of information:

Adavale audited financial statements for the years ended 30 June 2012 and 30 June 2012.
Unaudited management accounts of AHR for the year ended 30 June 2012.
Notice of General Meeting and Explanatory Statement for the meeting of Adavale shareholders to be held on 20 December 2012.
Copies of Conditional Share Sale Agreements and Eddyarto Loan Agreement.
Adavale share register provided by management.
Information provided by Adavale directors through meetings and correspondence.
Capital IQ, IBIS World and other financial databases and subscription services.
Publicly available information including ASX announcements.
Al Maynard Report.

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APPENDIX C - GLOSSARY

Term or Abbreviation	Definition
$	Australian Dollar
Act	Corporations Act
Adavale	Adavale Resources Limited
AHR	Indonesian joint venture entity, Adavale Harner Resources, in which, Adavale has a 40% interest and Mr Eddyarto has a 60% interest
Al Maynard	Al Maynard & Associates Pty Ltd, independent technical mineral asset expert
Al Maynard Report	Al Maynard independent technical valuation report ofAdavale’sexploration assets, prepared for RSMBCC
ANR	Subsidiary of Adavale Nusantara Resources
Arthur Phillip	Arthur Phillip Nominees Pty Ltd, shareholder in Adavale
Arthur Phillip Loan	Convertible loan provided by Arthur Phillip previously approved by Shareholders under AGM Resolution 6 dated 26 November 2010
ASIC	Australian Securities & Investments Commission
ASX	Australian Securities Exchange
Company	Adavale
Conditional Share Sale Agreements	Agreements between Mr Eddyarto and the Vendors, for the sale, subject to shareholder approval of up to 99,522,838 shares and 22,004,435 share options in the Company
Control basis	As assessment of the fair value on an equity interest, which assumes the holder or holders have control of entity in which the equity is held
Discounted Cash Flow Method	A method within the income approach whereby the present value of future
(DCF)	expected net cash flows is calculated using a discount rate
	Various agreements entered into by Mr Eddyarto with the Company and other
	shareholders announced by the Company on 1 August 2012, including the
Eddyarto Agreements	Conditional Share Sale Agreements, Option Transfer Agreement,
	Unconditional Share Sale Agreement and the agreement which gives rise to
	the Eddyarto Loan
Eddyarto Loan	$1 million convertible loan note facility to be provided by the Company to Mr Eddyarto, subject to shareholder approval

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Term or Abbreviation	Definition
Equity	The owner's interest in property after deduction of all liabilities
Fair value	The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction
FY10, FY11 and FY12	Financial Years ended 30 June 2010, 2011 and 2012
Going Concern	An ongoing operating business enterprise
IBIS	IBIS World, producer of industry reports
IEA	International Energy Agency
	Joint Ore Reserves Committee (of the Australian Institute of Mining and
JORC	Metallurgy, Australian Institute of Geoscientists and the Minerals Council of
	Australia).
	A code developed by the Australian Joint Ore Reserves Committee which sets
JORC code	minimum standards for public reporting of exploration results, Mineral
	Resources and Ore Reserves.
	60,000,000 Adavale share options, granted to Mr Eddyarto subject to
Milestone Options	shareholder approval which vest upon the achievement of certain performance
	conditions
Minority basis	As assessment of the fair value on an equity interest, which assumes the holder or holders do not have control of entity in which the equity is held
Non-Associated Shareholders	Shareholders of Adavale not associated with the Proposed Transaction
Notice	Notice of General Meeting and Explanatory Statement prepared for meeting of Adavale shareholders on 20 December 2012
Option Transfer Agreement	Agreement between Mr Eddyarto and Arthur Phillip, to give rise to the transfer of the Transfer Options from Arthur Phillip to Mr Eddyarto
	The shares to be issued or acquired by Mr Eddyarto pursuant to the Eddyarto
Proposed Transaction	Agreements which are subject to shareholder approval. The approval is being
	sought under resolutions 1, 2 and 3 of the Notice.
Report	This Independent Experts Report prepared by RSMBCC dated 12 October 2012
RG 111	Regulatory Guide 111 Contents of Expert's Reports
RSMBCC	RSM Bird Cameron Corporate Pty Ltd

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Term or Abbreviation	Definition
Share Transfer	The transfer of shares from the Vendors to Mr Eddyarto pursuant to the Conditional Share Sale Agreements
	36,000,000 Adavale Shares and 22,004,435 options over shares in Adavale
Tranche 2	exercisable at $0.04 on or before 31 July 2014, which subject to shareholder will be transferred to Mr Eddyarto from the Vendors under the terms of the
	Conditional Share Sale Agreements
	Call option, held by Mr Eddyarto, which provides Mr Eddyarto with the option
Tranche 3 Call Option	to purchase 15,000,000 Adavale shares from the Vendors on exercise, at A$0.05 per share, on or before 31 March 2013, under the terms of the
	Conditional Share Sale Agreements
	Put option, held by Vendors, which provides the Vendors with the option to sell
Tranche 3 Put Option	7,500,000 Adavale shares to Mr Eddyarto on exercise, at A$0.04 per share, on or before 20 April 2013, should Mr Eddyarto not exercise the Tranche 3
	Call Option, under the terms of the Conditional Share Sale Agreements
	Call option, held by Mr Eddyarto, which provides Mr Eddyarto with the option
Tranche 4 Call Option	to purchase 48,522,838 Adavale shares from the Vendors on exercise, at A$0.05 per share, on or before 31 May 2013, under the terms of the
	Conditional Share Sale Agreements
	Put option, held by Vendors, which provides the Vendors with the option to sell
Tranche 4 Put Option	12,500,000 Adavale shares to Mr Eddyarto on exercise, at A$0.04 per share, on or before 20 June 2013, should Mr Eddyarto not exercise the Tranche 3
	Call Option, under the terms of the Conditional Share Sale Agreements
Transfer Options	10,000,000 Adavale share options acquired by Mr Eddyarto under the Option Transfer Agreement
Unconditional Share Sale	Share sale agreement to acquire 24,000,000 shares in the Company, by Mr
Agreement	Eddyarto from Arthur Phillip, which settled on 2 August 2012
VALMIN code	Code for the technical assessment and valuation of mineral and petroleum assets and securities for independent expert reports 2005
Vendors	Company directors Mr Richard Poole and Mr Roger Steinepreis and entities associated with Mr Richard Poole and Mr Roger Steinepreis, and other parties
VWAP	Volume weighted average share price
WCA	World Coal Association

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APPENDIX D - Profile of the Coal and Uranium Industries

Adavale’s principal activities involve the exploration and development of mining tenements in Australia and Indonesia. The Company’s Australian activities involve exploring for uranium deposits at Lake Surprise in South Australia. Its Indonesian activities are focused toward the research and identification of coal projects across Indonesia, including current projects in Sumatra and Kalimantan.

Coal Industry Analysis

Overview

According to the World Coal Association (“WCA”), coal has been the world’s fastest growing energy source over the last ten years and is currently the second largest source of global energy, generating around 41% of the world’s electricity output.

The International Energy Agency (“IEA”) estimates global electricity demand to double between 2009 and 2035 as more people gain access to basic electricity around the world and household energy consumption grows in the developing world.

The WCA estimates that there are over 860 billion tonnes of proven coal reserves worldwide, which at current rates of production, will provide enough coal for consumption for almost 120 years. This is more than double the availability of oil or natural gas reserves at current production rates.

Supply and demand

According to the WCA, the 2011 estimate of the world’s largest coal producers include China, the United States, India, Australia and Indonesia. The world’s heaviest consumers of coal for the production of electricity include South Africa, Poland, China and Australia. The steel production industry is also heavily dependent on coal, with over 60% of energy used for steel production originating from coal burning.

Total global coal production has increased from 4,677Mt in 1990 to 7,678Mt in 2011. Between 2010 and 2011, global production of hard coal (incorporating steam coal and coking coal) increased from 6,217Mt to 6,637Mt. Global brown coal/lignite production increased from 983Mt in 2010 to 1,041Mt in 2011.

The graphs below set out the global supply and demand for coal in the 30 years between 1980 and 2010.

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Figure 1: World Production and Consumption of Coal between 1980 and 2010 ( Source: www.indexmundi.com )

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The above graphs suggest that annual production (supply) closely aligns to consumption (demand) and that consumption has been steadily increasing over the last 30 years, even during the global financial crisis, which indicates the inelastic nature of coal as a source of energy production.

Industry outlook

While it is anticipated that the demand for coal will continue to increase over the next decade as developing economies such as China and India continue to grow, there is a general consensus that international policies aimed at reducing carbon emissions will eventually see a turn toward renewable energy sources. Despite this, according to the Energy Information Agency, even up to 2030, the demand for coal is expected to outstrip all other fuels in absolute terms.

Coal Industry in Indonesia

According to the WCA, Indonesia was the top exporter of steam coal in 2011, generating over 300Mt.

Stockbroking firm Patersons Securities Limited suggest that Indonesia’s coal production capacity has been consistently expanding over the last decade having increased its coal output by 12% per annum since 2000.

Patersons states that new regulations introduced by the Indonesian government in 2009 have so far had the effect of providing regulatory certainty and encouraging new investment in the mining sector however the introduction of the Indonesian Coal Reference price (HBA), which overrules traditional discounts on Indonesian coal, may be having a significant and adverse impact on some exports, namely to Indian customers.

Indonesian coal production is expected to expand over the next five years although at a slower rate than in the last five years. Given infrastructure constraints in other coal producing countries, Indonesia is expected to continue the trend of rapid coal production expansion.

Uranium exploration in Australia

Overview

Producer of industry reports IBIS World (“IBIS”) reports that the mineral exploration industry (incorporating uranium explorers) in Australia has grown by 10.5% per annum between 2007 and 2012, despite the global financial crisis which saw mineral exploration spending plunge by 13.5% in 2008-2009. The uranium exploration industry generated revenues of around $245 million in the 2012 financial year. Annual growth for all mineral explorers is estimated to increase by 3.4% per annum from 2012 to 2017 as economic conditions improve.

The key drivers of performance for the uranium exploration industry are closely linked to those of the uranium mining industry. IBIS suggests that these key drivers include:

World price of uranium – Shifts in prices for uranium oxide have a direct impact on the performance of the uranium mining and exploration industries.
World Gross Domestic Product – World economic growth has a direct impact on the demand for electricity production and therefore impacts the demand for uranium.
Legislative compliance – Australian government policies toward uranium mining activities have a direct bearing on new operations. Existing policies in Queensland and the Northern Territory restrict the development of new mines.

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We consider the primary success factors for entities operating in the uranium exploration industry in Australia to be as follows.

Economies of scope – A diverse exploration base, both geographically and in terms of minerals sought will help firms spread their risk.
Downstream ownership links – Ownership links with mineral producers provides funds for exploration and a market for discoveries.
Licensing – Industry participants must gain an exploration license prior to commencing activities.

The barriers to entry in the industry are considered high. We consider the barriers to entry to include:

Continuing capital investment – Uranium exploration requires the expenditure of large sums of money, which tends to restrict entry to large firms or junior explorers with the backing of large firms. The inherent risk from the low probability of discovering uranium oxide deposits requires entrants to be able to continually access capital investment.
Established competitors – New entrants must compete with well established explorers who hold experienced human capital and connections with producers.

Uranium Exploration Industry Outlook

Continued expansion of nuclear electricity generation in China and South Korea is expected to push up spot uranium oxide prices over the next five years, while Australia’s production of uranium is expected to rise over this period due to new mines and mine expansions. This will increase the demand for uranium exploration to identify new sources of uranium oxide deposits.

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APPENDIX E – INDEPENDENT TECHNICAL VALUATION REPORT PREPARED BY AL MAYNARD (MINERAL ASSET VALUATION EXPERT)

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	AL MAYNARD & ASSOCIATES Pty Ltd
	*Consulting Geologists*
*www.geological.com.au*		*ABN 75 120 492 435*
*9/280 Hay Street,*	*Tel: (+61 8) 9388 1000*	*Mob: 04 0304 9449*
*SUBIACO, WA, 6008*	*Fax: (+61 8) 9388 1768*	*[email protected]*
*Australia*

Australian & International Exploration & Evaluation of Mineral Properties

INDEPENDENT TECHNICAL VALUATION FOR VARIOUS MINERAL PROPERTIES

HELD BY ADAVALE RESOURCES LIMITED

Authors: Allen J Maynard BAppSc(Geol), MAIG, MAusIMM Alan Ivan R BURGESS Company: Al Maynard & Associates Pty Ltd Date: 5[th] October 2012

Adavale Resources Limited - Independent Valuation – AM&A

EXECUTIVE SUMMARY

1 Executive Summary

This independent valuation has been prepared by Al Maynard & Associates Pty Ltd (“AM&A”) at the request Mr A. J. Gilmour, Director on behalf of the RSM Bird Cameron Corporate Pty Ltd (“RSM”) on various mineral projects held by Adavale Resources Limited ("Adavale" or "the Company”). AM&A have evaluated in order to provide a valuation on exploration assets as detailed in this report held by Adavale in Indonesia and Australia. AM&A are advised that this valuation is to substantiate and backup and an Independent Expert Report (“IER”) being prepared by RSM. .

On the 1[st] August 2012 Adavale announced that Mr Haryono Eddyarto, who is a director of the Company had entered into a number or agreements with both Adavale, other shareholders and Directors to acquire shares and options over shares in the Company. These transactions will result in Mr Eddyarto having over 20% interest in Adavale

Adavale has 100% interest in exploration tenements, which comprise the Tapan Project located on Sumatra Island, Indonesia. A 100% interest is also held in exploration tenements, which comprise the Lake Surprise Project in South Australia. Collectively these assets comprise the Tenements.

This report concludes that for 1[st] August 2012, a collective value of AUS$1.61 million can be ascribed to the Tenements.

The future potential of the tenements depends on conventional exploration techniques to identify mineralisation the results of which are subsequently progressed through to final feasibility studies to assist viable economic exploitation. Should exploration prove not to discover economic mineral accumulations, the value of these projects will be substantially reduced. If, however, economic mineralisation is discovered within the tenements, their value will increase.

It is the writer’s opinion that the current cash value (as at the 1[st] August 2012) of the tenement portfolio is considered to be AUS$1.61 million from within the range of AUS$1.18 million to AUS$2.05 million as at 1[st] August 2012.

Adavale Resources Limited – Executive Summary 1

Adavale Resources Limited - Independent Valuation – AM&A

EXECUTIVE SUMMARY .............................................................................................................................. 1	EXECUTIVE SUMMARY .............................................................................................................................. 1
1	EXECUTIVE SUMMARY ....................................................................................................................... 1
2	INTRODUCTION .................................................................................................................................. 1
3	SCOPE AND LIMITATIONS................................................................................................................... 1
	3.1 STATEMENT OFCOMPETENCE................................................................................................................... 2
4	VALUATION OF THE MINERAL ASSETS – METHODS AND GUIDES ...................................................... 3
	4.1 GENERALVALUATIONMETHODS............................................................................................................... 3
	4.2 DISCOUNTEDCASHFLOW/NETPRESENTVALUE.......................................................................................... 3
	4.3 JOINTVENTURETERMS........................................................................................................................... 3
	4.4 SIMILARTRANSACTIONS.......................................................................................................................... 4
	4.5 MULTIPLE OFEXPLORATIONEXPENDITURE.................................................................................................. 4
	4.6 RATINGSSYSTEM OFPROSPECTIVITY(KILBURN) ........................................................................................... 4
	4.7 EMPIRICALMETHODS(YARDSTICK– REALESTATE) ...................................................................................... 4
	4.8 GENERALCOMMENTS............................................................................................................................. 4
	4.9 ENVIRONMENTALIMPLICATIONS............................................................................................................... 5
	4.10 NATIVETITLE....................................................................................................................................... 5
	4.11 COMMODITIES-METALPRICES................................................................................................................ 5
	4.12 PREVIOUSVALUATIONS......................................................................................................................... 5
	4.13 ENCUMBRANCES/ROYALTY.................................................................................................................... 5
5	BACKGROUND INFORMATION ........................................................................................................... 5
	5.1 INTRODUCTION...................................................................................................................................... 5
	5.2 SPECIFICVALUATIONMETHODS................................................................................................................ 5
6	ADAVALE RESOURCES LIMITED MINERAL TENEMENTS ...................................................................... 5
	6.1 INTRODUCTION...................................................................................................................................... 5
	6.2 INDONESIA............................................................................................................................................ 6
	TAPAN PROJECT ........................................................................................................................ 6 6.2.1
	6.3 AUSTRALIA............................................................................................................................................ 9
	LAKE SURPRISE PROJECT ........................................................................................................... 9 6.3.1
7	VALUATION ...................................................................................................................................... 13
IN	CONCLUSION IT IS THE WRITER’S OPINION THAT THE CASH VALUE OF ADAVALE’S
INDONESIAN AND AUSTRALIAN PROJECTS AS AT 1STAUGUST, 2012 IS A$1.61 MILLION
FROM WITHIN THE RANGE OF A$1.18 MILLION TO A$2.05 MILLION.................................. 14
8	REFERENCES ..................................................................................................................................... 15

Contents ( i )

Adavale Resources Limited – Independent Valuation

Adavale Resources Limited - Independent Valuation – AM&A

List of Figures

FIGURE 1: TAPAN PROJECT SUMATRA, REPUBLIC OF INDONESIA. ................................................................................... 6 FIGURE 2: REGIONAL TECTONIC SETTING OF SUMATRA. .............................................................................................. 7 FIGURE 3: TAPAN PRELIMINARY COAL SEAM OUTCROP AND SUBCROP. ............................................................................ 9 FIGURE 5: LAKE SURPRISE PROJECT LOCATION. ......................................................................................................... 10 FIGURE 6: SURPRISE PROJECT SURFACE GEOLOGY FROM THE MAREE 1:250,000 MAP SHEET: EL 4949 IS CENTRE WITH EL4950 ON THE RIGHT ............................................................................................................................... 11 FIGURE 7: PALAEOCHANNELS DELINEATED BY RESISTIVITY SURVEYING AND OTHER EXPLORATION DATA. ............................... 12

List of Tables

TABLE 1: COLA THICKNESSES WITHIN THE TAPAN PROJECT............................................................................................ 8 TABLE 2: RAW COAL QUALITY ANALYSES. ................................................................................................................... 8 TABLE 3: VALUATION OF ADAVALE PROJECTS ........................................................................................................... 14

Contents ( ii )

Adavale Resources Limited – Independent Valuation

Adavale Resources Limited - Independent Valuation – AM&A

Mr A. J. Gilmour Director RSM Bird Cameron Corporate Pty Ltd 8 St George’s Terrace PERTH 6000 Western Australia7734,

5[th] October, 2012

Dear Sir,

2 Introduction

This report has been prepared by AM&A at your request to provide an independent appraisal of the “current” cash value of the Indonesian and Australian mineral tenements held by Adavale Resources Limited (“Adavale” or “the Company”) as at 1[st] August 2012. Adavale is an Australian registered Company listed on the Australian Securities Exchange (“ASX”).

3 Scope and Limitations

This independent valuation and its accompanying geological description have been prepared at the request of Mr A. J. Gilmour, Director, RSM Bird Cameron Corporate Pty Ltd ("RSM"), to provide the writer’s opinion of the current cash value of the mineral tenements detailed in this report.

This valuation has been prepared in accordance with the requirements of the Valmin code (2005) as adopted by the Australian Institute of Geoscientists ("AIG") and the Australasian Institute of Mining and Metallurgy ("AusIMM").

This valuation is valid as at 1[st] August 2012 and refers to the writer’s opinion of the value of the mineral assets at this date. This valuation can be expected to change over time having regard to political, economic, market, currency fluctuations and legal factors. The valuation can also vary due to the success or otherwise of any mineral exploration that is conducted either on the property concerned or by other explorers on prospects in the near environs. The valuation could also be affected by the consideration of other exploration data, not in the public domain, affecting the property, which have not been made available to the author.

In order to form an opinion as to the value of any property, it is necessary to make assumptions as to certain future events, which might include economic and political factors and the likely exploration success. The writer has taken all reasonable care in formulating these assumptions to ensure that they are appropriate to the case. These assumptions are based on the writers’ technical training and experience in the mining industry. The opinions expressed represent the writer’s fair professional opinion at the time of this report. These opinions are not, however, forecasts as it is never possible to predict accurately the many variable factors that need to be considered in forming an opinion as to the value of any mineral property.

The valuation methodology of mineral properties is exceptionally subjective. If an economic reserve or resource is subsequently identified then this valuation will be dramatically low relative to any later valuations, or alternatively if further exploration is unsuccessful it is likely to decrease the value of the tenement.

The valuation presented in this document is restricted to a statement of the fair value

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of the tenement package. The values obtained are estimates of the amount of money, or cash equivalent, which would be likely to change hands between a willing buyer and a willing seller in an arm’s length transaction, wherein each party had acted knowledgeably, prudently and without compulsion. This is the required basis for the estimation to be in accordance with the provisions of the Valmin Code.

There are a number of generally accepted procedures for establishing the value of mineral properties with the method employed depending upon the circumstances of the property. When relevant, AM&A uses the appropriate methods to enable a balanced analysis. Values are presented as a range and the preferred value is identified.

The readers should form their own opinion as to the reasonableness of the assumptions made and the consequent likelihood of the values being achieved. The information presented in this report is based on technical reports provided by Adavale and RSM, supplemented by our own inquiries. At the request of AM&A copies of relevant technical reports and agreements were made available.

Adavale will be invoiced and expected to pay a fee for the preparation of this report. This fee comprises a normal, commercial daily rate plus expenses. Payment is not contingent on the results of this report, the success of any subsequent public fundraising or vote of shareholders approving the transaction. Except for these fees, neither the writer nor his family nor associates have any interest either in the property reported upon, in RSM or Adavale. The Company has confirmed in writing that all technical data known to the public domain is available to the writer.

It should be noted that in all cases, the fair valuation of the mineral properties presented is analogous with the concept of “valuation in use” commonly applied to other commercial valuations. This concept holds that the properties have a particular value only in the context of the usual business of the company as a going concern. This value will invariably be significantly higher than the disposal value where there is not a willing seller. Disposal values for mineral assets may be a small fraction of going concern values.

In accordance with the Valmin Code, we have prepared the “Range of Values” as shown in Table 3; Section 7 page 15. Regarding the project it is considered that sufficient geotechnical data has been provided from the reports covering the previous exploration of the area to enable an understanding of the geology. This, coupled with general knowledge of the area provides sufficient information to form an opinion as to the current value of the mineral assets.

3.1 Statement of Competence

This report has been prepared by Allen J. Maynard BAppSc(Geol) MAusIMM and Member of AIG, a geologist with over 30 years in the industry and 25 years in mineral asset valuation and Alan BURGESS who is a geologist with greater than 30 years international experience. The writer holds the appropriate qualifications, experience and independence to qualify as an independent “Expert” under the definitions of the Valmin Code.

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4 Valuation of the Mineral Assets – Methods and Guides

With no proven ore reserves on the tenement it is very difficult to place a singular dollar value on the prospect. With due regard, however, to the guidelines for assessment and valuation of mineral assets and mineral securities as adopted by the AusIMM Mineral Valuation Committee on 17[th] February, 1995 – the Valmin Code (updated 1999 & 2005), we have derived the estimate detailed below using the appropriate method for the current technical value of the mineral exploration property as described. The following ASIC publications have also been duly referred to and considered in relation to the valuation procedure: ‘Regulatory Guidelines’ 111 & 112.

The subjective nature of the valuation task is kept as objective as possible by the application of the guideline criteria of a “fair value”. This is a value that an informed, willing, but not anxious, arm’s length purchaser will pay for a mining (or other) property in a transaction devoid of “forced sale” circumstances.

4.1 General Valuation Methods

The Valmin Code identifies various methods of valuing mineral assets, including:Discounted cash flow,

Joint Venture and farm-in terms for arm’s length transactions, Precedents from similar asset sales/valuations, Multiples of exploration expenditure, Ratings systems related to perceived prospectivity, Real estate value and, Empirical Method (Rule of thumb or Yardstick approach).

4.2 Discounted Cash Flow/Net Present Value

This method provides an indication of the value of a property with identified reserves. It utilises an economic model based upon known resources, capital and operating costs, commodity prices and a discount for risk estimated to be inherent in the project. The discount is subjective according to the valuer’s opinion. The percentages used will vary according to the details of any particular deposit such as grade, waste: ore ratio, metallurgical recovery and other relevant factors. Alternatively a value can be assigned on a royalty basis commensurate with the insitu contained metal value.

Net present value (“NPV”) is determined from discounted cash flow (“DCF”) analysis where reasonable mining and processing parameters can be applied to an identified ore reserve. It is a process that allows perceived capital costs, operating costs, royalties, taxes and project financing requirements to be analysed in conjunction with a discount rate to reflect the perceived technical and financial risks and the depleting value of the mineral asset over time. The NPV method relies on reasonable estimates of capital requirements, mining and processing costs.

4.3 Joint Venture Terms

The terms of a proposed joint venture agreement may be used to provide a market value based upon the amount an incoming partner is prepared to spend to earn an interest in part or all of the property. This pre-supposes some form of subjectivity on the part of the incoming party when grass roots properties are involved.

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4.4 Similar Transactions

When commercial transactions concerning properties in similar circumstances have recently occurred, the market value precedent may be applied in part or in full to the property under consideration.

4.5 Multiple of Exploration Expenditure

The multiple of exploration expenditure method (“MEE”) is used whereby a subjective factor (also called the prospectivity enhancement multiplier or “PEM”) is based on previous expenditure on a tenement with or without future committed exploration expenditure and is used to establish a base value from which the effectiveness of exploration can be assessed. Where exploration has produced documented a positive result a MEE multiplier can be selected that takes into account the valuer's judgment of the prospectivity of the tenement and the value of the database. MEEs can typically range from 0 to 3.0 and occasionally up to 5.0 (where exceptional results are yielded) applied to previous exploration expenditure to derive a dollar value.

4.6 Ratings System of Prospectivity (Kilburn)

The most readily accepted method of this type is the modified Kilburn Geological Engineering/Geoscience Method and is a rating method based on the basic acquisition cost (“BAC”) of the tenement that applies incremental, fractional or integer ratings to a BAC cost with respect to various prospectivity factors to derive a value. Under the Kilburn method the valuer is required to systematically assess four key technical factors, which enhance, downgrade or have no impact on the value of the property. The factors are then applied serially to the BAC of each tenement in order to derive a value for the property. The factors used are; off-property attributes on-property attributes, anomalies and geology. A fifth factor that may be applied is the current state of the market.

4.7 Empirical Methods (Yardstick – Real Estate)

The market value determinations may be made according to the independent expert’s knowledge of the particular property. This can include a discount applied to values arrived at by considering conceptual target models for the area. The market value may also be rated in terms of a dollar value per unit area or dollar value per unit of resource in the ground. This includes the range of values that can be estimated for an exploration property based on current market prices for equivalent properties, existing or previous joint venture and sale agreements, the geological potential of the properties, regarding possible potential resources, and the probability of present value being derived from individual recognised areas of mineralisation. This method is termed a “Yardstick” or a “Real Estate” approach. Both methods are inherently subjective according to technical considerations and the informed opinion of the valuer.

4.8 General Comments

The aims of the various methods are to provide an independent opinion of a “fair value” for the property under consideration and to provide as much detail as possible of the manner in which the value is reached. It is necessarily subjective according to the degree of risk perceived by the property valuer in addition to all other commercial considerations. Efforts to construct a transparent valuation using sophisticated financial models are still hindered by the nature of the original assumptions where a known resource exists and are not applicable to properties without an identified resource.

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The values derived for this report have been concluded after taking into account:The general geological environment of the property under consideration as it relates to the determination of the exploration potential;

Current market values for properties in similar or analogous locations;
Current commodity prices.

4.9 Environmental Implications

The Tenements have not been reviewed by an environmental specialist to establish if they contain any fauna or flora species regarded as being rare, threatened or endangered. While out of the scope of this review, it is our opinion that this will need to be reviewed.

4.10 Native Title

Evaluation of areas of cultural or historical significance is outside the scope of this report. AM&A have not reviewed the Australian project for its significance to the Aboriginal people or if any approvals have been granted or a required. These will be dealt with through the Company’s normal administrative process. AM&A, however, is not aware of any areas of cultural significance within the Tenements held by Adavale.

4.11 Commodities-Metal Prices

Where appropriate, current metal prices are used sourced from the usual metal market publications or commodity price reviews. (eg “Uxc.com”, “Kitco.com”).

4.12 Previous Valuations

To the best of our knowledge no previous valuations have been carried out on these tenements within the last two years.

4.13 Encumbrances/Royalty

No royalty payments are considered in this valuation.

5 Background Information

5.1 Introduction

This valuation has been provided by way of a detailed study of information provided by Adavale on its mineral Tenements at 1st August, 2012.

5.2 Specific Valuation Methods

There are several methods available for the valuation of a mineral prospect ranging from the most favoured DCF analysis of identified Reserves/Resources to the more subjective rule-of-thumb assessments such as the Yardstick or Empirical methods or Comparative Value/Similar Transactions method. These methods are discussed above in Section 4.0.

6 Adavale Resources Limited Mineral Tenements

6.1 Introduction

Tenements held by Adavale that are the subject of this valuation comprise a portfolio of two project areas. One of these is within the Republic of Indonesia while the second is

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in South Australia. A JORC Compliant resource of 9.05 million tonnes of coal has been identified within the Tapan Project, located in Western Sumatra.

6.2 Indonesia

Adavale holds an interest in a project area within The Republic of Indonesia. The Tapan Project is situated in Sumatra.

6.2.1 TAPAN PROJECT

Adavale holds 100% equity in the Tapan Project, which is located in the PT Kelola Sumberdaya Nagari and PT Prima Perksa Abadi areas in West Sumatra, Indonesia. It is adjacent to the village of Tapan, approximately 200km south of the capital, Padang. The Company holds an IUP Productuon Permit over 198ha and a IUP exploration permit over 2,000ha (Adavale, 2012).

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Figure 1: Tapan Project Sumatra, Republic of Indonesia.

6.2.1.1 Regional Geology

Sumatra Island is a northwest trending physiographic expression on the western edge of Sundaland, which is a southern extension of the Eurasian Continental Plate. The backbone of the island is formed by the Barisan Range, which runs along the western side dividing the west and the east coasts. The slope towards the Indian Ocean is steep, consequently the west belt is mostly mountainous, with the exception of two lowland embayments in north Sumatra which are about 20 km wide. The eastern belt of the island is covered by broad, hilly tracts of Tertiary sediments and alluvium lowlands. Sumatra Island is interpreted to be constructed by collision and suturing of discrete micrcontinents in late Pre-Tertiary times. At the present-day, the Indian Ocean Plate is being subducted beneath the Eurasian Continental Plate at a rate of between 6 and 7 cm/year. This zone of oblique convergence is marked by the active Sunda Arc-Trench system, which extends for more than 5000 km, from Burma in the north to where the Australian Plate is in collision with Eastern Indonesia in the south. The basinal configuration of Sumatra is directly related to the presence of the

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subduction-induced non-volcanic forearc and the volcano-plutonic backarc, the morpho-structural backbone of the Island.

The Bengkulu Basin is located in the southeast part of the Sumatra Island. It extends from the both onshore to the offshore. It generally trends northwest-southeast, parallel to Sumatra Island for about 600 km and 150 to 200 km wide. To the north and northeast lies Barisan Mountain range, while in the south and to the southwest is bounded by islands or slope break of the Sunda Arc Trench System.

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Figure 2: Regional tectonic setting of Sumatra.

The stratigraphy of the onshore Bengkulu Basin composes of a series of OligoMiocene up to Pliocene sediments overlaying unconformably the Pre-Tertiary basement complex. Based on few seismic sections and wells drilled in the Bengkulu offshore area known that the sediment thickness is about 4,000 m. The Middle to Late Miocene stratigraphy is represented by the Lemau Formation, which consists of claystones, calcareous siltstones and sandstones, breccias, and thin coal seams and limestones intercalation, containing abundance of small foram and mollusc which was deposited in shallow marine up to transitional zone. This Formation is well exposed in the southern area such as Talang Beringin, Air Keruh, Rantau Panjang, Lubuk Tapi, Batang Rikibesar and Tebing Kekalangan areas. The thickness recorded is +785 m.

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6.2.1.2 Project Geology

Dacite and granite igneous rocks provide basement to the coal measures. Extrusion of the dacite postdates deposition of the Lemau Formation and was extruded contemporaneously with intrusion by the granite. The coal is contained within the Middle to Late Miocene Lemau Formation. The basin is traversed by several faults, which have impacted, on the coal deposits. Nine coal seams are recognised within the project area (Table 1). Senior, (2010) considers that eight of these are commercially exploitable by open cut mining.

	SEAM	TYPICAL THICKNESS
		RANGE(m)
	I Group (11 & 12	0.29-0.49
	J Group (J1, J2, & J3	0.23-0.66
	K	0.34-0.55
	L Group (L1, & L2)	0.50-0.72
	M	0.17-0.59

Table 1: Coal thicknesses within the Tapan Project

6.2.1.3 Previous exploration

Between December 2009 and March 2010, PT ADA Strategic undertook a detailed exploration programme over an area of about 800 hectares within the Tapan Project Senior, 2010). This work included geological and topographic mapping and drilling. Selective coring of 48 holes was undertaken using Jacroe portable drilling equipment. Lithological and geophysical logging of the core was undertaken and material submitted for coal quality analyses.

During mapping and logging of bore information of these thin coal seams, any zones greater tan 0.1m in thickness were excluded from the calculations. Intervals less than 0.2m were not sampled. Coal samples were tested in a laboratory for total moisture, proximate analysis, specific energy, total sulphur and grindability index (Table 2). These analysis show the coal is of medium to high quality. The high total moisture is due to water saturation in cleavages and inherent fractures within some coal seams.

ANALYSIS	RAW COALQUALITY
Total Moisture (%)	4.0-10.7
Inherent Moisture (%; air dried basis)	3.2-5.5
Volatile matter (%; air dried basis)	35.3-40.3
Ash (%; air dried basis)	5.2-22.1
Fixed carbon (%; air dried basis)	37.3-48.8
Total sulphur (%; air dried basis)	0.56-3.3
Gross Calorific value (Kcal)	5,500-7,060
HGI	34-48

Table 2: Raw coal quality analyses.

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Figure 3: Tapan preliminary coal seam outcrop and subcrop.

6.2.1.4 Mineralisation

The Tapan Project hosts a medium to high grade thermal coal resource. Exploration by PT ADA Strategic identified a coal resource within the project area. Their work demonstrated that a JORC compliant coal resource of 9.05 million tonnes (“Mt”) is present within the Project area. Of this resource, 2.15Mt is measured, 1.5Mt indicated and 5.4Mt inferred (Senior, 2010). The Company has defined two initial open pit areas and designed the Western and Central Pits to exploit the coal.

6.3 Australia

Adavale holds title to one project in South Australia.

6.3.1 LAKE SURPRISE PROJECT

The Company holds 100% interest in the South Australian Lake Surprise Project comprising adjoining exploration licences EL 4949 and EL4950. Combined, these two tenements have an aerial extent of 1,836km[2] . The Project is situated in the Lake Arthur area, 550km north of Adelaide. Exploration Licence EL 4950 is located approximately 65km east of Marree while EL 4949 is about 75km east of Marree and are contained within the Murnpeowie and Clayton Pastoral leases.

The tenements comprising the Lake Surprise Project cover an area that is considered prospective for surficial and sandstone style uranium mineralization. Strong radiometric anomalies occur in the Project area where uranium minerals have been found. The position of the Project to uranium mineralisation is shown in figure 5.

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Figure 4: Lake Surprise Project location.

6.3.1.1 Regional Geology

The project is situated on the northern flank of the Flinders Ranges. It is contained within the South Australian sector of the Eromanga Basin

A deep weathering during the Late Mesozoic to Early Tertiary affected much of the outcropping basement. Much of this erosion has been in response to the Late Tertiary tectonic uplift, rejuvenating a stable, peneplained land surface. The Lake Blanche Lineament, which trends northwest to southeast appears to have truncated EL 4949. Block faulting in this region is also responsible for the formation of the Gason Dome in the Moomba area.

6.3.1.2 Project Geology

Immediately to the west of the tenements weathering has exposed Jurassic to Cretaceous sediments of the Marree Subgroup. These sediments comprise grey claystones with intermittent sandstone together with the younger more sandstone unit of the Blanchewater Formation.

In the higher altitudes within EL 4949 and 4950, Tertiary sandstones of the Murnpowie Formation often with a duricrust but occasionally this silicification has developed over older rocks. Quaternary gravels and sand ridges form a thin veneer over the Tertiary section.

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Figure 5: Surprise Project surface geology from the Maree 1:250,000 map sheet: EL 4949 is centre with EL4950 on the right

6.3.1.3 Previous exploration

In recent years the two tenements have been geologically mapped utilising aerial photographs and ASTER imagery, aerial and ground radiometric data has been acquired. Numerous surface and sub-surface samples were analysed for uranium, thorium and potassium and for possible elements associated with uranium mineralisation.

About 390 air core mud rotary drill holes have been drilled into EL 4950 while a further 70 holes have been drilled into EL 4949 Samples from these holes have been lithologically logged and the holes logged using gamma ray.

6.3.1.4 Mineralisation

Uranium mineralisation in the form of carnotite has been observed in several surface outcrops of silicified quartzose (silcrete). It has also been found in a hard, grey, dolomite.

Within the tenements, uranium occurs within silicified sandstone and silcrete. Data gathered to date indicates these rocks contain disseminated uranium that has been trapped in fine-grained sedimentary rocks and soft Sediments.

A PICO spectrometer mounted in an aircraft led to the identification of ten anomalies identified A1 to A10. These anomalies have not been further investigated by either detailed ground spectrometer surveys or drilling.

Three phases of reconnaissance rotary drilling with gamma ray logging have been undertaken in EL 4949. Gamma ray logs indicate a range of values between 50 and 100cps over intervals up to 10m in thickness.

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Significantly, these values occur in brown to red-brown and maroon, highly weathered, clayey breccias, indicative of oxidising environments. The clayey and impermeable nature of the host rocks and very low uranium grades encountered indicate that the fanglomerate beds in the palaeochannels have a low potential for the discovery of an economic resource.

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Figure 6: Palaeochannels delineated by resistivity surveying and other exploration data.

Further exploration is also required to determine if deeper palaeochannels originating from the Flinders Range contain mineralisation.

Mapping by Adavale indicates that the southern half of EL 4949 contains the greatest potential for palaeochannel systems that may contain uranium derived from the

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Flinders Range (Senior & Risinger, 2011). The shallowing Eromanga Basin section in the region of suggests there is potential also for Mesozoic palaeochannels (Stamoulis, 2009).

If commercial quantities of uranium are located, extraction of the ore may require opencutting, crushing and heap leaching.

7 Valuation

A JORC Compliant resource of 9.05 million tonnes of coal has been identified within the Tapan Project, located in Western Sumatra. Adavale have planned two conceptual open cut pits for this project. AM&A, however, have not reviewed the pit plans. From details taken from the Company’s last Annual Report, the status of the Kalimantan project appears to be tenuous

Carnotite mineralisation has been identified within the Surprise Project located within South Australia. While extensive drilling and other fieldwork has been undertaken within the project, the extent and volume of mineralisation is unknown. The project requires more work before a JORC Code compliant resource can be attributed to this area.

The Surprise Project tenements held by Adavale are therefore at the exploration stage. There is no guarantee that further exploration will lead to the discovery of a JORC Code compliant resource or commercially minable mineralisation on any of the tenements comprising the Surprise Project.

The discovery or non-discovery of mineralisation within any tenement will have a positive or negative bearing on that areas value. Likewise failure to discover mineralisation will have a negative impact on that project’s value.

We have used the Empirical method of heavily discounting the theoretical insitu value for the various JORC Code categories of the coal in the Tapan Project as shown in Table 3. The value ranges adopted are considered commensurate with the coal seams’ thickness and qualities.

For the Lake Surprise Uranium Project we have used the MEE method and a range of discounting factors from 0.2 to 0.5 applied to previous exploration costs of the ELs. Also shown in Table 3 below.

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Table 3: Valuation of Adavale Projects

In conclusion it is the writer’s opinion that the cash value of Adavale’s Indonesian and Australian projects as at 1[st] August, 2012 is A$1.61 million from within the range of A$1.18 million to A$2.05 million.

Yours faithfully,

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Allen J. Maynard BAppSc(Geol), MAIG, MAusIMM.

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8 References

ADAVALE RESOURCES LIMITED, 2012: Quarterly activities report for Adavale Resources Limited (ASX: ADD) (ARL) for the period to 30 June 2012. Adavale Resources Ltd Rept to the ASX.

ADAVALE RESOURCES LIMITED, 2012A: Annual Financial Report for the year ended 30 June 2012. Adavale Resources Limited Rept to the AS.X

SENIOR, B. R., 2010: Independent geologist’s report Tapan Coal Project, West Sumatra, Indonesia. B. R. Senior & Associates Pty Ltd Unpub. Rept.

SENIOR, B. R., & RISINGER, J., 2011: Annual Report for EL 3620 (Mumbie) and EL 3622 (Lake Surprise.) Areas. Adavale Resources Limited Unpub. Rept.

SENIOR, B. R., RISINGER, J., & STRUTHERS, M., 2009: Annual Report for EL 3630- Mumpie and EL 3633- Lake Surprise Areas. Adavale Resources Limited Inpub. Rept.

STAMOULIS, V., 2009: Night-Time Thermal Infrared Data Interpretation Advale Resources Exploration Licences 320, 3021, 3022 Lake Surprise Project, S.A. Chrysoar Exploration Unpub. Rept.

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ADAVALE RESOURCES LIMITED — Proxy Solicitation & Information Statement 2012

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