GR ENGINEERING SERVICES LIMITED — Regulatory Filings 2017

Jul 18, 2017

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18 July 2017

Hayley Pratt Adviser, Listings Compliance (Perth) ASX Compliance Pty Limited Level 40, Central Park 152-158 St George’s Terrace PERTH WA 6000

By email: hayley.pratt@asx.com.au tradinghaltsperth@asx.com.au

Response to ASX Aware Query

We refer to your query letter dated 17 July 2017 and respond as follows:

Writ of Summons

• 1) Yes

• 2) N/A

• 3) GR Engineering Services Limited ( GR Engineering or Company ) filed a Writ of Summons in the Supreme Court of Western Australia on Monday, 10 July 2017. GR Engineering received confirmation by way of email from its solicitors at approximately 4.15pm (AWST) that the Writ of Summons had been filed, which is when it considers that proceedings had commenced.

• 4) The Company did not make any announcement associated with the writ of summons prior to its announcement of 11 July 2017 ( Contract Update ). This information was not released at an earlier time for the following reasons:

• a) the Company only received confirmation that all parties in relation to the proceedings had been served on 11 July 2017; and

• b) the Company received a without prejudice proposal from EGS at approximately 6.30pm (AWST) on 10 July 2017, following EGS being served with the writ of summons at approximately 4:30pm (AWST) on that date. The terms of EGS’ proposal contemplated a commercial resolution of the matter and the discontinuance of the proceedings but was considered by GRES to be uncertain and commercially unacceptable. GR Engineering proposed alternative terms in the form of a without prejudice proposal which was sent to EGS at approximately 9:00pm (AWST) on 10 July 2017 and which if agreed, would have also facilitated the immediate discontinuance of proceedings. Upon EGS’ failure to provide confirmation that GR Engineering’s terms were acceptable by the prescribed deadline of 1:00pm (AWST) on 11 July 2017, the Company released the Contract Update announcement.

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GR ENGINEERING SERVICES LIMITED ABN 12 121 542 738 Tel: +61 8 6272 6000 Fax: +61 8 6272 6001 Email: gres@gres.com.au Website: www.gres.com.au PO Box 258, Belmont WA 6984 179 Great Eastern Highway, Belmont WA 6104

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In not releasing the Contract Update earlier, the Company was relying on exceptions to Listing Rule 3.1 on the basis that:

• a) almost immediately following EGS being served with the writ of summons, EGS sought to engage in further commercial negotiations associated with GR Engineering’s claim by way of a without prejudice proposal that contemplated, among other things, a commercial resolution of the matter and the discontinuance of proceedings. Until EGS failed to meet the deadline imposed by GR Engineering in its subsequent without prejudice proposal, it was uncertain whether the parties would agree terms that would facilitate the discontinuance of proceedings as the associated negotiations remained incomplete. Disclosure in these circumstances is likely to have prejudiced the parties’ dealings in respect of these proposals;

• b) the writ of summons remained confidential at all times prior to the Contract Update on the basis that details of its existence were known only to the Company and the parties the subject of the negotiations that EGS initiated after it was filed and who the Company considers understood the requirement for it to be treated in confidence and were abiding by that understanding; and

• c) the Company considers that a reasonable person would not have expected details of the writ of summons to be disclosed earlier given the likely impact it would have on active negotiations that remained on foot for a commercial resolution that contemplated the discontinuance of proceedings.

The Company considers that once it became clear that no commercial resolution would be reached to facilitate the discontinuance of proceedings, that it was obliged to disclose the filing of the writ of summons.

Contract Dispute

• 5) The Company does not consider that details of it having suspended works under the Davyhurst Gold Project EPC contract ( Suspension ) and that it had issued a statutory demand on EGS ( Statutory Demand ) in May 2017 to be information that a reasonable person would expect to have a material effect on the price or value of the Company’s securities.

• 6) GR Engineering issued the Statutory Demand as EGS’ failure to make payment of agreed amounts in the absence of any dispute had become commercially unacceptable to the Company. GRES held no concern at the time of issuing the Statutory Demand that it would not receive payment, primarily due to EGS’ disclosed funding position, which included undrawn credit lines of a quantum well in excess of GR Engineering’s payment claims. Further, GR Engineering relied on various representations made by EGS in relation to its imminent capital raising initiatives and commitments to pay, sufficient for GR Engineering to agree to resume work and withdraw its Statutory Demand in June 2017. Similarly, the Suspension was a contractual action taken to compel payment which GR Engineering had been assured would be forthcoming and which GR Engineering always considered EGS was capable of satisfying.

• 7) The Company confirms that it first became aware of:

• a) the Suspension when it notified EGS on the afternoon of 4 May 2017 that it was suspending part of the work under the contract; and

• b) the Statutory Demand when it was prepared and served on the afternoon of 11 May 2017.

• 8) The Company did not disclose the Suspension or the Statutory Demand before the Contract Update announcement. The Company refers to its response in item (5) above as its basis for not doing so. Details of the Suspension and Statutory Demand were provided in the Contract Update

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announcement for the purposes of establishing the background associated with the initiation of proceedings by the Company.

Earnings Guidance

• 9) Yes

• 10) N/A

• 11) The Company’s earnings guidance released on 23 June 2017 includes earnings contributions from the Davyhurst Gold Project EPC contract. The Company is not aware of any information that will result in a material departure from this guidance.

Compliance with the Listing Rules

• 12) The Company is in compliance with the Listing Rules and, in particular, Listing Rule 3.1.

• 13) The Company’s response has been authorised and approved by the Company’s board in accordance with its continuous disclosure policy.

Your sincerely

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Joe Totaro

Chief Financial Officer & Company Secretary

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17 July 2017

Mr Joe Totaro GR Engineering Services Limited 179 Great Eastern Highway BELMONT WA 6104

By email: joe.totaro@gres.com.au

Dear Mr Totaro

GR ENGINEERING SERVICES LIMITED (“GNG”): ASX AWARE LETTER

ASX Limited (“ASX”) refers to the following.

1. GNG’s announcement entitled “Davyhurst Gold Project refurbishment contract – proceedings” released to the market at 3.41pm AEST on Tuesday, 11 July 2017 (“GNG Contract Update”), disclosing, amongst other things, the following.

2. 1.1. That GNG had “commenced proceedings in the Supreme Court of Western Australia against Eastern Goldfields Limited (ASX:EGS)(EGS) and others to recover payments associated with outstanding progress and variation claims in relation to the Davyhurst Gold Project refurbishment contract entered into by GRES and EGS on 22 September 2016”. GNG’s claim is for “$9.9 million, plus interest and costs.”

3. 1.2. Details about a dispute concerning the refurbishment of the Davyhurst Mill, including the following.

   • 1.2.1. That GNG suspended the works in May 2017 as a result of Eastern Goldfields Limited’s (“EGS”) payment default, when GNG had substantially completed its work under the Davyhurst Gold Project refurbishment contract (“Contract”).

   • 1.2.2. The suspension was initiated by GNG concurrently with the issuance of a statutory demand in May 2017 for approximately $6.6 million.

   • 1.2.3. EGS has alleged the existence of minor defects and omissions in respect of the works, which GNG considers are immaterial and which were first raised following EGS’ failure to pay $5 million towards the Contract payment arrears on 28 June 2017.

4. 1.3. That GNG is “assessing the impact that the claim may have on its FY17 financial results.”

5. EGS’s announcement entitled “Davyhurst Gold Project Refurbishment Contract” released to the market at 9.43am AEST on Wednesday, 12 July 2017 (“EGS Contract Update”), disclosing, amongst other things, the following.

6. 2.1. That EGS had “received yesterday a writ of summons for proceedings in the Supreme Court of Western Australia commenced by GR Engineering Services Limited (GRES) in relation to

Level 40, Central Park 152-158 St George's Terrace Perth WA 6000

ASX Compliance Pty Limited ABN 26 087 780 489

www.asx.com.au Customer service 13 12 79

the Davyhurst Gold Project refurbishment contract”. GNG’s claim is for “liquidated damages in the sum of $9,940,991.59 alternatively $5,000,000”.

• 2.2. Details about a dispute concerning the refurbishment of the Davyhurst Mill, including the following.

  • 2.2.1. That GNG made “payment claims in April 2017” in respect of the Contract.

  • 2.2.2. That GNG “suspended work at the Davyhurst Mill in May 2017.”

  • 2.2.3. That EGS had “taken steps itself to complete the refurbishment of the Davyhurst Mill, during which it has discovered numerous defects and omissions by GRES.”

  • 2.2.4. That “[r]ectifying those defects… has delayed the recommencement of production.”

• GNG’s announcement entitled “FY17 Earnings Update” released to the market at 8.22am AEST on Friday, 23 June 2017, disclosing, amongst other things, that “due to departures from anticipated progress claim timing of recently awarded projects, revenue which was expected to materialise in FY17 has been deferred into FY18. As a result, the Company expects revenue for FY17 to be in the range of $215.0 million to $220.0 million (FY16 $255.3 million). FY17 EBITDA is now expected to be in the range of $16.0 million to $17.0 million (FY16 $26.1 million)” (the “Earnings Guidance”).

Listing Rules and Guidance

1. Listing Rule 3.1, which requires a listed entity to give ASX immediately any information concerning it that a reasonable person would expect to have a material effect on the price or value of an entity’s securities.

2. The definition of “aware” in Chapter 19 of the Listing Rules. This definition states that:

3. “ an entity becomes aware of information if, and as soon as, an officer of the entity (or, in the case of a trust, an officer of the responsible entity) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as an officer of that entity.”

Additionally, you should refer to section 4.4 in Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B “When does an entity become aware of information” .

1. Listing Rule 3.1A, which sets out exceptions from the requirement to make immediate disclosure, provided that each of the following are satisfied.

2. “3.1A Listing rule 3.1 does not apply to particular information while each of the following requirements is satisfied in relation to the information:

   • 3.1A.1 One or more of the following applies:

     • It would be a breach of a law to disclose the information;

     • The information concerns an incomplete proposal or negotiation;

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• The information comprises matters of supposition or is insufficiently definite to warrant disclosure;

• The information is generated for the internal management purposes of the entity; or

• The information is a trade secret; and

• 3.1A.2 The information is confidential and ASX has not formed the view that the information has ceased to be confidential; and

• 3.1A.3 A reasonable person would not expect the information to be disclosed.”

• ASX’s policy position on the concept of “confidentiality” which is detailed in section 5.8 of Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B “Listing Rule 3.1A.2 – the requirement for information to be confidential” . In particular, the Guidance Note states that:

“Whether information has the quality of being confidential is a question of fact, not one of the intention or desire of the listed entity. Accordingly, even though an entity may consider information to be confidential and its disclosure to be a breach of confidence, if it is in fact disclosed by those who know it, then it ceases to be confidential information for the purposes of this rule.”

1. The following extract from section 7.3 in Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B “Market sensitive earnings surprises” (excluding footnotes).

“If an entity becomes aware that its earnings for the current reporting period will differ (downwards or upwards) from market expectations, it needs to consider carefully whether it has a legal obligation to notify the market of that fact. This obligation may arise under Listing Rule 3.1 and section 674, if the difference is of such magnitude that a reasonable person would expect it to have a material effect on the price or value of the entity’s securities – referred to below as a “market sensitive earnings surprise”. Alternatively, in the case of an entity which becomes aware that its earnings for a reporting period will differ from earnings guidance it has published to the market, it may arise under section 1041H, because failing to inform the market that its published guidance is no longer accurate could constitute misleading conduct on its part.”

1. ASX’s policy position on the concept of ‘materiality’ in respect of an entity considering whether a subsequent variation to previously published earnings guidance is market sensitive, which is detailed in section 7.3 Question 2 of Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B “Market sensitive earnings surprises” . In particular, the Guidance Note states (excluding footnotes) that:

“ASX would suggest that entities apply the guidance on materiality that formerly appeared in the Australian Accounting Standards, that is:

• treat an expected variation in earnings compared to its published guidance equal to or greater than 10% as material and presume that its guidance needs updating; and

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• treat an expected variation in earnings compared to its published guidance equal to or less than 5% as not being material and presume that its guidance therefore does not need updating,

unless, in either case, there is evidence or convincing argument to the contrary.”

ASX Queries

Having regard to the above, ASX asks GNG to respond separately to each of the following questions and requests for information in a format suitable for release to the market.

Writ of summons

1. Does GNG consider the information that it had commenced proceedings in respect of the Contract, as disclosed in the GNG Contract Update, to be information that a reasonable person would expect to have a material effect on the price of value of its securities?

2. If the answer to question 1 is “no”, please advise the basis for that view.

3. When did GNG commence proceedings against EGS? In answering this question, please specify the date and time that GNG commenced proceedings and the action which constitutes the commencement of proceedings referred to in the GNG Contract Update.

4. If GNG commenced proceedings before the GNG Contract Update was lodged on the Market Announcements Platform (“Platform”), did GNG make any announcement prior to the GNG Contract Update which clearly disclosed this information? If so, please provide details. If not, please explain why this information was not released to the market at an earlier time, commenting specifically on when you believe GNG was obliged to release this information under listing rules 3.1 and 3.1A, and what steps GNG took to ensure that this information was released promptly and without delay.

Contract dispute

1. Does GNG consider the following information, as disclosed in the GNG Contract Update, to be information that a reasonable person would expect to have a material effect on the price of value of its securities? Please respond to each separately.

2. 5.1. That GNG in May 2017 had suspended works under the Contract in respect of refurbishing the Davyhurst Mill.

3. 5.2. That GNG in May 2017 had issued a statutory demand to EGS for approximately $6.6 million.

4. If the answer to any of questions 5.1 and 5.2, is “no”, please advise the basis for that view.

5. When did GNG first become aware of the information in each of questions 5.1 and 5.2? In answering this question, please specify the date and time that GNG first became aware of each piece of information (or part thereof).

6. If GNG first became aware of any of the information (or part thereof) in each of questions 5.1 and 5.2 before the GNG Contract Update was lodged on the Platform, did GNG make any announcement prior to the GNG Contract Update which clearly disclosed this information? If so, please provide

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details. If not, please explain why the information (or part thereof) in each of questions 5.1 and 5.2, was not released to the market at an earlier time, commenting specifically on when you believe GNG was obliged to release this information under listing rules 3.1 and 3.1A, and what steps GNG took to ensure that this information was released promptly and without delay.

Earnings Guidance

1. Did GNG consider the information in each of questions 5.1 and 5.2 when GNG was preparing the Earnings Guidance?

2. If the answer to question 9 is “no”, please explain the basis for that position.

3. Is GNG aware of any information that its earnings for the 12 month period ending on 30 June 2017 are likely to differ materially (downwards or upwards) from the Earnings Guidance it has given for the period?

Compliance with the listing rules

1. Please confirm that GNG is in compliance with the Listing Rules and, in particular, Listing Rule 3.1.

2. Please confirm that GNG’s responses to the questions above have been authorised and approved in accordance with its published continuous disclosure policy or otherwise by its board or an officer of GNG with delegated authority from the board to respond to ASX on disclosure matters.

When and Where to Send Your Response

This request is made under, and in accordance with, Listing Rule 18.7. Your response is required as soon as reasonably possible and, in any event, by not later than 7.00am AWST on Wednesday, 19 July 2017 . If we do not have your response by then, ASX will have no choice but to consider suspending trading in GNG’s securities under Listing Rule 17.3.

You should note that if the information requested by this letter is information required to be given to ASX under Listing Rule 3.1 and it does not fall within the exceptions mentioned in Listing Rule 3.1A, GNG’s obligation is to disclose the information “immediately”. This may require the information to be disclosed before the deadline set out in the previous paragraph.

ASX reserves the right to release a copy of this letter and your response on the Platform under Listing Rule 18.7A. Accordingly, your response should be in a form suitable for release to the market.

Your response should be sent to me by e-mail at Hayley.Pratt@asx.com.au and to tradinghaltsperth@asx.com.au . It should not be sent directly to the ASX Market Announcements Office. This is to allow me to review your response to confirm that it is in a form appropriate for release to the market, before it is published on the Platform.

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Listing Rules 3.1 and 3.1A

Listing Rule 3.1 requires a listed entity to give ASX immediately any information concerning it that a reasonable person would expect to have a material effect on the price or value of an entity’s securities. Exceptions to this requirement are set out in Listing Rule 3.1A.

The obligation of GNG to disclose information under Listing Rules 3.1 and 3.1A is not confined to, nor is it necessarily satisfied by, answering the questions set out in this letter.

In responding to this letter, you should have regard to GNG’s obligations under Listing Rules 3.1 and 3.1A and also to Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B .

Trading Halt

If you are unable to respond to this letter by the time specified above, you should discuss with us whether it is appropriate to request a trading halt in GNG’s securities under Listing Rule 17.1.

If you wish a trading halt, you must tell us:

• the reasons for the trading halt;

• how long you want the trading halt to last;

• the event you expect to happen that will end the trading halt;

• that you are not aware of any reason why the trading halt should not be granted; and

• any other information necessary to inform the market about the trading halt, or that we ask for.

We may require the request for a trading halt to be in writing. The trading halt cannot extend past the commencement of normal trading on the second day after the day on which it is granted.

You can find further information about trading halts in Guidance Note 16 Trading Halts & Voluntary Suspensions .

Please contact me if you have any queries or concerns about the above.

Yours sincerely

[sent electronically without signature]

Hayley Pratt Adviser, ASX Listings Compliance (Perth)

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