Hidili Industry International Development Limited - Proxy Solicitation & Information Statement 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your licensed securities dealer or other registered institutions in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Hidili Industry International Development Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or registered institutions in securities or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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MAJOR TRANSACTIONS IN RELATION TO THE DISPOSALS OF ASSETS BY CERTAIN SUBSIDIARIES OF THE COMPANY

27 June 2014

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I	— Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix II	— Competent Person’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		128

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DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

‘‘associate(s)’’
has the meaning given to it under the Listing Rules
‘‘Board’’ the board of Directors
‘‘Company’’

Hidili Industry International Development Limited 恒鼎實業國際發展有限公司, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange

‘‘Competent Person’’
a person satisfying the requirements of Rule 18.21 and Rule 18.22 of the Listing Rules
‘‘Competent Person’s Report’’
the public report prepared by the Competent Person on 27 June 2014 in compliance with the requirements under Chapter 18 of the Listing Rules
‘‘Completion’’
completion of the Disposals pursuant to the Jinhe Agreement and the Dongguaao Agreement
‘‘connected person(s)’’
has the meaning given to it under the Listing Rules
‘‘control’’
a person shall be deemed to ‘‘control’’ another person if such first person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other person, whether through the ownership of voting securities, by contract or otherwise, and ‘‘controlled’’ shall be interpreted accordingly
‘‘controlling shareholder’’

has the meaning given to it under the Listing Rules

‘‘Director(s)’’ director(s) of the Company
‘‘Disposals’’
collectively, the proposed disposal of the Jinhe Coal Mine by Liupanshui Hidili and the proposed disposal of the Dongguaao Coal Mine by Panxian Hengji
‘‘Dongguaao Agreement’’

the conditional agreement and the supplemental letter dated 2 September 2013 entered into among Panxian Hengji, Guizhou Fengxinyuan and Panxian Qingyuan in relation to the sale of the Dongguaao Coal Mine, including the mining rights, the operation and management rights, the land use rights (if any) and some of the facilities on and over the Dongguaao Coal Mine

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DEFINITIONS

‘‘Dongguaao Coal Mine’’
the coal mine located at Baiguozhen, Panxian, Liupanshui, Guizhou, the PRC which is wholly-owned by Panxian Hengji
‘‘Group’’ the Company and its subsidiaries
‘‘Guangxi Logistics’’ 廣西物資集團有限責任公司 (Guangxi Logistics Group Co., Ltd*), a company established in the PRC with limited liability
‘‘Guizhou Fengxinyuan’’ 貴州豐鑫源礦業有限公司 (Guizhou Fengxinyuan Mining Co., Ltd*), a company established in the PRC with limited liability
‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong
‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC
‘‘Jinhe Agreement’’
the conditional agreement and the supplemental letter dated 2 September 2013 entered into among Liupanshui Hidili, Guizhou Fengxinyuan and Guangxi Logistics in relation to the sale of the Jinhe Coal Mine, including the mining rights, the operation and management rights, the land use rights (if any) and some of the facilities on and over the Jinhe Coal Mine
‘‘Jinhe Coal Mine’’ the coal mine located at Baiguozhen, Panxian, Liupanshui, Guizhou, the PRC which is wholly-owned by Liupanshui Hidili
‘‘Latest Practicable Date’’ 20 June 2014, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining information contained herein
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Liupanshui Hidili’’
六盤水恒鼎實業有限公司 (Liupanshui Hidili Industry Co., Limited*), a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘Panxian Hengji’’
盤縣恒吉工貿有限公司 (Panxian Hengji Industry and Trade Co., Ltd*), a company established in the PRC with limited liability and an indirect non wholly-owned subsidiary of the Company

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DEFINITIONS

‘‘Panxian Qingyuan’’ 盤縣慶源煤業有限公司 (Panxian Qingyuan Coal Mine Co., Ltd*), a company established in the PRC with limited liability ‘‘PRC’’ the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan ‘‘RMB’’ Renminbi, the lawful currency of the PRC

‘‘Sanlian’’ Sanlian Investment Holding Limited ‘‘Share(s)’’ share(s) of HK$0.10 each in the capital of the Company ‘‘Shareholder(s)’’ holder(s) of the Share(s) ‘‘Sichuan Huaxia’’ 四川華夏資產評估事務所有限責任公司 (Sichuan Huaxia Assets Appraisal Co., Ltd*), an independent appraisal firm approved by the Ministry of Finance and the China Securities Regulatory Commission of the PRC, which is independent of the Company and its connected persons ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘%’’ per cent.

For identification purpose only

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LETTER FROM THE BOARD

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Executive Directors: Mr. Xian Yang (Chairman) Mr. Sun Jiankun Independent non-executive Directors: Mr. Chan Chi Hing Mr. Chen Limin Mr. Huang Rongsheng

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office: 16th Floor, Dingli Mansion No. 185 Renmin Road Panzhihua Sichuan 617000 The PRC

27 June 2014

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTIONS IN RELATION TO THE DISPOSALS OF ASSETS BY CERTAIN SUBSIDIARIES OF THE COMPANY

INTRODUCTION

Reference is made to the announcement of the Company dated 2 September 2013 in relation to, inter alia, the Dongguaao Agreement, the Jinhe Agreement and the Disposals.

The purpose of this circular is to provide you with, among other things, further details of the Dongguaao Agreement, the Jinhe Agreement and the Disposals.

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LETTER FROM THE BOARD

THE DISPOSALS

The Jinhe Agreement

On 2 September 2013, Liupanshui Hidili, Guizhou Fengxinyuan and Panxian Qingyuan entered into the Jinhe Agreement pursuant to which the parties conditionally agreed to the sale of the Jinhe Coal Mine by Liupanshui Hidili to Guizhou Fengxinyuan and Panxian Qingyuan at a consideration of RMB570,000,000 (equivalent to approximately HK$716,368,000).

The principal terms of the Jinhe Agreement are as follows:

Date

2 September 2013

Parties

(1) Liupanshui Hidili
(2) Guizhou Fengxinyuan
(3) Panxian Qingyuan

Target assets

Pursuant to the Jinhe Agreement, Guizhou Fengxinyuan and Panxian Qingyuan will acquire the Jinhe Coal Mine from Liupanshui Hidili.

Consideration

The consideration for the sale of the Jinhe Coal Mine is RMB570,000,000 (equivalent to approximately HK$716,368,000), which was determined after arm’s length negotiation among the parties to the Jinhe Agreement with reference to, among other things, the valuation of the net assets value of the Jinhe Coal Mine as at 31 July 2013 as appraised by Sichuan Huaxia, which is an independent valuer appointed by Liupanshui Hidili.

Guizhou Fengxinyuan and Panxian Qingyuan must pay the consideration to Liupanshui Hidili in cash in the following manner:

(a) upon signing of the Jinhe Agreement, Guizhou Fengxinyuan and Panxian Qingyuan must pay 20% of the consideration amounting to RMB114,000,000 (equivalent to approximately HK$143,274,000) to Liupanshui Hidili on or before 5 September 2013;
(b) upon the completion of the disposal contemplated under the Jinhe Agreement, Guizhou Fengxinyuan and Panxian Qingyuan must pay 30% of the consideration amounting to RMB171,000,000 (equivalent to approximately HK$214,910,000) to Liupanshui Hidili on or before 25 September 2013;

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LETTER FROM THE BOARD

(c) if the registration on the change in ownership of the Jinhe Coal Mine with the relevant authorities in the PRC can be completed on or before 31 December 2013, Guizhou Fengxinyuan and Panxian Qingyuan must pay the remaining consideration amounting to RMB285,000,000 (equivalent to approximately HK$358,184,000) to Liupanshui Hidili on or before 31 December 2013;
(d) if the registration on the change in ownership of the Jinhe Coal Mine with the relevant authorities in the PRC cannot be completed by 31 December 2013, Guizhou Fengxinyuan and Panxian Qingyuan must pay 20% of the consideration amounting to RMB114,000,000 (equivalent to approximately HK$143,274,000) to Liupanshui Hidili on or before 31 December 2013. The remaining consideration amounting to RMB171,000,000 (equivalent to approximately HK$214,910,000) must be paid by Guizhou Fengxinyuan and Panxian Qingyuan to Liupanshui Hidili within 15 business days upon the completion of such registration. If the registration cannot be completed by 31 December 2013 due to the default of Guizhou Fengxinyuan and Panxian Qingyuan, Guizhou Fengxinyuan and Panxian Qingyuan must pay a capital utilisation fee at a rate of 20% per annum accrued on a daily basis on the remaining consideration to Liupanshui Hidili. In any event, the remaining consideration must be settled on or before 30 June 2014.

As at the Latest Practicable Date, the consideration for the sale of Jinhe Coal Mine had been fully received.

Completion

Completion of the disposal contemplated under the Jinhe Agreement shall take place within two days after the settlement of the first stage payment (being 20% of the consideration amounting to RMB114,000,000 (equivalent to approximately HK$143,274,000)) by Guizhou Fengxinyuan and Panxian Qingyuan.

Conditions for completion

Completion of the Jinhe Agreement is subject to, among others, the validity and performance of the Dongguaao Agreement and the approval of the Shareholders.

As at the Latest Practicable Date, completion of the Jinhe Agreement had taken place.

Undertakings, representations and warranties

Liupanshui Hidili undertakes to Guizhou Fengxinyuan and Panxian Qingyuan, among others, that (i) it is the sole legal and beneficial owner of the Jinhe Coal Mine; (ii) it has complied with the relevant regulatory requirements in respect of the Jinhe Coal Mine, including obtaining the necessary licences and approvals; and (iii) the Jinhe Coal Mine is not the subject of any charges or securities.

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LETTER FROM THE BOARD

Guizhou Fengxinyuan and Panxian Qingyuan undertake to Liupanshui Hidili, among others, that they possess the necessary qualifications and abilities to acquire the Jinhe Coal Mine.

Termination

The Jinhe Agreement will terminate immediately upon the occurrence of, among others, the following events:

(a) if the obligations of the parties under the Jinhe Agreement cannot be performed within 60 days after the occurrence of any of the force majeure events as defined in the Jinhe Agreement; or
(b) if Guizhou Fengxinyuan and Panxian Qingyuan issue a notice of termination in writing to Liupanshui Hidili due to the breach of the undertakings, representations and warranties of Liupanshui Hidili under the Jinhe Agreement.

Guarantee

Guangxi Logistics agrees to guarantee the performance of the obligations of Guizhou Fengxinyuan and Panxian Qingyuan under the Jinhe Agreement from the execution date of the Jinhe Agreement to 31 December 2014.

The Dongguaao Agreement

On 2 September 2013, Panxian Hengji, Guizhou Fengxinyuan and Panxian Qingyuan entered into the Dongguaao Agreement pursuant to which the parties conditionally agreed to the sale of the Dongguaao Coal Mine by Panxian Hengji to Guizhou Fengxinyuan and Panxian Qingyuan at a consideration of RMB344,170,000 (equivalent to approximately HK$432,548,000).

The principal terms of the Dongguaao Agreement are as follows:

Date

2 September 2013

Parties

(1) Panxian Hengji
(2) Guizhou Fengxinyuan
(3) Panxian Qingyuan

Target assets

Pursuant to the Dongguaao Agreement, Guizhou Fengxinyuan and Panxian Qingyuan will acquire the Dongguaao Coal Mine from Panxian Hengji.

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LETTER FROM THE BOARD

Consideration

The consideration for the sale of the Dongguaao Coal Mine is RMB344,170,000 (equivalent to approximately HK$432,548,000), which was determined after arm’s length negotiation among the parties to the Dongguaao Agreement with reference to, among other things, the valuation of the net assets value of the Dongguaao Coal Mine as at 31 July 2013 as appraised by Sichuan Huaxia, which is an independent valuer appointed by Panxian Hengji.

Guizhou Fengxinyuan and Panxian Qingyuan must pay the consideration to Panxian Hengji in cash in the following manner:

(a) upon signing of the Dongguaao Agreement, Guizhou Fengxinyuan and Panxian Qingyuan must pay 20% of the consideration amounting to RMB68,834,000 (equivalent to approximately HK$86,510,000) to Panxian Hengji on or before 5 September 2013;
(b) upon the completion of the disposal contemplated under the Dongguaao Agreement, Guizhou Fengxinyuan and Panxian Qingyuan must pay 30% of the consideration amounting to RMB103,251,000 (equivalent to approximately HK$129,764,000) to Panxian Hengji on or before 25 September 2013;
(c) if the registration on the change in ownership of the Dongguaao Coal Mine with the relevant authorities in the PRC can be completed on or before 31 December 2013, Guizhou Fengxinyuan and Panxian Qingyuan must pay the remaining consideration amounting to RMB172,085,000 (equivalent to approximately HK$216,274,000) to Panxian Hengji on or before 31 December 2013;
(d) if the registration on the change in ownership of the Dongguaao Coal Mine with the relevant authorities in the PRC cannot be completed by 31 December 2013, Guizhou Fengxinyuan and Panxian Qingyuan must pay 20% of the consideration amounting to RMB68,834,000 (equivalent to approximately HK$86,510,000) to Panxian Hengji on or before 31 December 2013. The remaining consideration amounting to RMB103,251,000 (equivalent to approximately HK$129,764,000) must be paid by Guizhou Fengxinyuan and Panxian Qingyuan to Panxian Hengji within 15 business days upon the completion of such registration. If the registration cannot be completed by 31 December 2013 due to the default of Guizhou Fengxinyuan and Panxian Qingyuan, Guizhou Fengxinyuan and Panxian Qingyuan must pay a capital utilisation fee at a rate of 20% per annum accrued on a daily basis on the remaining consideration to Panxian Hengji. In any event, the remaining consideration must be settled on or before 30 June 2014.

As at the Latest Practicable Date, the consideration for the sale of Dongguaao Coal Mine had been fully received.

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LETTER FROM THE BOARD

Completion

Completion of the disposal contemplated under the Dongguaao Agreement shall take place within two days after the settlement of the first stage payment of the consideration (being 20% of the consideration amounting to RMB68,834,000 (equivalent to approximately HK$86,510,000)) by Guizhou Fengxinyuan and Panxian Qingyuan.

Conditions for completion

Completion of the Dongguaao Agreement is subject to, among others, the validity and performance of the Jinhe Agreement and the approval of the Shareholders.

As at the Latest Practicable Date, completion of the Dongguaao Agreement had taken place.

Undertakings, representations and warranties

Panxian Hengji undertakes to Guizhou Fengxinyuan and Panxian Qingyuan, among others, that: (i) it is the sole legal and beneficial owner of the Dongguaao Coal Mine; (ii) it has complied with the relevant regulatory requirements in respect of the Dongguaao Coal Mine, including obtaining the necessary licences and approvals; and (iii) the Dongguaao Coal Mine is not the subject of any charges or securities.

Guizhou Fengxinyuan and Panxian Qingyuan undertake to Panxian Hengji, among others, that they possess the necessary qualifications and abilities to acquire the Dongguaao Coal Mine.

Termination

The Dongguaao Agreement will terminate immediately upon the occurrence of, among others, the following events:

(a) if the obligations of the parties under the Dongguaao Agreement cannot be performed within 60 days after the occurrence of any of the force majeure events as defined in the Dongguaao Agreement; or
(b) if Guizhou Fengxinyuan and Panxian Qingyuan issue a notice of termination in writing to Panxian Hengji due to the breach of the undertakings, representations and warranties of Panxian Hengji under the Dongguaao Agreement.

Guarantee

Guangxi Logistics agrees to guarantee the performance of the obligations of Guizhou Fengxinyuan and Panxian Qingyuan, under the Dongguaao Agreement from the execution date of the Dongguaao Agreement to 31 December 2014.

Liupanshui Hidili agrees to guarantee the performance of the obligations of Panxian Hengji under the Dongguaao Agreement from the execution date of the Dongguaao Agreement to 31 December 2014.

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LETTER FROM THE BOARD

ACCOUNTING IMPACT AFTER THE DISPOSALS

Upon Completion, the Group expects that it would realise a gain on the Disposals of approximately RMB10,600,000, which is calculated based on the aggregate consideration for the sale of the Dongguaao Coal Mine and Jinhe Coal Mine of RMB914,170,000 and after deducting the combined net book value of the Dongguaao Coal Mine and Jinhe Coal Mine as at 31 July 2013 of approximately RMB903,570,000.

INFORMATION OF THE GROUP, THE TARGET ASSETS, LIUPANSHUI HIDILI, PANXIAN HENGJI, GUIZHOU FENGXINYUAN, PANXIAN QINGYUAN AND GUANGXI LOGISTICS

The Group

The Company was incorporated in the Cayman Islands and registered as an exempted company with limited liability on 1 September 2006 and has been listed on the Stock Exchange since 21 September 2007.

The Group is one of the largest integrated coal enterprises in South West China and is principally engaged in coal mining and processing and sales of clean coal, coke, alloy pig iron and related by-products.

Liupanshui Hidili

Liupanshui Hidili is a limited liability company established in the PRC and is a whollyowned subsidiary of the Company. Its principal activities are coal mining and investment holding.

Panxian Hengji

Panxian Hengji is a limited liability company established in the PRC and is an indirect non wholly-owned subsidiary of the Company. Its principal activity is coal mining.

Guizhou Fengxinyuan

Guizhou Fengxinyuan is a limited liability company established in the PRC. Its principal activities are investment holding, coal mining, coal washing and coking. Guizhou Fengxinyuan holds 51% equity interest in Panxian Qingyuan.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Guizhou Fengxinyuan and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

Panxian Qingyuan

Panxian Qingyuan is a limited liability company established in the PRC. Its principal activity is trading of coal products.

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LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Panxian Qingyuan and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

Guangxi Logistics

Guangxi Logistics is a limited liability company established in the PRC. Guangxi Logistics is a state-owned enterprise and its principal activities are provision of logistic and storage services in Guangxi province, trading of commodities, mining and investment holding. Guangxi Logistics holds 49% equity interest of Guizhou Fengxinyuan.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Guangxi Logistics and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

Target assets

Jinhe Coal Mine is located in Baiguozhen, Liupanshui, Guizhou province. Jinhe Coal Mine is still under construction and has not yet commenced mining operation. The planned production capacity of Jinhe Coal Mine is 450,000 tonnes per annum. As at 31 July 2013, the net book value of Jinhe Coal Mine amounted to approximately RMB573,645,000, prepared in accordance with accounting principles generally accepted in the PRC.

Dongguaao Coal Mine is located in Baiguozhen, Liupanshui, Guizhou province. Dongguaao Coal Mine has obtained production permit in September 2012 with production capacity of 300,000 tonnes per annum. As at 31 July 2013, the net book value of Dongguaao Coal Mine amounted to approximately RMB329,925,000, prepared in accordance with accounting principles generally accepted in the PRC.

With reference to the Competent Person’s Report, the coal resources and reserves estimation of Jinhe Coal Mine and Dongguaao Coal Mine as of 31 December 2013 are as follows:

Mines Jinhe Dongguaao Total Notes:	JORC Coal Resource (Mt) Measured Indicated Inferred Total — — 27 27 — — 6 6 — — 33 33	JORC Coal Reserve (Mt) Proved Probable Total — — — — — — — — —	JORC Coal Reserve (Mt) Proved Probable Total — — — — — — — — —
			—

i. The coal resources estimation for the coal mines have been reported in accordance with the recommended guidelines of the 2012 JORC Code and the Australian Coal Guidelines.
ii. No estimation can be made in respect of coal reserves in the coal mines in accordance with the recommended guidelines of the 2012 JORC Code.
iii. The Statement of Coal Resource stated above must be read in conjunction with the Competent Person’s Report.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE DISPOSALS AND USE OF PROCEEDS

Undergoing coal mines consolidation in Guizhou province, the Group has carefully assessed further capital expenditures required together with future operating cash flow generated from both Jinhe Coal Mine and Dongguaao Coal Mine in the coming two to three financial years.

The Directors believe that the Disposals can help to strengthen the Group’s current liquidity position since (i) the proceeds from the Disposals will be used for repayment of certain short term debts and (ii) capital expenditures originally assigned to Jinhe Coal Mine can be released and well allocated to other coal mines under construction in order to speed up the development process.

Taking into account the valuation of the net assets value of the Jinhe Coal Mine and the Dongguaao Coal Mine as at 31 July 2013 as appraised by Sichuan Huaxia, the aggregate net assets value of the Jinhe Coal Mine and the Dongguaao Coal Mine amounted to approximately RMB0.9 billion. The mining rights and structures as at 31 July 2013 were revalued based on a market comparable approach with reference to the estimated recoverable reserves of the coal mines. Other tangible assets were revalued based on fair market value.

The valuation of mining rights was made using the market comparable approach which considers the sales of similar or substituted mineral assets or properties and related market data, and establishes a value estimate by a comparison process. For the mining and metals sector, the methodologies applied involved an indirect means which seeks to compare the subject mineral asset or property to similar mineral assets or properties which have been sold/ transacted in an open market.

Accordingly, the value in this instance is established by the principle of substitution which means that if one thing is similar to another and could be used for the other, then they must be equal. Furthermore, the price of two alike and similar items should approximate to one another. Examples of valuation of methods used in the market comparable approach include the guideline company methods, the guideline transaction method, the analysis of prior transactions in the ownership of the subject company, and the rules of thumb. The mineral asset or property used for comparison must serve as a reasonable basis for comparison and factors to be considered in judging whether a reasonable basis for comparison exists include:

. a sufficient similarity of qualitative and quantitative investment characteristics;
. the amount and verifiability of data known about the similar investment; and/or
. whether or not the price of the similar investment was obtained in an arm’s length transaction, or a forced or distressed sale.

The basis and assumptions used in the valuation of other mining assets under the fair market value considers the amount of money (or the cash equivalent of some other consideration) determined by the relevant expert for which the mineral asset should change hands on the relevant date in an open and unrestricted market between a willing buyer and a willing seller in an ‘‘arm’s length’’ transaction, with each party acting, knowledgeably,

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LETTER FROM THE BOARD

prudently and without compulsion. The fair market value is usually comprised of two components, namely the underlying technical value of the mineral asset (defined herein), and a premium or discount related to market, strategic or other considerations.

The main assumptions and basis adopted by Sichuan Huaxia in the valuation of the net assets value of Jinhe Coal Mine and Dongguaao Coal Mine are as follows:

. The estimate of In Situ Coal under the Chinese Code classification (122b) at 31 July 2013 of Jinhe Coal Mine and Dongguaao Coal Mine amounted to 8.7 million tonnes and 13.2 million tonnes respectively;
. The ROM production capacity of Jinhe Coal Mine and Dongguaao Coal Mine is 450,000 tonnes per annum and 300,000 tonnes per annum respectively; and
. The book value of the tangible assets at 31 July 2013 of Jinhe Coal Mine and Dongguaao Coal Mine amounted to approximately RMB337 million and RMB230 million respectively.

In conclusion, the Directors (including the independent non-executive Directors) believe that the terms and conditions of the Disposals are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

As the applicable percentage ratios for the Disposals will exceed 25% but are less than 75%, the Disposals constitute major transactions for the Company under the Listing Rules. Therefore, the Disposals are subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules. Under the Listing Rules, completion of the Disposals is subject to the Shareholders’ approval.

So far as the Company is aware, none of the Shareholders is materially interested in the Disposals. As such, no Shareholder is required to abstain from voting if general meeting were to be convened to approve the Disposals.

Sanlian, which is interested in 1,100,674,000 Shares, representing approximately 53.81% of the existing issued share capital of the Company as at 3 September 2013, has given a written shareholder’s approval to the Disposals in lieu of holding a general meeting pursuant to Rule 14.44 of the Listing Rules. As such, no Shareholders’ meeting will be held to approve the Disposals pursuant to Rule 14.44 of the Listing Rules.

None of the Directors has any material interest in the transactions contemplated under the Jinhe Agreement and the Dongguaao Agreement and thus none of them is required to abstain from voting on the relevant Board resolutions approving such transactions.

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LETTER FROM THE BOARD

RECOMMENDATION

The Board considers that the terms of the Jinhe Agreement and the Dongguaao Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Directors recommend the Shareholders to vote in favour of the resolutions if the Company were to convene a general meeting for the approval of the Disposals and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board

HIDILI INDUSTRY INTERNATIONAL DEVELOPMENT LIMITED Xian Yang Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2013 is disclosed on pages 40 to 127 of the 2013 annual report of the Company dated 31 March 2014; (ii) for the year ended 31 December 2012 is disclosed on pages 40 to 115 of the 2012 annual report of the Company dated 24 May 2013; and (iii) for the year ended 31 December 2011 is disclosed on pages 42 to 127 of the 2011 annual report of the Company dated 20 March 2012.

All these financial statements have been published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http://www.hidili.com.cn).

2. INDEBTEDNESS

As at the close of business on 30 April 2014 (being the latest practicable date for ascertaining information regarding this indebtedness statement), the Group had total outstanding borrowings of approximately RMB7,985 million. The borrowings comprised secured bank and other loans of approximately RMB4,825 million, unsecured bank and other loans of approximately RMB750 million, discounted bills with recourse of approximately RMB96 million, convertible loan notes of approximately RMB7 million and senior notes of approximately RMB2,307 million. The Group’s borrowings were secured by (i) certain assets held by the Group with aggregate net book values of approximately RMB2,562 million as at 30 April 2014; (ii) pledge of certain fixed deposits of the Group of approximately RMB889 million as at 30 April 2014; (iii) bills receivables discounted with recourse of approximately RMB96 million and (iv) equity interest in certain subsidiaries of the Company. Save as aforesaid, and apart from intragroup liabilities, the Group did not have any bank loans, bank overdrafts and liabilities under acceptances (other than normal trade bills) or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 April 2014. For the purpose of the above indebtedness statement, foreign currency amounts have been translated into RMB at the rates of the exchange prevailing at the close of business on 30 April 2014.

3. WORKING CAPITAL

The Directors are of the opinion that the Group will have sufficient working capital to finance its operations and to meet its financial obligations as and when they fall due for the foreseeable future, taking into consideration of presently available unutilised banking facilities of approximately RMB4,170 million which are repayable after 12 months from drawn down. The Directors confirm that, after taking into account the effect of the Disposals and the present internal financial resources available to the Group, including internally generated cash flows and the existing banking and credit facilities available, the Group has sufficient working capital for its present requirements in next 12 months from the date of this circular in the absence of unforeseen material circumstances.

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APPENDIX I

4. FINANCIAL AND TRADING PROSPECTS

Upon Completion, the Group will focus on the mining operation in Sichuan and Guizhou provinces.

All the Group’s existing coal mines located in Guizhou province and Sichuan province are in consolidation in accordance with relevant policies issued by the government authorities. As at the Latest Practicable Date, nine consolidated core mines were designated in Guizhou province and five consolidated core mines were designated in Sichuan province.

Under the nine consolidated core mines in Guizhou province: (i) one mine has entered into trial run under the requirement of the consolidation plan; (ii) four mines are allowed to undergo consolidation and production at the same time; and (iii) four mines are under construction.

The current aggregate production capacity of the five mines under production is approximately 1.95 million tonnes per annum. Three mines under construction will enter into the trial run production in the second half of 2014. The remaining mine under construction will enter into the trial run production in 2015. The aggregate production capacity of the nine consolidated core mines after consolidation is expected to be approximately 6.15 million tonnes per annum. The raw coal production volume in 2014 is expected to be approximately 1.8 million tonnes.

Under the five consolidated core mines in Sichuan province: (i) two mines have applied for resumption of production under the requirement of the consolidation plan; and (ii) three mines are under construction.

Currently, two mines have resumed production with production capacity of 0.36 million tonnes per annum. The remaining mines under construction will resume production in the second half of 2014. The aggregate production capacity of the six consolidated core mines after consolidation is expected to be approximately 1.77 million tonnes per annum. The raw coal production volume in 2014 is expected to be approximately 0.2 million tonnes.

The proceeds from the Disposals will help to improve the Group’s working capital position.

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EXECUTIVE SUMMARY

Sichuan Hidili Industry Limited

Unit 1605, 16/F, Block B, Century Center of Air China, 1 Hangkong Road, Wuhou District, Chengdu, China

27th June 2014

RE: JORC Coal Resource

Dear Sirs,

Core Global Mining Solutions (Beijing) Co, trading as RungePincockMinarco (‘‘RPM’’), has been commercially engaged by Sichuan Hidili Industry Limited (the ‘‘Client’’ or the ‘‘Company’’) on behalf of Hidili Industry International Limited, to compile a Competent Person’s Report (the ‘‘Report’’) of two coal mines located in Guizhou Province, People’s Republic of China, namely the Dongguaao and Baiguojinhe mines, (the ‘‘Mines’’ or the ‘‘Relevant Assets’’). Sichuan Hidili Industry Limited is a wholly owned subsidiary of Hidili Industry International Development Limited which is a Hong Kong Stock Exchange listed company. RPM understands the Report will be included in a Hong Kong Stock Exchange (‘‘HKEx’’) Circular in relation to a significant divestment of the Mines to a third party which was announced in September, 2013.

The Report includes estimates of Coal Resources (as defined within Annexure B) within the Relevant Assets which have been prepared in accordance with ‘‘The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code, 2012 edition’’ (the ‘‘JORC Code’’) and the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (March, 2003) (‘‘Australian Coal Guidelines’’). RPM’s technical team (‘‘the Team’’) consisted of Competent Persons, international consultants, Chinese nationals, senior mining engineers and geologists. The Team undertook several site visits to the Mines to familiarise themselves with site conditions. RPM’s senior personnel were responsible for compiling the Report and the JORC Statement of Coal Resources, stated within.

During the site visits, the Team had open discussions with the Company’s personnel on technical aspects relating to the relevant issues. The Company’s personnel were cooperative and open in facilitating RPM’s work.

In addition to work undertaken to generate independent JORC Coal Resources, this Report relies largely on information provided by the Client, either directly from the site and other offices, or from reports by other organisations whose work is the property of the Client. The data relied upon for the JORC Coal Resource estimates completed by RPM have been compiled primarily by the Client and subsequently reviewed by RPM. The Report is based on information made available to RPM as at 31st December, 2013. The Client has not advised RPM of any material change, or event likely to cause material change, to the underlying data, designs or forecasts since the date of asset inspections.

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Mine Summary

. The Mines are located in Pan County, Liupanshui Prefecture, in south western Guizhou, People’s Republic of China (‘‘PRC’’ or ‘‘China’’) and consist of two underground coal operations with ROM coal planned to be sold at an agreed upon price to third party wash plants owned by the Company.
. In 2012, consolidation of licences resulted in the issuing of the Mining Rights Permits to the Company. Subsequently, the Mines underwent technical reform to expand the production capacity to augment production. RPM understands that while expansion of the Dongguaao mine has been completed with production steadily rising to meet the planned capacity, construction is on-going at the Baiguojinhe mine and is scheduled to be completed in June, 2014.
. The Mines have been in operation for a number of years and in 2012, total Run of Mine (‘‘ROM’’) coal production from both mines was approximately 280 kt, while approximately 95 kt was produced in 2013 predominately from Dongguaao with production at Baiguojinhe suspended. RPM notes that a review of the recent production performance of the Mines indicates that both have failed to reach its forecast production over the previous three years. During discussion with site personnel and Company technical staff RPM was informed these missed production targets are the result of delays in construction and mine development and operations coming on line.
. Presently, the Dongguaao coal mine is in production with a designed capacity of 300 ktpa while the Baiguojinhe coal mine is undergoing construction to expand the production capacity from 150 ktpa to 450 ktpa. RPM understands full production at design capacities is planned to be achieved in 2015 for both mines, however RPM considers this target to be optimistic and detailed short and medium mine planning is required to confirm the forecasts can be met. Each mine is contained within a single approved valid Mining Rights Permit, which is constrained by a horizontal surface area, vertical limitations and production capacities as per Chinese regulations. RPM notes that estimation of the Coal Resources as stated within the Report is restricted by the boundaries of the Mining Rights Permits and excludes the Mineable Coal Seams below the vertical limitation.
. Site visits were conducted by RPM’s technical team (‘‘the Team’’) to the Mines in March 2013 and April 2014. The Team consisted of Executive Consultants (Mr Hong Zhao, Mr Kevin Qu) and Consultant Geologist Song Huang. During the site visits, the Team inspected the surface, the underground operations, access roads and conducted general inspections of the surrounding areas. Relevant geology institutes were visited and open discussions were held with Company experts relating to the technical issues of the Mines.

JORC Coal Resource Estimates

. The data supplied indicates that typical Chinese exploration techniques have been employed. However, RPM has not been supplied with original documentation, including complete dataset for core recovery for the historical bore holes or the Coal Quality Determinations for verification. RPM’s review indicates the underlying data meets the requirements of the Chinese Code, however was unable to confirm the location of the

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historic bore holes. As all geology reports were reviewed by the provincial resource management department, RPM considers that volume estimates based on the historical data are likely to be reasonable.

. The Coal Resources for the Mine have been independently estimated and reported as at 31st December, 2013 by RPM in accordance with the JORC Code 2012 edition and the Australian Coal Guidelines. A minimum thickness cut-off of 0.7 m was applied to determine potentially mineable coal seams. RPM notes the following:
No minimum sulphur content was applied to the Resource Estimate,
All coal seams were modelled with unconstrained Total Sulphur content,
Seams 23U, 23L and 24 have Points of Observation with ‘‘moderate to very high’’ Total Sulphur content, however their total weighted averages are all 53%.

Further definition of the parameters used to report the coal quantities are provided in Section 7.3. The Coal Resources quantities and coal quality estimates within the current Mining Right Permit and amendments are shown in Table A below.

Table A Statement of JORC Inferred Coal Resource Quantities and Qualities as at 31st December, 2013.

Baiguojinhe Seams 2 6U 7U 8 9 10 12 14L 16U 18–1U 18–2 19 23U 23L 24 25 30U TOTAL (Averages*)	Inf 2.5 1.5 0.4 1.25 0.65 1.95 3.4 0.95 2.6 4.4 0.95 2 1.05 0.7 0.85 0.85 0.95 27.0	Total (Mt) 2.5 1.5 0.4 1.25 0.65 1.95 3.4 0.95 2.6 4.4 0.95 2 1.05 0.7 0.85 0.85 0.95 27.0	RAW ASH — Coal Only (%) 18.3 22.8 31.8 22.0 21.6 16.8 13.4 33.2 21.3 12.4 18.4 20.6 35.3 25.7 33.2 32.6 44.5 21.1*	Coal Seam Total Ash (%) 18.3 22.8 31.8 22.0 21.6 16.8 13.4 33.2 21.3 12.4 18.4 20.6 35.3 25.7 33.2 32.6 44.5 21.1*	Moisture (%) 2.7 1.8 1.4 1.3 1.5 1.4 1.3 1.4 1.3 1.7 1.1 1.1 1.2 1.3 1.0 1.0 1.4 1.5*	Specific Energy (MJ/KG) 34.8 35.0 34.8 34.8 36.0 35.7 35.8 35.1 35.4 35.8 35.7 35.7 35.7 35.7 35.8 35.8 34.8 35.5*	RD (t/cu.m) 1.45 1.44 1.38 1.5 1.45 1.33 1.36 1.47 1.42 1.37 1.41 1.44 1.4 1.4 1.35 1.47 1.49 1.41*	Total Sulphur (%) 0.23 0.24 0.23 0.41 0.2 0.36 0.23 0.15 0.13 0.18 0.14 0.9 2.56 0.95 1.86 0.47 0.16 0.44*	Volatile Matter (%) 33.3 35.2 35.7 36.4 33.1 34.7 35.8 19.6 34.1 33.9 33.6 34.4 17.5 33.4 34.7 3.7 36.4 32.4*

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Dongguaao Seams 2 6U 7U 8 9 10 12 15U 16U 18–1U 19 23U 24 25 30U TOTAL (Averages*)	Inf 0.2 0.1 0.1 0.1 0.1 0.3 0.6 0.1 0.4 0.8 0.6 0.6 0.6 0.7 0.3 6	Total (Mt) 0.2 0.1 0.1 0.1 0.1 0.3 0.7 0 0.1 0.4 0.9 0.6 0.6 0.7 0.3 6	RAW ASH — Coal Only (%) 14.9 26.9 34.5 22.0 24.5 15.3 15.2 30.2 18.2 13.2 24.6 38.6 37.9 32.6 44.4 26.7*	Coal Seam Total Ash (%) 25.9 39.0 38.7 25.6 28.2 27.1 18.3 31.5 19.2 17.0 24.6 38.6 37.9 32.6 44.4 28.9*	Moisture (%) 2.9 2.0 1.4 1.4 1.5 1.6 1.5 1.3 1.3 1.9 1.4 1.6 1.1 1.0 1.4 1.5*	Specific Energy (MJ/KG) 35.1 35.0 34.8 34.8 36.0 35.7 35.7 35.1 35.4 35.8 35.7 35.7 36.0 35.8 34.9 35.6*	RD (t/cu.m) 1.43 1.47 1.38 1.53 1.45 1.33 1.36 1.51 1.42 1.38 1.45 1.40 1.35 1.47 1.48 1.50*	Total Sulphur (%) 0.22 0.20 0.27 0.36 0.18 0.38 0.26 0.13 0.16 0.19 0.69 2.58 2.06 0.47 0.16 0.77*	Volatile Matter (%) 33.2 34.9 35.9 36.7 33.2 34.6 35.9 36.3 33.0 33.8 34.9 31.8 36.5 3.7 36.4 33.2*

Notes:

All Coal Resources figures reported in the table above represent estimates at 31st December, 2013. Coal Resource estimates are not precise calculations, being dependent on the interpretation of limited information on the location, shape and continuity of the occurrence and on the available sampling results. The totals contained in the above table have been rounded to reflect the relative uncertainty of the estimate. Rounding may cause some computational discrepancies.
Coal Resources are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The Joint Ore Reserves Committee Code — JORC 2012 Edition).
Coal Seams are reported as per the Mining Right Permit.
Constant Values for RD were used for Seams 9, 25, 30U from both mine site using ash regression analysis.
Constant Values for Specific Energy were applied to seams 8, 9, 19, 23L, 24, and 30U for Baiguojinhe from modelled Dongguao Results).
Total Resource Tonnes are all reported as ‘‘Inferred’’ Resource Category.
. RPM notes that while the mining depletion of the Baiguojinhe mine is as at 31st December, 2013 the physical depletion provided to RPM is as at 31st August, 2013. Whilst no actual production figures were provided RPM has reviewed the mine plan and completed estimated depletion areas. The likely mining areas were considered and no material difference was found to occur if the actual deletion shapes were utilised. As such, RPM considers that no material change would occur utilising accurate depletion areas and as such have reported the Coal Resources as at the 31st December, 2013.
. As no Indicated or Measured Coal Resources have been estimated, no Coal Reserves have been estimated.

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Chinese Coal Resource Estimates

. RPM notes that the Resource Reconciliation reports were completed by design institutes in 2008 and 2010, and have not been updated to reflect mining to August, 2013. As a result, RPM has re-estimated the coal resource using the same methodology as the Design institutes to reflect these updated reports. The updated Chinese coal resources have not been verified by the relevant Design Institute, but are not approved by the relevant authority and are presented for information only.
. Within the current Mining Rights Permits 38.9 Mt of In Situ Coal was defined following the Chinese Standards as outlined below. The detail estimate of In Situ Coal under the Chinese Code classification is shown in Table B. RPM notes these are note reported in accordance with the recommended guidelines of the JORC Code

Table B In Situ Quantity Estimate as at 31st August, 2013

Mine Dongguaao Baiguojinhe* Total	111b — 9.1 9.1	121b — — 0	Quantity (Million 122b 331 13.2 — 8.7 — 21.9 0	tonnes) 332 — — 0	333 — 8 8	Total 13.2 25.7
						38.9

Based on the 2008 Reconciliation Geology report in Dongguaao and 2011 Reconciliation Geology Report in Baiguojinhe and the approved opinion letter

There is 0.56 Mt more, the sulphur of which is more than 3%

Mining Method and Production

The Company has previously engaged the Guizhou Coal Mine Design and Research Institute to complete Chinese mining plan designs for the Mines. RPM completed a review of these designs and associated design reports, production profile, operations history and costs. Below is a summary of the review of these reports and also includes observations made by RPM during the site visits.

. The geological reports and mine plans for the Mines categorise the mineable seams into thin (0.7–1.3m) or moderate (1.3–3.5m) coal seam thickness with the majority having dips ranging between 20º and 60º from horizontal. The mine designs are based on the Chinese design code and given the geometry, the code indicates that either drill and blast or modified mechanised longwall mining methods are to be employed to extract the coal. The planned mining methods vary between the Mines with the drill and blast longwall method being employed at the Dongguaao mine and the modified mechanised method planned for Baiguojinhe Mine following construction and recommencement of production. These methods are particularly

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prevalent in Guizhou province, where the coal seams are generally thin and dipping. RPM considers the methods appropriate for the coal seam geometry and orientations observed.

. RPM understands that all relevant permits, licence and approvals are supplied for full production within the Dongguaao mine. RPM notes the increase of production at the Baiguojinhe mine is planned to coincide with the receipt of relevant permits, licences and approvals and completion of trial production at the increased capacity. RPM notes that it has not reviewed the application process of the Mines and if the approval process timing coincides with the planned expansions. RPM considers the project development schedule, while technically achievable, to be optimistic and recommends that a full review of the Life of Mine forecast schedules for each mine to be carried out in order to better reflect likely production profiles and timing of full production.
. Based on the Chinese design reports and recent production performance, the forecast total mine operating costs are 152 RMB/t of ROM coal and 293 RMB/t of ROM coal for Dongguaao and Baiguojinhe mines respectively. RPM notes that it has not independently reviewed the operating costs, and the information is sourced from the Chinese studies. RPM presents this information for reference only.
. RPM considers the estimated capital costs to be reasonable for the forecast production and understands the estimate is based on the latest available construction, contract rates and the Companies development plans approved by relevant authorities. Capital costs over the next three years vary depending on the development stage of the mine, however are forecast to range from 3.91 Million RMB up to 55.88 Million RMB per annum over the next four years with a total forecast combined expenditure for the Mines being approximately 128 Million RMB.
. A high level review of the environmental, health and safety indicates that the Mines have typical risks which are associated with mines of these styles within the region. During the site visit RPM noted that appropriate procedures are in place to manage the associated risks and that the Company is following the required regulations of the provinces.

The key opportunities identified for the Mines during the review are outlined below:

. The JORC Coal Resource statements in this Report are within the horizontal and vertical limits of the current mining licences only. RPM is aware that the Mineable Coal Seams extend below the current elevation restrictions of the mining licences. RPM considers these areas to have excellent potential to increase coal quantities available and thereby the mine life if licences can successfully be extended into these areas.
. The Baiguojinhe Mine is currently undergoing expansion and will be introducing modified mechanised mining methods to increase production rates. When effectively operated, these modified mechanised methods would significantly improve the effective cost of mining. RPM notes that the forecasts costs are higher due to this introduction, however with detailed short and long term planning these costs could potentially be lowered.

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The key risks identified to the Mines during the review are outlined below:

. Core Recovery — The majority of the core recovery data was supplied for the historical bore holes with most drilling recoveries of less than 85%, which RPM considers low. Low core recovery may result in poor coal quality determination which are not representative.
. High Gas Content/Coal Dust — regions of high gas content has been identified as a characteristic of the mines, and is contributing factor ‘‘Outburst’’ (high volume ejection of coal from working face or rib — wall — upon mining). High concentrations of gas in a mine’s atmosphere may also cause gas explosion, and can further contribute to coal dust explosions from unprotected ribs. As a part of close management supervision, suitable proactive and reactive measures should be employed to mitigate these risks, such as gas drainage, adequate ventilation, stone dusting and implementing stone dust of water barriers to ensure safer operations.
. Water In-rush — An uncontrolled water in-rush event could be caused by water accumulated in the ‘‘Goaf’’ historically mined areas. The hydro-geological conditions are generally of a complex nature. Suitable barrier pillar and safety pillars between old workings and new workings should be maintained at all times.

RPM notes that several additional risks have been identified; these are presented in Section 12 of this report.

RPM operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to the resources and financial services industries. This Report was prepared on behalf of RPM by technical specialists, details of whose qualifications and experience are set out in Annexure A.

RPM has been paid, and has agreed to be paid, professional fees for its preparation of this Report. However, none of RPM or its directors, staff or sub-consultants who contributed to this Report has any interest or entitlement, direct or indirect in:

. the Company, securities of the Company or companies associated with the Company; or
. the Client, securities of the Client or companies associated with the Client; or
. the right or options in the relevant Mines.
. The work undertaken is a review of the information provided by or on behalf of the Company, as well as information collected during site inspections completed by RPM as part of the review process. It specifically excludes all aspects of legal issues, marketing, commercial and financing matters, insurance, land titles and usage agreements, and any other agreements/contracts that Company may have entered into.

RPM does not warrant the completeness or accuracy of information provided by the Company which has been used in the preparation of this Report.

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The title of this Report does not pass to the Client until all considerations have been paid in full.

Drafts of this Report were provided to the Client, but only for the purpose of confirming the accuracy of factual material and the reasonableness of assumptions relied upon in the Report.

Overall, the data available was sufficient for RPM to complete the scope of work. The cooperation of the company with RPM during the review process is reflected in the quality and quantity of data available. All opinions, findings and conclusions expressed in the Report are those of RPM and its specialist advisors.

Yours faithfully,

Michael Johnson (HKEx Competent Person) Core Global Mining Solutions (Beijing) Co, (trading as RungePincockMinarco)

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1	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
	1.1	Scope of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
	1.2	Relevant Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
	1.3	Review Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
	1.4	Site Visits and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
	1.5	Information Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
	1.6	Competent Person and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
		1.6.1 Coal Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
		1.6.2 HKEx Competent Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
		1.6.3 Limitations and Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
		1.6.4 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
		1.6.5 Responsibility and Context of this Report . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
		1.6.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
		1.6.7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
		1.6.8 Mining Unknown Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
		1.6.9 Capability and Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
2	MINE OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		37
	2.1	Mine Location and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
	2.2	Regional Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
3	LICENCE AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		39
4	MINE HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		44
	4.1	History of Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
	4.2	History of Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
5	LOCAL GEOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		46
	5.1	Stratigraphy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
	5.2	Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
	5.3	Coal Measure and Minable Coal Seams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
	5.4	Coal Quality and Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55

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6	DATA VERIFICATION . . . . . .	DATA VERIFICATION . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
	6.1	Desktop Review . . . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
		6.1.1 Drill Hole Data Review . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
	6.2	Site Visit Data Review . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
	6.3	Data Quality Review . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
	6.4	Coal Quality Data Review	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
7	JORC COAL RESOURCES . .		. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
	7.1	Coal Resource Classification System under the JORC Code . . . . . . . . . . . . . . . . . .			59
	7.2	Geological Model . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
	7.3	Resource Estimation Parameters . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	62
	7.4	Resource Classification . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
	7.5	Relative Density . . . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
	7.6	JORC Statement of Coal Resources . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
	7.7	JORC Coal Reserves . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
8	CHINESE COAL RESOURCE		ESTIMATE	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	67
9	MINING . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
	9.1	Mining Overview and Development . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	77
	9.2	Mining Operations . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
		9.2.1 Mining Method . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
		9.2.2 Mine Underground	Development	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
		9.2.3 Coal Extraction Methods . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80
		9.2.4 Surface Operations	. . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
	9.3	Mining Equipment . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	84
	9.4	Regional Infrastructure . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85
10	FORECAST PRODUCTION SCHEDULE .			. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85
	10.1	Life of Mine Analysis . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	86
11	OPERATING AND CAPITAL		COSTS . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	86
	11.1	Historical and Forecast Operating Costs		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	86
	11.2	Capital Costs . . . . . . . . . . . . .	. . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	88

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12	OVERVIEW OF EHSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	OVERVIEW OF EHSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	89
	12.1 Key Mining Related Safety Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		89
	12.1.1	Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	89
	12.1.2	Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	90
	12.1.3	Geotechnical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	90
	12.1.4	Dust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
	12.1.5	Fire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
	12.1.6	Goaf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
	12.1.7	Subsidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
	12.2 Rescue	Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
13	MINE RISKS AND OPPORTUNITY ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . .		93
	13.1 Risks	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	93
	13.2 Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		96

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List of Tables
TABLE 1–1 COORDINATES OF THE MINES
(XI’AN, 1980 COORDINATE SYSTEM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
TABLE 2–1 MINE STATUS, ASSOCIATED WASH PLANT AND STOCKPILES. . . . . .	37
TABLE 2–2 MINE LOCATION AND ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
TABLE 3–1 DONGGUAAO MINING RIGHT PERMIT DETAILS . . . . . . . . . . . . . . . . . . . . .	39
TABLE 3–2 DONGGUAAO MINING RIGHT PERMIT COORDINATES
(XI’AN 80 COORDINATE SYSTEM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
TABLE 3–3 BAIGUOJINHE MINING RIGHT PERMIT DETAILS . . . . . . . . . . . . . . . . . . . .	40
TABLE 3–4 BAIGUOJINHE MINING RIGHT PERMIT COOORDINATES
(XI’AN 80 COORDINATE SYSTEM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
TABLE 3–5 DETAILS OF OTHER PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
TABLE 4–1 EXPLORATION HISTORY OF THE MINES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
TABLE 4–2 HISTORICAL FORECAST AND ACTUAL ROM COAL
PRODUCTION (KTPA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
TABLE 5–1 STRATIGRAPHIC SEQUENCE OF THE MINES FROM
YOUNGEST TO OLDEST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
TABLE 5–2 OCCURRENCE AND CHARACTERISTIC OF FAULTS
IN THE VICINITY OF THE MINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
TABLE 5–3 CHARACTERISTICS OF MINABLE COAL SEAMS
FOR THE DONGGUAAO MINE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
TABLE 5–4 CHARACTERISTICS OF MINABLE COAL SEAMS FOR BAIGUOJINHE	52
TABLE 5–5 AVERAGE COAL QUALITY MOISTURE BASIS
FOR DONGGUAAO COAL MINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
TABLE 5–6 AVERAGE COAL QUALITY MOISTURE BASIS
FOR BAIGUOJINHE COAL MINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
TABLE 7–1 COAL RESOURCES ESTIMATION PARAMETERS . . . . . . . . . . . . . . . . . . . . .	62
TABLE 7–2 STATEMENT OF JORC INFERRED COAL RESOURCES
AS AT 31ST DECEMBER, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65
TABLE 8–1 IN SITU QUANTITY ESTIMATE AS AT 31ST AUGUST, 2013 . . . . . . . . . .	68
TABLE 9–1 PROJECT DEVELOPMENT SCHEDULE FOR THE MINES. . . . . . . . . . . . . .	77
TABLE 9–2 MINE DESIGN PARAMETERS FOR THE MINING OPERATIONS. . . . . . .	78
TABLE 9–3 SUMMARY OF APPLIED LONGWALL MINING METHODS
EMPLOYED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
TABLE 10–1 FEASIBILITY STUDY MINING SCHEDULE (ROM COAL) . . . . . . . . . . . .	85
TABLE 11–1 HISTORICAL AND FORECAST TOTAL MINING OPERATING
COSTS PER ROM COAL TONNES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87
TABLE 11–2 HISTORICAL AND FORECAST CAPITAL EXPENDTURE BY YEAR . .	89
TABLE 12–1 RECENT GAS GRADE TEST WORK COMPLETED FOR THE MINES. .	89
TABLE 13–1 HIDILI PROJECT–RISK ASSESSMENT TABLE . . . . . . . . . . . . . . . . . . . . . . .	93
TABLE A1 — MINING RELATED IPO AND CAPITAL RAISING
DUE DILIGENCE EXPERIENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	101

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List of Figures

FIGURE 2–1 GENERAL LOCATION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
FIGURE 3–1 DETAILED LOCATION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
FIGURE 3–2 BORE HOLE LOCATION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
FIGURE 5–1 GEOLOGY MAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
FIGURE 5–2 GEOLOGICAL CROSS SECTION (LINE IV) — DONGGUAAO . . . . . . . .	49
FIGURE 5–3 GEOLOGICAL CROSS SECTION (LINE VIII) — DONGGUAAO . . . . . . .	49
FIGURE 5–4 GEOLOGICAL CROSS SECTION (LINE III) — BAIGUOJINHE . . . . . . . .	50
FIGURE 5–5 GEOLOGICAL CROSS SECTION (ADDITIONAL LINE NO. 13)
— BAIGUOJINHE COAL MINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
FIGURE 5–6 COAL SEAM CORRELATION MAP FOR DONGGUAAO
AND BAIGUOJINHE COAL MINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
FIGURE 5–7 COAL SEAM CORRELATION MAP FOR DONGGUAAO
AND BAIGUOJINHE COAL MINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
FIGURE 5–8 TYPICAL STRATIGRAPHIC COLUMN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
FIGURE 5–9 CHINESE COAL QUALITY CLASSIFICATION MATRIX . . . . . . . . . . . . . .	56
FIGURE 8–1 TOTAL SULPHUR CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	69
FIGURE 8–2 VOLATILE MATTER CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . . . . . . .	70
FIGURE 8–3 RAW ASH (COAL ONLY) CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . .	71
FIGURE 8–4 INHERENT MOISTURE CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . . . . .	72
FIGURE 8–5 CALORIFIC VALUE (KCAL/KG) CONTOURS SEAM 12 . . . . . . . . . . . . . . .	73
FIGURE 8–6 COAL ONLY THICKNESS CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . .	74
FIGURE 8–7 COAL SEAM TOTAL THICKNESS CONTOURS SEAM 12 . . . . . . . . . . . . .	75
FIGURE 8–8 FLOOR CONTOURS SEAM 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76
FIGURE 9–1 MODIFIED MECHANISED LONGWALL MINING METHOD . . . . . . . . . . .	81
FIGURE 9–2 LONGWALL DRILL AND BLAST MINING METHOD . . . . . . . . . . . . . . . . .	81

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1 INTRODUCTION

The Dongguaao coal mine has been in operation since production recommenced in September 2012 following technical reform to expand production capacity to 300 kilotonnes per annum (‘‘ktpa’’). In 2013 the Dongguaao mine produced 87 kt of Run of Mine (‘‘ROM’’) coal and is forecast to expand production in 2014 to 210 ktpa. The Baiguojinhe coal mine is currently undergoing technical reform to expand production capacity from 150 ktpa to 450 ktpa which is forecast to be completed in June, 2014. RPM notes it has not received any information pertaining to the extent of construct after the date of the resource stated within this report. Construction commenced in late 2012 and as at the 2nd September, 2013 approximately 80% of the underground construction and approximately 60% of the surface construction work had been completed.

1.1 Scope of Work

RPM carried out the following scope of work for the Mines:

. Gathered relevant information on the Mines including Chinese resources estimates;
. Reviewed Chinese resources, including quantity and quality of drilling, reliability of historic data, and adequacy of Chinese resource and reserve estimation methods;
. Estimation of JORC coal resources;
. Reviewed and commented on the appropriateness of planned mining methods and mine design in the relevant technical studies;
. Reviewed and commented on forecast operating and capital expenditure in the relevant technical studies;

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. Reviewed the company’s short and long term development plans;
. Reviewed potential production profiles, and
. Conducted a High Level review of the environmental, health and safety risks and management plans of the Mines.

1.2 Relevant Assets

The Relevant Assets consist of the Dongguaao coal mine and the Baiguojinhe coal mine, which are both located in Guizhou Province, PRC. The general coordinates for the Mines are shown in Table 1–1 and graphically in Figure 3–1.

The Relevant Assets consist of an operating underground mine (Dongguaao) and a mine under construction (Baiguojinhe) which are both contained within individual Mining Right Permits. The underground infrastructure is supported by surface infrastructure including administration buildings and coal handling and storage facilities.

Table 1–1 Coordinates of the Mines (Xi’an, 1980 Coordinate System)

Mine	Northing	Easting
Dongguaao	2,874,000	35,449,115
Baiguojinhe	2,874,353	35,449,800

1.3 Review Methodology

RPM’s review methodology was as follows:

Preparation for the study by translating and reviewing existing reports. The lists of reports reviewed are provided in Section 1.5.
RPM conducted two site visits; one in April, 2013 and one in March, 2014 undertaken by Senior Chinese Geologists and Mining Engineers.
Project information was reviewed and the supporting data of Chinese Resource and Reserve estimates were collected and validated.
RPM completed the JORC Coal Resources estimates based on the technical data supplied by the Client and subsequently reviewed by RPM.
RPM prepared a Competent Persons Report (the ‘‘Report’’ or ‘‘CPR’’) and provided drafts to the Client and its specialist advisers.

The comments and forecasts in this Report are based on information compiled by enquiry and verbal comment from the Company. Where possible, this information has been crosschecked with hard data or by comment from more than one source. RPM has used its professional judgment to assess issues that appeared to contain conflicting information.

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1.4 Site Visits and Inspections

Site visits were conducted by RPM’s technical team (‘‘the Team’’) to the Mines on the following dates:

. — April 22nd – 28th, 2013 by Mr. Kevin Qu and Mr. Song Huang . — March 10th – 14th, 2014 by Mr. Kevin Qu and Mr. Hong Zhao

During the site visits, the Team inspected the surface and underground operations, access roads, and conducted general inspections of the surrounding areas. The visits were also used to gain a better understanding of the Mines through visiting the relevant geology and design institutes. This included the Guizhou Provincial Coal Mine Design Institute, Brigade 159 of the Coalfield Geology Bureau, Guizhou Province.

RPM conducted a general inspection of the corresponding wash plant owned by the Company’s subsidiary and reviewed the historic production records.

Open discussions were held with the Company’s experts on aspects relating to the technical issues of the Mines. Technical personnel were co-operative and open in facilitating RPM’s work.

1.5 Information Sources

Several geology, feasibility study and design reports, historic production records and approvals were provided to form the underlying basis of this Report. The following information sources were provided for review:

Reports and Approvals

Below are the reports supplied and reviewed by RPM. The latest geology reports were approved by the Guizhou Provincial Department of Land and Resources while the latest mining layout designs were approved by the Guizhou Provincial Coal Industry Management Bureau.

. Resources and Reserve Reconciliation Report of Dongguaao coal mine, by Guizhou Provincial Coal Mine Design Institute, 2008.
. Resources and Reserve Reconciliation Report of Jinhe coal mine, by Guizhou Provincial Coal Mine Design Institute, 2010 (Approved in 2011).
. Exploration Geology Report of Jinhe coal mine, 2003 (Approved in 2003), Brigade159 of the Coalfield Geology Bureau, Guizhou Province.
. Additional Detailed Exploration Report of Datianba Coalfield, Western Pan County, Brigade 159 of the Coalfield Geology Bureau, Guizhou Province, 1980.

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. Detailed Exploration of Datianba Wellfield, North End of West Wing of Panguan Incline, Pan County Coalfield, by Brigade 112 of the Coalfield Geological Exploration Company, Guizhou Province, 1966.
. Mining Plan Design of Dongguaao coal mine (Integration), Baiguo Town, Pan County (0.30 Mtpa, Approved), by the Exploration Design Institute of Guizhou University, 2008.
. Specification of Preliminary Design of Jinhe coal mine (Extension), Baiguo Town, Pan County, Xingyuan coal mine Science and Technology Co. Ltd of Guizhou, 2012.
. Specification of Mining Plan Design (Variation) of Jinhe coal mine, Baiguo Town, Pan County (0.15 Mtpa, Approved), Design Institute of Lindong Mining Bureau, 2008.
. Relevant production statistics supplied by the Company, and
. Scanned copies of various Licences and Permits.

1.6 Competent Person and Responsibilities

The statements of Coal Resources (as defined in Appendix B) have been prepared in accordance with the recommended guidelines of the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves prepared by the Joint Ore Reserves Committee (‘‘JORC’’) (the ‘‘JORC Code’’) and the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves (March, 2003) (‘‘Australian Coal Guidelines’’).

1.6.1 Coal Resource

The information in this report that relates to Coal Resources is based on information compiled by or under the supervision of Mr Michael Johnson who is a full time employee of RPM and a Member of the Australasian Institute of Mining and Metallurgy. Mr Michael Johnson has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he has undertaken to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (‘‘The JORC Code’’).

The Coal Resource estimate complies with the guidelines of the JORC Code. Therefore it is suitable for public reporting.

1.6.2 HKEx Competent Person

Mr Michael Johnson meets the requirements of a Competent Person, as defined by Chapter 18 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. These requirements include:

. Greater than five years’ experience relevant to the type of deposit;

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. Member of the Australasian Institute of Mining and Metallurgy (‘‘AUSIMM’’);
. Does not have economic or beneficial interest (present or contingent) in any of the reported assets;
. Has not received a fee dependent on the findings outlined in the Competent Persons’ Report;
. Is not an officer, employee of proposed officer for the issuer or any group, holding or associated Company of the issuer, and
. Assumes overall responsibility for the Competent Person’s Report.

Michael has over 16 years of relevant experience and has a diverse and extensive background covering geology through to mine engineering. He has gained valuable experience in many technical facets of underground mining including geology/strata control, mine planning and scheduling, and underground coal mining feasibility. Michael’s core strength is in his ability to understand the full mining cycle and apply his knowledge and experience to improve mine business outcomes and decisions.

He has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify him as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves and the Hong Kong Exchange Listing Rules.

Michael has worked across many aspects of mine planning, from pre-feasibility through to mine implementation and mine scheduling in a number of countries, including Australia, Russia, New Zealand, Indonesia, China, Philippines and Canada.

1.6.3 Limitations and Exclusions

The review was based on various reports, plans and tabulations provided by the Client either directly from the mine site and other offices, or from reports by other organisations whose work is the property of the Client. The Client has not advised RPM of any material change, or event likely to cause material change, to the operations or forecasts since the date of asset inspections.

The work undertaken for this Report is that required for a technical review of the information, coupled with such inspections as the Team considered appropriate to prepare this Report. It specifically excludes all aspects of legal issues, commercial and financing matters, land titles and agreements, except such aspects as may directly influence technical, operational or cost issues.

RPM has specifically excluded making any comments on the competitive position of the Relevant Asset compared with other similar and competing coal producers around the world. RPM strongly advises that any potential investors make their own comprehensive assessment of both the competitive position of the Relevant Asset in the market, and the fundamentals of the coal market at large.

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1.6.4 Limited Liability

RPM will not be liable for any loss or damage suffered by a third party relying on this Report (regardless of the cause of action, whether breach of contract, tort (including negligence) or otherwise) unless and to the extent that that third party has signed a reliance letter in the form required by RPM (in its sole discretion). RPM’s liability in respect of this Report (if any) will be specified in that reliance letter.

1.6.5 Responsibility and Context of this Report

The contents of this Report have been created using data and information provided by or on behalf of the Client. RPM accepts no liability for the accuracy or completeness of data and information provided to it by, or obtained by it from, the Client or any third parties, even if that data and information has been incorporated into or relied upon in creating this Report. The Report has been produced by RPM using information that is available to RPM as at the date stated on the cover page. This Report cannot be relied upon in any way if the information provided to RPM changes. RPM is under no obligation to update the information contained in the Report at any time.

1.6.6 Indemnification

The Client has indemnified and held harmless RPM and its subcontractors, consultants, agents, officers, directors, and employees from and against any and all claims, liabilities, damages, losses, and expenses (including lawyers’ fees and other costs of litigation, arbitration or mediation) arising out of or in any way related to:

. RPM’s reliance on any information provided by the Client; or
. RPM’s services or materials; or
. Any use of or reliance on these services; and

In all cases, save and except in cases of wilful misconduct (including fraud) or gross negligence on the part of RPM and regardless of any breach of contract or strict liability by RPM.

1.6.7 Intellectual Property

All copyright and other intellectual property rights in this Report are owned by and are the property of RPM.

RPM grants the Client a non-transferable, perpetual and royalty-free Licence to use this Report for its internal business purposes and to make as many copies of this Report as it requires for those purposes.

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APPENDIX II

1.6.8 Mining Unknown Factors

The findings and opinions presented herein are not warranted in any manner, expressed or implied. The ability of the operator, or any other related business unit, to achieve forwardlooking production and economic targets is dependent on numerous factors that are beyond the control of RPM and cannot be fully anticipated by RPM. These factors included site-specific mining and geological conditions, the capabilities of management and employees, availability of funding to properly operate and capitalise the operation, variations in cost elements and market conditions, developing and operating the mine in an efficient manner, etc. Unforeseen changes in legislation and new industry developments could substantially alter the performance of any mining operation.

1.6.9 Capability and Independence

RPM provides advisory services to the mining and finance sectors. Within its core expertise it provides independent technical reviews, resource evaluation, mining engineering and mine valuation services to the resources and financial services industries.

RPM has independently assessed the Relevant Assets of the Client by reviewing pertinent data, including resources, reserves, manpower requirements and the life of mine plans relating to productivity, production, operating costs and capital expenditures. All opinions, findings and conclusions expressed in this Report are those of RPM and its specialist advisors.

Drafts of this Report were provided to the Client, but only for the purpose of confirming the accuracy of factual material and the reasonableness of assumptions relied upon in this Report.

RPM has been paid, and has agreed to be paid, professional fees based on a fixed fee estimate for its preparation of this Report. None of RPM or its directors, staff or specialists who contributed to this Report has any interest or entitlement, direct or indirect, in:

. the Company, securities of the Company or companies associated with the Client; or
. the right or options in the Relevant Assets; or
. the outcome of the proposed transaction.

This Report was prepared on behalf of RPM by the signatories to this letter, details of whose qualifications and experience are set out in Appendix A to this Report. The Specialists who contributed to the findings within this Report have each consented to the matters based on their information in the form and context in which it appears.

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APPENDIX II

2 MINE OVERVIEW

The Mines are located in Guizhou Province within the People’s Republic of China (‘‘PRC’’), (Figure 2–1) and consist of two underground coal mines and are contained with two adjacent Mining Rights Permits (Figure 2–2). The Dongguaao coal mine is in production with a production capacity of 300 ktpa while the Baiguojinhe coal mine is undergoing technical reform and construction to expand the production capacity from 150 ktpa to 450 ktpa (Table 2–1). The construction is forecast to be competed in June 2014, with 80% of the underground and 60% of the surface infrastructure completed as at September, 2013.

Mining activities within the Mines have been ongoing for a number of years with total production reaching up to 331 kt in 2010 as outlined in Section 4. Mining activities at Dongguaao mine is carried out via typical Chinese longwall drill and blast operations. The Baiguojinhe mine plans to use the Modified Mechanised Longwall method for mining. The coal is transported to surface ROM stockpiles via the drift conveyors. Based on RPM’s understanding, ROM coal is sold at the gate to a third party (Section 5), prior to being transported from the surface stockpiles approximately 1.5 km to the Panyi wash plant and subsequently stockpiled at the Yueliangtian stockpile prior to selling to domestic markets.

Table 2–1 Mine Status, Associated Wash Plant and Stockpiles.

		Mining Licence	Capacity
		(Ktpa)
Mine	Current Status	Historic	Current	Wash Plant Stockpile
Dongguaao Baiguojinhe	Production Construction	30 150	300 450	Panyi	Yueliangtian

During the site visit in March 2014, RPM was notified that the Company has internal plans to ramp-up production to 400 ktpa and 600 ktpa for Dongguaao and Baiguojinhe mines respectively. To date, no mining studies have been completed which detail the planned expansion capacity nor are the Mining Rights Permits consistent with the suggested expanded capacities. The Company will need to gain the required permits and undertake the relevant mining studies for approval by the relevant authorities before these capacities can be achieved.

2.1 Mine Location and Access

The Mines are located in Pan County, Liupanshui Prefecture, in the south west of Guizhou Province and north of the County capital city, Panxian. Pan County is accessible via the national highway network to Guiyang (the Capital of Guizhou Province) and daily flights to various cities in the PRC. Table 2–2 details the relative position of each mine in relation to Panxian City and nearest railway and also shown graphically in Figure 3–1.

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APPENDIX II

Table 2–2 Mine Location and Access

Mine	Dongguaao	Baiguojinhe
Distance to Panxian	25km (linear)	25km (linear)
Closest Railway	4.5km (Baiguo)	4km (Baiguo)

2.2 Regional Environment

The climate in the region is considered to be ‘subtropical monsoon high mountain’ with large seasonal temperature variations ranging from -7.9˚C to 36.7˚C and a yearly average of 15.2˚C. The region has a high yearly precipitation level with an average of 1,409 mm per annum being observed which predominately occurs between the monsoon months of May and October. Farming is the main regional industry, with the main crops consisting of rice, corn, peanut and rape.

Figure 2–1 General Location Plan

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APPENDIX II

3 LICENCE AND PERMITS

As at the latest practicable date of this Report, the adjacent Mining Rights Permits which contain the Relevant Assets are held by a third party following the divestment of the relevant assets by the Company as announced in September 2013. The Mining Right Permits, production, business licences, safety production permits and environmental report reply letters for each of the Mines (together referred to as ‘‘the Permits’’) are outlined in Table 3–1 to Table 3–8 and are graphically shown in Figure 3–1 and Figure 3–2.

RPM provides this information for reference only and recommends that land titles and ownership rights be reviewed by legal experts.

Table 3–1 Dongguaao Mining Right Permit Details

Detail/Mine	Dongguaao
Name of Certificate	PRC Mining Right Permit
Certificate No.	C5200002010031120059137
Mine Right Holder	Guizhou Fengxinyuan Mining Co. ltd
Location	Dafang County, Guizhou Province
Name of Mine	Dongguaao coal mine of Baiguo Town, Guizhou Fengxinyuan
	Mining Co. Ltd
Company Type	Limited Company
Mining Method	Underground mining
ROM production capacity	300 ktpa
Mine Area	0.7373 sq.km
Mining Elevation	+1,700 m asl to +1,100 m asl
Valid Period	January 2014 to October 2018
Issue Date	17th January, 2014
Issuer	Department of Land and Resources of Guizhou Province

Source: RPM viewed a copy of the document.

Table 3–2 Dongguaao Mining Right Permit Coordinates (Xi’an 80 Coordinate System)

Point	Northing	Easting
1	35,449,035.31	2,873,941.62
2	35,449,025.31	2,874,291.62
3	35,449,300.32	2,875,061.63
4	35,449,445.32	2,875,061.63
5	35,449,445.32	2,875,441.63
6	35,440,025.32	2,875,441.63
7	35,449,470.31	2,874,466.62
8	35,449,670.32	2,874,341.62
9	35,449,540.31	2,873,941.62

Source: RPM viewed a copy of the document.

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APPENDIX II

Table 3–3 Baiguojinhe Mining Right Permit Details

Detail/Mine	Baiguojinhe
Name of Certificate	PRC Mining Right Permit
Certificate No.	C5200002012081130126683
Mine Right Holder	Guizhou Fengxinyuan Mining Co. ltd
Location	Dafang County, Guizhou Province
Name of Mine	Jinhe coal mine of Baiguo Town, Guizhou Fengxinyuan
	Mining Co. ltd
Company Type	Limited Company
Mining Method	Underground mining
ROM production capacity	450 ktpa
Mine Area	1.1444 sq.km
Mining Elevation	+1,650 m asl to +1,100 m asl
Valid Period	January 2014 to August 2033
Issue Date	14th January, 2014
Issuer	Department of Land and Resources of Guizhou Province

Source: RPM viewed a copy of the document.

Table 3–4 Baiguojinhe Mining Right Permit Cooordinates (Xi’an 80 Coordinate System)

Point	Northing	Easting
1	35,449,720.32	2,874,304.62
2	35,449,557.31	2,873,876.62
3	35,448,975.31	2,873,876.62
4	35,448,975.31	2,873,631.62
5	35,449,480.31	2,873,631.62
6	35,449,860.31	2,872,984.61
7	35,449,950.31	2,873,014.61
8	35,450,040.31	2,872,681.61
9	35,450,535.32	2,873,441.61
10	35,450,535.32	2,873,926.62

Source: RPM viewed a copy of the document.

RPM notes that the ownership of the Mining Right Permits have been transferred from the Company to Guizhou Fengxinyuan Mining Co. Ltd. A single approved Mining Right Permit is stated for each of the Mines with a ROM production capacity of 300 ktpa and 450 ktpa for Dongguaao and Baiguojinhe respectively, which are constrained by both horizontal and vertical limitations. The estimation of Coal Resources stated within this Report are in accordance with the Mining Right Permits.

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APPENDIX II

Table 3–5 Details of Other Permits

Permits	Mines	Permit No.	Valid Period
Business Permit	Dongguaao	520000000036454(1–1)
	Baiguojinhe	520000000026670(1–1)
Coal Production Permit*	Dongguaao	205202000729	2012.9.10–2028.9.10
	Baiguojinhe	Not Available
Safety Production Permit	Dongguaao	MK0827	2012.7.24–2015.7.23
	Baiguojinhe	NA
Environmental Report Reply	Dongguaao	Guizhou Environment	From 2011.8.11
Letter		Approval No. [2011]
		140
	Baiguojinhe	City Environment Gov.	From 2004.9.6
		Reply No. [2004]44

Source: Supplied by the Company

Since 29th June, 2013, Coal Production Permit is not required as per the latest revised Chinese Coal Law.

RPM understands that expansion of current production has been completed or ongoing for the Mines. RPM further notes that the Company has an internal plan to ramp-up production to 400 ktpa and 600 ktpa for Dongguaao and Baiguojinhe Mines, respectively. RPM is aware that the planned ramp-up is at variance with the authorized production rate as stipulated by the existing Mining Licences neither do they conform to the annual capacities stated in the Mine Designs and/or Feasibility Studies. It will therefore be prudent for the Company to seek approval from necessary government authorities to justify the planned ramp-up. Similarly, it is imperative to update the Mine design and/or Feasibility Studies accordingly to meet the approval requirement for the local regulations, and also to underpin future reserve estimation based on the JORC code, should the Company elect to proceed with the increased production. It is worth noting that the maximum annual output level achieved historically is 193 kt, occurring at the Dongguaao Mine in 2012.

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APPENDIX II

Figure 3–1 Detailed Location Plan

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APPENDIX II

Figure 3–2 Bore hole location plan

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APPENDIX II

4 MINE HISTORY

4.1 History of Exploration

A number of generations of exploration have been carried out on the mines to date. The majority of the systematic exploration occurred in the 1960’s and 1970’s, however some additional work was also completed in the 1980’s. The exploration completed includes drilling programmes, coal quality determinations, underground channel sampling and geophysical surveys. Additional resource and reserve reconciliation work was carried out in 2003, 2008 and 2011. Details of the exploration history are outlined in Table 4–1.

Table 4–1 Exploration History of the Mines.

	No. Holes Inside		Resource/Reserve	Drill Spacing (m)	Drill Spacing (m)
Mine	Mining Licence	Exploration Phases	Reconciliation	331	332	333
Dongguaao	3 (SH 1, BH54,	1980: Additional Detailed	2008: Guizhou	Historical categorisation
	BH1903)	Exploration, by Team	Provincial Coal	A, B C was translated as 122b
		159 of Guizhou Coalfield	Mine Design
		Geology Bureau, 1966:	Institute
		Detailed Geology
		Exploration, Team 112,
		Guizhou Coalfield
		Geology Exploration
		Company
Baiguojinhe	10 (BH 51–3, 1902,	1980: Additional Detailed	2003: Team 159 of	250 to	500 to	1,000 to
	64, 1802, 46,	Exploration, by Team	Guizhou	500	1,000	2,000
	1803, 63, 73)	159 of Guizhou Coalfield	Coalfield
		Geology Bureau, 1966:	Geology Bureau
		Detailed Geology	2011: Guizhou
		Exploration, Team 112,	Provincial Coal
		Guizhou Coalfield	Mine Design
		Geology Exploration	Institute
		Company.

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APPENDIX II

4.2 History of Mining

Significant mining has been undertaken within the Mines. Mining is currently being carried out at the Dongguaao mine while production at Baiguojinhe mine was temporarily halted for expansion work. RPM noted that no complete production records were available; however the Company has supplied audited production records which are summarised in Table 4–2. The annual actual production is presented compared with the forecasts in Table 4–2.

Table 4–2 Historical Forecast and Actual ROM Coal Production (Ktpa)

==> picture [455 x 100] intentionally omitted <==

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

2009 2010 2011 2012 2013
Province Mine Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast
Guizhou Dongguaao 121 200 140 180 103 220 193 400 86 210
Baiguojinhe 105 200 191 190 27 200 87 220 9 150
Total 226 400 331 370 130 420 280 620 95 360
Source: Supplied by the Company.
----- End of picture text -----*

Production suspended due to technical reform.

RPM notes that the company has failed to reach its forecast annual production targets for a number of years. The shortfall for this is discussed in Chapter 9 of this report.

Dongguaao Coal Mine was commissioned in the 1990’s with the current Mining Rights Permits configuration formed via consolidation by the Dongguaao Coal Mine and Tongzilin Coal Mine. Before the consolidation in 2008, small scale mining had been undertaken in shallow parts of the mine resulting in 330 kt produced. The Baiguojinhe Coal Mine has a long history of development and exploration, however due to the presence of a large fault, nearly no economic coal production occurred prior to 2008.

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APPENDIX II

5 LOCAL GEOLOGY

As noted in Section 2 and 3 the Mines are contained within two adjacent Mining Rights Permits. As a result the stratigraphy, structure and coal measures present within each mine are similar.

5.1 Stratigraphy

The stratigraphy within the region consists predominately of Permian and Triassic intercalated marine and terrestrial sediments. The outcropping strata consists of the Emei Mountain Basalt Formation (P3β), Longtan Formation (P3l）Feixuanguan Formation（T1f）and Quaternary sediments. The stratigraphy is summarised in Table 5–1 and the geological map in Figure 5–1.

Table 5–1 Stratigraphic sequence of the Mines from Youngest to Oldest.

System	Series	Formation (Symbol)	Main Lithology	Thickness (m)
Quaternary (Q)			Eluvial, slope, alluvial deposit	0–40
Triassic (T)	Lower	Feixuanguan (T1f)	Upper section mainly siltstone with	270–330
			mudstone and interbedded fine stone
			and mudstone. Lower section sandy
			mudstone, interbeds of siltstone,
			mudstone
Permian (P)	Upper	Longtan (P3L)	Coal measure bearing sequence of marine	200–230
			and land sediments. Siltstone, silty
			mudstone, mudstone and coal seams.
			12–16 partly mineable and mineable
			coal seams with thick thickness of 5–
			36m. Divided into 3 sections, the
			mineable coal seams occur mainly in
			medium and upper sections.
		Emei Mountain	Ashy brown basalt in the low section. In
		Basalt (P3β)	upper section, purple tuff.

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APPENDIX II

5.2 Structure

The Mines are located in the Datianba Syncline which has a fold axis trending northwest to southeast. The eastern section of this syncline is offset by a regional fault known as F21. The southwest limb has an inclination range of -17[o] to -65[o] while the northeast limb has an inclination range of -10[o] to -65[o] .

Numerous normal and reverse faults intersect the strata within the mine area which offset the coal measures at varying amounts as shown in Table 5–2. Although there are several faults with displacements greater than 30 m these faults do not appear to impact planned mining areas and hence do no effect the Coal Resource stated within this Report. The details of the faults are outlined in Table 5–2 and shown in geological cross sections in Figure 5–2 to Figure 5–5.

Table 5–2 Occurrence and Characteristic of Faults in the vicinity of the Mines

					Displacement	Scale
Fault No.	Type	Strike	Dip	Dip Angle	(m)	(m)
F246	Normal	N15°E	SE	62°	55	190
F247					15	230
F271					510	140
F281	Normal	N54°E	SE	81°	55	180
F282	Normal	N60°E	SE	87°	510	400
F242					510	800
F28	Normal	N10°E	SW	50°	18	1,100
F218	Blind reverse	N45°E	SE	70°	25	400
F241	Blind reverse	N26°E	SE	67°	30~50	80
F2215	Blind reverse	S58°E	NE	80°	22	200
F2216	Blind reverse	S56°E	NE	60°	17	350
F22	Normal	N50°W	SW	50°	30	1,100
F23	Steep	N30°E	SW	76°	100	>2,000
F24	Steep	SN (Line 3 south);			60	4,100
		N20°~40°E (Line 3
		north)

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APPENDIX II

Figure 5–1 Geology Map

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APPENDIX II

Figure 5–2 Geological Cross Section (Line IV) — Dongguaao

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Figure 5–3 Geological Cross Section (Line VIII) — Dongguaao

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APPENDIX II

Figure 5–4 Geological Cross Section (Line III) — Baiguojinhe

==> picture [409 x 280] intentionally omitted <==

Figure 5–5 Geological Cross Section (Additional Line No. 13) — Baiguojinhe Coal Mine

==> picture [407 x 287] intentionally omitted <==

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APPENDIX II

5.3 Coal Measure and Minable Coal Seams

Dongguaao Coal Mine

The coal measures consist of dark grey ashy siltstone, fine sandstone, mudstone and coal seams with a total thickness ranging between 220 m and 230 m. The coal measure contains a total of 30 coal seams of which 12 are minable (Table 5–3 and Figure 5–6). The coal seams mined or currently being developed are Seams 2, 6, 10, 12 and 18–1. Although several faults occur within the Permit area the coal seams are considered structurally simple to moderate with generally a moderate stability as shown in Table 5–3.

Table 5–3 Characteristics of Minable Coal Seams for the Dongguaao Mine.

	Thickness (m)	Interburden	Structure
Seam No.	min–max	(m)	Description	Stability
2	1.30–3.29		moderate complex	Moderate Stable
6U	1.90–2.87	20.3	Simple	Moderate Stable
9	0.73–2.29	22.09	Simple	Unstable
10	0.10–1.86	5.39	Simple	Moderate Stable
12	1.68–4.88	18.23	Simple	Moderate Stable
15U	0.68–1.44	17.02	Simple	Moderate Stable
16U	1.60–2.45	7.83	Simple	Moderate Stable
18–1U	1.70–4.04	12.78	Complex	Moderate Stable
19	0.23–1.64	22.08	Simple	Unstable
23U	1.70–2.18	18.85	moderately Simple	Moderate Stable
24	0.32–1.81	13.68	moderately Simple	Unstable
30	0–2.21	35.74	moderately Simple	Moderate Stable

Baiguojinhe Coal Mine

The coal measure within the Baiguojinhe Permit is similar to that within the Dongguaao permit however 45 seams have been identified, of which 16 are minable or partly mineable (Table 5–4 and Figure 5–7).The coal seams mined or currently being developed are Seams 2, 6U, 10 and 12.

For both Mines, the roof consists of siltstone and mudstone, while the floor consists of mudstone with a typical stratigraphic column shown in Figure 5–8.

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APPENDIX II

Table 5–4 Characteristics of Minable Coal Seams for Baiguojinhe

			Structure of Coal Seam	Structure of Coal Seam
	Thickness (m)	Interburden	Parting
Seam No.	min–max	(m)	(layers)	Thickness	Stability
2	0.30–2.65		1–3	0.07–0.76	Moderate Stable
6U	0.78–2.28	20.83	1–2	0.06–0.44	Stable
7U	0.29–1.73	10.86	0–1	0–0.48	Unstable
8	0.23–0.96	7.2	0–1	0–0.56	Moderate Stable
10	0.29–2.91	9.25	0–2	0–0.45	Stable
12	0.60–3.88	18.23	0–2	0–0.47	Stable
14L	0.43–0.99	10.19	1–2	0.06–0.60	Unstable
16U	0.60–5.38	14.92	1–3	0.05–0.57	Stable
18–1U	1.20–6.06	12.78	0–8	0–1.84	Stable
18–2	0–0.99	14.85	0–1	0–0.48	Unstable
19	0.19–1.83	7.23	0–2	0–0.43	Stable
23U	0.24–1.34	18.85	0–2	0–0.56	Moderate Stable
23L	0–1.32	5.5	0–2	0–0.44	Unstable
24	0–3.14	8.18	0–1	0–0.37	Unstable
25	0–1.33	3.81	0–2	0–0.42	Unstable
30U	0–2.19	31.93	0–2	0–0.32	Moderate Stable

Figure 5–6 Coal Seam Correlation Map for Dongguaao and Baiguojinhe Coal Mines

==> picture [411 x 283] intentionally omitted <==

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Figure 5–7 Coal Seam Correlation Map for Dongguaao and Baiguojinhe Coal Mines

==> picture [423 x 282] intentionally omitted <==

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APPENDIX II

Figure 5–8 Typical Stratigraphic Column

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APPENDIX II

5.4 Coal Quality and Class

Dongguaao Coal Mine

All minable seams within the Dongguaao is classified as Coking Coal (JM), however RPM notes that 2 seams (seams 23 and 30) contain high ash levels. The coal qualities range for volatiles 33.39% to 36.24%, ash 14.32% to 37.13% and average total sulphur 0.15% to 2.68% as shown in Table 5–5. Due to the coal qualities ROM coal is required to be washed prior to selling. Upon washing the coal is suitable to be sold as coking coal.

Table 5–5 Average Coal Quality Moisture Basis for Dongguaao Coal Mine

	Wf	Ad	Vr	Sd	QDT
Seam No	(%)	(%)	(%)	(%)	(MJ/kg)
2	2.35	23.74	35.65	0.49	34.92
6U	1.91	22.87	34.73	0.23	34.07
9	1.4	24.1	33.69	0.32	35.98
10	1.69	20.15	35.85	0.33	35.43
12	1.53	14.32	36.24	0.27	35.83
15U	1.25	30.63	34.57	0.21	35.4
16U	1.34	22.53	34.00	0.15	35.18
18–1U	1.92	15.64	33.87	0.16	35.64
23U	1.09	30.72	30.9	2.68	35.76
24	1.04	27.66	33.39	2.27	35.96
30U	1.22	37.13	34.31	0.16	34.92

Source: obtained from 2008 reconciliation report

Baiguojinhe Coal Mine

Although the coal seams within the Baiguojinhe Permit are the down-dip continuation of those within the Dongguaao permit, the coal class varies. Seams 2 to 19 are classified as Gas Coal (QM) while all other mineable seams are classified as Fat Coal (FM）On average the coal qualities consist of volatiles of 31.21% to 37.07%, ash of 13.55% to 37.27% and average total sulphur of 0.13% to 4.03% as shown in Table 5–6.

RPM notes that the portions of Seams 7U, 14L, 24 and 30U contain high ash, Seam 23U and 24 is medium to high sulphur and Seam 23L is high sulphur (Table 5–6). The coal after washing can be used as coking blend coal with middlings and slime coal can be sold as thermal coal.

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APPENDIX II

Table 5–6 Average Coal Quality Moisture Basis for Baiguojinhe Coal Mine

	Mar	Ad	Vdaf	St.d	Plastometer Y	Qgr.d
Seam No	(%)	(%)	(%)	(%)	(mm)	(MJ/kg)
2	2.35	25.14	32.06	0.47	15	34.81
6U	1.91	22.81	35.84	0.23	18	34.39
7U	1.52	33.81	36.47	0.21	18	34.8
8	1.39	21.38	36.06	0.38	22	34.84
10	1.69	18.41	35.16	0.36	16	35.3
12	1.53	14.83	37.07	0.25	22	35.73
14L	1.58	29.88	33.34	0.18	20	35.12
16U	1.34	22.28	34.14	0.13	21	34.97
18–1U	1.92	13.55	34.54	0.16	21	35.59
18-II	1.22	22.64	34.06	0.16	25	35.38
19	1.02	18.45	35.04	1.06	21	35.72
23U	1.09	29.94	31.35	2.47	28	35.63
23L	1.12	28.31	32.82	4.03	38	35.68
24	1.04	32.1	32.7	2.99	34	35.82
25	0.91	30.98	32.14	0.65	34	35.76
30U	1.22	37.27	31.21	0.16	41	34.79

Source: obtained from 2011 reconciliation report

Chinese Coal Quality Comparison

A summary of the Chinese Coal Quality matrix is provided in Figure 5–9 below for reference.

Figure 5–9 Chinese Coal Quality Classification Matrix

==> picture [383 x 228] intentionally omitted <==

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

FAT (FM) GAS-FAT (QF)
(Y<25MM) (Y>25MM)
85 (B>220)
A
N COKING (JM)
T 1/3 CAKING (1/3JM)
65 H (Y<25MM) (Y<25MM)
60 R (WY) (B<150) (B<220) GAS (QM)
A
C (Y<25MM)
50 I (B<150)
T
E
LEAN (SM) 1/2 CAKING (1/2ZN)
35
30
20
WEAKLY CAKING (RN) LONG FLAME (CY)
MEAGER LEAN (PS)
5
0 MEAGER (PM) NON-CAKING (BN)
0 10 20 28 37
Volatile %
Classified as Lignite (HM) if energy less than 24 MJ/kg
Y and B are Chinese coking indices
RI
CAKING INDEX G
----- End of picture text -----**

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Chinese coals are classified on in-situ qualities and hence there is no real equivalent classification for international coals, other than coking coal.

6 DATA VERIFICATION

6.1 Desktop Review

A review of the data supplied for the Mines indicates that typical Chinese exploration techniques have been employed. For the drilling data to be suitable for inclusion in JORC Coal Resources, any drilling programme should confirm the dimensions and quality of each minable seam and ensure the samples from which the coal quality determinations were derived are representative of the coal from which it was taken. RPM reviewed all supplied drilling data including lithological and geophysical logs and coal quality results for each drill hole.

6.1.1 Drill Hole Data Review

The review undertaken by RPM included a desktop analysis of the data supplied along with site visits to the Mines. During this review, RPM noted the following:

. The majority of the hardcopy documents for the bore holes were not supplied. This includes the original certificates of coal quality determinations and bore hole geological and geophysical logs;
. Inside the mining licence of Baiguojinhe, the column map of BH 1803 was a noncore drilling and the geophysical logging map could not be supplied. There were no geophysical logging for Shallow BH 1 inside the mining licence of Dongguaao, and for BH 1801 outside of Baiguojinhe. There was one chips coring (BH 1903) and several interval coring drilling.
. 9 boreholes (BH55–56, SH2, BH59, 61, 1702, 72, 60, 1801) outside two mining licences were supplied.
. General recoveries of coal seam intersections ranged between 65–100%;
. Few coal samples were taken from mineable coal seams in lower section of coal bearing measure, such as Seam 23U, 23L, 24, 25, 30U and,
. No exclusive beneficiation (washability) testwork carried out for each minable coal seam.

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6.2 Site Visit Data Review

During the site visits, RPM inspected surface outcrop, underground mining operations, surface transport and stockpile operation, reviewed the general geological setting, controls of coal seam geology and structure, and sighted all available hard copy data. During the site visit, RPM noted the following:

. RPM was unable to verify the bore hole locations on the ground or confirm the locations on plans and sections supplied from the Design Institutes, however RPM was able confirm the locations of bore holes relative to the mining licences through independent hand-held GPS checks;
. Although details of the drilling and sampling procedures were not provided, through discussions with site personnel RPM understands that typical Chinese techniques were utilised for all generations of exploration;
. RPM was able to verify the location of the shafts and underground workings for the Mines and confirmed the locations with the Design Reports. In addition, the relative positions of the shafts and underground workings were compared with those of the mining licences and bore hole collars;
. During the inspection of the underground workings, RPM compared the depleted mining areas against the latest version of the Design Institute plans and long sections and found no material issues; and
. Inspection of the recent mine workings and discussions with site personnel indicates that appropriate surveys controls were utilised to accurately delineate recent mining depletion areas, however RPM noted that historically, accurate methods were not used. Although inaccurate survey methods will likely result in issues of the mining depletion of the resource, these historical mining areas are mostly sterilized and excluded from the remnant resource.

6.3 Data Quality Review

A review of the data supplied indicates that typical Chinese exploration techniques have been employed. RPM considers these techniques to be generally suitable for reporting to international standards; however RPM has not been supplied with the original documentation, including a complete data set of all core recovery for the historical bore holes or the coal quality determinations for verification.

The review completed by RPM indicates the underlying data meets the requirements of the Chinese Code, however RPM was unable to confirm the location of the historic bore holes. As all geology reports were reviewed by the provincial resource management department, RPM considers that volume estimates based on the historical data are likely to be reasonable.

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6.4 Coal Quality Data Review

RPM reviewed the coal quality form that was attached to the original report and found there were no details of ply sample assay for each minable coal seam. For moisture analysis, there were no assay results provided for an as received basis. In addition, only some assays for phosphorus (P) were provided and no assays for arsenic (As) and chlorine (Cl) were provided. No coal beneficiation tests were conducted for each minable coal seam.

7 JORC COAL RESOURCES

The statements of Coal Resources for the Mines have been prepared in accordance with ‘‘The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code, 2012 edition’’ (the ‘‘JORC Code’’). Below is a summary of the procedures and parameters utilised for the estimations.

7.1 Coal Resource Classification System under the JORC Code

A ‘Mineral Resource’ is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade (or quality) and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. (JORC Code — Clause 20).

The terms ‘Mineral Resource(s)’, and the subdivisions of these as defined above, apply also to coal reporting, but if preferred by the reporting company, the terms ‘Coal Resource(s)’ and the appropriate subdivisions may be substituted. (JORC Code — Clause 43).

7.2 Geological Model

The geological model consists of a structural model containing surfaces for the topography, the structure roof and structure floor grids of each coal seam, and a composited seam quality model which contains values on a ply basis for the following;

. Inherent Moisture IM (%),
. Raw Ash (% ad),
. Total Sulphur TS (% ad),
. Volatile Matter VM (% ad),
. Specific Energy Qgr (MJ/kg d),
. Plasticity (mm) and,
. RD.

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Structure and coal quality information obtained from boreholes was used to build the geological model for the Mines using Maptek’s Vulcan Version 8.2 geological modelling software. An ‘‘ISIS’’ borehole database was created within ‘‘Vulcan’’. The ISIS Database contained all structure and quality information of the boreholes that were used in the modelling process. Vulcan inherent database checks were used to ensure the validity of the data and remove and/or correct any data identified as erroneous. These tools are listed below;

. Gridcalc ? ‘‘Validate Data’’, and
. Gridcalc ? ‘‘FixDHD’’ (Fix Down Hole Database)

Coal Seam Structure and Quality data was ‘‘gridded’’ and ‘‘triangulated’’ using ‘‘Inversed Distance Squared’’ (ID2) methodology. ID2 is internationally recognised as an acceptable methodology for this style of deposit. The coal structure and quality grids were composited into a Vulcan 3D ‘‘HARP’’ model. ‘‘JORC Inferred Polygon’’ areas were created using the following criteria;

. Borehole hole spacing no greater than 1,000 m
. Resource area only valid within the accepted mining Licence and its subsequent mining licence barrier pillar,
. Protection and Barrier Pillars we also created for;
Mined out areas, current workings,
Major Geological Structure (Faults), and
Rivers,

The JORC Inferred Polygons were then triangulated in 3D solids and then applied to the HARP model to ‘cut out’ the coal resources and generate a report (including all coal and stone Volumes, Tonnes and Qualities). Inseam stone thicknesses (volumes, tonnes and qualities) were weight averaged and applied to the total coal values and reported as ‘‘Total Coal Seam Tonnes’’, along with Total Seam Ash (coal including inherent stone component) and Coal Only Ash. All other qualities are on a coal only basis.

As these are JORC Resources, only geological features and areas of previously exhausted resources are removed from the estimation. JORC Resources do not take into account protection pillars for man-made surface features such as townships, major roads or power lines that are located in the mines vicinity. These are addressed when taking into account as a part of the mining process and JORC Reserves estimations.

Quality data from all the drill holes were used to create the quality model. RD Values for coal seams 9, 25 and 30U. Default values of 1.45, 1.47 and 1.48 respectively were applied to these coal seams derived from Ash regression analysis. RPM considers these values to be appropriate. This approach was considered suitable based on the review of the coal quality information from the exploration pre-dating 2013 and the 2013 exploration.

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There were 18 mineable seams identified from the drill holes, named from top to bottom using the alpha-numerical sequence starting at 2 through to 30. This is consistent with the previous interpretations of the deposit as stated in the reports and geological plans provided.

Most seams were further subdivided into plies using the suffix U for upper seam split (ply), and L for the lower seam split. If these plies were further subdivided, a further U or L suffix was added, and if further still subdivided, a 1 suffix was added to the upper ply and a 2 was added to the lower ply. Fifty Four plies (or seam splits) were identified across the Mines and the stratigraphy and seam nomenclature used in the geological model is shown schematically on Figure 5–8.

The mining area of Baiguojinhe and Dongguaao are adjacent to each other and both fall within a total area of 2.8 km long (North to South) by 1.8 km wide (East to West). Due to the limited amount of potential points of observation, the borehole database for the individual mines was consolidated. Coal seams were modelled, checked and re-correlated. All seams were then renamed using a similar naming convention to the mines previous nomenclature, i.e. seam 30 and 30U was re-correlated as the same seam across both deposits and final naming conventions chosen was seam ‘‘30U’’). This process was done in order to maximise the use of the limited number of points of observation and provide a more accurate representation of coal seam structure across boss deposits.

A combined 3D topography over both licences was constructed from annotated 3D and 2D contours. This was then was triangulated in Vulcan. All drill hole collars were checked to topography and all drill holes passed a tolerance of +/- 1.5 m. As these are underground mines, the topographic model is not considered to have an impact on the Coal Resources Estimate and therefore is considered acceptable.

‘‘As mapped’’ coal seam outcrop were modelled along with the several major fault interpretations which was available from previous geological reports supplied. No small structure or faults were modelled as they were considered not to make a material impact to the Coal Resources Estimation. These features of the geological model would need to be modelled and mapped in more detail if the geological model was to be used for detailed mine design on a short term basis.

RPM considered that the geological model is well constructed and suitable for the use in the estimation of Coal Resources and was used by RPM as the basis for the Resources Estimation.

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7.3 Resource Estimation Parameters

Resource parameters and ‘cut-offs’ are applied in order for the estimates of Coal Resources to meet the criteria for reasonable prospects for eventual economic extraction as required by the JORC Code. The criteria applied are in line with the current contemporary expectations of the industry and current and planned mining practices utilised on site.

The parameter assumptions applied to the estimates are outlined in Table 7–1.

Table 7–1 Coal Resources Estimation Parameters

Parameter	Indexes
Minimum Seam Coal Thickness	≥0.7 (m)#
Mining Licence Boundary	20 m & 30 m**
Fault Protection Pillar, (> 30 m and >15m Displacement)	30 m & 15 m
River Protection Pillar	30 m
Previous Mine Workings and Shaft Safety pillars	30 m
Basement Level Mining Licence (+1,100 asl)	+1,100 m (asl)

The minimum coal seam thickness of 0.7 m is applied by evaluating the cumulative coal thickness of each seam, excluding the interseam parting units. Due to the interbedded nature of the seams, detailed mine planning and definition of working sections will need to take into account the interbedded nature of the coal seam, which is not accurately taken into account in the estimate of resources.
** Mining Licence Barrier Pillars were defined in the Chinese Mine Design Report. These were set at 30 m and 20 m for Dongguaao and Baguojinhe respectively.

No cut-offs for the minimum Raw Ash or Total Sulphur was applied. RPM not that of the 85 samples tested for raw ash and total sulphur, only 6 samples contained ash of > 40% and 3 samples > 3%. These were found in seams;

. Raw Ash
14L (43.15%),
— 24 (40.7, 42.8, and 41.46%),
30U (48.5 and 48.7%),
. Total Sulphur
23U (5.17%)
— 23L (3.38%)
24 (7.81%)

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RPM believes that the very high sulphur content found in seam 24 may be erroneous and recommends that further drilling and testing be carried out, as other test results for the seam 24 ranged from 1.4 to 2.2% TS (moderate to moderate high TS content for Chinese mines).

The total average ash content and sulphur content for each of these seams were lower than the identified above and made no material impact on the estimation of resources. RPM note that during mine planning and extractions, the estimation of reserves would take into account selective mining of the resource and target the areas that meet the limits set for ‘‘mineable’’ parameters and cut-off grades.

In addition to the above parameters applied, RPM noted the following to ensure a suitable representation of the underlying geology, structural complexity and likely mining method for the remainder of the mine life:

. The JORC Coal Resources quantities include all currently identified Mineable Coal Seams within the current Mining Right Permit which are permitted to be extracted by the Company. The Coal Resources estimates were based on the latest Mining Right supplied by the Company and sighted by RPM during the site visits. RPM notes that the Mining Rights are restricted by the vertical limitations of the mining permit, and the estimate excludes any Mineable Coal Seams above and below.
. Only Mineable Coal Seams (as defined in Appendix B) were included as part of the JORC Coal Resource estimates using the parameters shown in Table 7–1.
. The historical and current mining areas have been excluded from the JORC Coal Resource estimates as it is assumed that these areas are fully depleted.
. Estimates of Coal Resources have been rounded to the down to the nearest 50 kt and up to the nearest 100 kt to reflect the overall accuracy of estimates as required by the JORC Code.

7.4 Resource Classification

Determination of ‘‘level of confidence’’ by RPM was based on the categorising the seam characteristics as ‘‘simple’’, ‘‘moderate’’ or ‘‘complex’’. The seam characteristics included:

. variability of seam thickness (including seam splitting),
. variability in coal quality parameters, and
. structural complexity

Other parameters were also taken into account including the 28 drill holes from earlier exploration programmes that were not used as Points of Observation, but provide additional information and confidence in the geological understanding of the deposit.

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The Points of Observation used to define the Coal Resources for the Mine area are cored drill holes with the coal seams sampled with >85% recovery and Proximate (Ash, IM, V) coal quality testing completed. Where seam recovery was 585% these were checked against geophysics logs to validate the thickness and use as a structure hole.

Based on the level of complexity within the Mine and the available dataset, RPM classified the resource into categories based on the following spacing between Points of Observations on a Seam by Seam basis:

. Measured — 0–400 m (radius of influence 200 m).
. Indicated — 400–800 m (radius of influence 400 m).
. Inferred — 800–2,000 m (radius of influence 1,000 m).

The area of influence of at least 2 Points of Observation was required to intersect in order to be classified in the corresponding resources category.

RPM used the geological model and Coal Resources categorisation polygons generated for each Seam Group and applying the corresponding criteria to report the Statement of Coal Resources. The above level of confidence categories were further modified seam-by-seam as per the Mining Right Permit restrictions and depleted areas as can be seen graphically in the series of plots in Figure 7–1 to Figure 7–6 and Appendix C.

7.5 Relative Density

Coal Resource quantities are reported on an estimated in situ density basis by modifying the air dried RD to an in situ RD (‘‘RD is’’) basis using the Preston-Sanders equation, as follows:

RD is = RD ad x (100 - IM ad)/(100 + RD ad x (TM is - IM ad) - TM is)

Where is = insitu ad = air dried RD = relative density IM = inherent moisture TM = total moisture

This method of calculating in situ RD is a standard industry practice and considered suitable for the Mines.

7.6 JORC Statement of Coal Resources

The results of the independent Coal Resources estimate for the Mine are tabulated in the Statement of Coal Resources in Table 7–2 below, and meet the recommended guidelines of the JORC Code. As such, they are suitable for public reporting and meet the reporting standards of Chapter 18 of the HKEx listing rules.

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RPM has reported the Coal Resource estimates in accordance with the JORC Code and assigned Coal Resources quantities confidence categorisations as of Inferred as defined in Appendix B. RPM has estimated Inferred Coal Resource of 33.0 Mt for the Mines. No Measured or Indicated Resources have been identified.

A summary of the Coal Resources is provided in Table 7–2 which are reporting utilising the cut off as supplied in Section 7.3.

RPM notes that while the mining depletion of the Baiguojinhe mine is as at 31st December, 2013 the physical depletion provided to RPM is as 31st August, 2013. Whilst no actual production figures were provided RPM has reviewed the mine plan and completed estimated depletion areas for this missing period of time. RPM created depletion pillars around existing mine workings, and studied mining historical production rates and mine inventory to create expected pillars. These volumes and tonnes were compared to the JORC estimate model as per 31st August, 2014. As such RPM considers that no material change would occur utilising accurate depletion areas and as such have reported the Coal Resources as at the 31st December, 2013.

Table 7–2 Statement of JORC Inferred Coal Resources as at 31st December, 2013

Baiguojinhe Seams 2 6U 7U 8 9 10 12 14L 16U 18–1U 18–2 19 23U 23L 24 25 30U TOTAL (Averages*)	Inf 2.5 1.5 0.4 1.25 0.65 1.95 3.4 0.95 2.6 4.4 0.95 2 1.05 0.7 0.85 0.85 0.95 27.0	Total (Mt) 2.5 1.5 0.4 1.25 0.65 1.95 3.4 0.95 2.6 4.4 0.95 2 1.05 0.7 0.85 0.85 0.95 27.0	RAW ASH — Coal Only (%) 18.3 22.8 31.8 22.0 21.6 16.8 13.4 33.2 21.3 12.4 18.4 20.6 35.3 25.7 33.2 32.6 44.5 21.1*	Coal Seam Total Ash (%) 18.3 22.8 31.8 22.0 21.6 16.8 13.4 33.2 21.3 12.4 18.4 20.6 35.3 25.7 33.2 32.6 44.5 21.1*	Moisture (%) 2.7 1.8 1.4 1.3 1.5 1.4 1.3 1.4 1.3 1.7 1.1 1.1 1.2 1.3 1.0 1.0 1.4 1.5*	Specific Energy (MJ/KG) 34.8 35.0 34.8 34.8 36.0 35.7 35.8 35.1 35.4 35.8 35.7 35.7 35.7 35.7 35.8 35.8 34.8 35.5*	RD (t/cu.m) 1.45 1.44 1.38 1.5 1.45 1.33 1.36 1.47 1.42 1.37 1.41 1.44 1.4 1.4 1.35 1.47 1.49 1.41*	Total Sulphur (%) 0.23 0.24 0.23 0.41 0.2 0.36 0.23 0.15 0.13 0.18 0.14 0.9 2.56 0.95 1.86 0.47 0.16 0.44*	Volatile Matter (%) 33.3 35.2 35.7 36.4 33.1 34.7 35.8 19.6 34.1 33.9 33.6 34.4 17.5 33.4 34.7 3.7 36.4 32.4*

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Dongguaao Seams 2 6U 7U 8 9 10 12 15U 16U 18–1U 19 23U 24 25 30U TOTAL (Averages*)	Inf 0.2 0.1 0.1 0.1 0.1 0.3 0.6 0.1 0.4 0.8 0.6 0.6 0.6 0.7 0.3 6	Total (Mt) 0.2 0.1 0.1 0.1 0.1 0.3 0.7 0 0.1 0.4 0.9 0.6 0.6 0.7 0.3 6	RAW ASH — Coal Only (%) 14.9 26.9 34.5 22.0 24.5 15.3 15.2 30.2 18.2 13.2 24.6 38.6 37.9 32.6 44.4 26.7*	Coal Seam Total Ash (%) 25.9 39.0 38.7 25.6 28.2 27.1 18.3 31.5 19.2 17.0 24.6 38.6 37.9 32.6 44.4 28.9*	Moisture (%) 2.9 2.0 1.4 1.4 1.5 1.6 1.5 1.3 1.3 1.9 1.4 1.6 1.1 1.0 1.4 1.5*	Specific Energy (MJ/KG) 35.1 35.0 34.8 34.8 36.0 35.7 35.7 35.1 35.4 35.8 35.7 35.7 36.0 35.8 34.9 35.6*	RD (t/cu.m) 1.43 1.47 1.38 1.53 1.45 1.33 1.36 1.51 1.42 1.38 1.45 1.40 1.35 1.47 1.48 1.50*	Total Sulphur (%) 0.22 0.20 0.27 0.36 0.18 0.38 0.26 0.13 0.16 0.19 0.69 2.58 2.06 0.47 0.16 0.77*	Volatile Matter (%) 33.2 34.9 35.9 36.7 33.2 34.6 35.9 36.3 33.0 33.8 34.9 31.8 36.5 3.7 36.4 33.2*

Notes:

All Coal Resources figures reported in the table above represent estimates at 31st December, 2013. Coal Resource estimates are not precise calculations, being dependent on the interpretation of limited information on the location, shape and continuity of the occurrence and on the available sampling results. The totals contained in the above table have been rounded to reflect the relative uncertainty of the estimate. Rounding may cause some computational discrepancies.
Coal Resources are reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The Joint Ore Reserves Committee Code — JORC 2012 Edition).
Coal Seams are reported as per the Mining Right Permit.
Constant Values for RD were used for Seams 9, 25, 30U from both mine site using ash regression analysis.
Constant Values for Specific Energy were applied to seams 8, 9, 19, 23L, 24, and 30U for Baiguojinhe from modelled Dongguao Results).
Total Resource Tonnes are all reported as ‘‘Inferred’’ Resource Category.

Table 1 as required by the JORC Code 2012 edition is presented in Appendix D for reference.

As part of the validation of the resource estimate, RPM completed a comparison of the average drill hole coal quality information and the average coal quality resource estimates per seams. This comparison showed a number of variations by seam. Due to this variation RPM has completed a visual review of the drill hole samples and the resource estimate. This review

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indicated that on a local scale the resource estimate compared well with the drill hole sample quality. RPM considers that the global averages of the drill hole datasets and the resource estimates by seam are misleading due to the several factors including but not limited to:

. Low proportion of total samples over the area used in the estimate,
. Variances due to weighting of samples by special distribution, and
. Variances and weighting caused but occurrences of clustering of the data (samples).
. As such RPM has not presented the mathematical comparison.

Although there are variance in the global coal quality averages RPM believes the resource estimate represents the underlying drill hole dataset given the sample spacing and as such RPM consider the estimate suitable for classification applied.

7.7 JORC Coal Reserves

An ‘Ore Reserve’ is the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at pre-feasibility or feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves. (JORC Code — Clause 29).

The terms ‘Mineral Resource(s)’ and ‘Ore Reserve(s)’, and the subdivisions of these as defined above, apply also to coal reporting, but if preferred by the reporting company, the terms ‘Coal Resource(s)’ and ‘Coal Reserve(s)’ and the appropriate subdivisions may be substituted. (JORC Code — Clause 43)

As no Indicated or Measured Coal resources have been estimated no Coal Reserves have been estimated.

8 CHINESE COAL RESOURCE ESTIMATE

The Chinese resource estimates for the mineable coal seams have been carried out using sectional polygonal estimation method as stipulated by the Chinese regulations for ‘‘Specification for Coal, Peat Exploration’’ (DZ/T0215–2002).

The methodology applied to the resource estimation is listed below:

. Diamond drilling sampling within the coal seams formed the basis for the estimates, however underground channel sampling was also included in several of the Projects as Points of Observation.
. Geological mapping from the surface exposures were also employed to assist in interpretation.

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. Applied mining depletion (where applicable).
. Applied the current permit of mining elevation.
. Maximum mineable ash and sulphur (St.d) parameters were applied.
. Minimum mineable thickness parameters were applied.
. Minimum Specific Energy (Qnet.d) parameter applied.

The resource estimation process used the ‘plan area’, multiplied by true thickness, multiplied by Apparent Relative Density (‘‘ARD’’) methodology on scaled plans that indicated lease area, faults, coal seam stability and seam contours. Triangle interpolation methods were employed to define the mineable boundaries of the estimated blocks. Designated blocks were assigned a thickness for each seam and classified into one of the recognised Chinese resource categories based on the density of the Points of Observations.

The estimates of in situ quantities have been classified by the Specification for Coal, Peat Exploration (DZ/T0215–2002). Although variable based on the structural complexity areas of estimate generally controlled by bore holes on 500m spacing have been classified as ‘‘331’’, at 1,000m spacing have been classified as ‘‘332’’ and 2,000m have been classified as ‘‘333’’. Areas from external boundary of 332 resources to the boundary of resource estimation have been classified as 333 by extrapolation up to ½ bore hole spacing.

RPM notes that the Resource Reconciliation reports were completed by design institutes in 2008 and 2010, and have not been updated to reflect mining to August, 2013. As a result, RPM has re-estimated the coal resource using the same methodology as the Design institutes to reflect these updated reports. These updated Chinese coal resources have not been verified by the relevant Design Institute, and are not approved by the relevant authority and are presented for information only.

Within the current Mining Rights Permits 38.9 Mt of In Situ Coal was defined following the Chinese Standards as outlined below. The detail estimate of In Situ Coal under the Chinese Code classification is shown in Table 8–1. RPM notes these are note reported in accordance with the recommended guidelines of the JORC Code

Table 8–1 In Situ Quantity Estimate as at 31st August, 2013

Mine Dongguaao Baiguojinhe* Total	111b — 9.1 9.1	121b — — 0	Quantity (Million 122b 331 13.2 — 8.7 — 21.9 0	tonnes) 332 — — 0	333 — 8 8	Total 13.2 25.7
						38.9

Based on the 2008 Reconciliation Geology report in Dongguaao and 2011 Reconciliation Geology Report in Baiguojinhe and the approved opinion letter

There is 0.56 Mt more, the sulphur of which is more than 3%

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Figure 8–1 Total Sulphur Contours Seam 12

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Figure 8–2 Volatile Matter Contours Seam 12

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Figure 8–3 Raw Ash (Coal Only) Contours Seam 12

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Figure 8–4 Inherent Moisture Contours Seam 12

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Figure 8–5 Calorific Value (kcal/kg) Contours Seam 12

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Figure 8–6 Coal Only Thickness Contours Seam 12

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Figure 8–7 Coal Seam Total Thickness Contours Seam 12

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Figure 8–8 Floor Contours Seam 12

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9 MINING

9.1 Mining Overview and Development

Mining operations are currently suspended at the Baiguojinhe Mine due to operational changes to expand current production capacity to 450 ktpa using the modified mechanised longwall mining method. The Dongguaao Mine is in a steady state of production, although it has not been able to achieve the design capacity. The Dongguaao Mine utilizes the drill and blast longwall mining method.

As at September 2013 the planned expansion for the Baiguojinhe mine had been largely completed with approximately 80% of the underground and 60% surface engineering completed. RPM understands construction is expected to be completed by the end of June 2014 (see Table 9–1). Upon its completion and during the trial production period, the expanded mine will need to be assessed by the relevant government authorities according to standard Chinese regulations and procedures to ensure consistency with various development reports. Following this review the Company will gain the relevant approvals for full production.

Table 9–1 Project Development Schedule for the Mines.

				Planned
	Expansion	FS	Capacity	Expansion	Planned Full
Mine	Status		(Ktpa)	Start Date	Capacity Date
Dongguaao	Complete		300	Na	Na
Baiguojinhe	Ongoing		450	2013/12	2014/6

Source. Supplied by the Company.

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9.2 Mining Operations

All mining operations are planned to be undertaken using underground mining methods and supported by surface operations to deliver the ROM to the gate. Generally the mining process can be separated into three major components: Underground mine development, coal extraction and surface operations. Each aspect is described below.

9.2.1 Mining Method

Mining is currently undertaken using the drill and blast longwall mining method within the Donggaaou mines and is planned to be undertaken using the modified mechanised longwall mining techniques within the Baiguojinhe mine (each method is described in Section 9.2.3). Table 9–2 summarises the mining parameters which were utilised to develop the Chinese mine plan for the Mines.

Table 9–2 Mine Design Parameters for the Mining Operations.

Design Parameters	Dongguaao	Baiguojinhe
Dip Angle (°)	20–40	19
Shifts Per Day	4	4
Hours Per Shift (hours)	6	6
Operating Days Per Year (Days)	330	330
Panel Width (m)	100	150
Mining Height (m)	1.78	1.49
Retreat Rate Per day (m/d)	4	5.4
Scheduled Reach Rate (%)	80
Annual Advance Rate (m)	1,056	1,390
Mining recovery (%)	95	95
RAD (cu.m)	1.5	1.47
Capacity per day (t)	1,015	1,685
Capacity per annum (kt)	268	434

9.2.2 Mine Underground Development

Mine Development includes the tunnelling of inclines, main headings and gate roads. These developments are known as primary extraction, as they represent the first stage of mining and are utilised to transport coal, waste material and mining equipment to and from surface. Development also includes the mined material which is required to ‘set up’ the Longwall blocks. Mine development utilised within the Mines are described below. RPM notes that the majority of future Mine Development will be in coal, with minimal waste material mined and requiring storage on surface.

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Inclines

Inclines provide access to and from the surface and the different levels of the mine for transport, conveyors, and mine services. They may be developed in stone (rock) or coal. An Incline is designed to last for the life of the mine, or the life of the district of the mine they are required to service.

Main Headings

Main Headings are a network of roads that support all the mines services. They connect coal conveyors from the mining areas to the main conveyor for transport to the surface. The various roadways are used for storage of consumables. The main mine services such as underground power, and water pumping are all managed from the Main Headings. They may be driven in stone (rock) or coal. The life of the Main Headings is for the life of the mine, or as long as it is required to supply services to the working faces they are connected to.

Both Inclines and Main Headings also provide supplies and services (such as fresh air, water, and compressed air) for mining activities as well as return air roadways, waste water management (pumping lines and systems).

Gate Roads

Gate roads are developed on either side of a planned Longwall panel. The gate roads are connected to each other by a ‘‘face’’ road. The gate roads supply services to the Longwall, such as conveyors, fresh air, water, consumables, power, compressed air and transport, and also provide an escape way for the for the ‘return’ air (fresh air that has been contaminated by dust and gas as part of the mining process) to pass.

Gate roads may be driven in stone (rock) or coal. The life of the gate road is for as long as it is required by the Longwall panel it is servicing.

Inclines, main headings and gate roads may be developed either in stone or coal. Development in stones is performed by drill and blast techniques which are very common and used throughout China and internationally. Development in coal will be performed with the aid of machines known as ‘road headers’. The use of road headers is an effective method of extracting the coal.

Longwall Processes

A Longwall mining system is a high production rate mining method which utilises either a shearer or drill and blasting to cut coal across a mining coal face. Mining faces can vary from 30 to 400 m in width and approximately 1 to 5 m in height. Coal extracted from a Longwall face is conveyed along the face and transported to the surface via a system of belt conveyors. The methods employed within the Mines are detailed in Section 9.2.3.

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Underground Coal Handling

Coal is transported underground via a network of conveyors, eventually being loaded into an underground storage bin. Conveyors are then used to transport coal to the surface, where it is loaded into storage bins for transport to wash and preparation plants for Beneficiation or directly to market for sale.

9.2.3 Coal Extraction Methods

The mining plans categorise the mineable seams into thin (0.7–1.3m) or moderate (1.3– 3.5m) coal seam thickness. Most of the coal seams dip with averages ranging 20 and 60º.

The mine designs are based on the Chinese design code. It is common practice within China for thin and dipping coal seams to be extracted using the longwall method. This method is particularly prevalent in Guizhou province, where the coal seams are generally thin and dipping. The methods employed for coal extraction are summarized as follows:

Modified Mechanised Longwall

Modified Mechanised Longwall mining system processes include the use of a shearer to mine the coal along the face with roof support being provided by hydraulic props. The coal clearance system is similar to the Modified Mechanised method utilising a chain conveyor, such as an armoured face conveyor (‘‘AFC’’). As the coal is cut out by the shearer, the rear props behind the shearer’s direction of travel are manually lowered and moved towards the new face, and raised to provide positive pressure to the newly articulated metal roof beams to support exposed roof, and maintain the roof support. Once a full pass is concluded, a small notch is cut out at the end of the face; the AFC is pushed forward and flush against the face by individual hydraulic rams connected to the forced props. The process then starts again with the cutting out the new section of the face. A typical section of modified mechanised longwall mining is graphically shown in Figure 9–1.

Drill and Blasting Longwall

The longwall processes include the use of drill and blast to mine the coal along the face. Roof support is provided by hydraulic props with articulated metal roof beams, and the coal clearance system along the face is by a chain conveyor. As the coal is removed by drill and blasting, the rear props behind the face direction of travel are manually lowered and moved towards the new face, and raised to provide positive pressure to the newly articulated metal roof beams to support exposed roof, and maintain the roof support. Once a full pass is concluded, a small notch is cut out at the end of the face the chain conveyor is pushed forward and flush against the face by individual hydraulic rams connected to the forced props. The process then starts again with the cutting out the new section of the face. A typical section of drill and blasting longwall mining is graphically shown in Figure 9–2.

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Figure 9–1 Modified Mechanised Longwall Mining Method

==> picture [409 x 280] intentionally omitted <==

Figure 9–2 Longwall Drill and Blast Mining Method

==> picture [411 x 279] intentionally omitted <==

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Mining Method Summary by Mine

While Dongguaao Mine is planned to continue utilising the drill and blast longwall method, the Baiguojinhe Mine is planned to switch to modified mechanised longwall mining after the completion of the on-going expansion work in order to augment production. Table 9–3 summaries the methods used in each of the Mines.

Table 9–3 Summary of Applied Longwall Mining Methods Employed

Province	Mine	Modified	Blasting
		Mechanized
Guizhou	Dongguaao		√
	Baiguojinhe	√

9.2.4 Surface Operations

Surface operations consist of predominantly support infrastructure and services for the underground operations. Operations generally focus on the movement of coal from underground to markets or wash plant, maintenance of equipment or office administration. The infrastructure generally on each site is described below.

Industrial Yard

The Industrial Yard services all surface facilities and generally includes the following:

. Main and auxiliary shaft processing system, combined building (production dispatching office and change room);
. ROM stockpile, coal surface processing system, and coal load-out facility; and
. Machinery repairing shop, timber prop process room, underground wastewater treatment plant, power transmission station and gas drainage station.

The narrow-gauge railway and auxiliary road is the main transport inside the industrial yard. Gravel roads then connect to the highway locally.

RPM notes that industrial yards in the layout of the Mines are restricted by the local topography. The design reports have resolved the issues by fully utilising the terrain and facilities established at different elevation. As such these designs will also be compatible with the natural terrain, minimise earthworks by balancing excavation and project requirements. A suitable drainage system has been arranged for each mine site that allows rain water to be drained quickly and smoothly.

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Coal Handling

Coal is generally transported underground via conveyor system to underground bins. Another enforced conveyor system is then used to haul coal up the main access to the surface.

Once on the surface, Coal is conveyed from the mine via enforced conveyor systems into a storage bins or stockpiles that have been designed in Preliminary Design or Mining Plan Reports. From the bins or stockpiles, coal is handled primarily by manual screen processing systems. Through processing, stones are manually picked out, then the coal transported to wash plants for beneficiation or directly to market for sale.

Water Supply

There are several sources of water for the Mines:

. Water from the mine underground aquifers; and
. Rivers and streams.

Mine water is predominantly utilised for dust management and fire fighting systems, and is sourced from the mine waste water treatment plants. Additionally, water suitable for domestic applications is generally sourced from the above mentioned possible resources.

RPM is of the opinion that the proposed system should be sufficient to satisfy the needs of the Mines.

Power supply

35 kV substations have been built within the industrial yards of each of the Mines for step-down purposes. In compliance to a mandatory Chinese regulation, dual power lines were sighted during RPM site visit. RPM is of the opinion that the proposed power supply system is sufficient for the Mines.

Ventilation

In order to ensure a high rate of productivity, the Longwall needs face velocities of approximately 1.4 m/sec to effectively control the face methane emissions and minimize dust exposure to the personnel operating at the coal face. The Preliminary Designs detail different methods for each mine, but mainly comprises either a centralised exhaust ventilation system or a districted exhaust ventilation system. In general the main and auxiliary inclined shafts act as air intakes while the ventilation inclined shaft act as air return. Chinese regulations require the installation of a standby or backup ventilation fan, as such the preliminary design recommends the use of two axial flow fans each of sufficient capacity.

RPM is of the opinion that the proposed ventilation system is adequate for the requirements of the Mines.

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Methane Degasification and Drainage Station

Three underground degasification technologies are utilised within the mines, these include parallel-seam degasification of the coal in advance of mining, parallel-seam degasification of development in coal seams, and Goaf degasification.

The Preliminary Design and Mining Plan Reports have designed the Drainage Stations for the mines that are required. RPM considers that the proposed degasification system is consistent with Chinese standards and is appropriate for the Mines. RPM notes that degasification will play a crucial role in decreasing the methane emission and require careful management to ensure safe operations are maintained.

Moisture system

Environmental monitoring sensors are strategically located throughout the mines to ensure safe climate conditions. All captured data are transmitted to the surface for monitoring by site personnel. All mine monitoring systems are required to incorporate the capability of transmitting data to the city or autonomous region safety bureau.

The mine monitoring system for the Mines are designed for monitoring airflows, carbon monoxide (CO), carbon dioxide (CO2) and methane (CH4) in the mine atmosphere at multiple (and often remote) locations throughout the underground mine. Pre-set alarms are programed into the system to warn designated personnel for immediate response and to automatically de-energize power when gas concentrations exceed the statutory limits. In addition, the mine monitoring systems monitor the performance of numerous pieces of equipment and assemblies of components of the mine via a fibre optic interface. RPM considers that the monitoring systems are consistent with Chinese standards and are appropriate for the Mines.

Waste Material Management

During the site visits, RPM noted that waste material from the underground development is delivered to the delineated waste dump areas. A high level review of these areas indicate that suitable land use permits and environmental permits are in place, and that the areas are likely to be suitable for the life of mine production. RPM notes however that if the mine plans change from the feasibility study design, further review is recommended ensuring adequate land is available.

9.3 Mining Equipment

The mining equipment currently utilised is presented in Annexure C. RPM considers the equipment list to be suitable for the proposed mining operations and forecast production rates, however RPM recommends that detailed mine planning be undertaken to ensure the production rates can be achieved if the Company executes the planned production ramp-up.

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9.4 Regional Infrastructure

Significant regional transportation infrastructure is located in close proximity to the Mine. This includes various provincial highways which connects to the Mine from the major regional cities via a series of tarred roads with public transportation roads which are all maintained by the local authorities.

RPM notes that as both the products of the current Mine and the expanded capacities are planned to be sold at the mine gate to third party company which operates a beneficiation wash plant the customers are responsible for the transportation of the product from the Mine gate which is generally undertaken via truck. As such RPM regards the regional infrastructure suitable to support the forecast production rates.

10 FORECAST PRODUCTION SCHEDULE

The forecast production schedule for the Mines is presented in Table 10–1. RPM understands that the company’s expansion plans for the Baiguojinhe mine is phased to coincide with the likely timing of receipt of relevant permits, licences and approvals. All approvals are received for the current production capacity for Dongguaao. RPM notes that it has not reviewed the application process for the Mines and is not aware if the approval process timing coincides with the planned expansions.

Table 10–1 Feasibility Study Mining Schedule (ROM Coal).

		Planned	(ktpa)
				LOM FS
Mine	2014	2015	2016	Design
Dongguaao	250	300	300	300
Baiguojinhe	250	450	450	450

Source: Feasibility Study Reports and Verified by the Company.

RPM notes that historically the Company has not been able to achieve the design capacity. Given the recent performance of the Mines, RPM considers the mine development schedule presented in Table 10–1 to be optimistic and recommends that a full review of the life of mine forecast schedules for each mine be undertaken to confirm likely targets. This review should include a detailed analysis of the likely impact of the mechanised operation and a further optimisation of short and medium term mine plans.

Failure to reach the planned production rates will likely have a detrimental impact on the operating costs and the economic profile of the mines.

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10.1 Life of Mine Analysis

The LOM Plan as presented in the feasibility studies suggests a mine life of 23 and 30 years for Dongguaao and Baiguojinhe Mines, respectively.

RPM highlights that these LOM Plans are not based on Coal Reserves prepared in accordance with the JORC Code and are estimated in accordance with the Chinese Standards. It is likely if Coal Reserves are estimated that material differences in mining quantities may occur between the current estimates and mine lifes’ prepared in accordance with the JORC Code due to a different planning approach. The main differences include:

. The Chinese mineable reserve includes 333 classified material, however the JORC mineable reserve does not include the Inferred material;
. The JORC mineable reserve would not include high sulphur coal resources;
. The Chinese mine life estimate uses a reserve factor (varies between 1.3 and 1.6) to ensure adequate supply of coal over the mine life, whereas any JORC mine life does not apply a reserve factor: and
. A JORC mine life accounts for the ramp up to full production, whereas the Feasibility Study mine life does not.

11 OPERATING AND CAPITAL COSTS

11.1 Historical and Forecast Operating Costs

RPM has reviewed the historical overall mining operating costs and compared them to the forecast total mining operating costs outlined in Table 11–1. A review of the costs indicates that the forecast cost for Baiguojinhe Mine is significantly higher than the historical costs. Also, RPM realises the Baiguojinhe forecast cost is 30% to 40% higher than operating costs in similar coal mining operations in the region. Production is planned to increase to 450 ktpa and the planned change from the labour intensive longwall drill and blast to the modified mechanised longwall method should make the Baiguojinhe operation more cost effective. Whilst RPM considers that in the short term the operating cost may increase due to the increase waste material which is needed to be developed to support each longwall faces the long term costs should decrease. As such RPM is of the opinion that the forecast operating costs for Baiguojinhe may be overestimated and detailed mine planning should be undertaken to confirm the cost profiles of the operations. The Dongguaao mine forecast operating cost appears reasonable and in line with operations of similar styles.

RPM notes that the operating costs do not include washing or beneficiation and assumes all ROM coal is sold at the gate to the third party company prior to washing. The forecast operating costs are a reflection of the Chinese feasibility study and whilst RPM considers the LOM to be reasonable and in line with expected operating profile, these need to be verified with detailed mine planning and designs.

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Table 11–1 Historical and Forecast Total Mining Operating Costs per ROM Coal Tonnes

BAIGUOJINHE COAL MINE:

Cost Item Unit Materials RMB/ROM t Power RMB/ROM t Salary and Welfare RMB/ROM t Maintenance RMB/ROM t Others General and Administration RMB/ROM t Total Operating Cash Costs RMB/ROM t Mineral Resources Compensation Fee RMB/ROM t Subsidence Compensation RMB/ROM t Roadway Development Fund RMB/ROM t Re-simple Production Fee RMB/ROM t Safety Fee RMB/ROM t Gas Control Special Fund RMB/ROM t Total Cash Costs RMB/ROM t Depreciation RMB/ROM t Amortisation RMB/ROM t Financing RMB/ROM t Sale Fee Total Production Costs RMB/ROM t	2010 31.6 10.7 40.3 0.6 1.98 85.18 0.59 85.77 8.79 11.17 105.73	2011 48.53 18.54 76.89 3.69 6.53 154.18 154.18 25.28 11.37 190.83	2012 45.23 21.84 60.29 4.08 5.75 137.19 0.22 137.41 27.97 11.37 176.75	2013 n/a n/a n/a	LOM FS Forecast 29 18.18 102.99 17.58 24.8
					192.55
					10 2.5 8 40
					253.05
					15.52 14.96 9.69
					293.22

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DONGGUAAO COAL MINE:

Cost Item Unit Materials RMB/ROM t Power RMB/ROM t Salary and Welfare RMB/ROM t Maintenance RMB/ROM t Others RMB/ROM t General and Administration Total Operating Cash Costs RMB/ROM t Mineral Resources Compensation Fee RMB/ROM t Subsidence Compensation RMB/ROM t Roadway Development Fund RMB/ROM t Re-simple Production Fee RMB/ROM t Safety Fee RMB/ROM t Gas Control Special Fund RMB/ROM t Total Cash Costs RMB/ROM t Depreciation RMB/ROM t Amortisation RMB/ROM t Financing RMB/ROM t Sale Fee RMB/ROM t Total Production Costs RMB/ROM t	2010 33.04 9.17 48.96 1.04 4.28 22.47 118.96 118.96 7.21 3.92 –0.64 9.42 138.87	2011 44.19 13.89 38.41 1.15 0.64 21.15 119.43 0.20 119.63 12.23 4.18 –0.92 3.98 139.10	2012 42.42 14.31 46.92 0.86 1.42 7.28 113.21 113.21 8.94 4.52 –0.20 1.20 127.67	2013 37.57 14.14 74.47 3.94 1.42 53.41 184.95 0.73 13.03 198.71 30.49 4.11 4.55 1.73 239.59	LOM FS Forecast 39.49 33.60 3.04 16.80
					92.93
					2.50 10.50 15.00
					120.93
					27.79 4.00
					152.72

Source: Historical Costs Supplied by the Company and Forecast from the appropriate Feasibility Reports.

‘‘n/a’’ means no production

RPM notes that the forecast operating costs of 152 RMB/t ROM coal and 293 RB/t ROM coal are respectively tied to the designed production rates of 300 ktpa and 450 ktpa, as such do not reflect the proposed ramp-up to 400 ktpa and 600 ktpa for the Mines. Detailed costs studies will be required if the programme for the increased planned production is to be realised.

11.2 Capital Costs

RPM considers the estimated capital costs for the mines to be reasonable and understands the estimate is based on the latest available construction, contract rates and the company’s development plans. Furthermore, the expenditure includes construction, installation and equipment, which when compared to similar mines in China, appears to be reasonable.

The historical and forecast Capital Expenditure costs are detailed in Table 11–2, which include mining and working capital provisions. RPM has reviewed these mining capital estimates and believe they are consistent with the planned expansion and sustaining requirements within the Mines.

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Table 11–2-Historical and Forecast Capital Expenditure by Year

				Million	RMB
Mine	Pre-2010	2011	2012	2013	2014	2015	2016	2017
Dongguaao	115.95	73.9	36.59	8.41	15.01	7.48	7.58	3.91
Baiguojinhe	105.67	54.94	85.08	60.45	55.88	19.43	12.1	7.46

Source: Provided the Company

RPM notes that no ongoing Capital Costs have been provided beyond 2017.

12 OVERVIEW OF EHSS

RPM has been provided with Design reports for each mine which detail the environmental and safety procedures which are required for each mine. In addition RPM conducts a preliminary review during the site visit to highlight any associated risk and mitigation. Below is a summary of the key findings and observations made during the report review and site visits.

12.1 Key Mining Related Safety Risks

12.1.1 Gas

Due to the geological setting and categories of coal seams within China, methane gas generally represents the highest risk for Chinese coal mining operations. In coal, gas outburst, high and low gas content mines (particularly as methane explosions often propagate more serious coal dust explosions) effective management of the gas risk is imperative for the mine safety.

Preliminary Design and Mining Plan reports have mostly has been categorised as high gas (potentially coal and gas outbursts), which RPM agrees with. The Company, or its subsidiaries, should have carried out gas grade testing yearly and subsequently issued testing results to the provincial government. The management and control of gas of the mines are regulated by the standard of the test grade. Table 12–1 shows the recent test work conducted for each mine.

Table 12–1 Recent Gas Grade Test Work Completed for the Mines

			Relative	Emission	Absolute	Emission
			(cu.m/t)		(cu.m/min)
Mine	Gas	Grade	CH4	CO2	CH4	CO2	Test Date
Dongguaao	High		29.75	11.41	11.94	4.57	14/11/2012
Baiguojinhe	High				3.80	0.96	14/11/2012

Source. Supplied by the Company.

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The Chinese government has very strict regulations in relation to the management of methane gas in coal mines. The main approaches for the management of methane gas for the Hidili Coal mines include:

. Improve the ventilation management of mine shafts, working faces and developments;
. Effectively remove methane gas before mining commences;
. Use personnel and self-monitoring systems during production to monitor methane levels.

RPM believes that the designs and actual application of the methane management systems and controls of the Mines are in accordance with reasonable safety requirements.

12.1.2 Water

The hydro geological conditions of the Mines are generally of a simple and or moderate nature. The main underground flooding risk facing the mine is the presence of accumulated water in the coal seams in the previous mined area.

For the purpose of mitigating the risks of ‘‘mined area’’ water in addition of other underground water, the careful management will accordingly be needed to ensure that the associated risks are controlled. During the site visit RPM noted that mitigating measures such as a dedicated pumping system should be implemented to ensure that all the hydrogeological risks are managed appropriately.

During the site visits RPM observed that the Mines have suitable underground water pump stations, water pumps and water drainage lines and roadways. The water pump equipment designs are in accordance with normal operations with backup units. Development operations utilise some drilling of working faces to investigate for water prior to development commencing. This is consistent with the relevant rules and requirements.

12.1.3 Geotechnical

The immediate roof of the seams (rock above the coal seams) are typically sandy mudstone, fine sandstone and mudstone, which are generally geotechnically weak. The thickness of the seams commonly observed indicates that development roadways cannot be driven with a coal roof (as they are too thin), especially large section roadways for mechanised Longwall equipment delivery, and therefore the weak roof above the coal seam may be a significant issue on development. In addition, the weak material within the roofs may create intermittent problems on the Longwall face itself. Recovering any roof falls, which do occasionally occur, on the face will be challenging, given the face coal dilution and associated safety issues.

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The immediate floors of the seams generally include a 0.3 to 0.5m thick generally weak or soft mudstone. Geotechnical testing indicates that the floor material will degrade in the presence of water. If weak floor or considerable groundwater is encountered on the Longwall face at any time, suitable measures will be required to mitigate against floor lift in the thin seams. Additional support in development roadways is recommended regardless.

It is designed in the Preliminary Design and Mining Plan reports that development roadways are proposed to be driven by Road header and drill/blasting units. The Design reports recommend that roof bolts and mesh should be the primary roof support together with cable bolts as appropriate. It is essential that suitable support design, material specifications and installation standards are developed and maintained, in order to achieve the necessary roof support performance. No design details have been provided with respect to proposed roof and rib support densities. During the site visit RPM noted that the roof support at the Mines was a modern system of fully meshed roof bolts with 8 m cable bolts. The strata conditions observed were generally good with no signs of falls of ground or faulting in the workings. Some support in the mines was more primitive and will likely need upgrading by forced melt ‘‘U’’ or ‘‘Π’’ supports.

12.1.4 Dust

Previous testing of the coal dust from the Mines showed explosive properties. Mitigation measures should be adopted to reduce the risk of coal dust explosions.

This is a common risk for many underground coal mines and will require careful management to ensure that the associated risks are controlled. The high gas content of the seam increases the likelihood of methane explosions, which in turn will increase the likelihood of coal dust explosions.

RPM notes that standard mitigating measures such as water-slot or stone-dusting have been and will be adopted in Dongguaao operation and Baiguojinhe expansion to reduce the risk of coal dust explosions.

12.1.5 Fire

The majority of seams are generally characterised as prone to spontaneous combustion with a various ‘Level’ spontaneous combustion rating. This will necessitate good ventilation, sealing and monitoring practices. The issue appears to be recognised in the Mining Plan and Preliminary Design reports with references to standard ‘‘U’’ ventilation, goaf sealing with nitrogen injection and continuous monitoring systems. The risk of Spontaneous combustion control could increase in the lower seams or levels as a result of the interconnection of goafs and as such RPM recommends review of the procedure prior to mining in these areas.

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12.1.6 Goaf

The surface and shallow parts of main mineable coal seams have effectively been depleted. It should be a high risk as a result of spontaneous combustion. This part of the deposit has been referred to as the ‘‘goaf area’’.

RPM notes that the abandoned underground mining areas potentially contain a significant amount of remnant coal in the goaf. Inadequate sealing of the goaf would result in a high risk of spontaneous combustion due to the potential exposure of the coal to air. RPM advices that good management will be needed to prevent any accidents as a result of spontaneous combustion, CO poisoning from if any ‘‘Burnt Zone’’ and flooding as a result of water accumulating in the original burnt zone area.

12.1.7 Subsidence

Mining activities in the Mines impact surface with the removal of overburden strata affecting the geotechnical stability of the overlying rock. This instability, if not properly managed, could result in subsidence at surface. A review of operations indicates that safety pillars to protect the main surface and underground facilities over the mining areas are in place or designed. RPM understands some small villages over the mining area will be moved, however no significant subsidence was observed during the site visit.

RPM recommends that well maintained monitoring of surface movement is be undertaken to ensure protection of the surface facilities such as roads, rivers and power lines from the damage by subsidence.

12.2 Rescue Systems

A rescue team has been established by the Company at the Guizhou operations, named the Liupanshui Hidili Industrial Ltd Mining Rescue Team.

During discussion with site personnel and the Company, RPM understands that the underground rescue system containing a rescue and first aid station will be constructed within the major mining areas of each mine. RPM has not reviewed the plan or the progress of the construction.

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13 MINE RISKS AND OPPORTUNITY ASSESSMENT

13.1 Risks

Mining is a relatively high risk business when compared to other industrial and commercial operations. Each mine has unique characteristics and responses during mining and processing, which can never be wholly predicted. RPM’s review of the Mines indicates mine risk profiles typical of mines at similar levels of resource, mine planning and development in China. Until further studies provide greater certainty, RPM notes that it has identified risks and opportunities with the Mines as outlined in Table 13–1.

RPM has attempted to classify risks associated with the Mine based on Guidance Note 7 issued by The Stock Exchange of Hong Kong Limited. Risks are ranked as High, Medium or Low, and are determined by assessing the perceived consequence of a risk and its likelihood of occurring using the following definitions:

Consequence of risk:

. Major: the factor poses an immediate danger of a failure, which if uncorrected, will have a material effect (>15% to 20%) on the Mine cash flow and performance and could potentially lead to Mine failure;
. Moderate: the factor, if uncorrected, could have a significant effect (10% to 15% or 20%) on the Mine cash flow and performance unless mitigated by some corrective action, and
. Minor: the factor, if uncorrected, will have little or no effect (510%) on Mine cash flow and performance.

Likelihood of risk occurring within a 7 year timeframe:

. Likely: will probably occur;
. Possible: may occur, and
. Unlikely: unlikely to occur.

The consequence of a risk and its likelihood of occurring are then combined into an overall risk assessment as shown in Table 13–1 to determine the overall risk rank.

Table 13–1 Hidili Project — Risk Assessment Table

		Consequence
Likelihood	Minor	Moderate	Major
Likely	Medium	High	High
Possible	Low	Medium	High
Unlikely	Low	Low	Medium

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APPENDIX II

RPM notes that in most instances it is likely that through enacting controls identified through detailed review of the Mine’s operation, existing documentation and additional technical studies, many of the normally encountered Mine risks may be mitigated.

Risk Description and

		Risk Description and
Risk	Ranking	Suggested Further Review	Potential Mitigant	Area of Impact
H		Core Recovery	Complete verification	Resource Estimates
		Most core recovery data was supplied for	drilling to confirm coal
		the historical bore holes with drilling	quality data.
		recoveries of less than 85%, which RPM
		consider low. Low core recovery may
		result in poor coal quality determination
		which are not representative.
H		High Gas Content/Coal Dust	Adequate ventilation, gas	Mine Safety
		Outburst, high and low gas has been	drainage, ongoing
		identified as a characteristic of the Mines.	management, limiting coal
		High concentrations of gas in a mine’s	dust build-up, hanging
		atmosphere may result in an explosion. A	water bags, stone dusting.
		gas explosion may stir up coal dust and
		lead to further coal dust explosions.
H		Water In-rush	Ongoing management will	Mine Safety and
		The uncontrolled in-rush event could be	be required to ensure that	Production
		caused by water accumulated in the	the current mine does not
		‘‘Goaf’’ areas of historical mining. The	breach the old mine
		hydro geological conditions are generally	workings. It is necessary
		of a complex nature.	for detective drilling for
			the roadway development.
M		Roof Hang-ups	Better understanding of	Mine production
		As the Longwall units progress in the coal	lithological condition of	rates
		seam, the coal roof should regularly cave	the Floor, and roof units,
		behind the advancing unit. If the coal roof	and care management for
		does not regularly cave, it may slow the	LW shields.
		Longwall advance due to the stresses
		applied to the Longwall supports.
M		Spontaneous Combustion	Careful monitoring and	Mine Safety
		There is a known potential for	management.
		spontaneous combustion of the coal with
		the mines, which has previously resulted
		in the sterilisation of coal.
M		Bore Holes Data	Supply all original	Resource estimates
		The Historical bore hole data could not be	documentation, and drill
		fully validated as no hardcopy original	verification holes.
		documentation was supplied.
M		Production Forecasts	Review Recent operating	Operating costs,
		Recent Production targets have not been	performance and	Production schedule,
		achieved for any of the Mines.	introduction of mechanised	LOM.
			machinery.

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		Risk Description and
Risk	Ranking	Suggested Further Review	Potential Mitigant	Area of Impact
M		Coal Quality	Complete additional	Product tonnage and
		Insufficient assays for calorific value,	drilling and carry out	quality.
		density, and penalty elements. No	proximate assay, bulk
		exclusive beneficiation test was carried	density, as well as coal
		out for each minable coal seam.	wash test work.
M		Geology Structure	After additional drilling,	Resource estimation
		The area contains numerous faults and	carry out further study of	and mining
		folded strata. Fault extensions and fold	geological structure.
		axes were not completely defined.
M		OPEX/CAPEX	Complete a review of	Capital Costs
		No detailed CAPEX has been provided, or	detailed CAPEX.
		breakdowns of the individual cost units or
		consumable etc. No CAPEX was provided
		for the wash plants.
L		Internal Variability	Completed detailed 3D	Resource estimates
		Limited information is available as to the	modelling of coal seams.
		pinching and swelling (thickness) of the
		coal seams, as well as the coal qualities.
		Areas may exist which may be below the
		cut off for minimum mining thickness.
		These areas are likely to be included in
		the design and reserves presented.
L		Wash Plant Review	Complete review	Economic viability
		RPM has not conducted a review of the
		wash plants performance and cannot
		comment of the suitability of the design or
		method employed.
L		Coal Seam Correlation	Complete infill and	Resource Estimates
		There are numerous coal seams locally	additional drilling to
		and the boreholes were drilled many years	identify coal seams.
		ago with low core recovery.
L		Mining Licence	Application for new mining	Production, JORC
		Mining Licence capacity increases are	licence to be submitted.	Resource and
		required to ensure the legitimacy of the		Reserves, project
		internal ramp-up.		profitability.
L		Incendive Sparking	Complete testing related to	Mine Production
		A number of stone splits have been	determine the level of this
		identified within the coal seams. If these	risk, and then carefully
		splits have high concentrations of silica,	monitoring and
		there is a potential for sparking to occur	management is needed.
		as they are mined. This can potentially
		ignite pockets of gas and escalate.

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APPENDIX II

13.2 Opportunities

The JORC Coal Resource statements in this Report are within the horizontal and vertical limits of the current mining licences only. RPM is aware that the Mineable Coal Seams extend above and below the current elevation restrictions of the mining licences. RPM considers these areas to have excellent potential to increase resource and reserves and thereby the mine life if licences can successfully be extended into these areas.

One of the Mines is currently undergoing expansion and will be introducing modified mechanised mining methods to increase production rates. When effectively operating, these modified mechanised methods, although having higher unit costs, could lower Total Mining costs due to increased production rates and less development required. RPM notes that the forecasts costs are higher due to this introduction, however with detailed short and long term planning these costs could potentially be lowered.

As a part of the coal quality review and number of results highlighted outliers in the coal quality, particularly Ash and Sulphur. RPM recommends the further exploration and drilling should be carried out to target these areas so as to confirm or deny these old test results.

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APPENDIX II

A1. APPENDIX A — QUALIFICATIONS AND EXPERIENCE

Hong Zhao, MEng, Senior Geologist Consultant — Beijing, RungePincockMinarco, Member of Australasian Institute of Mining and Metallurgy

Hong Zhao is a registered qualified valuator of mineral rights in China. He graduated with a bachelor degree in coal geology and exploration from Huainan University of Mining and Technology in 1985 and was granted a Masters from the Beijing Graduate School, China University of Mining and Technology, with a specialty in coal geology in 1990. Mr Zhao has worked in coal mining geology at the Fengfeng Coal Mining Bureau and Beijing Coal Mining Bureau. He has also conducted scientific study on coal strata and environment in the Chinese Academy of Sciences, where he co-operated with foreign scholars for many years. From 2003, he has been working as a geologist and mining industry consultant, performing more than 80 projects, including coal (UG and OC), coal bed methane, iron (UG and OC), gold, copper, silver, zinc and lead, tin, manganese, molybdenum, aluminium, rare earth, sulphur, salt, calcite, geothermy, mineral spring water, etc, in China as well as international mining consulting companies.

With relevant experience in coal geology, Hong Zhao meets the requirements as a Qualified Person for 43–101 reporting, and as a Competent Person (‘‘CP’’) for JORC reporting for coal Resources. Hong Zhao is a member of the Australian Institute of Mining and Metallurgy.

Kevin Qu — Senior Mining Engineer — B.E. Hebei Mining College, Handan City, China

Kevin has over 25 years’ experience in the mining industry, including broad operational and technical roles in the management of scoping, prefeasibility, feasibility and optimization studies, review and benchmarking of mine operations, management and planning systems, and the development and analysis of cost and financial models. He has had significant experience working on feasibility studies and is in particular very knowledgeable on the regulations and policies in the mining industry of China.

Kevin graduated with a BEng in Mining Engineering from Hebei Mining Institute, Handan City, Hebei Province, P.R. of China in 1983, and spent over twenty years at both state-run and private operations in many roles, ranging from underground mining, mine planning, ventilation and operations.

Kevin participated in a number of feasibility studies for large underground mines, as well as scoping studies and due diligence assessments for purchasers and investors, with assignments in Europe, Thailand, Canada, Indonesia, and America.

In recent years, Kevin has become a full time technical consultant for both metal and coal mines, planning projects, conducting feasibility studies and operational reviews on a wide variety of mining methods — in particular, with respect to dipping mining, stoping, open benching, cut and fill, sub level caving and block caving both in China and overseas.

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APPENDIX II

Jeremy Clark — Operations Manager, Hong Kong, Bsc. with Honours in Applied Geology, Grad Cert Geostatistics, MAIG, MAusimm

Jeremy has over 12 years of experience working in the mining industry. During this time he has been responsible for the planning, implementation and supervision of various exploration programmes, open pit and underground production duties, detailed structural and geological mapping and logging and has a wide range of experience in resource estimation techniques. Jeremy’s wide range of experience within various mining operations in Australia and recent experience working in South and North America gives him an excellent practical and theoretical basis for resource estimation of various metalliferous deposits including Iron Ore and extensive experience in reporting resource under the recommendations of the JORC and NI-43–101 reporting codes.

With relevant experience in a wide range of commodity and deposit types, Jeremy meets the requirements for Qualified Person for 43–101 reporting, and Competent Person (‘‘CP’’) for JORC reporting for most metalliferous Mineral Resources. Jeremy is a member of the Australian Institute of Geoscientists.

Benjamin Quashie — RungePincockMinarco — Senior Technical Manager (Beijing) — BEng(Mining), Master of Mining — CP for JORC/QP for NI 43–101 — Member of the Society for Mining, Metallurgy and Exploration (SME)

Benjamin has 19 years of mining industry expertise with ample understanding of ore reserve estimation, mine planning, haulage cycle time and cost analysis. He is a registered member of Society for Mining, Metallurgy and Exploration (SME) and is a Competent Person for JORC and Qualified Person for NI 43–101. Much of his work has been higher level strategic report, including feasibility studies, technical due diligence, fatal flaw review of operating mines and JORC compliant competent person’s reports (CPR) for listing and private equity purposes for commodities such as copper, gold, zinc, lead, manganese, nickel, magnesium, tungsten, iron, coal and etc. Further experience has been in mine reclamation and compliance with environmental regulations. He is Knowledgeable of open-pit and underground mineral operations with actual design expertise in shrinkage stoping, sub-level stoping, sublevel caving, mine scheduling, primary open-pit equipment selection.

He has provided technical support services involving metal mines in China and internationally spanning Australia, USA, Canada, Pakistan, Papua New Guinea, Peru, Democratic Republic of Congo, Mongolia and the Philippines. Mining softwares used have included Datamine Studio, NPV Scheduler, Whittle 4X, CS-Mine, Ventsim, and Mapcad.

Also, Benjamin had his tertiary education (bachelor’s and master’s) in China and is proficient in Chinese and in English.

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APPENDIX II

Hongbo Liu — Mining Engineer, National Register of Safety Engineers, China University of Mining & Technology (Beijing)

Hongbo Liu graduated with a bachelor degree in mining engineering from Hebei University of Engineering in 2003, was granted a master’s degree from China University of Mining and Technology in 2006 and qualified for the National Register of Safety Engineers in 2009.

From 2006 to late 2011, Hongbo was employed at Gemcom Software International Inc. China. He performed in a project management and technology support engineer capacity on projects using Surpac and MineSched software training.

During his work with Runge from 2011 to the present, he has been actively involved in many technical review projects including iron, gold copper; and lead mine projects in China and Africa. His work includes data reviewing, open pit optimization, open pit and underground mine designing and scheduling. All of his work is in accordance with the JORC Code (Australia, Africa, Europe and Asia) or the NI-43–101 code (Canada and South America) and the Hong Kong Exchange listing rules.

Peilin Guo — Mining Engineer — BM. (Mining Engineering), China University of Mining & Technology (Beijing)

Peilin has 8 years of experience working in the domestic and international mining industry, including in underground coal operations, open pit nickel laterite operations, and as a consultant in a mining software company. As a consultant, he performed geological modelling, resource estimation, mining design and software training for coal, iron, gold, copper, limestone and nickel-cobalt projects. Peilin is an expert user of AUTOCAD and SURPAC.

Since joining Runge in 2011, Peilin has worked on more than 10 iron ore, gold, copper, lead, zinc, rare earth and coal projects in China, Mongolia and Africa. He has been actively involved in many technical review projects, with his work including reviewing and designing. All of his work is in accordance with the JORC Code (Australia, Africa, Europe and Asia) or the NI-43–101 code (Canada and South America) and the HKEx (Hong Kong Exchange) Listing Rules.

Song Huang — Project officer/Geologist, Master of Geology, University of Peking Technology, China

Song graduated from the University of Peking Technology with a master’s degree in Geology in 2009. From 2009 to 2011, he worked in Jinchuan China as a geology engineer. During this period, he mainly focused on the management of mine geology. Since joining Runge in 2011, Song has been involved with several project reviews and resources estimation from exploration to operating assets focusing mainly on metals. Recent commodities covered by Song in China have included gold, iron, nickel, copper, molybdenum, etc. (Including 1 Ni project in Indonesia, 2 iron projects in Mongolia and Madagascar, and 1 gold project in Ghana.) Through his technical work Song has gained knowledge and skills in utilizing resource analysis software and understanding of exploration data management.

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APPENDIX II

Company’s Relevant Experience

RungePincockMinarco is a premier international consulting and engineering firm. It provides a full range of services from pure technical consulting through to strategic corporate advice, undertaking assignments on mining mines covering a range of commodities and countries, serving clients in most of the countries on the West Pacific Rim.

RungePincockMinarco maintains a full time staff of qualified specialists in the fields of mining engineering, geology, process and metallurgical engineering, environmental and geotechnical engineering, and environmental economics.

RungePincockMinarco typically completes over 200 assignments per year and has over 300 professionals available in disciplines including:

. Mining Engineering;
. Minerals Processing;
. Coal Handling and Preparation;
. Power Generation;
. Environmental Management;
. Geology;
. Contracts Management;
. Mine Management;
. Finance;
. Commercial Negotiations.

The roots of RungePincockMinarco were established in the Australian mining industry. RungePincockMinarco is committed to compliance with the codes which regulate Australian corporations and consultants and has established an International business which has continued to give its clients and those that rely on its work the confidence that can be associated by the use of the relevant Australian codes.

These codes include:

. The Australian Corporation Law;
. The Australian Institute of Company Directors Code of Conduct;
. The Securities Institute of Australia Code of Ethics;
. The Australasian Institute of Mining and Metallurgy Code of Ethics;

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APPENDIX II

. The Australasian Code for Reporting of Exploration Results, Mined Resources and Ore Reserves (The JORC Code).

RungePincockMinarco has conducted numerous mining technical due diligence programmes and reporting for IPO’s and capital raisings over the past six years, with involvement in Mines raising a total of over Billion USD10 of capital. This and other work is summarised in Table A1.

Table A1 — Mining Related IPO and Capital Raising Due Diligence Experience

2012 China Gold Resources International., Ltd; Tibet Jiama Copper-Polymetallic Phase II NI 43–101 HKEx Pre-Feasibility Study. China

2012 China Precious Metal Resources Holdings Co., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the acquisition of an Gold Operation Yunnan Province, China.

2012 Kinetic Mines and Energy., Ltd; Competent Persons Report of Coal Resources and Coal Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the IPO of an underground coal asset in Inner Mongolia Province, China.

2012 China Daye Non-Ferrous Metals Mining., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the acquisition of 4 operating underground copper, lead, zinc assets in Hubei Province, China.

2012 Huili Resources Group., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the IPO of multiple underground nickel, lead, zinc, copper and gold mining assets in Xinjiang and Hami Province, China.

2011 China Polymetallic Limited Mining., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the IPO of a lead zinc silver polymetallic underground mining assets in Yunnan Province, China.

2011 China Precious Metal Resources Holdings Co., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKSE Circular to support the acquisition of multiple underground gold mining assets in Henan Province, China.

2011 HaoTian Resources Group Limited; Competent Persons Report of Coal Resources and Reserves under JORC and Independent Technical Review for inclusion in a HKEx Circular to support acquisition of and underground coal mines in Xinjiang Autonomous Region, China.

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APPENDIX II

2011 King Stone Energy Group., Ltd; Competent Persons Report of Coal Resources and Reserves under JORC and Independent Technical Review for inclusion in a HKEx Circular to support acquisition of 2 underground coal mines in Shanxi Province, China.

2010 China Precious Metals Holdings Co., Ltd; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKEx Circular to support the acquisition of multiple underground gold mining assets in Henan Province, China.

2010 Century Sunshine Group Holdings Limited; Competent Persons Report of Mineral Resources and Ore Reserves under JORC and Independent Technical Review for inclusion in a HKEx Circular to support the acquisition of a serpentinite mining asset in Jiangsu Province, China.

2010 Doxen Energy Group Limited; Independent Technical Review and estimation of Coal Resources under JORC for inclusion in a HKEx Circular to support the acquisition of a coal mining asset in Xinjiang Autonomous Region, China.

2010 KwongHing International Holdings (Bermuda) Limited; Independent Technical Review for inclusion in a HKEx Circular to support a Very Substantial Acquisition.

2009 Metallurgical Corporation Of China Ltd (‘‘MCC’’); Independent Technical Review for inclusion in a Prospectus to support a stock exchange listing on the Hong Kong Stock Exchange.

2009 Nubrands Group Holdings Limited, Guyi coal mine; Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by a listed Hong Kong Company.

2008 China Blue Chemical Limited, Wangji and Dayukou Phosphate Mines: Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by a listed Hong Kong Company.

2008 Kenfair International (Holdings) Limited, Shengping coal mine: Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by a listed Hong Kong Company.

2007 China Railway Company Limited, African Copper/Cobalt Assets: Capital raising for mining assets on the Hong Kong Stock Exchange. Preparation of Competent Persons Report for planned IPO on the HKEx.

2007 KoYo Ecological Agrotech (Group) Limited Sichuan Phosphate: Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by a listed Hong Kong Company.

2007 Prosperity International Holdings Limited, Guilin Granite Mine: Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by a listed Hong Kong Company.

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APPENDIX II

2007 China Primary Resources — Independent Technical Review for inclusion in a Stock Exchange Circular to support a mining asset purchase by China Primary Resources.

2007 Gloucester Coal Limited — Independent Technical Review for Australian Stock Exchange Scheme of Arrangement.

A2. APPENDIX B — GLOSSARY OF TERMS

The key terms used in this report include:

. AIG Australian Institute of Geoscientist
. Asset means the 27 Mines and 10 Wash Plants
. AUSIMM stands for Australasian Institute of Mining and Metallurgy
. Company means Sichuan Hidili Industry Limited
. Cut-Off Grade (‘‘cog’’)

Resource cog: is the lowest grade of mineralised material that qualifies as having reasonable economic potential for eventual extraction and supports a geologically justifiable and continuous mineralisation domain.

Economic/Reserve cog: is the lowest grade of mineralised material that qualifies as economically mineable and available in a given deposit after application of modifying factors and economic assessment at given commodity prices. It may be defined on the basis of economic evaluation, or on physical or chemical attributes that define an acceptable product specification.

. g/t stands for grams per tonne
. HKEx stands for Hong Kong Stock Exchange
. ITR stands for Independent Technical Review
. JORC stands for Joint Ore Reserves Committee
. JORC Code refers to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2004 edition, which is used to determine resources and reserves, and is published by JORC of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia
. km stands for kilometre

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APPENDIX II

. kt stands for 000’s of tonnes
. ktpa stands for 000’s tonne per annum
. LOM plan stands for Life of Mine Plan
. m stands for metres
. mine production is the total raw production from any particular mine
. Mineable Coal Seams refers to a coal seam which has a thickness greater than the minimum mining width, as described by the Chinese Code.
. mining rights means the rights to mine mineral resources and obtain mineral products in areas where mining activities are licensed
. Ml stands for mega litre which is equal to one million litres
. RPM refers to RungePincockMinarco
. Mt stands for mega tonnes which is equal to one million tonnes
. Mtpa stands for million tonnes per annum
. RMB stands for Chinese Renminbi Currency Unit; 10[3] RMB means 1,000 RMB
. ROM stands for run-of-mine, being material as mined before beneficiation
. t stands for tonne
. tonne refers to metric tonne
. tpd stands for tonnes per day
. tph stands for tonnes per hour
. $ refers to United States dollar currency
. ¥ is the symbol for the Chinese Renminbi Currency Unit
Note: Where the terms Competent Person, Inferred Resources and Measured and Indicated Resources are used in this report, they have the same meaning as in the JORC Code.

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APPENDIX II

A3. APPENDIX C — MINING EQUIPMENT

Longwal Shearer

			Drum		Haulage	Installed
	Shearer	Operating	Diameter	Cutting	Speed	Power	Voltage
Mine	Model	Range (m)	(mm)	Web (mm)	(m/min)	(kW)	(V)
Dongguaao	ZMS-1.2					1.2
	MG132/
Baiguojinhe	320-W	1.3–2.86	1250	600	0–5.5	320	1140

Hydraulic Roof Supports

				Working	Set	Yield
	Support		Operating	Resistance	Pressure	Pressure	Support
Mine	Form	Support Model	Range (m)	(kN)	(Mpa)	(Mpa)	Weight (t)
Dongguaao	Prop	DZ22–30/100	1.44–2.24				30
Baiguojinhe	Prop	DZ22–30/100	1.44–2.24	300

AFC

			Transport
		Face Length	Capacity	Chain speed	Installed	Voltage
Mine	AFC Model	(m)	(t/hr)	(m/s)	Power (kW)	(V)
Dongguaao	SGB-420/30	120	100		30
Baiguojinhe	SGZ730/150	120	400		75*2	660/1140

Coal Clearance

			Transport
	Conveyor	Belt Width	Capacity	Belt Speed	Installed	Voltage
Mine	Model	(mm)	(t/hr)	(m/s)	Power (kW)	(V)
Dongguaao	SSJ800/2*40	800	200		80
Baiguojinhe	DSJ-80/30/75	800	400		75

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APPENDIX II

A4. APPENDIX D — JORC TABLE 1 AND COAL QUALITY MAPS

JORC Code, 2012 Edition — Table 1

Section 1 Sampling Techniques and Data

Criteria JORC Code Explanation

Commentary

Sampling techniques . Nature and quality of sampling (eg cut channels, random chips, or specific specialised industry standard measurement tools appropriate to the minerals under investigation, such as down hole gamma sondes, or handheld XRF instruments, etc). These examples should not be taken as limiting the broad meaning of sampling.
. Include reference to measures taken to ensure sample representivity and the appropriate calibration of any measurement tools or systems used.
. Aspects of the determination of mineralisation that are Material to the Public Report.
. In cases where ‘industry standard’ work has been done this would be relatively simple (eg ‘reverse circulation drilling was used to obtain 1 m samples from which 3 kg was pulverised to produce a 30 g charge for fire assay’). In other cases more explanation may be required, such as where there is coarse gold that has inherent sampling problems. Unusual commodities or mineralisation types (eg submarine nodules) may warrant disclosure of detailed information.
. Coal samples for coal quality testing were collected from drill core on a seam basis with no ply details. Partings separating plies were not sampled.
. Samples consisted of the recovered section of the seam. Few coal samples were taken from mineable coal seams in the lower section of the coal measure, such as Seam 23U, 23L, 24, 25, 30U.
. Sample depths were recorded and samples provided with unique drill hole and sample numbers.
. Coal intervals were determined visually from lithological logging by qualified geologist(s) and cross referenced with down hole geophysics and coal quality test results as per the Chinese coal exploration regulations.
. The approach to coal sampling is considered industry standard for coal exploration in China and is suitable for the Mines.

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APPENDIX II

Criteria JORC Code Explanation Commentary
Drilling techniques . Drill type (eg core, reverse . 22 drill holes inside and outside the circulation, open-hole hammer, rotary mining licences were completed in air blast, auger, Bangka, sonic, etc) historic drilling programmes using and details (eg core diameter, triple full core methods with one nonor standard tube, depth of diamond coring (BH 1903), and the rest being tails, face-sampling bit or other type, either full coring drilling or interval whether core is oriented and if so, by coring drilling. Downhole geophysics what method, etc). was completed on almost all drill holes except BH Shallow 1 and BH 1801.
. All drillholes were completed in the 1960’s and 1970’s using the then conventional core methods. Downhole geophysics was collected except for BH 1803.
. All drill holes were drilled vertically. Holes deviations between 2 and 18 degrees were noted.

			.	Core has not been oriented.
			.	Drilling methods are considered
				industry standard for coal exploration
				in China at the time of exploration
				and are suitable for the Mines.
Drill sample	.	Measures taken to maximise sample	.	To assess core recovery, drill core
recovery		recovery and ensure representative		recovered is measured and recorded
		nature of the samples.		as a percentage of drilling depths.
				The measured seam interval thickness
	.	Whether a relationship exists between		is also reconciled with the interval
		sample recovery and grade and		thickness identified in the down hole
		whether sample bias may have		geophysical logs which is used to
		occurred due to preferential loss/gain		confirm core recovery.
		of fine/coarse material.
			.	For exploration carried out, core
	.	Whether a relationship exists between		recovery of mineable coal seams was
		sample recovery and grade and		low, less than 85%.
		whether sample bias may have
		occurred due to preferential loss/gain	.	All samples from the exploration
		of fine/coarse material.		programme were used as points of
				observations for Resources
				categorization

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APPENDIX II

Criteria JORC Code Explanation Commentary
Logging . Whether core and chip samples have . The total length of the drill hole was been geologically and geotechnically logged. More detail is logged in and logged to a level of detail to support around the coal intersections than appropriate Mineral Resource non-coal interburden. estimation, mining studies and metallurgical studies. . Based on a review of the lithological logs, the logging standards in general
. Whether logging is qualitative or are considered to be useful for quantitative in nature. Core (or Inferred Resources estimation. costean, channel, etc) photography. . All coal in drill core recovered from
. The total length and percentage of the seams was logged and recorded as relevant intersections logged. full samples.
. Sub-sampling . If core, whether cut or sawn and . The full coal interval is sampled, as techniques and whether quarter, half or all core is industry standard practice for coal sample taken. exploration. preparation . If non-core, whether riffled, tube . After sampling, the coal samples are sampled, rotary split, etc and whether transported to a coal quality testing sampled wet or dry. laboratory and all sample preparation occurs at the laboratory.
. For all sample types, the nature, quality and appropriateness of the sample preparation technique.
. Quality control procedures adopted for all sub-sampling stages to maximise representivity of samples.
. Measures taken to ensure that the sampling is representative of the in situ material collected, including for instance results for field duplicate/ second-half sampling.
. Whether sample sizes are appropriate to the grain size of the material being sampled.

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APPENDIX II

Criteria

JORC Code Explanation

Commentary

Quality of assay data . The nature, quality and . All coal sampled in historic drilling and laboratory appropriateness of the assaying and programmes were subjected to a tests laboratory procedures used and minimum of proximate analysis, whether the technique is considered which includes IM, Ash,but with gap partial or total. assay of VM in some samples and only CV in a few samples. Only a
. For geophysical tools, spectrometers, few samples were assayed for total handheld XRF instruments, etc, the sulphur, ARD and clean coal. The parameters used in determining the testing programme is considered only analysis including instrument make suitable for the assessment of raw and model, reading times, calibrations coal and inferred qualities. factors applied and their derivation, etc. . The assessment of coal quality is made exclusive from laboratory
. Nature of quality control procedures testing of core samples. Down hole adopted (eg standards, blanks, geophysical surveys are not used to duplicates, external laboratory estimate coal quality. checks) and whether acceptable levels of accuracy (ie lack of bias) and . Coal quality testing was compliant precision have been established. with the Chinese laboratory management regulations.
. Nature of quality control procedures adopted (eg standards, blanks, duplicates, external laboratory checks) and whether acceptable levels of accuracy (ie lack of bias) and precision have been established.
Verification of . The verification of significant sampling and intersections by either independent or assaying alternative company personnel. . The use of twinned holes.
. Assay results were based on the original reports approved by the Chinese resource management.
. Documentation of primary data, data entry procedures, data verification, data storage (physical and electronic) protocols.
. Discuss any adjustment to assay data.

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APPENDIX II

Criteria

JORC Code Explanation

Commentary

Location of data . Accuracy and quality of surveys used points to locate drill holes (collar and downhole surveys), trenches, mine workings and other locations used in Mineral Resource estimation.
. Specification of the grid system used.
. Quality and adequacy of topographic control.
. No traces of drilling platforms were identified; as such no drill hole collar co-ordinates were confirmed during multiple site visits.
. All spatial information used to construct the geological model was provided or converted to the Beijing 1954 Datum.
. The topographic model used to create the geological model was based on ‘as surveyed’ data. This was checked against drill hole collars with a minimum tolerance of 1.5 m applied. Where drill holes failed they were scrutinized against topography. Differences resulting from clearing of drill pads from steep gradients were understood to be the reason in most cases. All drill hole collars used in the geological model fell within the tolerance of 1.5 m. This is adequate due to the number and distribution of drill holes for the purposes of estimating Resources, considering this is an underground Mine.
Data spacing and . Data spacing for reporting of . Drill hole spacing generally ranges distribution Exploration Results. from around 150 m to 800 m across the Mine site. The mid-range of
. Whether the data spacing and borehole spacing averages between distribution is sufficient to establish approximately 350 to 550 m. the degree of geological and grade continuity appropriate for the Mineral . The geology of the Mine site is well Resource and Ore Reserve estimation understood from the drill hole procedure(s) and classifications distribution, existing mining applied. operations and based on information gathered from local mines.
. Whether sample compositing has been applied. . The samples for each seam were composited into one sample.

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APPENDIX II

Criteria		JORC Code Explanation		Commentary
Orientation of data	.	Whether the orientation of sampling	.	All drill holes have been drilled
in relation to		achieves unbiased sampling of		vertically. Down hole deviation
geological		possible structures and the extent to		surveys have been conducted for
structure		which this is known, considering the		exploration drilling with some
		deposit type.		significant deviation (>5%) recorded,
				which causes some risk of poor coal
	.	If the relationship between the		seam correlation.
		drilling orientation and the orientation
		of key mineralised structures is	.	The coal seams dip moderately with
		considered to have introduced a		occasional steep dips, generally
		sampling bias, this should be assessed		between 25°–30°, with a maximum of
		and reported if material.		65°.
			.	Vertical drilling is considered the
				most suitable method of assessing the
				geology based on the current
				understanding of the deposit.
Sample security	.	The measures taken to ensure sample	.	No specific sample security measures
		security.		are included as coal is a bulk
				commodity and the risk of theft is
				considered very low. Industrial
				sabotage or similar scenarios are also
				considered a very low risk.
			.	This is considered to be acceptable by
				RPM.
Audits or reviews	.	The results of any audits or reviews	.	RPM reviewed the geological
		of sampling techniques and data.		information and considers the
				exploration data to be suitable for the
				purposes of preparing a JORC
				compliant Inferred Resource estimate.

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APPENDIX II

Section 3 Estimation and Reporting of Mineral Resources

Criteria		JORC Code Explanation		Commentary
Database integrity	.	Measures taken to ensure that data	.	The digital drill hole information
		has not been corrupted by, for		used was cross referenced against the
		example, transcription or keying		original drill hole information to
		errors, between its initial collection		ensure accuracy.
		and its use for Mineral Resource
		estimation purposes.	.	Basic drill hole and coal quality
				statistics tables were generated and
	.	Data validation procedures used.		reviewed. Simple regression analysis
				between coal qualities were
	.	QAQC — Due to the nature of coal		completed on the coal quality data,
		test work, and the nature of coal as		and proximate results were reviewed
		an organic material, all coal samples		for completeness.
		are consumed and tested during test
		work. This means that no original	.	The geological data is considered to
		coal samples can be re-tested as they		be suitable. No material issues were
		would have deteriorated over time.		identified.

. QAQC — as a part of this process, RPM reviewed all coal quality results, obtained official certificates from the coal laboratories and held interviews with the relevant laboratory personnel and inspected the processes and methodologies implemented. RPM found nothing unwarranted and considers this appropriate for the level of the classification applied.

.	Comment on any site visits	Two separate site visits were
	undertaken by the Competent Person	conducted by Mr. Hong Zhao
	and the outcome of those visits.	(Executive Geologist), Mr. Kevin Qu
		(Executive Engineer), and Mr. Song
.	If no site visits have been undertaken	Huang (Geologist) in April 2013 and
	indicate why this is the case.	March 2014.

. Discussions were held with site geological staff on the geological understanding of the Mine.
. Drill hole locations were not found and could not be surveyed with a handheld GPS.
. The site visits are considered important to appreciate the local geological conditions and salient features of the site pertinent to the Resources Estimate.

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APPENDIX II

Criteria

JORC Code Explanation

Commentary

Geological . Confidence in (or conversely, the interpretation uncertainty of) the geological interpretation of the mineral deposit.
. Nature of the data used and of any assumptions made.
. The effect, if any, of alternative interpretations on Mineral Resource estimation.
. The use of geology in guiding and controlling Mineral Resource estimation.
. The factors affecting continuity both of grade and geology.
. There is a reasonable level of confidence in the geological interpretation of the tenement area due to the distribution of drillhole information and mining history.
. Where possible (excluding the cases of open holes and no relevant geophysics) logged coal intercepts were checked against geophysics. These were then modeled in a structural model where consistency of the seam and its physical characteristics were scrutinized. All boreholes passed and were deemed consistent with the formation of the deposit and representative. Coal quality was modeled from all suitable data and checked for consistency and continuity across the deposit. The relationship of both structure and quality results were deemed appropriate. This is considered a suitable approach based on a review of the coal quality data.
. Different naming conventions of the coal seams had been adopted across the total field. This was due to the total field being comprised of two mines of which different seams had been targeted for mineable extraction. These seams were modeled individually and then re-correlated with naming conventions simplified. The results of the re-correlation and updated naming conventions were then conveyed to and checked with the Geological Bureaus and were deemed as correct interpretations.
. Mapped faults (>15 m displacement) and seam outcrops were provided from Chinese reports. These were used to control the seam interpretations and add more definition to the structural model.
Dimensions . The extent and variability of the . The geological Resource is Mineral Resource expressed as length considered relatively consistent. (along strike or otherwise), plan There are broad trends in both seam width, and depth below surface to the thickness and quality that can be upper and lower limits of the Mineral identified on the seam thickness Resource. contour and seam ash plans.
. The thin interbedded nature of the seams may not be well represented in the geological model, due to the extent of seam splitting.

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APPENDIX II

Criteria		JORC Code Explanation		Commentary
Estimation and	.	The nature and appropriateness of the	.	Coal seams were identified from
modelling		estimation technique(s) applied and		exploration drill holes by lithological
techniques		key assumptions, including treatment		logging by a competent geologist and
		of extreme grade values, domaining,		cross referenced with down hole
		interpolation parameters and		geophysical surveys and coal quality
		maximum distance of extrapolation		sample results.
		from data points. If a computer
		assisted estimation method was	.	Seam correlation across the drill holes
		chosen include a description of		was completed by coal geologists
		computer software and parameters		based on established seam
		used.		interpretation.
	.	The availability of check estimates,	.	The exploration drill hole information
		previous estimates and/or mine		was used to develop a geological
		production records and whether the		model using Maptek Vulcan version 8
		Mineral Resource estimate takes		software. The geological model was
		appropriate account of such data.		used as the basis of the Resources
				estimation.
	.	The assumptions made regarding
		recovery of by-products.	.	The geological data and geological
				model was reviewed and validated by
	.	Estimation of deleterious elements or		RPM.
		other non-grade variables of
		economic significance (eg sulphur for	.	Resources were estimated by defining
		acid mine drainage characterisation).		Points of Observation and modeled
				using a grid modeling method on a
	.	In the case of block model		seam group basis and by defining
		interpolation, the block size in		resource confidence polygons around
		relation to the average sample spacing		the Points of Observation for each
		and the search employed.		seam group.
	.	Any assumptions behind modelling of	.	Points of Observation for Resources
		selective mining units.		categorization were defined as cored
				drill holes from the 2013 exploration
	.	Any assumptions about correlation		programme that recovered > 85% of
		between variables.		the seam which had been sampled
				and for which proximate coal quality
	.	Description of how the geological		data was available. All coal intercepts
		interpretation was used to control the		were checked against geophysics.
		resource estimates.		Coal seam recoveries 585% were
				only used where their validation
	.	Discussion of basis for using or not		against geophysics was supported
		using grade cutting or capping.		along with the relationship to
				surrounding holes.
	.	The process of validation, the
		checking process used, the	.	The distances between Points of
		comparison of model data to drill		Observation used to define the
		hole data, and use of reconciliation		corresponding Resources
		data if available.		categorization polygons was based on
				the understanding and confidence in
				the geology of the site and the ‘2003
				Australian Guidelines for Estimating
				and Reporting of Inventory Coal,
				Coal Resources and Coal Reserves’.
				The following distances between
				Points of Observation were used to
				defined the resource categorization:

Inferred Resources-up to 2,000 m apart
— Indicated Resources-up to 800 m apart

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APPENDIX II

Criteria		JORC Code Explanation		Commentary
			.	Resources were then estimated from
				the geological model using areas
				defined by the Resources
				categorization polygons on a seam
				group basis.
			.	Due to low core recovery across some
				of the seams and boreholes, all
				resources were downgraded to
				Inferred Resources category only.
				This method is considered to be
				standard industry practice for
				estimating and reporting Coal
				Resources for coal mines.
Moisture	.	Whether the tonnages are estimated	.	Resources are reported on an
		on a dry basis or with natural		estimated in-situ moisture basis. The
		moisture, and the method of		Preston Sanders equation (using Total
		determination of the moisture content.		Moisture values for Total Moisture
				in-situ) was used to estimate in-situ
				Relative Density.
Cut-off parameters	.	The basis of the adopted cut-off	.	The following quality cut-off grades
		grade(s) or quality parameters		were applied on a ply basis for
		applied.		Resources
				a. Ash (ad) 550%, deemed as coal,
				> 50% was modeled as stone
				bands or splits and weight
				averaged in the total quality and
				tonnage results.
				b. Qnet, (d) > 12.5MJ/kg
				c. Sulphur (ad)53% (ad) — (N.B.
				very high sulphur contents for 2
				of the seams were identified.
				These came from bore holes
				beyond or just outside the mining
				licence. These were used as they
				provided no material impact to
				the total average sulphur content)

. All seams were modeled with plies and splits to 0.0 m thickness. A minimum cumulative coal thickness of 0.7 m for each Seam Group was used for estimating Resources.

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APPENDIX II

Criteria		JORC Code Explanation		Commentary
Mining factors or	.	Assumptions made regarding possible	.	Only underground mining potential
assumptions		mining methods, minimum mining		was identified, consistent with current
		dimensions and internal (or, if		mining operations.
		applicable, external) mining dilution.
		It is always necessary as part of the	.	Minimum cumulative coal thickness
		process of determining reasonable		criteria are based on the assumed
		prospects for eventual economic		mining method.
		extraction to consider potential
		mining methods, but the assumptions	.	Stone tonnes and ash contents have
		made regarding mining methods and		been added to the Resource estimate.
		parameters when estimating Mineral		Stone qualities were applied as 90%
		Resources may not always be		ash.
		rigorous. Where this is the case, this
		should be reported with an
		explanation of the basis of the mining
		assumptions made.
Metallurgical factors	.	The basis for assumptions or	.	Only basic washability data is
or assumptions		predictions regarding metallurgical		available from drill core. Washability
		amenability. It is always necessary as		was not modeled. The current product
		part of the process of determining		from the mine is sold as a raw
		reasonable prospects for eventual		product without beneficiation.
		economic extraction to consider
		potential metallurgical methods, but
		the assumptions regarding
		metallurgical treatment processes and
		parameters made when reporting
		Mineral Resources may not always be
		rigorous. Where this is the case, this
		should be reported with an
		explanation of the basis of the
		metallurgical assumptions made.
Environmental	.	Assumptions made regarding possible	.	The current approach to
factors or		waste and process residue disposal		environmental impacts at the active
assumptions		options. It is always necessary as part		mine are determined from conditions
		of the process of determining		of the Mining Right Permit.
		reasonable prospects for eventual
		economic extraction to consider the	.	Standard RD values are measured
		potential environmental impacts of		from coal samples at the coal testing
		the mining and processing operation.		laboratory.
		While at this stage the determination
		of potential environmental impacts,	.	RD values for the drill holes
		particularly for a greenfields Mine,		completed prior to 2013, have been
		may not always be well advanced, the		estimated from ash regression
		status of early consideration of these		analysis, which is considered
		potential environmental impacts		acceptable.
		should be reported. Where these
		aspects have not been considered this	.	Standard RD values do not reflect the
		should be reported with an		in-situ density of coal.
		explanation of the environmental
		assumptions made.	.	Resources are reported on an
				estimated in-situ moisture basis, by
				correcting standard RD values to in-
				situ RD by using the Preston Sanders
				equation (using Total Moisture for
				Total Moisture in-situ).This results in
				a slightly lower (average 1.5%) RD
				and corresponding Resources
				Estimate.

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APPENDIX II

Criteria		JORC Code Explanation		Commentary
Bulk density	.	Whether assumed or determined. If	.	Standard RD values are measured
		assumed, the basis for the		from coal samples at the coal testing
		assumptions. If determined, the		laboratory.
		method used, whether wet or dry, the
		frequency of the measurements, the	.	RD values for the drillholes
		nature, size and representativeness of		completed prior to 2013, have been
		the samples.		estimated from ash regression
				analysis, which is considered
	.	The bulk density for bulk material		acceptable.
		must have been measured by methods
		that adequately account for void	.	Standard RD values do not reflect the
		spaces (vugs, porosity, etc), moisture		in-situ density of coal.
		and differences between rock and
		alteration zones within the deposit.	.	Resources are reported on an
				estimated in-situ moisture basis, by
	.	Discuss assumptions for bulk density		correcting standard RD values to in-
		estimates used in the evaluation		situ RD by using the Preston Sanders
		process of the different materials.		equation (using Total Moisture for
				Total Moisture in-situ). This results
				in a slightly lower (average 1.5%) RD
				and corresponding Resources
				Estimate.
Classification	.	The basis for the classification of the	.	Mineral Resources have been
		Mineral Resources into varying		classified based on suitable distances
		confidence categories.		from Points of Observation. Points of
				Observation were defined as cored
	.	Whether appropriate account has been		intersection of seams where core
		taken of all relevant factors (ie		recovery was > 95% and proximate
		relative confidence in tonnage/grade		testing was completed. Coal seam
		estimations, reliability of input data,		recoveries 5 95% could be supported
		confidence in continuity of geology		but geophysics and surrounding
		and metal values, quality, quantity		holes’ data were used to support the
		and distribution of the data).		structural model definition. Distances
				from Points of Observation used were
	.	Whether the result appropriately		based on the understanding of the
		reflects the Competent Person’s view		geology.
		of the deposit.
			.	The Competent Person is confident in
				the reliability of the geological data
				and in the understanding of the
				geology including the continuity of
				the geology and coal quality. The
				estimate appropriately reflects the
				Competent Person’s view of the
				deposit. The Resources identified can
				technically be mined using methods
				employed in the current mining
				operation however detailed
				consideration is required to assess
				effective resource recovery and
				economic extraction.
Audits or reviews	.	The results of any audits or reviews	.	The Resources Estimate completed by
		of Mineral Resource estimates.		RPM has been internally reviewed
				and no critical issues were identified.

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APPENDIX II

Criteria

Discussion of relative accuracy/ confidence

JORC Code Explanation

. Where appropriate a statement of the relative accuracy and confidence level in the Mineral Resource estimate using an approach or procedure deemed appropriate by the Competent Person. For example, the application of statistical or geostatistical procedures to quantify the relative accuracy of the resource within stated confidence limits, or, if such an approach is not deemed appropriate, a qualitative discussion of the factors that could affect the relative accuracy and confidence of the estimate.
. The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnages, which should be relevant to technical and economic evaluation. Documentation should include assumptions made and the procedures used.

Commentary

. The geological data used in the Resources Estimate is considered to be of a standard suitable for JORC Reporting and has been validated by the Competent Person.
. The geological model used for the Resources estimation has been built by the Competent Person using industry standard software.
. Resources estimation has been completed using standard coal estimation methods which are considered appropriate for this deposit.
. Resources have been categorized based on distances from Points of Observation. The Resource categories reflect the underlying confidence in the Resources over the Mine area.
. These statements of relative accuracy and confidence of the estimate should be compared with production data, where available.

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APPENDIX II