CAULDRON ENERGY LIMITED - Proxy Solicitation & Information Statement 2012

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ACN 102 912 783

NOTICE OF GENERAL MEETING

TIME : 12:00pm (WST) DATE : 25 May 2012 PLACE : Function Centre Kailis Bros Fish Market & Centre 101 Oxford Street LEEDERVILLE WA 6007

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 8) 9380 9555.

CONTENTS PAGE

Notice of General Meeting (setting out the proposed resolutions)

Explanatory Statement (explaining the proposed resolutions)

Glossary

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

The general meeting of the Shareholders to which this Notice of Meeting relates will be held at 12:00pm (WST) on Wednesday, 25 May 2012 at:

The Function Centre Kailis Bros Fish Market & Centre 101 Oxford Street Leederville WA 6007

YOUR VOTE IS IMPORTANT

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

VOTING IN PERSON

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

VOTING BY PROXY

To vote by proxy, please complete and sign the enclosed Proxy Form and return to Advanced Share Registry Services by:

(a) post to PO Box 1156, Nedlands WA 6909; or
(b) facsimile on (+61 8) 9389 7871,

so that it is received not later than 12:00pm (WST) on 23 May 2012.

Proxy Forms received later than this time will be invalid.

Recent Changes to Proxy Voting 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:

(a) if the proxy votes, they must cast all directed proxies as directed; and
(b) 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 :

(a) 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
(b) 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
(c) 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
(d) 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:

(a) 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
(b) the appointed proxy is not the chair of the meeting; and
(c) at the meeting, a poll is duly demanded on the resolution; and
(d) either of the following applies:
(i) the proxy is not recorded as attending the meeting; or
(ii) 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.

NOTICE OF GENERAL MEETING

Notice is given that the general meeting of Shareholders will be held at 12:00pm (WST) on Wednesday, 25 May 2012 at The Function Centre, Kailis Bros Fish Market & Centre, 101 Oxford Street, Leederville, Western Australia.

The Explanatory Statement provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the Proxy Form are part of this Notice of Meeting.

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 5:00pm (Perth time) on 23 May 2012.

Terms and abbreviations used in this Notice of Meeting are defined in the Glossary.

AGENDA

SPECIAL BUSINESS

RESOLUTION 1 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF REMAINING CONVERTIBLE NOTES

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

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for:

(a) the variation of the conversion price of the Remaining Convertible Notes and the conversion price for the conversion of the accumulated interest on the Remaining Convertible Notes; and
(b) the Company to allot and issue Shares on conversion of the Remaining Convertible Notes totalling $1,500,000,
on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion : The Company will disregard any votes cast on this Resolution by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, and any associates of those persons. 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.

RESOLUTION 2 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DEMPSEY RESOURCES PTY LTD

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

“That, for the purpose of ASX Listing Rule 7.1, Section 611 (Item 7) of the Corporations Act and for all other purposes, approval is given for:

(a) the variation of the terms of the Dempsey Convertible Notes;
(b) the Company to allot and issue Shares on conversion of the Dempsey Convertible Notes to Dempsey Resources Pty Ltd (or its nominee); and

(c) the increase in the voting power of Dempsey Resources as a result of the conversion of the Dempsey Convertible Notes under paragraph (b) of this Resolution such that Dempsey Resources may acquire a maximum relevant interest of 32.33% in the Company,

on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Dempsey Resources Pty Ltd and any associate of Dempsey Resources Pty Ltd and 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.

Independent Expert’s Report: Shareholders should carefully consider the accompanying Independent Expert’s Report prepared by Stantons International Securities for the purpose of Shareholder approval under Resolution 2. The Independent Expert concludes that the proposed transaction is fair and reasonable to the nonassociated Shareholders.

RESOLUTION 3 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DERONG QIU AND DEKANG QIU

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

“That, for the purpose of ASX Listing Rule 10.11, Section 611 (Item 7) of the Corporations Act and for all other purposes, approval is given for:

(a) the variation of the conversion price of the Qiu Convertible Notes and the conversion price for the conversion of the accumulated interest on the Qiu Convertible Notes;
(b) the Company to allot and issue Shares on conversion of the Qiu Convertible Notes issued to Messrs Derong Qiu and Dekang Qiu (or their nominee); and
(c) the increase in the voting power of Messrs Derong Qiu and Dekang Qiu as a result of the conversion of the Qiu Convertible Notes under paragraph (b) of this Resolution such that Messrs Derong Qiu and Dekang Qiu may acquire a maximum relevant interest of 28.88% in the Company,

on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion: The Company will disregard any votes cast on this Resolution by Derong Qiu and Dekang Qiu and any associate of Derong Qiu Dekang Qiu. 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.

Independent Expert’s Report: Shareholders should carefully consider the accompanying Independent Expert’s Report prepared by Stantons International Securities for the purpose of Shareholder approval under Resolution 3. The Independent Expert concludes that the proposed transaction is fair and reasonable to the nonassociated Shareholders.

DATED: 23 APRIL 2012

BY ORDER OF THE BOARD

CLAIRE TOLCON COMPANY SECRETARY

EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of the Shareholders in connection with the business to be conducted at the General Meeting to be held at 12:00pm (WST) on Wednesday, 25 May 2012 at The Function Centre, Kailis Bros Fish Market & Centre, 101 Oxford Street, Leederville, Western Australia.

This purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of Meeting.

1. BACKGROUND INFORMATION TO RESOLUTIONS 1, 2 AND 3

1.1 Background

As announced to ASX during 2009 and 2010, the Company issued convertible notes having a total face value of $9,300,000. These convertible notes included:

(a) a convertible note to Dempsey Resources Pty Ltd ( Dempsey Resources ) totalling $1,500,000;
(b) convertible notes to Mr Derong Qiu and Mr Dekang Qiu totalling $6,300,000 ( Qiu Convertible Note ); and
(c) remaining convertible notes totalling $1,500,000 ( Remaining Convertible Notes ).

Additionally, on 17 March 2011, the Company announced that it had issued a second convertible note to Dempsey Resources with a face value of $2,000,000 (together both convertible notes with Dempsey Resources are herein referred to as the Dempsey Convertible Notes ).

A summary of the terms and conditions of the Dempsey Convertible Notes, Qiu Convertible Notes and the Remaining Convertible Notes are set out in Schedule 2, Schedule 3 and Schedule 4 respectively.

The convertible notes included a requirement to obtain all necessary shareholder approvals for conversion of the Convertible Notes into Shares.

The Convertible Notes issued in 2009 and 2010, were convertible into Shares at a deemed issue price equal to the lower of:

(a) $0.50; and
(b) the volume weighted average trading price of the Shares as quoted on ASX ( VWAP ) over the 20 trading days preceding conversion, less 15% discount, with a minimum issue price of $0.425.

The conversion price of the Convertible Note issued in March 2011 is equal to the VWAP over the 5 trading days before conversion, less a 20% discount.

Holders of the Convertible Notes have the option to elect to receive their interest payment in Shares. If they do so elect, the deemed issue price of the Shares for the Convertible Notes issued in 2009 and 2010 is equal to the VWAP of the Shares trading on ASX over the last 20 days preceding the interest payment date, less a discount of 15%. The deemed issue price of the Shares for the convertible note issued to Dempsey in 2011 is equal to the VWAP over the 5 trading days before the conversion, less a 20% discount. Only Dempsey

Resources (from 1 March 2011) has elected to receive the interest payments in Shares in respect of the Dempsey Convertible Notes.

A summary of the share prices of the Company from 1 July 2011 to 5 April 2012 is set out in section 5.5.1 of the Independent Expert’s Report.

The Convertible Notes totalling $11,300,000 are due for repayment in July 2012. In addition, accumulated interest of $465,890 owing on the Dempsey Convertible Notes at 31 July 2012 will also be due for repayment.

To encourage holders of the Convertible Notes to convert their Convertible Notes into Shares rather than the Company having to repay $11,300,000 and $465,890 of accumulated interest by July 2012 (which the Company does not currently have) the Company proposes to:

(a) vary the conversion price of all convertible notes on issue (including the Dempsey Convertible Notes which currently has a conversion price equal to the VWAP over the 5 trading days before conversion less a 20% discount) to 20 cents per Share; and
(b) vary the conversion price in respect of accumulated interest on the same basis as (a) above.

1.2 Capital Structure

Outlined below is the current capital structure of the Company and the capital structure showing the effect of conversion of the convertible notes.

Shares	Number
Currently on issue	96,280,029
Conversion of all Convertible Notes	58,829,452
Total Shares on issue	155,109,481

Options on Issue	Number
Listed Options exercisable at $0.45 each
on or before 31 October 2012	12,866,462
Unlisted Options exercisable at $0.45 each
on or before 20 November 2015	600,000

If Shareholders do not agree to the variation of the conversion price of the Convertible Notes, it is unlikely the holders will convert at the current conversion price of $0.425 per Share.

If the Convertible Notes are not converted, the Company will need to satisfy repayment of $11,765,890 by July 2012. The Company does not currently have sufficient funds to satisfy the repayment of all the Convertible Notes and accordingly, will need to raise additional funds via a capital raising which will dilute Shareholders interest and/or dispose of assets.

1.3 Advantages and Disadvantages

The Board considers that the advantages of approving the Resolutions in this Notice include the following:

(a) if the conversion price of the Convertible Notes are not varied, it is unlikely that the Convertible Notes will be converted and therefore the Company will need to pay $11,300,000 (plus interest on the Dempsey Convertible Notes totaling approximately $465,890) by 31 July 2012. The Company does not have these funds and would need to raise additional capital (which would dilute shareholders in any event) and sell additional assets; and
(b) the proposed varied conversion price is still a premium to the current trading price of the Shares (refer to section 5.5.1 of the Independent Expert’s Report)

The Board considers that the disadvantages of approving the Resolutions in this Notice include the following:

(a) there will be a dilution of shareholding of the non-associated Shareholders if the Convertible Notes are converted. Details of the effect of the conversion are set out in Schedule 1 to the Explanatory Statement;
(b) at the time of conversion of the Convertible Notes, the Share price may have risen to exceed the conversion price.
(c) if the Dempsey Convertible Notes and/ the Qiu Convertible Notes are converted, these parties’ interest in the Company will be increased in the manner outlined in Schedule 1 to the Explanatory Statement. Accordingly, these parties will have an increased voting control in the Company.

Shareholders are encouraged to read the Independent Expert’s Report in its entirety which, inter alia, contains a summary from the Independent Expert of the advantages and disadvantages of the proposed Resolutions.

2. RESOLUTION 1 – CONVERSION OF REMAINING CONVERTIBLE NOTES

2.1 Background

Resolution 1 seeks Shareholder approval for:

(a) the variation of the conversion price of the Remaining Convertible Notes from the lower of:
(i) $0.50; and
(ii) the VWAP over the trading days preceding conversion less a 15% discount, with a minimum $0.425,

to $0.20;

(b) the variation of the conversion price in respect of accumulated interest on the same basis as (a) above; and
(c) the allotment and issue of Shares at a deemed issue price of $0.20 per Share for conversion of the Remaining Convertible Notes.

None of the holders of the Remaining Convertible Notes are related parties of the Company.

ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue more equity securities during any 12 month period than that amount which represents 15% of the number of fully paid ordinary securities on issue at the commencement of that 12 month period.

The effect of Resolution 1 will be to allow the Directors to vary the conversion price of the Remaining Convertible Notes and to issue the Shares on conversion of the Remaining Convertible Notes during the period of 3 months after the Meeting (or a longer period, if allowed by ASX), without using the Company’s 15% annual placement capacity.

2.2 Technical information required by ASX Listing Rule 7.1

Pursuant to and in accordance with ASX Listing Rule 7.3, the following information is provided in relation to Resolution 1:

(a) the maximum number of Shares to be issued is 7,500,000. The actual number issued will depend on the number of Convertible Notes converted by holders in accordance with the terms of the Remaining Convertible Notes;
(b) the Shares will be issued no later than 3 months after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the ASX Listing Rules) and it is intended that allotment will occur progressively depending on when the Convertible Notes are converted into Shares but prior to 31 July 2012;
(c) the deemed issue price will be $0.20 per Share;
(d) the Shares will be allotted and issued to the holders of the Remaining Convertible Notes none of whom are related parties of the Company;
(e) the Shares issued will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares; and
(f) no funds will be raised from the issue of the Shares as they will be issued on conversion of the Remaining Convertible Notes thereby reducing the amount to be repaid by the Company on the repayment date (being 31 July 2012) under the Remaining Convertible Notes.

3. RESOLUTION 2 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DEMPSEY RESOURCES

3.1 General

Resolution 2 seeks Shareholder approval for the:

(a) variation of conversion price of the Dempsey Convertible Notes to $0.20;
(b) the variation of the conversion price in respect of accumulated interest on the same basis as (a) above;

(c) issue of Shares to Dempsey Resources (or its nominee) upon conversion of the Dempsey Convertible Notes and outstanding interest payments (totalling approximately $465,890) into Shares pursuant to:
(i) ASX Listing Rule 7.1; and
(ii) Item 7 of Section 611 of the Corporations Act for the acquisition of a relevant interest in voting shares of the Company by Dempsey Resources in circumstances which may otherwise contravene Chapter 6 of the Corporations Act.

If approval is not granted by Shareholders or Dempsey Resources does not elect to convert the Dempsey Convertible Notes (and interest), the Company will need to repay Dempsey Resources $3,965,890 by 31 July 2012.

Mr Tony Sage is the chairman of the Company and of Cape Lambert, the holding company of Dempsey Resources. Mr Sage does not control Cape Lambert or Dempsey Resources and therefore, Cape Lambert and Dempsey Resources are not considered to be a related party of the Company.

3.2 ASX Listing Rule 7.1

Resolution 2 seeks Shareholder approval for the allotment and issue of Shares to Dempsey Resources in the event Dempsey Resources elects to convert the Dempsey Convertible Notes (and interest) into Shares rather than seek repayment in cash in accordance with the terms of the Dempsey Convertible Notes.

A summary of ASX Listing Rule 7.1 is contained in Section 2.1.

The effect of Resolution 2 will be to allow the Directors to issue the Shares if Dempsey Resources elects to convert the Convertible Note (and interest) into Shares during the period of 3 months after the Meeting (or a longer period, if allowed by ASX), without using the Company’s 15% annual placement capacity.

3.3 Technical information required by ASX Listing Rule 7.1

Pursuant to and in accordance with ASX Listing Rule 7.3, the following information is provided in relation to the issue of Shares on conversion of the Dempsey Convertible Notes:

(a) the maximum number of Shares to be issued will be 19,829,452 Shares;
(b) the Shares will be issued no later than 3 months after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the ASX Listing Rules) and it is intended that allotment will occur on the same date, being the date of conversion of the Dempsey Convertible Notes into Shares but no later than 31 July 2012;
(c) the Shares will be issued for nil cash consideration as they would be issued on conversion of the Dempsey Convertible Notes into Shares in accordance with the terms of those Convertible Notes (as varied). The deemed issue price per Share is $0.20 which is the varied conversion price under the Dempsey Convertible Notes;
(d) the Shares will be allotted and issued to Dempsey Resources (or its nominee);
(e) the Shares issued will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares; and

(f) no funds will be raised from the issue of the Shares. The debt associated with the Dempsey Convertible Notes due for repayment on 31 July 2012 ($3,500,000 plus accumulated interest of $465,890) would be extinguished or reduced by the amount of the conversion of the Dempsey Convertible Notes into Shares.

3.4 Item 7 of Section 611 of the Corporations Act

Section 606(1) of the Corporations Act provides that 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%.

The voting power of a person in a company 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.

A person ( second person ) will be 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 first person;
(b) the second person has entered or proposed to enter in 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; and
(c) the second person is a person with whom the first person is acting or proposing to act, in concert in relation to the company’s affairs.

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
(c) have power to dispose of, or control the exercise of a power to dispose of, the securities.

As at the date of this Notice, Dempsey Resources and its associates holds 17,709,597 Shares which represents approximately 18.39% of the Shares of the Company.

If Dempsey Resources elected (assuming it obtained Shareholder approval to do so) to convert the Dempsey Convertible Notes (or a portion thereof) into Shares (as varied), it would hold greater than 20% of the Company. Its shareholding in the Company would depend on whether the Qiu Convertible Notes and/or the Remaining Convertible Notes are converted.

Item 7 of Section 611 of the Corporations Act provides an exception to the prohibition in Section 606(1) of the Corporations Act, whereby a person may acquire a relevant interest in a company’s voting shares in excess of the prescribed limit with shareholder approval.

The Company seeks Shareholder approval to enable Dempsey Resources to acquire a relevant interest in the Company in excess of 20% upon the issue of Shares to Dempsey Resources (or its nominee) on conversion of the Dempsey Convertible Notes (if the Dempsey Convertible Notes are converted).

The information set out below is required to be provided to Shareholders under the Corporations Act and ASIC Regulatory Guide 74 in respect of obtaining shareholder approval under Item 7 of Section 611 of the Corporations Act. Shareholders are also referred to the Independent Expert’s Report annexed to this Explanatory Statement which sets out additional information in respect of the proposal described in this Explanatory Statement.

Impact on the Company

The proposed issue of Shares on conversion of the Convertible Notes to Dempsey Resources (or its nominee) will result in various advantages and disadvantages to the Company which Shareholders should consider prior to exercising their vote.

The Independent Expert notes that the key advantages of the proposal to the Company and non-associated Shareholders are as follows:

(a) if Shareholders do not grant the approval (or if the Dempsey Convertible Notes are not converted into Shares), the Company will need to repay Dempsey Resources $3,500,000 plus accumulated interest of $465,890 by 31 July 2012. The Company does not currently have the funds to satisfy this so would need to undertake a capital raising which would dilute Shareholders in any event, or dispose assets or borrow further funds;
(b) the proposed conversion price is greater than recent Share prices. In particular, the convertible note issued to Dempsey in 2011 has a conversion price that is equal to the VWAP over the 5 trading days before conversion less a 20% discount and based on the recent Share prices, the proposed variation would be to the advantage of Shareholders ; and
(c) the increased shareholding of Dempsey Resources demonstrates further support of Cape Lambert to the Company.

The disadvantages noted by the Independent Expert are as follows:

(a) Shareholders’ interests will be diluted by the amount of the conversion;
(b) prior to the conversion, the Share price may increase to exceed the conversion price; and
(c) Dempsey’s interest in the Company will increase by the amount details in Schedule 1, which means Dempsey would have an increased influence over the Company.

Shareholders are encouraged to read the Independent Expert’s Report in its entirety.

Prescribed Information

(i) The identity of the person proposing to make the acquisition and their associates:

Dempsey Resources is a wholly owned subsidiary of ASX listed company Cape Lambert (ASX: CFE).

Additional background information on Dempsey Resources and Cape Lambert is set out in the Independent Expert’s Report.

(ii) The maximum extent of the increase in the person’s voting power in the Company that would result from the acquisition:

The current voting power in the Company of Dempsey Resources and its associates is 18.39%.

Schedule 1 sets out the potential maximum increase in the voting power of Dempsey Resources and Qiu if the Dempsey Convertible Notes and/or the Qiu Convertible Notes are converted.

The maximum extent of the increase in Dempsey Resources’ voting power that would result from the issue of Shares on conversion by Dempsey Resources of the Dempsey Convertible Notes will be 32.33%. This assumes Dempsey Resources converts the Dempsey Convertible Notes but no other holder of Convertible Notes convert their Convertible Notes.

If Dempsey Resources and Qiu converted their respective Convertible Notes, but the remaining holders of the Convertible Notes did not convert their Convertible Notes, Dempsey Resources would hold 25.43% of the Company.

If all holders of the Convertible Notes converted their Convertible Notes, Dempsey Resources would hold 37,539,049 Shares, representing 24.20% of the Company.

(iii) The voting power that person would have as a result of the transaction:

As set out in Schedule 1 and paragraph (ii) above, the voting power Dempsey Resources would hold as a result of the issue of Shares on conversion of all of the Dempsey Convertible Notes would be:

(A) 32.33% assuming no other Convertible Notes are converted into Shares;
(B) 25.43% assuming only Qiu and Dempsey Resources convert their Convertible Notes into Shares; and
(C) 24.20% assuming all Convertible Notes are converted into Shares.
(iv) The maximum extent of the increase in the voting power of each of that person’s associates that would result from the acquisition:

Refer paragraph (ii) above. The voting power of each associate of Dempsey Resources will be the same as the voting power of Dempsey Resources.

(v) The voting power that each of that person’s associates would have as a result of the acquisition:

Refer paragraph (iii) above. The voting power of each associate of Dempsey Resources will be the same as the voting power of Dempsey Resources.

Statements by Dempsey Resources

Dempsey Resources and each of its associates have informed the Company that, as at the date of this Notice of Meeting and on the basis of the facts and information available to it, if Shareholders approve Resolution 2 that it and its associates:

(i) have no current intention to change the business of the Company;
(ii) do not have any intention to inject further capital into the Company unless the Remaining Convertible Notes and/or the Qiu Convertible Notes are not converted into Shares and therefore the Company may need to raise additional funds to repay the outstanding Convertible Notes;
(iii) have no intentions regarding the future employment of the present employees of the Company;
(iv) do not intend to transfer any property between the Company and Dempsey Resources or any person associated with either of them;
(v) do not intend to redeploy any fixed assets of the Company;
(vi) have no intention to change the financial matters or dividend policies of the Company unless the Remaining Convertible Notes and/or the Qiu Convertible Notes are not converted into Shares and therefore the Company may need to raise additional funds to repay the outstanding Convertible Notes; and
(vii) have no intention to change the composition of the Board.

3.5 Recommendations of Directors

Mr Tony Sage (Chairman of the Company) is also the Chairman of Cape Lambert and a director of Dempsey Resources. Mr Sage does not control Cape Lambert or Dempsey Resources. Given his involvement in Dempsey Resources and Cape Lambert he declines to make a recommendation to Shareholders regarding this resolution.

Based on the information available, including that contained in this Explanatory Statement and the Independent Expert’s Report, the remaining Directors consider that approval for the variation of the conversion prices of the Dempsey Convertible Notes and the issue of Shares upon conversion of the Dempsey Convertible Notes, is in the best interests of Company particularly in light of the obligation to repay the Dempsey Convertible Notes totalling $3,500,000 (plus accumulated interest of $465,890) by July 2012 if approval is not obtained or if the Dempsey Convertible Notes are not converted in accordance with their terms.

Each of the Directors approved the proposal to put Resolution 2 to Shareholders and each of the Directors recommend that Shareholders vote in favour of Resolution 2.

3.6 Role of the Independent Expert

the proposal outlined in this Explanatory Statement is fair and reasonable to the Shareholders who are not associated with Dempsey Resources. The Independent Expert’s Report also contains an assessment of the advantages and disadvantages of the proposal described in Section 1 of this Explanatory Statement. This assessment is designed to assist all Shareholders in reaching their voting decision in relation to the Resolution contained within this Notice of Meeting.

Stantons International Securities has prepared the Independent Expert’s Report and has provided an opinion that it believes the approval to convert the Dempsey Convertible Note into Shares is fair and reasonable to the Shareholders of the Company not associated with Dempsey Resources.

The Directors recommend that all Shareholders read the Independent Expert’s Report in full.

4. RESOLUTION 3 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DERONG QIU

4.1 General

Resolution 3 seeks Shareholder approval for the:

(a) variation of the conversion price of the Qiu Convertible Notes to $0.20 per Share;
(b) the variation of the conversion price in respect of accumulated interest on the same basis as (a) above; and
(c) issue of Shares to Messrs Derong Qiu and Dekang Qiu (or their nominee) upon conversion of the Qiu Convertible Notes pursuant to:
(i) ASX Listing Rule 10.11; and
(ii) Item 7 of Section 611 of the Corporations Act for the acquisition of a relevant interest in voting shares of the Company by Messrs Derong Qiu and Dekang Qiu in circumstances which may otherwise contravene Chapter 6 of the Corporations Act.

Shareholders should note that the receipt of Shareholder approval to this Resolution does not mean that the Qiu Convertible Notes will be converted by Messrs Derong Qiu and Dekang Qiu into Shares. Rather, it permits the conversion of the Qiu Convertible Notes into Shares if Messrs Derong Qiu and Dekang Qiu elects to convert the Qiu Convertible Notes into Shares. Without the Shareholder approval, Messrs Derong Qiu and Dekang Qiu cannot convert the Qiu Convertible Notes.

It should be noted that Messrs Derong Qiu and Dekang Qiu are related parties of the Company as Mr Derong Qiu is a Director and both parties have entered into the Qiu Convertible Notes together and therefore, act in concert in respect of the Qiu Convertible Notes. At the time of entering into the Qui Convertible Notes, Mr Derong Qui was not a Director and the terms of the Qiu Convertible Notes were negotiated on arm’s length terms. Approval pursuant to section 208 of the Corporations Act is not being sought for this Resolution because the remaining Directors have formed the view that the proposed transaction is on arms-length terms, given the same varied conversion price is being offered to all holders of Convertible Notes.

4.2 ASX Listing Rule 10.11

ASX Listing Rule 10.11 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.

Messrs Derong Qiu and Dekang Qiu are related parties of the Company as Mr Derong Qiu is a Director and both parties have entered into the Qiu Convertible Notes together and therefore, act in concert in respect of the Qiu Convertible Notes. Accordingly, Shareholder approval pursuant to ASX Listing Rule 10.11 is required for the issue of Shares on conversion of the Qiu Convertible Notes.

4.3 Technical Information required by ASX Listing Rule 10.13

(a) the related parties are Messrs Derong Qiu and Dekang Qiu as Mr Derong Qiu is a Director and both parties have entered into the Qiu Convertible Notes together and therefore, act in concert in respect of the Qiu Convertible Notes;
(b) the maximum number of Shares that may be issued to Messrs Derong Qiu and Dekang Qiu is 31,500,000 Shares which is based on a deemed issue price of $0.20 per Share (which is the proposed varied conversion price for the Qiu Convertible Notes) and assumes both Qiu Convertible Notes are converted in full;
(c) the Shares will be issued on the provision of a conversion notice by Messrs Derong Qiu and Dekang Qiu to the Company in accordance with the terms of the Qiu Convertible Notes which must not be more than one month after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the ASX Listing Rule);
(d) the Shares will be issued at a deemed issue price of $0.20 (which is the varied conversion price for the Qiu Convertible Notes); and
(e) the Shares will be issued only on conversion of the Qiu Convertible Notes and accordingly, no funds will be raised from the issue of Shares. However, it will remove the obligation of the Company to repay the Qiu Convertible Notes totalling $6,300,000 on 31 July 2012.

Approval pursuant to ASX Listing Rule 7.1 is not required to issue the Shares on conversion of the Qiu Convertible Notes because approval is being obtained under ASX Listing Rule 10.11. Accordingly, the issue of Shares will not be included in the Company’s 15% capacity pursuant to ASX Listing Rule 7.1.

4.4 Item 7 of Section 611 of the Corporations Act

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

The voting power of a person in a company 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.

A person ( second person ) will be 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 first person;
(b) the second person has entered or proposed to enter in 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; and
(c) the second person is a person with whom the first person is acting or proposing to act, in concert in relation to the company’s affairs.
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
(c) have power to dispose of, or control the exercise of a power to dispose of, the securities.

As at the date of this Notice, Messrs Derong Qiu and Dekang Qiu (and their associates) hold approximately 5.61% of the Shares of the Company.

If Messrs Derong Qiu and Dekang Qiu elected (assuming they obtained Shareholder approval to do so) to convert the Qiu Convertible Notes (or a portion thereof) into Shares’, they would hold a relevant interest in greater than 20% of the Company.

The Company seeks Shareholder approval to enable Messrs Derong Qiu and Dekang Qiu to acquire a relevant interest in the Company in excess of 20% upon the issue of Shares to Qiu (or his nominee) on conversion of the Qiu Convertible Notes (if the Qiu Convertible Notes are converted).

Impact on the Company

The proposed issue of Shares on conversion of the Qiu Convertible Notes (or his nominee) will result in various advantages and disadvantages to the Company which Shareholders should consider prior to exercising their vote.

The Independent Expert notes that the key advantages of the proposal to the Company and non-associated Shareholders are as follows:

(a) if Shareholders do not grant the approval (or if the Qui Convertible Notes are not converted into Shares), the Company will need to repay Messrs Derong Qiu and Dekang Qiu $6,300,000 by 31 July 2012. The Company does not currently have the funds to satisfy this so would need to undertake a capital raising which would dilute Shareholders in any event, or dispose assets or borrow further funds; and
(b) the proposed conversion price is greater than recent Share prices (refer to section 5.5.1 of the Independent Expert’s Report).

The disadvantages noted by the Independent Expert are as follows:

(d) Shareholders’ interests will be diluted by the amount of the conversion;
(e) prior to the conversion, the Share price may increase to exceed the conversion price; and
(f) Messrs Derong Qiu and Dekang Qiu’s interest in the Company will increase by the amount details in Schedule 1, which means Qui would have an increased influence over the Company.

Shareholders are encouraged to read the Independent Expert’s Report in its entirety.

Prescribed Information

(a) The identity of the person proposing to make the acquisition and their associates:

Mr Delong Qiu is a Director of the Company. Mr Dekang Qiu is the brother of Mr Delong Qiu.

Mr Delong Qiu is a highly experienced industrialist with more than 27 years experience in the architecture, construction, real estate industries in China and with over 15 years of experience in the management of enterprises and projects throughout the country.

He has a MBA obtained from the Oxford Commercial College, a joint program operated by Oxford University in China.

Mr Delong Qiu is currently an executive chairman of Shanghai Yizhao Investment Group Co. Ltd, Tianjin Yizhao Investment Group Co. Ltd, Panda Investment LLC in U.S.A. Since 2007 Mr Delong Qiu has successfully invested in a range of projects and companies with exploration and mining assets throughout China, including those with exposure to copper, gold, coal and iron ore.

Additional background information on Delong Qiu and Cape Lambert is set out in the Independent Expert’s Report.

(b) The maximum extent of the increase in the person’s voting power in the Company that would result from the acquisition:

The current voting power in Qiu and their associates is 5.61%.

Schedule 1 sets out the potential maximum increase in the voting power of Qiu and Dempsey Resources.

The maximum extent of the increase in Qiu’s voting power that would result from the issue of Shares on conversion by Qiu of the Qiu Convertible Notes will be from 5.61% to 28.88%. This assumes Qiu converts the Qiu Convertible Notes but no other holder of Convertible Notes convert their convertible notes.

If Qiu and Dempsey Resources converted their Convertible Notes, but the remaining holders of the Convertible Notes did not convert their Convertible Notes, Qiu would hold 25.00% of the Company.

If all holders of the Convertible Notes converted their Convertible Notes, Qiu would hold 36,900,000 Shares, representing 23.79% of the Company.

As set out in Schedule 1 and paragraph (ii) above, the voting power Qiu would hold as a result of the issue of Shares on conversion of all of the Qiu Convertible Notes would be:

(i) 28.88% assuming no other Convertible Notes are converted into Shares;
(ii) 25.00% assuming only Qiu and Dempsey Resources convert their Convertible Notes into Shares; and
(iii) 23.79% assuming all Convertible Notes are converted into Shares.
(d) The maximum extent of the increase in the voting power of each of that person’s associates that would result from the acquisition:

Refer paragraph (b) above. The voting power of each nominee of Qiu will be the same as the voting power of Qiu.

(e) The voting power that each of that person’s associates would have as a result of the acquisition:

Refer paragraph (c) above. The voting power of each nominee of Qiu will be the same as the voting power of Qiu.

Statements by Messrs Delong Qiu and Dekang Qiu

Messrs Derong Qiu and Dekang Qiu have informed the Company that, as at the date of this Notice of Meeting and on the basis of the facts and information available to it, if Shareholders approve Resolution 3 that they and their associates:

(i) have no intention to change the business of the Company;
(ii) do not have any intention to inject further capital into the Company;
(iii) have no intentions regarding the future employment of the present employees of the Company;
(iv) do not intend to transfer any property between the Company and Qiu or any person associated with him;
(v) do not intend to redeploy any fixed assets of the Company;

(vi) have no intention to change the financial matters or dividend policies of the Company; and

(vii) have no intention to change the composition of the Board.

4.5 Recommendations of Directors

Mr Qiu is a Director of the Company and therefore he declines to make a recommendation to Shareholders regarding this resolution.

Based on the information available, including that contained in this Explanatory Statement and the Independent Expert’s Report, the remaining Directors consider that approval for the variation of the conversion prices of the Qiu Convertible Notes and the issue of Shares upon conversion of the Qiu Convertible Notes, is in the best interests of Company particularly in light of the obligation to repay the Qiu Convertible Notes totalling $6,300,000 by 31 July 2012 if approval is not obtained or if the Qiu Convertible Notes are not converted in accordance with their terms.

Each of the Directors approved the proposal to put Resolution 3 to Shareholders and each of the Directors recommend that Shareholders vote in favour of Resolution 3.

4.6 Role of the Independent Expert

The Company has commissioned Stantons International Securities to provide the Independent Expert’s Report for the purposes of Shareholder approval pursuant to Item 7 of Section 611 of the Corporations Act. The Independent Expert’s Report assesses whether the proposal outlined in this Explanatory Statement is fair and reasonable to the Shareholders who are not associated with Qiu. The Independent Expert’s Report also contains an assessment of the advantages and disadvantages of the proposal described in Section 1 of this Explanatory Statement. This assessment is designed to assist all Shareholders in reaching their voting decision in relation to the Resolution contained within this Notice of Meeting.

Stantons International Securities has prepared the Independent Expert’s Report and has provided an opinion that it believes the approval to convert the Qiu Convertible Note into Shares is fair and reasonable to the Shareholders of the Company not associated with Qiu.

The Directors recommend that all Shareholders read the Independent Expert’s Report in full.

5. ENQUIRIES

Shareholders are requested to contact Claire Tolcon on (+ 61 8) 9380 9555 if they have any queries in respect of the matters set out in these documents.

GLOSSARY

$ means Australian dollars .

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.

Cape Lambert means Cape Lambert Resources Limited (ACN 095 047 920).

Company means Cauldron Energy Limited (ACN 102 912 783).

Constitution means the Company’s current constitution.

Convertible Notes means the Dempsey Convertible Notes, Qiu Convertible Notes and the Remaining Convertible Notes.

Corporations Act means the Corporations Act 2001 (Cth).

Dempsey Convertible Notes means the convertible notes held by Dempsey Resources having a face value totalling $3,500,000 as summarised in Schedule 2.

Dempsey Resources means Dempsey Resources Pty Ltd (ACN 100 305 486).

Directors mean 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 Stantons International Securities.

Independent Expert’s Report means the report prepared by the Independent Expert annexed to this Notice of Meeting.

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

Proxy Form means the proxy form accompanying the Notice.

Qiu means Messrs Derong Qiu and Dekang Qiu.

Qiu Convertible Notes means the convertible notes having a face value totalling $6,300,000 issued by the Company to Messrs Derong Qiu and Dekang Qiu on the terms summarised in Schedule 3.

Remaining Convertible Notes means the convertible notes having a face value totalling $1,500,000 issued by the Company on the terms summarised in Schedule 4.

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.

WST means Western Standard Time as observed in Perth, Western Australia.

SCHEDULE 1 – VOTING POWER OF DEMPSEY RESOURCES AND QIU

Voting Power by Dempsey Resources assuming no other Convertible Notes are converted

No. of Shares held by Dempsey Resources and associates as at the date of this Notice of Meeting	No. of Shares on issue as at the date of this Notice of Meeting	Voting power of Dempsey Resources as at the date of this Notice of Meeting	No. of Shares issued on conversion of Dempsey Resources Convertible Notes (and interest accrued)	No. of Shares held by Dempsey Resources upon issue of Shares on conversion of Convertible Notes	No. of Shares on issue on conversion of Convertible Notes	Voting power of Dempsey Resources upon issue of Shares on conversion of Convertible Notes and no Other Convertible Notes issued
17,709,597	96,280,029	18.39%	19,829,452	37,539,049	116,109,481	32.33%

Voting Power by Qiu assuming no other Convertible Notes are converted

No. of Shares held by Qiu as at the date of this Notice of Meeting	No. of Shares on issue as at the date of this Notice of Meeting	Voting power of Qiu as at the date of this Notice of Meeting	No. of Shares issued on conversion of Qiu Convertible Notes	No. of Shares held by Qiu upon issue of Shares on conversion of Convertible Notes	No. of Shares on issue on conversion of Convertible Notes	Voting power of Qiu upon issue of Shares on conversion of Convertible Notes and no Other Convertible Notes issued
5,400,000	96,280,029	5.61%	31,500,000	36,900,000	127,780,029	28.88%

Assuming Dempsey Convertible Notes and Qiu Convertible Notes are both converted

	No. of Shares as at the date of this Notice of Meeting	Voting power as at the date of this Notice of Meeting	No. of Shares issued on conversion of all Convertible Notes (and accrued interest for Dempsey Convertible Note)	Total No. of Shares held by Parties	Voting power of Parties upon issue of Shares on conversion of Convertible Notes
Dempsey Resources	17,709,597	18.39%	19,829,452	37,539,049	25.43%
Qiu	5,400,000	5.61%	31,500,000	36,900,000	25.00%
TOTAL	23,109,597	24%	51,329,452	74,439,049	50.43%

Assuming all Converted Notes are converted

	No. of Shares as at the date of this Notice of Meeting	Voting power as at the date of this Notice of Meeting	No. of Shares issued on conversion of all Convertible Notes (and accrued interest for Dempsey Convertible Note)	Total No. of Shares held by Parties	Voting power of Parties upon issue of Shares on conversion of Convertible Notes
Dempsey Resources	17,709,597	18.39%	19,829,452	37,539,049	24.20%
Qiu	5,400,000	5.61%	31,500,000	36,900,000	23.79%
Remaining Convertible Note Holders	01		7,500,000	7,500,000	4.84%
Others	78,570,432	76.56%	0	78,570,432	47.17%
TOTAL	96,280,029	100%	58,829,452	155,109,481	100%

Assumes that the holders of the Remaining Convertible Notes does not hold any Shares in the Company.
Assumes no further issue of Shares or conversion of Options

SCHEDULE 2 – DEMPSEY CONVERTIBLE NOTES

A summary of the material terms and conditions of the Dempsey Convertible Notes is as follows:

Initial Convertible Note

(a) ( Issue of Convertible Notes ): Dempsey Resources was issued with a convertible note from the Company having a face value of $1,500,000.
(b) ( Transfer ): The holder of the Convertible Notes may not transfer, assign or otherwise dispose of or encumber any interest in the Convertible Notes without the prior written consent of the Company.
(c) ( Interest ): The Company must pay interest at 10% on the outstanding principal which is paid quarterly in arrears. The holder of the Convertible Note may elect to receive an interest payment in Shares with a deemed issue price per Share equal to the VWAP of the Shares trading on ASX over the last 20 days preceding the interest payment date, less a discount of 15%.
(d) ( Repayment ): The Company must pay the outstanding principal in respect of the Convertible Notes to the noteholder on 31 July 2012 ( Repayment Date ).
(e) ( Conversion by the Noteholder before the Repayment Date ): Subject to receipt of Shareholder approval, Dempsey Resources may, by giving notice of the conversion date to the noteholder (provided the conversion date is prior to the Repayment Date), convert all or any of the outstanding Convertible Note into Shares. The number of Shares to be issued to the noteholder will be determined by dividing the outstanding amount of the Convertible Notes to be converted by a deemed issue price per share equal to the lower of:
(i) $0.50; and
(ii) the VWAP over the 20 trading days preceding conversion less 15% discount, with a minimum of $0.425.
(f) ( Ranking of Shares ): Shares issued on conversion of part or all of the Convertible Note shall rank equally with the existing Shares on issue and the Company will promptly apply for quotation of those Shares on ASX.
(g) ( Warranties ): The Company provides representations and warranties and undertakings to Dempsey Resources which are considered standard for an agreement of this nature.
(h) ( Other provisions ): The Dempsey Convertible Note contains other provisions which are considered standard for an agreement of this nature.

Second Convertible Note

(a) ( Issue of Convertible Notes ): Dempsey Resources was issued with a convertible note from the Company having a face value of $2,000,000.
(b) ( Transfer ): The holder of the Convertible Note may not transfer, assign or otherwise dispose of or encumber any interest in the Convertible Note without the prior written consent of the Company.

(c) ( Interest ): The Company must pay interest at 10% on the outstanding principal payable quarterly in arrears. The holder of the Convertible Note may elect to receive the accumulated interest in Shares at a deemed issue price per Share equal to the conversion price of the Convertible Note (as detailed in clause (e);
(d) ( Repayment ): The Company must pay the outstanding principal in respect of the Convertible Note to the noteholder on 31 July 2012 ( Repayment Date ).
(e) ( Conversion by the Noteholder before the Repayment Date ): Subject to receipt of Shareholder approval, Dempsey Resources may, by giving notice of the conversion date to the noteholder (provided the conversion date is prior to the Repayment Date), convert all or any of the outstanding Convertible Note into Shares. The number of Shares to be issued to the noteholder will be determined by dividing the outstanding amount of the Convertible Notes to be converted by a deemed issue price per share equal to the VWAP over the 5 trading days before conversion less a 20% discount.
(f) ( Ranking of Shares ): Shares issued on conversion of part or all of the Convertible Note shall rank equally with the existing Shares on issue and the Company will promptly apply for quotation of those Shares on ASX.
(g) ( Warranties ): The Company provides representations and warranties and undertakings to Dempsey Resources which are considered standard for an agreement of this nature.
(h) ( Other provisions ): The Dempsey Convertible Note contains other provisions which are considered standard for an agreement of this nature.

SCHEDULE 3 – QIU CONVERTIBLE NOTES

A summary of the material terms and conditions of the Qiu Convertible Notes is as follows:

(a) ( Issue of Convertible Notes ): Qiu was issued with a convertible note from the Company with a face value of $6,300,000.
(b) ( Transfer ): The holder of the Convertible Notes may not transfer, assign or otherwise dispose of or encumber any interest in the Convertible Notes without the prior written consent of the Company.
(c) ( Interest ): The Company must pay interest at 10% on the outstanding principal which is paid quarterly in arrears. The holder of the Convertible Note may elect to receive an interest payment in Shares with a deemed issue price per Share equal to the VWAP of the Shares trading on ASX over the last 20 days preceding the interest payment date, less a discount of 15%. The holder has not elected to take the interest payment in Shares.
(d) ( Repayment ): The Company must pay the outstanding principal in respect of the Convertible Notes to the noteholder on 31 July 2012 ( Repayment Date ).
(e) ( Conversion by the Noteholder before the Repayment Date ): Subject to receipt of Shareholder approval, Qiu may, by giving notice of the conversion date to the noteholder (provided the conversion date is prior to the Repayment Date), convert all or any of the outstanding Convertible Note into Shares. The number of Shares to be issued to the noteholder will be determined by dividing the outstanding amount of the Convertible Notes to be converted by a deemed issue price per share of equal to the lower of:
(i) $0.50; and
(ii) the VWAP over the 20 trading days preceding conversion less 15% discount, with a minimum of $0.425.
(f) ( Ranking of Shares ): Shares issued on conversion of part or all of the Convertible Note shall rank equally with the existing Shares on issue and the Company will promptly apply for quotation of those Shares on ASX.
(g) ( Warranties ): The Company provides representations and warranties and undertakings to Qiu which is considered standard for an agreement of this nature.
(h) ( Other provisions ): The Qiu Convertible Note contains other provisions which are considered standard for an agreement of this nature.

SCHEDULE 4 – REMAINING CONVERTIBLE NOTES

A summary of the material terms and conditions of the Remaining Convertible Notes (as varied) is as follows:

(a) ( Issue of Convertible Notes ): The holders were issued with convertible notes from the Company having a face value totalling $1,500,000.
(b) ( Transfer ): The holder of the Convertible Notes may not transfer, assign or otherwise dispose of or encumber any interest in the Convertible Notes without the prior written consent of the Company.
(c) ( Interest ): The Company must pay interest at 10% on the outstanding principal which is paid quarterly in arrears. The holder of the Convertible Note may elect to receive an interest payment in Shares with a deemed issue price per Share equal to the VWAP of the Shares trading on ASX over the last 20 days preceding the interest payment date, less a discount of 15%. The holder has not elected to take the interest payment in Shares.
(d) ( Repayment ): The Company must pay the outstanding principal in respect of the Convertible Notes to the noteholder on 31 July 2012 ( Repayment Date ).
(e) ( Conversion by the Noteholder before the Repayment Date ): Subject to receipt of Shareholder approval, the holders may, by giving notice of the conversion date to the noteholder (provided the conversion date is prior to the Repayment Date), convert all or any of the outstanding Convertible Note into Shares. The number of Shares to be issued to the noteholder will be determined by dividing the outstanding amount of the Convertible Notes to be converted by a deemed issue price per share equal to the lower of:
(i) $0.50; and
(ii) the VWAP over the 20 trading days preceding conversion less 15% discount, with a minimum of $0.425.
(f) ( Ranking of Shares ): Shares issued on conversion of part or all of the Convertible Note shall rank equally with the existing Shares on issue and the Company will promptly apply for quotation of those Shares on ASX.
(g) ( Warranties ): The Company provides representations and warranties and undertakings to the holders which are considered standard for an agreement of this nature.
(h) ( Other provisions ): The Remaining Convertible Note contains other provisions which are considered standard for an agreement of this nature.

PO Box 1908 West Perth WA 6872 Australia

Level 2, 1 Walker Avenue West Perth WA 6005 Australia

Tel: +61 8 9481 3188 Fax: +61 8 9321 1204

13 April 2012

ABN: 41 103 088 697 AFS Licence No: 319600 www.stantons.com.au

The Directors Cauldron Energy Limited 32 Harrogate Street LEEDERVILLE WA 6007

Dear Sirs,

RE: CAULDRON ENERGY LIMITED (ABN 22 102 912 783) MEETING OF SHAREHOLDERS TO CONSIDER A RESOLUTION UNDER SECTION 611 (ITEM 7) OF THE CORPORATIONS ACT 2001 (“TCA”) AND ASX LISTING RULE 7.1 RELATING TO THE PROPOSAL TO ALLOW THE CONVERSION INTO SHARES OF CONVERTIBLE NOTE LOANS TOTALLING $3,500,000 PLUS ACCRUED INTEREST OWED TO DEMPSEY RESOURCES PTY LTD (“DEMPSEY”) AND TO CONSIDER A RESOLUTION UNDER SECTION 611 (ITEM 7) OF TCA AND ASX LISTING RULE 10.11 RELATING TO THE PROPOSAL TO ALLOW THE CONVERSION INTO SHARES OF CONVERTIBLE NOTE LOANS TOTALLING $6,300,000 OWED TO QIU DERONG (A DIERCTOR OF CAULDRON) AND MEDKANG QIU

1. INTRODUCTION

1.1 We have been requested by the directors of Cauldron Energy Limited (“Cauldron” or “the Company”) to prepare an Independent Expert’s Report to determine the fairness and reasonableness of the proposals referred to in Resolutions 2 and 3 as detailed in the Notice of Meeting to Cauldron Shareholders (“the Notice”) to be issued to shareholders in April 2012 for a shareholders meeting to be held in May 2012. As at 12 April 2012, there are convertible notes (“Notes”) totalling $11,300,000 owing to various note holders with a due date for redemption of 31 July 2012. The current conversion terms to the extent of $9,300,000 of the Notes are at the lower of 50 cents and the volume weighted average share price (“VWAP”) of Cauldron shares over the last 20 days immediately preceding the issue of a conversion notice , discounted by 15%, subject to a minimum of 42.5 cents. $2,000,000 of the Notes (owed to Dempsey) are convertible at the VWAP of Cauldron shares over the last 5 days immediately preceding the issue of a conversion notice, discounted by 20%. It is proposed (Resolution 1 refers) to alter the conversion terms so that all of the Notes may be converted on or before expiry (31 July 2012) at 20 cents per share. We are not specifically reporting on the changed terms of conversion but do note it when reporting on the fairness and reasonableness of Resolutions 2 and 3 as noted below.
1.2 Resolution 2 relates to the Company seeking approval that the existing $3,500,000 convertible notes (plus accrued interest to 31 July 2012) (“Dempsey Notes”) owing to Dempsey may be repaid by the issue of up to 19,829,452 shares in Cauldron at 20 cents each. Dempsey who is a wholly owned subsidiary of Cape Lambert Resources Limited (“Cape Lambert”), an ASX listed company. Cape Lambert and Dempsey are substantial shareholders in Cauldron as noted below. For the purposes of this report, the Dempsey Notes balance convertible into ordinary shares in Cauldron includes the principal amount of $3,500,000 as well as the additional accrued interest of approximately $465,890 up to 31 July 2012. Thus $3,965,890 may be converted into up to 19,829,452 Cauldron shares (ordinary shares in Cauldron) following shareholder approval. The number of Cauldron shares that may be issued to Dempsey may be less, if Dempsey elects to convert after shareholder approval but before 31 July 2012.

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Liability limited by a scheme approved under Professional Standards Legislation

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1.3 In addition, Resolution 3 relates to the Company seeking approval that the existing $6,300,000 convertible notes (interest is not accrued as it is paid quarterly) (“Qiu Notes”) owing to Derong Qiu and Medkang Qiu (collectively known as Qiu). Mr Derong Qiu is a director of Cauldron. Qiu may be repaid by the issue of up to 31,500,000 shares in Cauldron at 20 cents each. Qiu has an interest in 5,400,000 shares in Cauldron so if all Qiu Notes are converted at 20 cents each, Qiu’s relevant shareholding interest in Cauldron would increase (see details below).
1.4 The remaining Note Holders (holding Notes with a principal face value totalling $1,500,000) (“Remaining Notes”) will also have the opportunity to convert to share equity at 20 cents per share.
1.5 Conversion is to take place when the holder of the Notes, hands in formal notices (“conversion notices”) to Cauldron requesting the conversion of the Notes into ordinary shares in Cauldron (the “conversion date). Cape Lambert’s relevant shareholding (as at 10 April 2012) is 17,709,597 Cauldron ordinary shares (of which 15,333,333 shares in Cauldron are held in the name of Cape Lambert’s wholly owned subsidiary, Dempsey) (refer to paragraph 3.1 of this report) representing a combined approximate 18.39% shareholding interest in Cauldron. For the purposes of this report Cape Lambert and Dempsey are known as the Cape Lambert Group. The conversion price of 20 cents per share would entitle the Cape Lambert Group to increase its shareholding in Cauldron to up to 37,539,049 shares if conversion was on 31 July 2012. Thus the Cape Lambert Group is entitled to increase its beneficial shareholding by up to approximately 7.04% to a total potential holding of 37,539,049 ordinary shares in Cauldron which represents approximately 25.43% of ordinary shares of Cauldron after assuming that only the Dempsey Notes and the Qiu Notes are converted on 31 July 2012 and assuming no other share issues. In the unlikely event that only the Dempsey Notes were converted to Cauldron Shares, the Cape Lambert Group’s shareholding could approximate 32.33%. The percentage interest may be lower, if the Dempsey Notes were converted prior to 31 July 2012 and if the Remaining Notes were also converted to ordinary shares in Cauldron.
1.6 Under Paragraph 606 of TCA, a person must not acquire a relevant interest in issued voting shares in a company if because of the transaction, that persons’ 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%.

Under Section 611 (Item 7) of TCA, Section 606 does not apply in relation to any acquisition of shares in a company by resolution passed at a general meeting at which no votes were cast in favour of the resolution by the acquirer or the disposer or their respective associates. An independent expert is required to report on the fairness and reasonableness of the transactions noted in Resolutions 2 and 3 pursuant to a Section 611 (Item 7) meeting.

1.7 Mr Antony Sage is a director of Cauldron and is a director of and substantial shareholder in Cape Lambert and the Cape Lambert Group is a substantial shareholder in Cauldron. However, Mr Sage does not control Dempsey or Cape Lambert and therefore the Cape Lambert Group is not considered a related party of Cauldron. Shareholder approval pursuant to ASX Listing Rule 7.1 will be required for the conversion of the Dempsey Notes. Furthermore, as Derong Qiu is a director of Cauldron, Qiu is deemed a related party of Cauldron and thus shareholders approval for the Qiu Notes conversion proposal also requires shareholders approval under Section 208 of TCA and ASX Listing Rule 10.11. Qiu has a relevant interest in 5,400,000 Cauldron shares and the interests of Qiu could increase to 36,900,000 shares representing approximately 25.00% of the expanded issued capital of Cauldron if only the Dempsey Notes and Qiu Notes were converted to ordinary shares in

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Cauldron on 31 July 2012 This percentage interest is increased to approximately 28.88% in the unlikely event that only the Qiu Notes were converted. The percentage interest may be lower, if the Dempsey Notes were converted prior to 31 July 2012 and the Remaining Notes were also converted to ordinary shares in Cauldron.

1.8 Under ASIC Regulatory Guideline 111 “Contents of Expert Reports” an Independent Expert’s Report is required to report on the fairness and reasonableness of the transactions pursuant to Resolutions 2 and 3. The Cauldron directors have requested Stantons International Securities to prepare an Independent Expert’s Report to assist the shareholders in determining how to vote on Resolutions 2 and 3 as outlined in the Notice and the Explanatory Statement to Shareholders (“ESS”).
1.9 Apart from this introduction, the report considers the following:
Summary of opinion
Implications of the proposals
Future directions of Cauldron
Basis of valuation of Cauldron shares
Premium for control
Fairness and Reasonableness of the Proposals pursuant to Resolutions 2 and 3
Conclusion as to Fairness and Reasonableness
Sources of information
Appendix A and our Financial Services Guide

2. SUMMARY OF OPINIONS

2.1 In determining the fairness and reasonableness of the transactions and proposals pursuant to Resolutions 2 and 3, we have had regard for the definitions set out by the Australian Securities and Investments Commission (“ASIC”) in its Regulatory Statement 111. Regulatory Statement 111 states that an opinion as to whether an offer is fair and/or reasonable shall entail a comparison between the offer price and the value that may be attributed to the securities under offer (fairness) and an examination to determine whether there is justification for the offer price on objective grounds after reference to that value (reasonableness). The concept of “fairness” is taken to be the value of the offer price, or the consideration, being equal to or greater than the value of the securities in the above mentioned offer. Furthermore, this comparison should be made assuming 100% ownership of the “target” and irrespective of whether the consideration is scrip or cash. An offer is “reasonable” if it is fair. An offer may also be reasonable, if despite not being ”fair”, where there are sufficient grounds for security holders to accept the offer in the absence of any higher bid before the close of the offer. Regulatory Statement 111 also states that in all cases, where an acquisition of shares by way of an allotment is to be approved by shareholders pursuant to Section 611 (Item 7) of TCA, a report by an independent expert stating whether or not the proposals pursuant to resolution are fair and reasonable, having regard to the interests of shareholders other than the proposed allottees (in this case, the Cape Lambert Group and/or Qiu) and whether a premium for potential control is being paid by the allottees, will be required. Regulatory Statement 111 also provides that such an allotment should involve a comparison of the advantages and disadvantages likely to accrue to nonassociated shareholders if the transaction proceeds compared with if it does not. Although the proposals with the Cape Lambert Group and Qiu are not in relation to a takeover offer, we have noted the above matters and definitions for readers to have an understanding of fairness and reasonableness referred to in this report.

Accordingly, our report relating to Resolutions 2 and 3 is concerned firstly with the fairness and reasonableness of the proposal from the point of view of the existing non associated shareholders of Cauldron, and secondly whether the price payable for the potential to obtain

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an increased significant shareholding interest (by the Cape Lambert Group and/or Qiu) includes premiums for potential control.

2.2 In our opinion:

The proposal as outlined in Resolution 2 whereby Cauldron will allow Dempsey to convert the Dempsey Notes to up to 19,829,452 ordinary shares at 20 cents per share is, on balance, fair and reasonable to the non-associated shareholders of Cauldron.

The proposal as outlined in Resolution 3 whereby Cauldron will allow Qiu to convert the Qiu Notes to up to 31,500,000 ordinary shares at 20 cents per share is, on balance, fair and reasonable to the non-associated shareholders of Cauldron.

Notwithstanding that the Cauldron share price as at 5 April 2012 is less than the conversion price each shareholder needs to examine the share price of Cauldron and market conditions at the time of exercise of vote to ascertain the impact, if any, on Resolution 2 and 3.

The opinions expressed above must be read in conjunction with the more detailed analysis and comments made in this report.

3. IMPLICATIONS OF THE PROPOSALS

3.1 As at 12 April 2012, there are 96,280,029 fully paid ordinary shares on issue in Cauldron. The significant shareholders as at 4 April 2012 are disclosed as:

Name of Shareholder Cape Lambert Group Derong Qiu and Dekang Qiu Kouta Bay Pty Ltd Okewood Pty Ltd		No. of Shares 17,709,597 5,400,000 4,321,967 3,000,000	% Interest 18.39 5.61 4.49 3.11
		30,431,564	31.04

3.2 The top twenty shareholders as at 4 April 2012 hold approximately 50.42% of the current issued capital.
3.3 On conversion of the Dempsey Notes and the Qiu Notes by way of the issue of up to 51,329,452 Cauldron shares (19,829,452 to Dempsey and 31,500,000 to Qiu), the Cape Lambert Group’s relevant shareholding interest will be up to 37,539,049 shares representing approximately 25.43% of the expanded issued capital of Cauldron (assuming only Dempsey and Qiu convert the Dempsey and Qiu Notes). In the unlikely event that only the Dempsey Notes were converted to Cauldron Shares, the Cape Lambert Group’s shareholding could approximate 32.33%. In the event that all Notes were converted to Cauldron shares, the Cape Lambert Group could hold approximately 24.20% of the expanded issued capital of Cauldron.

Qiu has a relevant interest in 5,400,000 Cauldron shares and the interests of Qiu (which would include SWIG) could increase to 36,900,000 shares representing approximately 25% of the expanded issued capital of Cauldron if only the Dempsey Notes and Qiu Notes were converted to ordinary shares in Cauldron on 31 July 2012 This percentage interest would increase to approximately 28.88% in the unlikely event that only the Qiu Notes were converted. The percentage interest may be lower, if the Dempsey Notes were converted prior to 31 July 2012. In the event that all Notes were converted to Cauldron shares, Qiu could own approximately 23.79% of the expanded issued capital of Cauldron.

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3.4 The listed share options currently on issue are 12,866,462 share options exercisable at 45 cents on or before 31 October 2012. The unlisted share options on issue are 600,000 options issued exercisable at 45 cents per share on or before 20 October 2015.
3.5 In addition, there are Remaining Notes owing to various other Note holders totalling $1,500,000. These Remaining Notes are repayable in cash on 31 July 2012 but may at the option of the Remaining Note holders be converted to ordinary shares in Cauldron at the lower of 50 cents and the volume weighted average share price (“VWAP”) of Cauldron shares over the last 20 days immediately preceding the issue of a conversion notice, discounted by 15%, subject to a minimum of 42.5 cents. It is proposed that such Remaining Notes will also be varied such that they can be converted to ordinary shares in Cauldron at 20 cents each after the passing of Resolution 1 in the Notice. The Remaining Notes also incur interest at the rate of 10% per annum.
3.6 If the Notes are converted the number of shares on issue may be:

On issue as at 10 April 2012 Issue of shares to Dempsey on conversion of the Dempsey Notes Issue of shares to Qiu on conversion of the Qiu Notes Issue of shares to Remaining Note holders on conversion of the Remaining Notes Potential total shares on issue post Notes conversion	No of shares No of shares held by the Cape Lambert Group 96,280,029 17,709,597 19,829,452 19,829,452
	116,109,481 37,539,049
	31,500,000 -
	147,609,481 37,539,049 7,500,000 -
	155,109,841 37,539,049

3.7 In relation to the Board of Directors control, the current directors are Messrs Antony Sage, Brett Smith and Qiu Derong. Claire Tolcon is the Company Secretary. It is not planned in the near future to change the Board of Directors but this may change as needs arise.
3.8 The Company’s debts may be reduced by up to $11,765,890 being the principal portion of the Notes of $11,300,000 and $465,890 accrued interest to 31 July 2012. In the event that only Dempsey and Qiu convert their Notes, the Company’s principal debts reduce by $10,265,890 (including $465,890 of accrued interest to Dempsey).

4. FUTURE DIRECTION OF CAULDRON

4.1 We have been advised by a director of Cauldron that:
The immediate short-term plan is to use the existing funds and raise further funds to continue exploration of the Company’s interest in various uranium and base metal projects in Australia and Argentina;
Composition of the Board of Directors of Cauldron is not proposed to change in the near future;
No dividend policy has been set and is not proposed to be set until such time as the Company is profitable and has a positive cash flow; and

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The Company is likely to raise further capital as and when required to continue to develop the Company’s uranium and base metal assets. As noted above, the Company has Remaining Notes outstanding of $1,500,000 and the Company may need to raise further funds to repay such Remaining Notes in the event that the Remaining Notes are not converted to Cauldron shares and in the event that funds are low as a result of exploration and administration activities. In the event that the Cape Lambert Group or Qiu elect not to convert their Notes into ordinary shares in Cauldron, the Company will not have sufficient cash reserves to make the required repayments unless a capital raising is carried out or assets are disposed of.

5. BASIS OF TECHNICAL VALUATION OF CAULDRON SHARES

5.1 In considering the proposal as outlined in Resolutions 2 and 3 we have sought to determine if the conversion price of the Dempsey Notes and Qiu Notes into ordinary Cauldron shares (at 20 cents per ordinary share) is in excess of the current fair value of the Cauldron shares on issue and then conclude whether the proposals are fair and reasonable to the existing nonassociated shareholders of Cauldron (not associated with the Cape Lambert Group and Qiu).
5.1.2 The proposals pursuant to Resolutions 2 and 3 would be fair to the existing non associated shareholders if the conversion price of the Dempsey Notes and Qiu Notes owing by Cauldron to Dempsey and Qiu into ordinary Cauldron shares is greater than or equal to the implicit value of the Cauldron shares currently on issue. Accordingly, we have sought to determine a theoretical value that could reasonably be placed on Cauldron shares for the purposes of this report.
5.1.3 The valuation methodologies we have considered in determining the current technical value of a Cauldron share are:
Capitalised maintainable earnings/discounted cash flow;
Takeover bid - the price which an alternative acquirer might be willing to offer;
Adjusted net asset backing and windup value; and
The share market value price of Cauldron shares.
5.2 Capitalised Maintainable Earnings / Discounted Cash Flows
5.2.1 Cauldron currently does not have a reliable cash flow or profit history from a business undertaking and therefore this methodology is not appropriate. The Company needs funds to further progress the programmes on the uranium projects. It is likely too early to use a discounted cash flow model as proven and probable economic reserves are yet to be accurately determined. Currently, Cauldron does not have sufficient funds and thus any perceived technical values of any of the uranium assets of Cauldron are theoretical as without funds the uranium projects cannot be progressed.

5.3 Takeover Bid

We have been advised by a director of Cauldron that the directors do not believe that there would be any person with an interest in taking over 100% of the Company by way of a formal takeover bid. To our knowledge, there are no current bids in the market place and the directors of Cauldron and ourselves have formed the view that there is unlikely to be any takeover bids made for Cauldron in the immediate future. It is noted however that the holding of the Cape Lambert Group is approximately 18.39% and could rise to approximately 32.33% if shares are issued to Dempsey on conversion of the Dempsey Notes only. Qiu could hold up to approximately 25% if only the Qiu Notes were converted to ordinary shares in Cauldron.

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5.4 Net Asset Backing and Wind-Up Value

5.4.1 A summary of the unaudited consolidated statement of financial position of Cauldron as at 31 December 2011 is set out below after making the following adjustments:
estimated operating costs post 31 December 2011 to 31 July 2012 of approximately $410,000;
exploration costs of approximately $878,000;
interest of $634,000 on the Notes of which $179,000 is capitalised to the Dempsey Note liability;
recognising fair value gains of $349,000 on investments in listed securities (based on market values as at 5 April 2012; and
impairing the investment in associate by $520,000 to reflect market value as at 5 April 2012.

In addition, summarised below is an un-audited pro-forma consolidated statement of financial position which is based on the adjusted consolidated statement of financial position after allowing for the following:

the conversion of the Notes at 20 cents each to eliminate $11,765,890 liability (incorporating the accretion of interest on the Dempsey Notes to 31 July 2012) and the issue of 19,829,452 ordinary shares in Cauldron to Dempsey, 31,500,000 ordinary shares to Qiu and 7,500,000 shares to the Remaining Note holders.

Current assets Cash at bank Trade and other receivables Financial assets Non-current assets Receivables Restricted cash Plant and equipment Deferred capitalised expenditure Investment in associate Total assets Current liabilities Trade and other payables Provisions Borrowings- Notes Total liabilities Net Assets	Unaudited 31 December 2011 as adjusted $000’s Unaudited 31 December 2011 Pro-Forma $000’s 2,446 2,446 200 200 1,416 1,416
	4,062 4,062
	777 777 221 221 54 54 10,128 10,128 1,560 1,560
	12,740 12,740
	16,802 16,802
	312 312 28 28 11,766 -
	12,106 340
	12,106 340

	4,696 16,462

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Equity Issued capital Reserves Accumulated losses Net Equity	23,594 35,360 1,464 1,464 (20,362) (20,362)
	4,696 16,462

In the event that the Cape Lambert Group or Qiu elect not to convert their Notes into ordinary shares in Cauldron, the Company will not have sufficient cash reserves to make the required repayments unless a capital raising is carried out or assets are disposed of. In the event that only the Remaining Note holders were paid out in cash, the cash reserves would be reduced by $1,500,000 and the issued capital would also be reduced by $1,500,000.

5.4.2 Based on the adjusted book values at 31 December 2011 as adjusted this equates to a value per issued share (96,280,029 shares on issue) of approximately 4.87 cents (ignoring the value, if any, of non-booked tax benefits).
5.4.3 Based on the pro-forma consolidated statement of financial position, after the conversion of the Notes by Dempsey and Qiu into ordinary shares, the net book value totals approximately $14,962,000 or approximately 10.14 cents per issued share 147,609,481 shares on issue).

5.5 Market Price of Cauldron Shares

5.5.1 We set out below a summary of share prices of Cauldron from 1 July 2011 to 5 April 2012:

	High Last	Low Last Sale	Last Sale	Volumes
	Sale Cents	Cents	Cents	Trade
				(000’s)
July 2011	13.0	10.5	11.5	986
August 2011	14.0	10.5	12.0	1,204
September 2011	17.0	9.6	10.0	1,450
October 2011	10.5	9.0	10.5	537
November 2011	11.0	9.6	10.0	771
December 2011	10.5	9.6	10.5	2,733
January 2012	15.0	9.8	15.0	698
February 2012	20.0	13.0	19.5	3,822
March 2012	22.5	16.5	19.5	2,099
April 2012 (to 5th)	19.5	17.0	17.0	150

5.5.2 The share price has oscillated over the past six months between 9.6 cents and 22.5 cents. The last sale price on 5 April 2011 was 17.0 cents. The shares retreated in price from the low 30’s to trade in the low to mid 20’s post the Japanese earthquake and issues surrounding the energy plant(s) fuelled by uranium material in March 2011. Since April 2011 to January 2012 the share price traded mainly in the low 10’s but have increased in price from around mid February 2012 to trade in the high 10’s and occasionally above 20 cents. There were no major announcements made since mid February 2012 and the price rise may be due to a renewed interest by the market in uranium stocks (approximately 12 months after the Fukishima nuclear disaster in Japan).
5.5.3 No independent valuations have been prepared on the mineral prospects of Cauldron and we do not consider it necessary to obtain an independent valuation of the mineral prospects (mainly uranium) for the purposes of this report. We note that the market has been informed of all of the current projects, joint ventures and farm in/farm out arrangements entered into between Cauldron and other parties. We also note it is not the present intention of the directors of Cauldron to liquidate the Company and therefore any theoretical value based

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upon wind up value or even net book values (as adjusted), is just that, theoretical. The shareholders, existing and future, must acquire shares in Cauldron based on the market perceptions of what the market considers a Cauldron share to be worth. The market has either generally valued the vast majority of junior/mid size mineral exploration and development companies at significant discounts or premiums to appraised technical values and this has been the case for a number of years although we also note that there is an orderly market for Cauldron shares and the market is kept fully informed of the activities of the Company. The market capitalisation of Cauldron as at 5 April 2012 was approximately $16,376,000 million based on a share price of 17.0 cents. Cauldron’s market capitalisation is greater than the net equity position of around $4,696,000 as at 31 December 2011 (as adjusted) before adjusting for the shares issued to convert the Dempsey and Qiu Notes into ordinary shares. Dempsey and Qiu have yet to notify Cauldron of their intention to convert their unsecured Notes but we have been advised that following the approval of Resolutions 2 and 3 in the Notice it is planned that conversion notices will be issued.

5.6 Preferred value of Cauldron fully paid shares (range) to arrive at fairness conclusion

5.6.1 Notwithstanding the good prospectivity of Cauldron’s uranium projects without cash the Company cannot continue exploration, evaluation and development of the mineral assets. The closing share price as at 5 April 2012 does not necessarily reflect fair value of the Company’s shares. If future exploration and evaluation proves successful and development of one or more of the Company’s uranium projects proceed, then arguably the fair value of a Cauldron share would be in excess of the proposed 20.0 cent conversion price of the Notes. The share price in the future is unknown but it may be fair to say that if the development and exploitation of the Company’s mineral assets proceed then it is likely that the share price would be higher than the share price at 5 April 2012. The future ultimate value of a Cauldron share will depend upon, inter alia:
the future prospects of its mineral assets;
the state of the uranium, gold and base metal markets (sentiment and prices) in Australia and overseas;
the state of Australian and overseas stock markets;
the strength of the Board and management and/or who makes up the Board and management;
Cash position of the Cauldron Group;
general economic conditions;
the liquidity of shares in Cauldron; and
possible ventures and acquisitions entered into by Cauldron.
5.6.2 Generally, the market is a fair indicator of what a share is worth, however the theoretical technical value based on the underlying value of assets and liabilities may be lower or higher. In the case of Cauldron, current liquidity is not strong and it is noted that the adjusted cash and receivables as at 31 December 2011 totals $3,423,000 whilst trade creditors and accruals totalled $340,000. The Company also has amounts owing to convertible note holders of $11,765,890 including Notes to Dempsey of $3,500,000 plus accrued interest of $465,890 and Qiu of $6,300,000 (forecasted as at 31 July 2012). The Company owns 26,020,000 shares in Eclipse Uranium Limited (“Eclipse”) (approximately 24.24% of the issue shares in Eclipse) that have a 5 April 2012 market value of approximately $1,561,200. The cash position is poor taking into account the debts of the Company and the Company requires an inflow of funds (via selling all or some of the Company’s investments in Eclipse or the issue of further shares to shareholders and/or new investors) to be able to satisfy the debts owing and/or providing continued funding to develop underlying mining assets. Arguably, based on recent price history from July 2011 to 5 April 2012, the market value of a Cauldron share lies mainly in the range of 9.6 cents to 13.0 cents but since mid February 2012 there has been a recovery as noted above but

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unless the Company raises further funds the share price may fall below the current share price of 17.0 cents to 20.0 cents (last sale 5 April 2012 was 17.0 cents). It was noted that in January 2011 and February 2011, the share price of a Cauldron share trading in ASX was between 26.5 cents and 37.0 cents but started to fall in March 2011 following the Japanese uranium crisis. In the absence of sufficient cash resources, the Company cannot continue with exploration on its uranium projects in Argentina and Australia, repay the amounts owing to convertible note holders and others and meet on going working capital requirements. The share price will probably drift downwards as July 2012 approaches (31 July 2012 is the date all Notes need to be repaid either in cash or debt conversion to share equity) until cash is received.

The closing share price as at 5 April 2012, being 17.0 cents per share does not necessarily reflect fair value of the Company’s shares. If future exploration and evaluation and or exploitation of the uranium projects in Argentina and Australia proves successful and developments proceed, then arguably the fair value of a Cauldron share may be in excess of the 17.0 cent price per share as at 5 April 2012. It is considered, that the market which is fully informed, is a good indicator of the current value of a Cauldron share. The market has had the opportunity to digest the recent announcements and results (those announced from July 2011 through to 12 April 2012) of the Company.

We have, however, put more of a weighting on the market value rather than the net asset backing approach. In our view, for the purposes of ascribing a value to a Cauldron share for the purposes of arriving at a conclusion on the fairness and reasonableness of the proposals under Resolutions 2 and 3, the current fair market value of a Cauldron share lies in the range of 10 cents and 17 cents.

6. PREMIUM FOR CONTROL

6.1 Premium for control for the purposes of this report, has been defined as the difference between the price per share, which a buyer would be prepared to pay to obtain or improve a controlling interest in the Company and the price per share which the same person would be required to pay per share, which does not carry with it control or the ability to improve control of the Company.
6.2 Under TCA, control may be deemed to occur when a shareholder or group of associated shareholders’ control more than 20% of the issued capital. In this case, the Cape Lambert Group on conversion of the Notes held by Dempsey to ordinary fully paid shares in Cauldron could increase its shareholding from approximately 18.39% to approximately 32.33% in the event that no other Note Holder converted their Notes to shares in Cauldron and approximately 25.43% in the event that the Qiu Notes were converted to ordinary shares in Cauldron on 31 July 2012. In this case, Qiu on conversion of the Notes held by Qiu to ordinary fully paid shares in Cauldron could increase their shareholding from approximately 5.61% to approximately 28.88% in the event that no other Note Holder converted their Notes to shares in Cauldron and approximately 25.0% in the event that the Dempsey Notes were converted to ordinary shares in Cauldron on 31 July 2012. Accordingly, we have addressed whether a premium for increased control will be paid.
6.3 The 5 April 2012 market value of a Cauldron share approximates 17 cents (9.8 cents to 22.5 cents since 2 January 2012 to 5 April 2012) and it is noted that the shares in the two months to 5 April 2012 have traded in the 16.5 cent to 22.5 cent range (with the majority of sales between 16.0 cents and 18.5 cents), although it is noted that the net book asset backing per share is now disclosed at approximately 4.87 cents per share (projected as at 31 July 2012) (prior to the Notes conversion). The conversion price is to be varied to 20.0 cents per ordinary share, whereas the last sale price as at 5 April 2012 is 17.0 cents per ordinary share. For reasons outlined in paragraph 5.6.2, we believe that the fair market price of a Cauldron share lies in the 10.0 cents to 17.0 cent range. Therefore, the Cape Lambert

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Group and Qiu can arguably be considered to be paying a premium for a potential increase in control based on the ordinary share price range of 10.0 cents to 17.0 cents although at over 20.0 cents per Cauldron share (only 2 days on 22/23 March 2012 over the past 12 months has the share price exceeded 20 cents) no premium would be payable for control. It is noted that based on an asset backing of approximately 17.52 cents per share, the Cape Lambert Group would be paying a premium for increased control and Qiu would be paying a premium for control.

7. FAIRNESS AND REASONABLENESS OF THE PROPOSALS

We set out below, some of the advantages, disadvantages and other factors pertaining to the proposal under Resolutions 2 and 3.

Advantages

7.1 If shareholders do not approve Resolutions 2 and 3, the Notes debts will need to be repaid in cash and that would be a drain on cash resources. Current cash resources are not sufficient to pay all existing creditors and Notes. The ability to spend money on exploitation and or exploration and evaluation of the Company’s uranium assets would need to be curtailed if the Notes needed to be repaid in cash. By entering into the proposal with the Cape Lambert Group and Qiu, the net asset position of Cauldron is improved as up to $10,265,890 of debt liability (including capitalised interest on the Dempsey Notes) is eliminated for no cash outlay. As noted above, the net book assets rise (refer paragraphs 5.4.1 to 5.4.3) if the Dempsey Notes and Qiu Notes are converted to Cauldron shares on 31 July 2012. Notwithstanding this, Cauldron’s cash position is low taking into account the debt obligations to the convertible note holders and the necessity to fund the mining and exploration operations and further share equity funds will need to be obtained.
7.2 The proposed conversion price of 20 cents is greater than the recent share prices (since 1 April 2011 except for several days where it exceeded 20 cents).
7.3 The issue price of the Cauldron Shares on conversion of the Notes (ordinary shares in Cauldron) being 20 cents per share (assumes Resolution 1 will be passed) is at a premium to the market share price of a Cauldron share over the past several months (except for several days when the share price exceeded 20 cents). In the current market it is time consuming for exploration companies such as Cauldron to raise equity and if raised significant discounts to recent traded share prices may need to be offered. It is not uncommon to offer discounts in the current market of between 20% and 50%. Arguably it could be higher for mineral exploration/producer companies that are not profitable and have negative cash flows. The issue of the Cauldron Shares (ordinary shares in Cauldron) is significant to allow the Company to extinguish all of the loans from the Cape Lambert Group and Qiu to the extent of $10,265,890. By allowing the Company to enter into an improved net asset position and reduce debt by $10,265,890 it may assist the Company in the future to raise additional working capital to be used in the continuing operations of Cauldron. However, in the short term fund raising may be difficult. If the Company continues to have positive results from its underlying mineral projects, there is an increased chance that future capital raisings may be undertaken at a higher price than the proposed 20.0 cents per share envisaged under the proposed issue of 19,829,452 Cauldron Shares to the Cape Lambert Group and 31,500,000 shares to Qiu.
7.4 There is a continuing incentive for Cape Lambert to ensure Cauldron becomes a viable mineral exploration and development company as Cape Lambert and Qiu will continue to have a significant shareholding interest in Cauldron. Cape Lambert and Qiu are taking risks in investing further into Cauldron (via eliminating the Notes of up to $10,255,890 by the issue of up to 51,329,452 Cauldron Shares) as to a large extent Cauldron’s future share price may be determined by the performance of the existing uranium projects of the Cauldron

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Group. There is a huge incentive for Cape Lambert and Qiu to make Cauldron a successful company and have the share price rise considerably. All shareholders would benefit from a rise in the share price.

Disadvantages

7.5 The proposed conversion price of 20 cents (if the Notes are converted to share equity) may be less than the share price of a Cauldron share at the actual date of conversion. It should be noted that shareholders need to take into account the likelihood of the future prospectivity of the uranium assets of the Cauldron Group and the investments it holds in Eclipse, and thus the impact upon the share price for the duration of the Notes, to ascertain whether the future value and the conversion price is considered to be congruent. However it is noted that the existing fair value of a Cauldron share is in the range 13.0 cents to 22.5 cents for the past 8 weeks to 5 April 2012.
7.6 The number of fully paid ordinary shares on issue could initially rise by 51,329,452 to 147,609,481 if all of the Dempsey Notes and Qiu Notes are converted to Cauldron Shares on 31 July 2012. This represents an approximate 53.31% increase in the ordinary shares of the Company. This dilutes the shareholding of the non Cape Lambert and Qiu associated shareholders.
7.7 An increased influential shareholding of the Company is being given to the Cape Lambert Group and Qiu in that they could immediately have voting control of approximately 25.43% and 25.00% respectively of the expanded ordinary issued capital as a result of the issue of 51,329,452 Cauldron Shares after the successful ratification and implementation of Resolutions 1 to 3. However, the percentages may reduce slightly if the Remaining Notes are converted to shares in Cauldron.

Other Factors

7.8 There is no guarantee that the Cape Lambert Group (via Dempsey) and Qiu will convert the Notes to ordinary shares in Cauldron and if this eventuates, the cash position of the Company will need to be reduced by the Notes amount (plus interest payable up to the date of repayment). By approving Resolutions 1 to 3, it gives Cape Lambert and Qiu the flexibility to convert the Notes to shares in Cauldron without having to make full takeover bids for the Company. Section 611 (Item 7) approval and the passing of Resolutions 1 to 3 would eliminate the need for a full takeover bid.
7.9 The terms being offered to the Cape Lambert Group and Qiu under Resolutions 2 and 3, being the issue of 19,829,452 Cauldron Shares and 31,500,000 Cauldron Shares respectively at a proposed price of 20 cents per ordinary share are arguably indicating that the Cape Lambert Group and Qiu are paying premiums for control. It is noted however, that the Cape Lambert Group currently controls approximately 18.43% of the current shares on issue and has one director representative (Tony Sage) of the three directors of Cauldron. Derong Qiu is also a Board Member.
7.10 It is assumed that Resolution 1 will be passed that reduces the conversion price on all Notes to 20 cents per share.

8. CONCLUSION AS TO FAIRNESS AND REASONABLENESS

8.1 After taking into account the factors referred to in paragraph 7 above and elsewhere in this report, we are of the opinion that the proposals as outlined in Resolutions 2 and 3 are, on balance, considered to be fair and reasonable to the non associated shareholders of Cauldron.

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Notwithstanding that the Cauldron share price (17.0 cents as at 5 April 2012) is currently less than the proposed conversion price each shareholder needs to examine the share price of Cauldron and market conditions at the time of exercise of vote to ascertain the impact, if any, on Resolutions 2 and 3.

9. SOURCES OF INFORMATION

9.1 In making our assessment as to whether the proposals pursuant to Resolutions 2 and 3 are fair and reasonable, we have reviewed relevant published available information and other unpublished information of the Company that is relevant to the current circumstances. In addition, we have held discussions with the management of Cauldron about the present and future operations of Cauldron. Statements and opinions contained in this report are given in good faith, but in the preparation of this report, we have relied in part on information provided by the directors and management of Cauldron.
9.2 Information we have received, includes, but is not limited to:
Drafts of Notice of General Meeting of Shareholders and Explanatory Statement to Shareholders;
Discussions with a director and Company Secretary of Cauldron;
Shareholding details of Cauldron as at 4 April 2012;
Share prices of Cauldron since 1 March 2011 to 5 April 2012;
Annual Report of Cauldron for the year ended 30 June 2011;
Unaudited consolidated balance sheet of the Cauldron Group as at 31 December 2011 and the consolidated work-papers;
Announcements made by Cauldron to the ASX from 1 July 2010 to 12 April 2012;
The cash flow forecasts of Cauldron for 2012;
Estimated debt position of Cauldron as at 31 July 2012;
The Convertible Note Deeds with Dempsey and Qiu;
The share prices of the shares in Eclipse between 1 March 2012 to 5 April 2012;
Various interest calculations on the Notes to 31 July 2012; and
Information on Cauldron, Eclipse and Cape Lambert as provided on the ASX web site and the relevant companies web sites.
9.3 Our report includes Appendix A and our Financial Services Guide attached to this report.

Yours faithfully

STANTONS INTERNATIONAL SECURITIES

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John Van Dieren - FCA Director

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APPENDIX A

AUTHOR INDEPENDENCE AND INDEMNITY

This annexure forms part of and should be read in conjunction with the report of Stantons International Pty Ltd trading as Stantons International Securities dated 13 April 2012, allowing conversion of the Dempsey Notes (inclusive of accrued interest to 31 July 2011) owned by Dempsey and the Qiu Notes as outlined in paragraph 1 of the report and Resolutions 2 and 3 in the Notice of Meeting to Shareholders to be forwarded to shareholders in April 2012 for a meeting of shareholders in late May 2012.

At the date of this report, Stantons International Securities does not have any interest in the outcome of the proposal. There are no relationships with Cauldron, the Cape Lambert Group and Qiu other than acting as an independent expert for the purposes of this report. There are no existing relationships between Stantons International Securities and the parties participating in the transaction detailed in this report which would affect our ability to provide an independent opinion. The fee to be received for the preparation of this report is based on the time spent at normal professional rates plus out of pocket expenses and is estimated at $15,000. The fee is payable regardless of the outcome. With the exception of the fee, neither Stantons International Securities nor John Van Dieren have received, nor will, or may they receive, any pecuniary or other benefits, whether directly or indirectly, for or in connection with the making of this report.

Stantons International Securities does not hold any securities in Cauldron (or Cape Lambert Limited and Qiu). There are no pecuniary or other interests of Stantons International Securities that could be reasonably argued as affecting its ability to give an unbiased and independent opinion in relation to the proposal. Stantons International Securities and Mr J Van Dieren have consented to the inclusion of this report in the form and context in which it is included as an annexure to the Notice.

QUALIFICATIONS

We advise Stantons International Securities is the holder of an Australian Financial Services Licence (no 319600) under the Corporations Act 2001 relating to advice and reporting on mergers, takeovers and acquisitions that involve securities. A number of the directors of Stantons International Pty Ltd are the directors of Stantons International Securities and its affiliated company Stantons International Audit and Consulting Pty Ltd. Stantons International Securities and Stantons International Audit and Consulting Pty Ltd have extensive experience in providing advice pertaining to mergers, acquisitions and strategic and financial planning for both listed and unlisted companies and businesses and/or providing accounting, corporate and audit services.

Mr John Van Dieren, FCA, the person responsible for the preparation of this report, has extensive experience in the preparation of valuations for companies and in advising corporations on takeovers generally and in particular on the valuation and financial aspects thereof, including the fairness and reasonableness of the consideration offered.

The professionals employed in the research, analysis and evaluation leading to the formulation of opinions contained in this report, have qualifications and experience appropriate to the task they have performed.

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DECLARATION

This report has been prepared at the request of the directors of Cauldron in order to assist them to assess the merits of allowing Dempsey to convert up to $3,965,890 of Notes (inclusive of accrued interest to 31 July 2012) and $6,300,000 of Notes owing to Qiu to shares in Cauldron at 20 cents per share to which this report relates. This report has been prepared for the benefit of Cauldron’s shareholders (not associated with Cape Lambert and Qiu) and does not provide a general expression of Stantons International Securities’ opinion as to the longer term value of Cauldron or the individual assets of the Cauldron Group. Stantons International Securities does not imply, and it should not be construed, that is has carried out any form of audit on the accounting or other records of Cauldron and its subsidiaries or the ownership of Cauldron. Neither the whole nor any part of this report, nor any reference thereto may be included in or with or attached to any document, circular, resolution, letter or statement, without the prior written consent of Stantons International Securities to the form and context in which it appears.

DISCLAIMER

This report has been prepared by Stantons International Securities with due care and diligence. However, except for those responsibilities, which by law cannot be excluded, no responsibility arising in any way whatsoever for errors or omission (including responsibility to any person for negligence) is assumed by Stantons International Securities (Stantons International Pty Ltd) and Stantons International Audit and Consulting Pty Ltd, their directors, employees or consultants for the preparation of this report.

DECLARATION AND INDEMNITY

Recognising that Stantons International Securities may rely on information provided by Cauldron and its officers (save whether it would not be reasonable to rely on the information having regard to Stantons International Securities experience and qualifications), Cauldron has agreed:

a) To make no claim by it or its officers against Stantons International Securities (and Stantons International Pty Ltd and Stantons International Audit and Consulting Pty Ltd) to recover any loss or damage which Cauldron may suffer as a result of reasonable reliance by Stantons International Securities on the information provided by Cauldron; and
(b) To indemnify Stantons International Securities (and Stantons International Pty Ltd and Stantons International Audit and Consulting Pty Ltd) against any claim arising (wholly or in part) from Cauldron or any of its officers providing Stantons International Securities any false or misleading information or in the failure of Cauldron or its officers in providing material information, except where the claim has arisen as a result of wilful misconduct or negligence by Stantons International Securities.

A draft of this report was presented to Cauldron directors for a review of factual information contained in the report. Comments received relating to factual matters were taken into account, however the valuation methodologies and conclusions did not alter.

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FINANCIAL SERVICES GUIDE Dated 13 April 2012

1. STANTONS INTERNATIONAL PTY LTD (TRADING AS STANTONS INTERNATIONAL SECURITIES)

Stantons International Securities ACN 103 088 697 ( “SIS” or “we” or “us” or “ours” as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you.

2. FINANCIAL SERVICES GUIDE

In the above circumstances we are required to issue to you, as a retail client a Financial Services Guide ( “FSG” ). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.

This FSG includes information about:

who we are and how we can be contacted;
the services we are authorised to provide under our Australian Financial Services Licence, Licence No: 319600 ;
remuneration that we and/or our staff and any associated receive in connection with the general financial product advice;
any relevant associations or relationships we have; and
our complaints handling procedures and how you may access them.

3. FINANCIAL SERVICES WE ARE LICENCED TO PROVIDE

We hold an Australian Financial Services Licence which authorises us to provide financial product advice in relation to:

Securities (such as shares and options)

We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.

Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

4. GENERAL FINANCIAL PRODUCT ADVICE

In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.

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5. BENEFITS THAT WE MAY RECEIVE

We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis.

Except for the fees referred to above, neither SIS, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

6. REMUNERATION OR OTHER BENEFITS RECEIVED BY OUR EMPLOYEES

All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report.

7. REFERRALS

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

8. ASSOCIATIONS AND RELATIONSHIPS

SIS is a trading name owned by Stantons International Pty Ltd a professional advisory and accounting practice. Stantons International is also affiliated with Stantons International Audit and Consulting Pty Ltd that provides audit and corporate services and charges Stantons International Securities management fees.

From time to time, SIS and Stantons International Audit and Consulting Pty Ltd and/or their related entities may provide professional services, including audit, accounting and financial advisory services, to financial product issuers in the ordinary course of its business.

9. COMPLAINTS RESOLUTION

9.1 Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to:

The Complaints Officer Stantons International Securities Level 2 1 Walker Avenue WEST PERTH WA 6005

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaints within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

9.2 Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service Limited (“FOSL”).

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FOSL is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FOSL are available at the FOSL website www.fos.org.au or by contacting them directly via the details set out below.

Financial Ombudsman Service Limited PO Box 3 MELBOURNE VIC 3021 Toll Free: 1300 78 08 08 Facsimile: (03) 9613 6399

10. CONTACT DETAILS

You may contact us using the details set out above or by telephone (08) 9481 3188 or facsimile (08) 9321 1204.

AI assistant

CAULDRON ENERGY LIMITED — Proxy Solicitation & Information Statement 2012

64738_rns_2012-04-25_a43c3eab-881a-450c-97a4-1d2ed67e0e7e.pdf

ACN 102 912 783

NOTICE OF GENERAL MEETING

CONTENTS PAGE

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

YOUR VOTE IS IMPORTANT

VOTING IN PERSON

VOTING BY PROXY

Proxy Forms received later than this time will be invalid.

Proxy vote if appointment specifies way to vote

Transfer of non chair proxy to chair in certain circumstances

NOTICE OF GENERAL MEETING

AGENDA

SPECIAL BUSINESS

RESOLUTION 1 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF REMAINING CONVERTIBLE NOTES

RESOLUTION 2 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DEMPSEY RESOURCES PTY LTD

on the terms and conditions set out in the Explanatory Statement.”

RESOLUTION 3 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DERONG QIU AND DEKANG QIU

on the terms and conditions set out in the Explanatory Statement.”

DATED: 23 APRIL 2012

BY ORDER OF THE BOARD

EXPLANATORY STATEMENT

1. BACKGROUND INFORMATION TO RESOLUTIONS 1, 2 AND 3

1.1

Background

1.2 Capital Structure

1.3 Advantages and Disadvantages

2. RESOLUTION 1 – CONVERSION OF REMAINING CONVERTIBLE NOTES

2.1 Background

2.2 Technical information required by ASX Listing Rule 7.1

3. RESOLUTION 2 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DEMPSEY RESOURCES

3.1 General

3.2 ASX Listing Rule 7.1

3.3 Technical information required by ASX Listing Rule 7.1

3.4 Item 7 of Section 611 of the Corporations Act

Impact on the Company

Prescribed Information

Statements by Dempsey Resources

3.5 Recommendations of Directors

3.6 Role of the Independent Expert

4. RESOLUTION 3 – APPROVAL FOR ISSUE OF SHARES ON CONVERSION OF CONVERTIBLE NOTES – DERONG QIU

4.1 General

4.2 ASX Listing Rule 10.11

4.3

Technical Information required by ASX Listing Rule 10.13

4.4 Item 7 of Section 611 of the Corporations Act

Impact on the Company

Prescribed Information

Statements by Messrs Delong Qiu and Dekang Qiu

4.5

Recommendations of Directors

4.6

Role of the Independent Expert

5. ENQUIRIES

GLOSSARY

$ means Australian dollars .

SCHEDULE 1 – VOTING POWER OF DEMPSEY RESOURCES AND QIU

Voting Power by Qiu assuming no other Convertible Notes are converted

Assuming Dempsey Convertible Notes and Qiu Convertible Notes are both converted

Assuming all Converted Notes are converted

SCHEDULE 2 – DEMPSEY CONVERTIBLE NOTES

Initial Convertible Note

Second Convertible Note

SCHEDULE 3 – QIU CONVERTIBLE NOTES

SCHEDULE 4 – REMAINING CONVERTIBLE NOTES

1. INTRODUCTION

2.

SUMMARY OF OPINIONS

3. IMPLICATIONS OF THE PROPOSALS

4. FUTURE DIRECTION OF CAULDRON

5. BASIS OF TECHNICAL VALUATION OF CAULDRON SHARES

5.3 Takeover Bid

5.4 Net Asset Backing and Wind-Up Value

5.5 Market Price of Cauldron Shares

6. PREMIUM FOR CONTROL

7. FAIRNESS AND REASONABLENESS OF THE PROPOSALS

Advantages

CAULDRON ENERGY LIMITED Proxy Solicitation & Information Statement 2012