Celsius Resources Limited — Interim / Quarterly Report 2013

Apr 30, 2013

QUARTERLY ACTIVITIES REPORT

MARCH 2013

HIGHLIGHTS

• Maiden total Inferred JORC Code Resource of 255 million tonnes of coal at Celsius’ Uzgen Basin Coal Project.

• Metallurgical testwork indicates coal of coking quality with moderate sulphur, low phosphorous and an average FSI of between 7-7.5 (almost all results greater than 6.0), with good consistency across seams.

• High yield (>60%) into <10% ash product coal.

• Preparations underway in country for aggressive 2013 drill programme.

• Strategic partnership with Blumont Group yields A$10 million of funding.

• Discussions underway with potential customers.

Coal Resource

During the quarter the Company announced its maiden JORC Code compliant Resource of 255 million tonnes of coal for the Company’s flagship Uzgen Basin Coking Coal Project located in Kyrgyz Republic (Figure 3).

The maiden Inferred Resource comprises 230 million tonnes at Kargasha and 25 million tonnes at Kokkia (Table 1). The coal Resource, completed by Australian technical consulting firm, G&S Resources, is based on results from Celsius’ 2012 drilling (seven drill holes), Soviet era drilling (60 drill holes) and information from 180 adits within the project areas. Figure 1 below presents the distribution of points of observation for drill holes and adits that have been used for resource modeling purposes while Figure 2 shows the extent of the resources.

Figure 1: Location of drill holes and adits – Kargasha and Kokkia

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Table 1: Inferred JORC Code Resources at Uzgen Basin Coking Coal Project

		Ash % (ad) Inherent Moisture % Volatile Matter % (ad) Total Sulphur % (db)
	Inferred Resource Mt
Project Area
Kargasha**	230	12.7 1.3 31.6 0.64
Kokkia**	25	9.9 1.2 29.5 0.65
Total	255	12.4 1.3 31.4 0.64

** Note: For Kargasha, 50Mt of the estimated Resource, and the total estimated Resource for Kokkia, are derived from areas outside the last points of observation but have been included in the Resource Statement because of the strong evidence of geological continuity based on adits and trenching.

KARGASHA RESOURCE DESCRIPTION

The Inferred Resource of 230 million tonnes at Kargasha is contained in 11 seams across the tenement. For Resource estimation purposes a seam thickness cut off of 0.5m has been applied. Details of the Resource on a seam-by-seam basis are as follows (Table 2).

The Resource estimate at Kargasha is based on seven fully cored drill holes DD12TK001-7 completed by Celsius in 2012, 60 Soviet era drill holes (approximately 29,000m) SV001-060 completed 1945-1954 and circa 164 adits developed between 1945 -1954. Further detail on coal quality is contained in the section below.

Table 2: Inferred Resource Kargasha on Coal seam basis

		Ash % (ad) Inherent Moisture % Volatile Matter % (ad) Total Sulphur % (db) Average Seam Thickness (m)
Seam Name	Million tonnes
E	5.6	9.8 0.9 29.7 0.53 0.7
F	11.8	12.8 1.1 30.9 0.69 0.9
G	17.4	10.8 1.1 32.1 0.73 0.8
H	3.5	13.0 1.1 32.0 0.87 0.8
J	14.4	11.2 1.2 32.2 0.65 0.8
K	88.9	12.4 1.3 30.3 0.58 1.5
L	25.0	15.3 1.2 33.4 0.72 0.9

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M	18.0	15.6	1.3	31.8	0.75	0.8
N	36.7	11.3	1.4	34.4	0.6	1.2
P	7.9	14.4	1.2	31.3	0.64	0.7
TOTAL	230	12.6	1.3	31.8	0.64	-

For Kargasha the Inferred Resource distribution is as follows: 21% (48Mt) less than 300m depth, 76% (175Mt) less than 600m depth and 24% (55Mt) between 600m and 900m depth.

KOKKIA RESOURCE DESCRIPTION

The Inferred Resource of 25 million tonnes at Kokkia is contained in 10 seams across the tenement. For Resource estimation purposes a seam thickness cut off of 0.5m has been applied. Details of the Resource on a seam-by-seam basis are as follows (Table 3):

Table 3: Inferred Resource at Kokkia on a Coal seam basis

		Ash % (ad) Inherent Moisture % Volatile Matter % (ad) Total Sulphur % (db) Average Seam Thickness (m)
Seam Name	Million tonnes
E	1.5	7.2 0.9 28.3 0.45 0.6
F	1.4	6.8 1.1 30 0.72 0.6
G	2.6	6.2 1.3 32.4 0.6 1.1
H	2.3	9.1 1.1 29.8 0.88 0.7
J	2.2	8.1 1.2 29.8 0.62 0.7
K	3.2	6.8 1.2 29.6 0.58 0.7
L	2.3	11.3 1.2 29.8 0.67 0.6
M	3.3	9.7 1.3 29 0.73 1.0
N	1.8	7.7 1.3 33.8 0.56 0.8
P	4.9	16.4 1.0 26.6 0.65 1.3
Total	25	9.8 1.2 29.5 0.65

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For Kokkia the Inferred Resource distribution is as follows: 73% (18Mt) less than 300m depth and 27% (7Mt) less than 600m depth.

The Resource estimate at Kokkia is based on extrapolation of the Kargasha Resource model and circa 16 adits / trenches developed between 1942-1954.

Figure 2: Kargasha and Kokkia Resource estimate boundary for all Coal seams

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DEPTH CONSIDERATIONS

From a depth consideration resources are distributed accordingly:

	Kargasha Kokkia	Kargasha Kokkia
Depth Increment	Increment Mt	Cumulative Mt Increment Mt Cumulative Mt
0-300m	48	48 18 18
300-600m	127	175 6 25
600m-900m	55	230 0 25
Total	230	25

Coal Quality Analysis Results

Based on Celsius’ 2012 drilling results at Kargasha, the key features of the coal quality are demonstrated by the analyses from washed composites (though it equally applies to raw low ash samples). This data has been discussed in detail in ASX announcements on the 9th October 2012, 11th December 2012, 31st January 2013 and 12[th] February 2013 and is summarized as follows:

• Air dried inherent moisture (IM) is low and consistent at 0.9%.

• Ash averages 5% (ad), with the lowest at 2.6% and highest 7.5%.

• Volatile matter (VM) on a dry ash free (daf) basis averages 39.2% and has a relatively small range.

• Gross calorific value (GCV) is high due to the generally low ash of the composites averaging 7862 kcal/kg (ad).

• Total sulfur (TS) values are moderate to low, averaging 0.71% on a dry basis (db) and range from 0.44% to 1.00%.

• Phosphorus is generally low at 0.021% (db).

• Hard-grove Grindability Index (HGI) is reasonably consistent averaging 51, with a range of 43 to 60.

• Ultimate carbon (daf) averages 85.0%, which is consistent with the rank of the coal and shows little variability.

• Hydrogen is reasonably consistent at 5.46%.

• Nitrogen is consistent and relatively low, averaging 1.46%.

The plastic properties of the washed coking composites are generally good and consistent across the coal seams:

• Free-swell Index (FSI) averages 7 to 7.5, with an overall range of 6 to 8.5.

• G Index averages 71 and is reasonably consistent ranging between 66 and 85.

• The Y index is consistent averaging 15mm and ranging from 13mm to 19mm. J seam has the highest average of 17mm.

• Maximum dilatation averages 61% and has significant variation between samples ranging from 31% to 91%.

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With regard to laboratory washability testing there is a wide range of head ash ranging up to 35%. All the samples exhibited pronounced separation characteristics with only relatively minor amounts of middlings material. At a cumulative float density of 1.50g/cc (CF1.50RD) the theoretical yield ranges between 41% to 94%, with 84% of values being >60%.

Note: The theoretical yields referred to in this document are laboratory float/sink yields on crushed material only. They have not been obtained from properly pretreated and sized material, and they do not take into account such factors as coal loss and dilution during mining, process plant design and efficiency, or differences in feed and washed product moisture levels.

Mining & Product Studies

During the quarter Brisbane based mining consultants Minserve provided input into the modelling and estimation of the Inferred Coal Resources detailed in Table 1, specifically relating to coal quality and potential mining parameters. Minserve will now move to commence a scoping study based on the Coal Resource which will apply mining and economic parameters to the Coal Resource.

ALS (ACIRL) has been retained to review historical Soviet era semi-industrial and industrial scale coking tests with current test results.

The aim of these studies is to identify portions within the Coal Resource with increased economic viability so that these are made a priority for drilling during 2013. It will also enable the most prospective mining method(s) to be determined at an early stage so that these parameters can be applied to future Coal Resource and Reserve estimations.

The commencement of these studies at this initial stage means that Celsius will be well placed to fast track its quality coal projects into production and increase confidence in the quality of coal present (as well as amount of coking quality coal).

2013 Drilling & Work Programmes

The Company is currently well advanced in planning its 2013 drill programme and other work programmes. The Company aims to carry out over 10,000 metres of diamond core drilling across its Projects within the Kyrgyz Republic as well as commencing studies necessary for future mining at these Projects such as baseline environmental studies and bulk sampling to establish coking and other coal quality characteristics.

The aims of these work programmes are:

• Increase the classification of portions of the Coal Resource at Kargasha to Indicated status by carrying out infill drilling.

• Update the Coal Resource for the Kokkia Project so that the Resource is based on Celsius’ drilling across the entire license.

• Establish coking and thermal coal quality characteristics at all Projects both for future Coal Resource estimation and also for potential customers.

• Complete initial marketing/sales/transport studies in country and Xinjiang, China.

• Complete the first step in converting the Company’s Exploration Licenses to Mining Licenses by lodging all relevant data and reports from drilling, resource estimation, scoping studies and

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environmental baseline studies at the Company’s Projects with the State Agency for Geology and Mineral Resources.

• Mine a minimum of 10,000 tonnes at the Min Teke Project and 7,500 tonnes at the Sary Mogol Project in compliance with the Company’s tenement agreements with the Agency for Geology.

The Company looks forward to updating the market with the progress of its 2013 work programmes in the Kyrgyz Republic.

Mining – Sary Mogol (Alai Range Project) & Min Teke (Uzgen Basin Coking Coal Project)

Small scale mining continues to be carried out at the Company’s Min Teke and Sary Mogol Projects in accordance with the terms of the Company’s license agreements, although operations were restricted due to winter conditions. The Company anticipates generating a small cash flow from these operations.

Infrastructure

Celsius continues to monitor the progress of the Trans-Asia Railway, which is currently anticipated to be completed by the end of 2016. The current mapped route comes within 10 kilometers of Celsius’ Uzgen Basin Coking Coal Project (Figure 3) and will connect to the existing Chinese railway network at Kashgar (Kashi) in Xinjiang.

Celsius plans to carry a more detailed study of the existing transport options to facilitate coal export prior to completion of the Trans-Asia Railway. For the Uzgen Basin coking coal projects, the Company has identified a route for export to China via Osh and then the Irkeshtam border crossing between the Kyrgyz Republic and China which uses generally paved and rehabilitated roads (Figure 3). This route is approximately 385km in length and the Company has estimated a transport cost of approximately $10 per tonne to the Kyrgyz Republic-China border utilizing this route. A more detailed transport study will provide more exact costings and identify potential bottlenecks on the route.

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Figure 3 – Location of Celsius’ projects and export routes including the proposed Trans-Asia Railway

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Corporate

During the Quarter the Company announced a strategic funding arrangement from Blumont Group Limited (“Blumont”) for A$10 million. Key elements of the arrangement include:

• Ordinary share placement – An immediate placement of 227,272,727 ordinary Celsius shares to Blumont for an aggregate subscription of A$5 million (ie, A$0.022 per share).

• Convertible note facility (“ Convertible Notes ”) – Blumont is the sole provider of the Convertible Notes, which will enable the Company to draw between A$3 million to A$5 million (at the Company’s option) after 30 June 2013. Convertible Notes will carry interest at the rate of 12.5% per annum payable halfyearly. The Convertible Notes will be convertible into ordinary shares of Celsius based at the 20-day volume weighted average share price prior to conversion and subject to a floor price of A$0.025 per share and a cap of A$0.030 per share. Blumont will have the right to call conversion anytime after issuance and the Company will have the right to call conversion anytime from 12-months after issuance, with any conversion subject to the condition that it does not result in a voting interest exceeding 19.9% of Celsius.

• Strategic Alliance – Blumont and Celsius will cooperate to review other potential projects in Central Asia. Blumont will nominate one director to the board of Celsius (subject to it maintaining a shareholding in excess of 10%) and Celsius will nominate Alexander Molyneux to the board of Blumont.

Blumont is a Singapore-based company, listed on the Singapore Exchange under the ticker A33. Its current market capitalization is close to S$700 million. Celsius is its second investment in mining bulk commodities, having announced the proposed acquisition of Hudson Minerals Pte. Ltd. (“ Hudson Minerals ”) in December of 2012. Blumont is purchasing 100% of Hudson Minerals for up to S$48 million and is will be planning the development of its West Sumatra iron ore deposit.

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Carnilya Hill Joint Venture

Celsius (through View Nickel Pty Ltd) owns a 30% joint venture interest in the Carnilya Hill Joint Venture in Western Australia with Mincor Resources NL ( Joint Venture ). Mincor Resources NL ( Mincor , ASX:MCR) is the operator of the Carnilya Hill JV. The tenements covered by the Camilya Hill Joint Venture (JV) include Mining Licences M26/47, M26/48, M26/49 and M26/453.

The Carnilya Hill site is currently on care and maintenance. The Joint Venture will incur nominal running costs to ensure the site is kept secure, safe and well maintained. Exploration continues on the tenements comprising the Joint Venture, and is managed by Mincor as the Operator of the Joint Venture. Results from exploration programmes will be released as they become available.

Regional Nickel Exploration

The Company continues to compile all data relevant to E39/1641 and E39/1684 in the Eastern Goldfields region of Western Australia. The tenements are located near to Minara Resources’ Murrin Murrin mine and the NiWest operation currently under development by GME Resources Ltd and are believed to have potential for both nickel laterite and nickel sulphide mineralisation. In due course, the Company may consider spinning out its nickel interests into a new public vehicle listed on the ASX.

COMPETENT PERSON’S STATEMENT

The information in this announcement that relates to resource estimates is based on information compiled by Dr Gavin Springbett, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Dr Springbett is acting as a consultant to Celsius Coal Limited and is an employee of G&S Resources. Dr Springbett has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Dr Springbett consents to the inclusion in this announcement of the matters based on his information in the form and context in which it appears.

The information in this announcement that relates to Exploration Results is based on information compiled by Dr David Hornsby, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Dr Hornsby is acting as a consultant to Celsius Coal Limited and is an employee of Gallagher Consulting Services Pty Ltd and is a member of The Minserve Group Pty Ltd. Dr Hornsby has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”). Dr Hornsby consents to the inclusion in this announcement of the matters based on his information in the form and context in which it appears.

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ABOUT CELSIUS COAL

Celsius Coal Ltd is focused on developing coking and thermal coal deposits in the Kyrgyz Republic.

Celsius owns 80% of its Uzgen Basin Coking Coal Project (comprising: Kargasha; Kokkia; and Min Teke), which cover an established Soviet-era coking coal resource. It also owns 90% of its Alai Range Projects (comprising: Sary Mogol and Bel Alma).

For more information, please visit www.celsiuscoal.com.au or contact Mr Ranko Matic, Company Secretary on +61 (08) 9226 4500.

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