METRO MINING LIMITED — M&A Activity 2016

Mar 22, 2016

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ACN 108 086 371

First Supplementary Target’s Statement

This Target’s Statement has been issued in response to the Offers by Metro Mining Limited (ACN 117 763 443) for all of the Gulf Shares.

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt about how to deal with this document, you should contact your broker, financial advisor or legal advisor immediately.

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1

First Supplementary Target’s Statement

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Gulf Alumina Limited ACN 108 086 371

First Supplementary Target's Statement

1 Introduction

This
document
is
a
supplementary
target’s
statement
under
section
644
of
the
Corporations
Act 2001
(Cth).
It
is
the
first
supplementary
target’s
statement
( First
Supplementary
Target’s Statement Gulf )
issued
by
Gulf
Alumina
Limited
(ACN
108
086
371)
( )
in
relation
to
the
off-­‐market takeover
bid
to
acquire
all
the
ordinary
shares
in
Gulf
by
Metro
Mining
Limited
ACN
117
763
443 ( Metro ).
This
First
Supplementary
Target’s
Statement
supplements,
and
should
be
read
together with,
Gulf’s
Target’s
Statement
dated
6
January
2016
( Target’s
Statement ).
This
First Supplementary
Target’s
Statement
is
dated
23
March
2016,
which
is
the
date
it
was
lodged
with ASIC.
Neither
ASIC
nor
any
of
its
officers
take
any
responsibility
for
its
contents.
This
First Supplementary
Target’s
Statement
was
approved
by
a
resolution
of
the
Gulf
Board
and
includes corrective
disclosure
required
by
the
Takeovers
Panel.
Gulf
Shareholders
should
refer
to
the Target’s
Statement
as
corrected
by
this
First
Supplementary
Target’s
Statement
for
detailed information
on
the
Offer
and
why
the
Gulf
Board
recommend
that
Gulf
Shareholders
reject
the Offer.
If
you
are
in
any
doubt
as
to
the
action
which
you
should
take
in
relation
to
the
Offer,
you should
consult
your
legal,
taxation
or
financial
adviser.
If
you
have
any
queries,
please
contact
the Gulf
office
on
+61
2
9221
4689. Further
information
in
relation
to
the
Offer
can
also
be
found
on Gulf’s
website
(www.gulfalumina.com.au).
Unless
the
context
otherwise
requires,
capitalised terms
used
in
this
First
Supplementary
Target’s
Statement
but
not
defined
have
the
same meaning
given
to
them
in
the
Target’s
Statement.
The
First
Supplementary
Target’s
Statement prevails
to
the
extent
of
any
inconsistency
with
the
Target’s
Statement.

2 Retraction of Previous Statements

Gulf
refers
to
the
letter
to
Gulf
Shareholders
dated
3
December
2015
and
advises
that
any express
or
implied
statements
therein
that
go
to
the
value
of
Gulf
(value
statements)
are hereby
retracted .

The
Gulf
directors
are
not
relying
on
such
value
statements
and
Gulf
Shareholders
should ignore
such
value
statements.

3 Directors Recommendations

The
Gulf
Directors
continue
to
recommend
that
Gulf
Shareholders
reject
the
Metro
Offer,
but note
that
as
a
consequence
of
commissioning
an
Independent
Expert’s
Report,
as
advised
in Section
7
below,
this
recommendation
could
change
(but
may
not
necessarily
do
so)
in
light
of
the Independent
Expert’s
assessment
and
the
reasons
for
it.

4 Shareholders Intentions

Section
3.2
of
the
Target’s
Statement
referred
to
statements
provided
by
Non-­‐participating
Gulf Shareholders
dated
between
15
December
2015
and
3
January
2016
(“First
Intention

1

First Supplementary Target’s Statement

_**Statements”).

The
First
Intention
Statements
have
been
replaced
with
further
intention
letters between
17
February
2016
and
24
February
2016
(“Second
Intention
Statements”).
The
First Intention
Statements
are
retracted
and
Shareholders
should
disregard
them.**_

Fourteen
of
these
fifteen
Non-­‐participating
Gulf
Shareholders
have
now
advised
Gulf
that
they will
not
accept
the
takeover
offer
from
Metro
Mining
Limited
for
all
of
the
ordinary
shares
in
Gulf as
announced
to
ASX
on
2
December
2015,
“nor
will
they
accept
any
improved
offer
from
Metro Mining
Limited
other
than
a
substantially
improved
offer,
taking
account
of
whether
it
has
been recommended
to
Gulf
Shareholders
unanimously
by
the
Gulf
Board,
and
the
reasons
for
that recommendation”,
with
Edale
Capital
Pty
Limited
stating
that
“nor
will
it
accept
any
revised
offer from
Metro
Mining
Limited
unless
that
offer
is
an
improved
offer”.

The
Non-­‐Participating
Gulf
Shareholders
may
not
act
inconsistently
with
their
statements
in accordance
with
the
“truth
in
takeovers”
principles.

The
composition
of
the
shareholdings
of
the
Non-­‐participating
Gulf
Shareholders
in
the
Company, and
their
relation
with
Gulf,
are
set
out
in
the
below
table.

	Name of Non- participating Gulf Shareholder	Number of Shares	Percentage of Shares in the Company	Relationship with Gulf, if any
1.	Cheng Wang	3,700,000	4.30%	Director
2.	Weidong Zhang*	5,695,000	6.61%	Director
3.	Wenzhen Zhang	6,714,760	7.80%	Associate of Director
4.	Quiyun Shen**	6,060,372	7.04%
5.	George Birch	600,000	0.70%
6.	George Gaal *	111,667	0.13%	Consultant
7.	ACT 2 Pty Limited***	500,000	0.58%
8.	Mathew (Jun Jie) Gu	1,000,000	1.16%
9.	Hong Jiang	3,654,920	4.24%
10.	Aulis John Keppo *	100,000	0.12%	Company Secretary
11.	Yanhua Liu	4,140,460	4.81%	Beneficially owned by associate of Director
12.	Amanda (Yitong) Li	6,771,240	7.86%	Beneficially owned by associate of Director
13.	Edale Capital Pty Ltd****	11,247,843	13.06%
14.	John Wardman & Associates Pty Ltd	500,000	0.58%
15.	Shandong Nanshan Aluminium Co. Ltd *	10,316,146	11.98%	Associate of Director
	Total	61,112,408	71.0%

• Provides
  services
  to
  Gulf.

**
Is
the
lender
referred
to
in
Section
5.1.

---

Director
provides
services
to
Gulf.

*Has
an
interest
in
the
royalty
described
in
Section
7.4
of
the
Target’s
Statement. **Has
entered
into
a
Heads
of
Agreement
with
Gulf
(refer
to
Section
5.4).

2

Gulf Alumina Limited ACN 108 086 371

The
Non-­‐participating
Gulf
Shareholders
have
not
been
provided
with
information
concerning Gulf
which
has
not
been
made
available
to
all
Gulf
Shareholders.

5 Financing

5.1 Updated Financial Position of Gulf

The
Company’s
current
cash
position
is
approximately
$252,000.
During
December
it
drew
down a
$200,000
unsecured
term
loan
facility
(interest
rate
8%
and
repayable
in
August
2016)
provided by
a
shareholder
holding
approximately
7%
of
the
Company’s
shares.
An
additional
$50,000
was drawn
down
in
March
2016.
Funds
were
also
supplemented
by
$268,500
received
in
December 2015
on
exercise
of
options
by
2
Directors.
Mr
Zhang
and
Mr
Wang
being
directors
of
the Company
will
exercise
additional
options
if
required
to
meet
the
Company’s
short
term
funding requirements.
Creditors
aged
more
than
30
days
currently
total
$210,000
of
which
the
Managing Director
is
owed
$169,400
in
respect
of
his
remuneration.
Mr
Zhang
has
not
invoiced
an aggregate
of
$48,400
(inclusive
of
GST)
for
his
services
pending
the
receipt
of
additional
funding by
Gulf.
Arrangements
to
raise
additional
capital
are
progressing.
The
Directors
have
received
a proposal
to
provide
Gulf
with
additional
funding
of
$2.5
million
(before
expenses)
for
the
issue
of shares.
The
Directors
are
currently
evaluating
this
proposal
together
with
the
possibility
of conducting
a
rights
issue
or
a
pro
rata
placement
to
sophisticated
investor
shareholders
in
each case
to
raises
up
to
$2.5
million
(before
expenses).

5.2 Exercise of Options

We
refer
to
the
Gulf
Options
detailed
in
section
6.1
of
the
Target’s
Statement.
A
total
of
895,000 of
Gulf
Options
have
been
exercised
at
$0.30
by
Gulf
Directors
to
raise
$268,500.
The
table
of Relevant
Interests
of
the
directors
of
Gulf
and
their
associates
are
varied
as
follows:

Director, and/or their Associates	Number of Gulf Shares	Number of Gulf Options
* Weidong Zhang	16,606,700	695,000 exercisable at $0.30 expiring on 8/1/17 895,000 exercisable at $0.30 expiring on 10/3/19 1,000,000 exercisable at $0.30 expiring on 10/3/19****
** Cheng Wang	10,414,760	150,000 exercisable at $0.30 expiring on 10/3/19
*** Jianbo Song	10,316,146	200,000 exercisable at $0.30 expiring on 8/1/17 150,000 exercisable at $0.30 expiring on 10/2/19
Stephen Lonergan	Nil	Nil
Zhaohui Wu	Nil	Nil

• 5,695,000
  Shares
  held
  beneficially
  by
  associate,
  4,140,460
  Shares
  in
  the
  name
  of
  Yanhua Liu
  and
  6,771,241
  Shares
  in
  the
  name
  of
  Amanda
  (Yitong)
  Li.
  All
  Options
  held
  beneficially. ** 3,700,000 Shares
  and
  all
  Options
  held
  beneficially.
  6,714,760
  Shares
  held
  by
  an
  associate, Wenzhen
  Zhang. *** All
  Shares
  held
  by
  an
  associate,
  Shandong
  Nanshan
  Aluminium
  Co.
  Ltd.
  All
  Options
  held beneficially. **** Exercisable
  as
  a
  result
  of
  Metro’s
  Takeover
  Offer
  in
  accordance
  with
  Gulf’s
  Executive Option
  Plan
  Rules

5.3 Agreement to Grant Security

As
referred
to
in
Section
7.4
of
the
Target’s
Statement,
Gulf
is
contractually
obliged
to
enter
into
a security
agreement
over
all
the
assets
comprising
the
Project
pursuant
to
a
Mineral
Royalty
Deed

3

3

First Supplementary Target’s Statement

between
Gulf,
RSI
(QLD
Bauxite)
Pty
Ltd
and
Royalty
Stream
Investments
Pty
Ltd
dated
20
May 2014
as
security
for
royalty
payments,
payable
by
Gulf
after
commencement
of
the
export
of bauxite.
The
terms
of
the
security
agreement
have
now
been
agreed
by
the
parties
and
were executed
and
entered
into
on
9
February
2016.

It
is
a
prescribed
occurrence
under
the
Offer
if
Gulf
charges
a
substantial
part
of
its
business
or properties.
Accordingly
the
execution
by
Gulf
of
the
security
agreement
may
constitute
a
Target’s prescribed
occurrence
under
the
Offer.

5.4 Heads of Agreement with Shandong Nanshan Aluminium Co. Ltd

On
4
August
2014,
Gulf
entered
into
a
Heads
of
Agreement
with
Nanshan
under
which
Gulf granted
to
Nanshan
first
right
to
the
supply
of
a
minimum
of
2
million
metric
dry
tonnes
per annum
(representing
a
proportion
of
the
Project’s
output)
of
bauxite
on
a
take
or
pay
basis, provided
that
Nanshan
still
owns
all
of
the
shares
in
Gulf
that
it
currently
holds
and
has
advanced project
funding
to
be
used
for
financing
the
construction
of
the
Project.

The
parties
agree
to
negotiate
an
offtake
agreement
and,
once
the
scope
and
cost
of
the
Project has
been
established,
Nanshan
agrees
to
advance
a
project
loan
for
the
purpose
of
financing construction
capital
as
required
by
the
Project,
subject
to
Gulf
and
Nanshan’s
respective
board’s approval.
Gulf
is
not
bound
to
accept
funding
from
Nanshan
and
may
obtain
alternate
project funding
including
from
other
off-­‐take
parties.

The
offtake
price
is
to
be
based
on
a
recognised
independent
bauxite
pricing
index
and
adjusted for
quality.
The
amount
of
the
project
funding
in
the
form
of
a
loan
is
to
be
agreed
based
on
the outcome
of
the
final
feasibility
study.
Security
will
be
granted
against
the
project
assets
and applicable
interest
rate
will
be
consistent
with
market
rates.

Gulf
and
Nanshan
are
currently
negotiating
an
offtake
agreement
on
the
basis
that
Gulf
agrees
to deliver
and
sell
and
Nanshan
agrees
to
purchase
and
receive
a
minimum
of
2
million
dry
metric tonnes
per
annum
of
bauxite.
If
Nanshan
does
not
purchase
the
full
amount
of
the
product,
it
is required
to
pay
the
price
for
product
that
it
does
not
purchase.

However,
off-­‐take
arrangements will
not
be
in
place
unless
a
legally
binding
agreement
is
signed.

6 Retraction of Value Statements in Shareholder Letters

We
refer
to
our
letters
to
Gulf
Shareholders
dated
3
December
2015
and
12
February
2016 respectively
( Shareholder
Letters )
and
advise
that
in
determining
whether
or
not
to
accept
the Offer,
Gulf
Shareholders
should
ignore
these
Shareholder
Letters
and
solely
rely
on
the
contents of
the
Bidder’s
Statement,
Metro’s
Supplementary
Bidder’s
Statement
dated
4
February
2016 ( Supplementary
Bidder’s
Statement ),
Target’s
Statement
as
corrected
by
this
First Supplementary
Target’s
Statement
along
with
any
further
Supplementary
Bidder’s
Statement
or Supplementary
Target’s
Statement.

In
particular
Gulf
Shareholders
should
disregard
any
and
all
express
or
implied
statement
as
to the
value
of
Gulf
or
its
assets
in
the
Shareholder
Letters,
and
all
such
statements
are
revoked. The
Gulf
Directors
are
not
relying
on
any
such
statements
in
recommending
to
Shareholders
not to
accept
the
Metro
Offer.

4

Gulf Alumina Limited ACN 108 086 371

7 Independent Expert’s Report

The
directors
of
Gulf
have
mandated
Grant
Thornton
Corporate
Finance
Pty
Ltd
to
provide
an IER independent
expert’s
report
( )
on
the
Offer.
The
IER
is
expected
to
be
finalized
by
15
April 2016
and
will
then
be
provided
in
the
form
of
a
further
supplementary
Target’s
Statement
to each
Gulf
Shareholder.

8 Gulf’s DFS

Since
issuing
the
Target’s
Statement
Gulf
has
updated
its
Final
DFS
with
the
results
of
the
mining contract
tendering.

**Project

highlights**

• Ø Robust
  project
  economics
  in
  line
  with
  Interim
  DFS

• Ø Initial
  3mtpa
  rising
  to
  5mtpa
  in
  Year
  3
  of
  DSO
  bauxite
  produced
  over
  a
  13
  year
  mine
  life

• Ø Development
  capex
  of
  $52.4m
  with
  a
  capital
  payback
  of
  1.9
  years

• Ø Annual
  EBITDA
  of
  $96.0m

• Ø Post
  tax
  NPV
  of
  $547m
  (at
  10%
  discount
  rate)

The
DFS
is
based
on
a
start-­‐up
of
3.0
million
tonnes
per
annum
(mtpa)
production
with
plans
to increase
it
to
5.0mtpa
in
Year
3
over
a
13
year
mine
life
based
on
a
mine
schedule
completed
by independent
mine
consultants,
Australian
Mine
Design
and
Development
Pty
Ltd
(AMDAD).
The DFS
is
based
on
mining
all
of
the
Direct
Shipping
Ore
(DSO)
quality
bauxite
that
was
considered feasible
as
part
of
the
DFS
findings
and
has
avoided
the
need
to
beneficiate
(wash
and
screen)
the ore.
A
total
of
63.5mt
of
Mineral
Resources
(see
Table
-­‐
Ore
Resources
on
page
7)
have
been estimated
within
the
tenements
in
compliance
with
the
JORC
Code.
Of
these
Mineral
Resources, 48.3mt
have
been
estimated
as
Ore
Reserves.

The
DFS
confirmed
that
the
Skardon
River
Bauxite
Project
will
have
robust
project
economics
with a
moderate
pre-­‐production
capex
and
low
opex
and
an
attractive
life
of
mine
operating
margin
of $31.32/tonne.
The
DFS
calculated
a
post-­‐tax
Net
Present
Value
(NPV)
of
$547
million
and
an Internal
Rate
of
Return
(IRR)
of
135%.

**Project

Description**

The
Skardon
River
Bauxite
Project
(SRBP)
covers
an
area
over
70
square
kilometres
at
Skardon River
situated
80kms
north
of
Weipa,
on
western
Cape
York
in
North
Queensland.
Western
Cape York
is
world-­‐renowned
for
its
deposits
of
high
quality,
export
grade
bauxite.
Gulf
became
the sole
holder
of
the
tenements
in
2011
inclusive
of
various
improvements
embracing
the
airstrip, the
haulage
and
access
roads
and
barge
ramp
and
hard
stand
at
the
Port.
There
is
no
useable road
to
the
site
and
as
such
all
equipment
and
supplies
must
be
bought
in
by
barge.
Personnel can
access
the
site
by
air.

The
forecast
quality
and
nature
of
the
bauxite
on
the
tenements
are
suitable
for
export
as
Direct Shipping
Ore
having
identified
Mineral
Resources
with
insitu
grades
high
enough
in
alumina
and low
enough
in
silica
that
will
require
no
processing
other
than
simple
sizing.
As
a
result,
the
DFS considers
a
simple
mining
operation
as
follows:

5

First Supplementary Target’s Statement

• Ø Free-­‐dig
  mining
  of
  bauxite
  using
  front
  end
  loaders
  (no
  drilling
  or
  blasting
  required)

• Ø Transport
  of
  the
  bauxite
  by
  haul
  trucks
  to
  the
  wharf
  loading
  facility

• Ø Sizing
  of
  bauxite
  at
  the
  Port
  to
  a
  maximum
  of
  100mm

• Ø Transhipment
  of
  the
  bauxite
  down
  the
  Skardon
  River
  using
  self-­‐propelled
  barge(s)
  to
  the ocean
  going
  vessels
  located
  off-­‐shore
  for
  shipment
  to
  the
  customer

The
simple
mining
operation
facilitates
a
quick
production
start-­‐up
and
assumes
rehabilitation
to occur
progressively
with
the
replacement
of
topsoil
and
overburden
to
assist
revegetation
in
the mined
areas.
The
mining
activities
are
to
be
carried
out
over
the
9
month
dry
season
window between
April
and
December
but
the
period
may
be
extended
or
varied
to
optimise
production.

The
DFS
considers
a
13+
year
mining
operation
producing
60.9
million
tonnes
of
quality
bauxite for
shipment.
This
production
is
based
on
mining
all
of
the
DSO
Resources
considered
to
be feasible
having
modelled
a
range
of
loss
and
dilution
thicknesses
over
a
range
of
maximum
silica grades
to
identify
saleable
DSO
bauxite
product
over
a
number
of
scenarios.
This
definition
was used
to
develop
the
mining
plan.
A
total
of
63.5mt
of
Mineral
Resources
have
been
estimated across
the
tenements
(refer
to
Table
below
–
Ore
Resources)
with
48.3mt
of
Ore
Reserves
(refer to
Table
below
–
Ore
Reserves)
at
Skardon
River.

==> picture [354 x 391] intentionally omitted <==

6

Gulf Alumina Limited ACN 108 086 371

**Reserves

and
Resources**

Using
information
from
the
JORC
based
DSO
Resource
Estimation
Study
completed
by independent
geologists,
Geos
Mining,
the
mine
plan
was
subsequently
developed
by
an independent
mining
consultant
AMDAD
and
a
DSO
Ore
Reserve
compliant
with
the
JORC
Code was
estimated.

The
results
of
the
Study
show
that
the
evaluation
of
the
analysis
results
from
samples
taken
from the
sonic
drilling
campaign
in
August
2014
and
the
resource
modelling
have
indicated
a
DSO Resource
(comprised
of
the
categories
indicated
in
the
table
below)
of
63.5mt
with
an
average 50%
alumina
content
(assuming
a
20%
silica
cut-­‐off
grade).
Some
75%
of
the
Mineral
Resource
is in
the
Measured
and
Indicated
categories.

The
Mineral
Resource
estimation
carried
out
by
Geos
Mining
in
compliance
with
the
JORC
Code and
their
report
for
the
DSO
Resource
Estimate
Update
was
issued
on
21
May2015.
The
Ore Reserves
estimation
conducted
by
AMDAD
was
issued
in
a
report
Skardon
River
DSO
Project
– Ore
Reserves
Estimate
in
May
2015.

**Table

–
Ore
Resources**

Resource Category *	Dry Tonnes (mt)	DSO Bauxite Qualities	DSO Bauxite Qualities	DSO Bauxite Qualities	DSO Bauxite Qualities
		SIO2(%)	Al2O3(%)	Reactive SiO2 (%) at 148⁰C	Available AI2O3 (%) at 148⁰C
Measured Resource	16.6	13.9	50.2	5.9	41.7
Indicated Resource	32.3	14.15	49.4	6.2	40.0
Inferred Resource	14.6	14.3	49.4	6.1	39.8
Total Resource	63.5	14.3	49.6	6.1	40.4

• Based
  on
  minimum
  thickness
  of
  0.5m
  (20%
  SiO2,
  40%
  Al2O3
  and
  8%
  Reactive
  SiO2
  cog)

**Table

-­‐
Ore
Reserves**

Category	Dry tonnes(mt)	Al2O3%	SiO2%	AAl2O3%	RSiO2%
Proved Probable	16.6 31.8	49.8 49.2	14.3 15.0	41.4 39.8	6.1 6.4
Total	48.3	49.4	14.7	40.3	6.3

**Mining

and
transhipment
operations**

The
mining
and
transhipment
operations
will
be
undertaken
over
a
9
month
per
annum
program with
sufficient
flexibility
to
increase
the
period
to
suit
operating
conditions.
Operating
on
a
24 hour
per
day
basis,
exported
ore
is
expected
to
achieve
3
million
dtpa
(dry
tonnes
per
annum)
for the
first
2
years
of
operations
and
5
million
dtpa
for
the
remaining
mine
life.
Providing
their
own mobile
plant
and
equipment,
the
mining,
haulage
and
wharf
out-­‐loading
activities
is
to
be contracted
to
a
mining
operator
while
the
transhipment
contractor
is
responsible
for
the transport
and
discharge
of
the
bauxite
onto
the
shipping
vessel.

Front
end
loaders
suited
to
working
in
the
variable
DSO
zones
together
with
road
trains
will
be used
at
the
mine
site
and
front
end
loaders
of
the
same
specification
also
used
at
the
Port
for product
reclaim
and
loading
onto
the
wharf
conveyors.
The
trucking
fleet
will
deliver
run
of
mine (ROM)
product
to
the
Port
where
it
will
be
crushed
and
stockpiled
adjacent
to
the
barge
loading conveyor.

7

First Supplementary Target’s Statement

The
mine
schedule
and
grade
control
will
be
managed
by
the
geological
team
responsible
for selection
of
the
optimum
mining
sequence
over
the
bauxite
deposits
and
product
testing.
Mining is
planned
to
commence
in
the
northern
part
of
the
resource
and
around
the
airstrip
area
to achieve
some
blending
from
different
locations
for
consistent
DSO
quality
specifications.

Loading
at
a
rate
of
2,000
tph,
the
transhipment
contractor
will
complete
the
river
and
sea barging
to
the
ocean
going
vessel
anchored
at
the
designated
transhipment
point
approximately 15
km
west
of
the
Skardon
River
mouth.
The
total
barging
distance
is
25
km.
Barges
will
anchor adjacent
to
the
bulk
carriers
for
the
unloading
of
bauxite
ore
using
self-­‐discharging
equipment.

Operating
initially
with
one
barge
and
increasing
to
two
barges
in
full
production,
each
barge
will have
a
capacity
of
about
4,000
to
7,000
tonnes
per
barge.
Barges
would
work
24
hours
per
day with
barge
volumes
adjusted
depending
on
the
river
depth
at
the
time
of
the
crossing.
As
cost saving
in
transhipping
occurs
when
barge
loads
are
increased,
bathymetric
and
hydrological studies
confirm
that
barge
loads
can
be
increased
if
some
degree
of
bed-­‐levelling
of
the
shallow zones
at
the
river
mouth
is
conducted
to
retain
a
minimum
water
depth
of
LAT
-­‐2.2m.

A
marine
survey
found
no
environmentally
sensitive
sea
grass
habitat
where
bed-­‐levelling
is proposed
and
this
enhances
the
likelihood
of
obtaining
necessary
permitting
for
bed-­‐levelling operations.
The
environmental
impact
assessment
of
the
proposed
bed-­‐levelling
has
been included
in
the
Project
EIS.

The
project
requires
an
approximate
workforce
of
160
personnel
engaged
on
a
shift
roster
as
not all
personnel
will
be
at
site
at
any
one
time.
Mining
will
operate
on
2
x
12
hours
shifts
and operations
personnel
are
assumed
to
work
on
a
14
day
on
-­‐
7
day
off
roster
and
other
personnel on
a
9
day
on
–
5
day
off
roster
flying
back
to
Cairns.

**Bauxite

market
overview**

Bauxite
is
the
main
material
used
in
the
production
of
alumina
that
is
then
smelted
to
produce aluminium.
The
Chinese
alumina
refining
capacity
over
the
past
decade
continues
to
be
robust with
Chinese
bauxite
from
Australia
likely
to
replace
declining
quality
and
availability
of
Indian, Indonesian
and
Vietnamese
ore
as
these
countries
increasingly
reserve
bauxite
for
domestic
value adding
and
to
supply
local
rising
aluminium
consumption.
Indonesia’s
ban
to
export
its
low temperature
bauxite
as
a
raw
material
has
seen
Malaysia
step
into
the
void
to
supply
bauxite
in the
past
18
months.
The
Malaysian
export
potential
will
curb
as
raw
material
resources
decline and
Australia’s
expanding
bauxite
reserves,
if
developed,
can
capture
much
of
the
future
growth.

Securing
reliable
supplies
of
imported
bauxite
is
vital
for
the
Chinese
alumina
refiners
resulting
in the
industry
policy
makers
declaring
bauxite
a
strategic
resource.
New
refineries
recently constructed
have
relied
on
the
low
temperature
energy
efficient
gibbsite
enriched
ore
which
can displace
more
costly
domestic
supply
of
diaspore
enriched
ore
that
require
higher
temperatures (450ºC
cf.
150ºC)
to
extract
alumina
from
the
bauxite.
Accordingly,
Gulf
is
well
placed
as
its bauxite
is
predominantly
a
low
temperature
product.

**Bauxite

price
forecast**

Bauxite
pricing
has
traditionally
been
negotiated
on
a
fixed
price
per
volume
basis
linked
to
the aluminium
price.
In
recent
years,
and
with
the
emergence
of
independent
raw
material
bauxite suppliers,
pricing
using
an
independently
published
index-­‐linked
pricing
system
founded
on pricing
adjustments
for
variability
in
the
alumina
grade
and
reactive
silica
content,
is
emerging.

8

Gulf Alumina Limited ACN 108 086 371

Based
on
CRU’s
bauxite
and
aluminium
outlook
reports,
various
updates
on
the
bauxite
market and
other
generally
available
market
information,
Gulf
has
used
this
to
determine
the
US
Dollar per
tonne
outlook
for
the
Skardon
River
Bauxite
Project
taking
into
account
the
quality specifications
(available
alumina
content
and
level
of
reactive
silica
at
low
temperature)
of
the bauxite
expected
to
be
mined
over
the
mine
life.

**Sensitivity

Analysis**

A
sensitivity
analysis
of
the
key
assumptions
of
the
DFS
was
completed.

NPV Effect	-15%	-10%	-5%	+5%	+10%	+15%
Price	$404 m	$452 m	$500 m	$595 m	$643 m	$691 m
Capex	$554 m	$552 m	$550 m	$545 m	$543 m	$541 m
Operating Costs	$624 m	$598 m	$573 m	$522 m	$496 m	$471 m
FX	$716 m	$654 m	$598 m	$502 m	$460 m	$423 m

**Compilation

methodology**

The
DFS
was
compiled
by
Gulf
management
from
the
various
studies
undertaken
based
on
the bauxite
market
information,
potential
off
takers,
discussions
with
third
party
contractors, consultants
and
tendered
information.
Independent
consultants
were
engaged
by
Gulf
to
prepare the
wharf
study,
the
transhipment
contractor
proposals,
the
mine
scheduling
and
mining
activity study,
the
engineering,
infrastructure
and
construction
study,
etc.
The
financial
information
from these
sources
was
included
in
the
project’s
financial
model
together
with
other
pertinent information
relating
to
royalties,
projected
exploration
activity,
corporate
costs,
etc.

Gulf
reserves
the
right
to
amend
the
project’s
financial
model
in
the
future
to
allow
for
any
timing reassessments,
and
for
negotiation
outcomes,
final
design,
product
offtake,
financing,
marine logistics
and
the
mining
contracts.
This
process
ensures
that
Gulf
maintains
an
updated
working financial
model
for
tracking
progress
and
for
Gulf
Board
reporting
purposes.

Gulf
Shareholders
were
updated
with
project
progress
and
financial
highlights
of
the
interim
DFS during
July
2015.
Since
that
time,
Gulf
has
tendered
the
EPC
contract
and
obtained
preliminary pricing
for
the
mining
contract
both
of
which
have
enhanced
the
accuracy
of
the
project estimates,
culminating
in
the
update
of
the
capital
expenditure
and
operating
cost
estimates.

Tender
submissions
for
the
EPC
contract
(for
completing
the
wharf
and
other
infrastructure design,
carrying
out
and
project
managing
the
construction)
were
received
mid-­‐November
2015 from
a
number
of
shortlisted
contractors
capable
of
completing
the
works
and
likely
to
provide
a conforming
tender.
The
quotes
are
inclusive
of
a
10%
contingency
allowance
at
the
time
to provide
a
measure
of
assurance
in
the
project
model.
The
analysis
of
the
comparative
likely
fixed lump
sum
quotes
formed
the
basis
for
updating
the
financial
model
with
a
high
level
of
assurance.

A
select
number
of
contractors
responded
to
the
mining
contract
request
for
budget
pricing tender
where
the
scope
of
works
covers
the
mining,
haulage
and
all
wharf
activities
through
to loading
the
transhipment
barge.
Budget
pricing
was
conducted
in
sufficient
detail
that
significant changes
are
not
expected
in
the
final
tender.
The
project
assumes
Gulf
would
remain
responsible for
mine
scheduling
and
quality
control.

9

First Supplementary Target’s Statement

**Comparison

between
Interim
DFS
and
Final
DFS**

The
following
table,
all
in
Australian
dollars,
is
a
comparison
of
the
interim
and
the
latest
DFS
to highlight
the
improvement
of
the
project
economics.

	Interim DFS	Final DFS
Annual production rate – Years 1 & 2	3.0mt	3.0mt
Annual production rate – Year 3 onwards	5.0mt	5.0mt
LOM production tonnes	60.9mt	60.9mt
Mine life	13.2 years	13.2 years
Total LOM Revenue	$3.54b	$3.45b
Average bauxite price (FOB)	$58.23 /t	$56.67 /t
Average operating costs	$28.34 /t	$25.36 /t
Average operating margin	$29.89 /t	$31.32 /t
Average annual EBITDA	$134m	$143m
Average profit after tax	$ 89m	$ 96m
After tax NPV (10%)	$485m	$547m
After tax IRR	97%	135%
Payback period	2.6 years	1.9 years
Exchange rate	80 cents	75 cents
Total funding through to start-up	$90.1m	$60.5m
Development capex	$74.8m	$52.4m
Deferred and sustaining capex	$15.4m	$14.5m
Working capital	$16.3m	$ 7.4m

In
addition
to
the
above
assumptions,
the
DFS
financial
model
was
based
on
the
following assumptions:

• Royalty
  –
  a
  statutory
  10%
  royalty
  on
  FOB
  Sales
  ex-­‐port
  of
  Skardon
  River,
  a
  financial benefit
  royalty
  payable
  to
  the
  native
  title
  claimants
  and
  a
  funding
  royalty
  payable
  on
  FOB Sales

• Operating
  Season
  –
  production
  to
  be
  based
  on
  a
  9
  month
  dry
  season
  operation
  (to
  be reviewed
  at
  Gulf
  discretion)

• Infrastructure
  Relocation
  –
  the
  airstrip
  relocation
  in
  Year
  9
  to
  allow
  mining
  to
  be
  carried out
  on
  current
  locations

• Mining
  Tonnage
  –
  based
  on
  the
  Direct
  Shipping
  Bauxite
  Ore
  Reserve
  of
  48.3mt
  @49.3% total
  alumina,
  40.3%
  available
  alumina
  at
  148C
  and
  6.3%
  reactive
  silica
  at
  148⁰C
  as disclosed
  in
  Gulf’s
  Target’s
  Statement
  and
  LOM
  schedule
  includes
  12.6mt
  of
  Inferred Resources
  (the
  tonnage
  assumed
  is
  less
  than
  the
  Inferred
  Resources
  of
  14.6mt
  taking
  into account
  risks
  of
  converting
  inferred
  resource
  to
  reserve).

**Analysis

of
Gulf’s
DFS**

The
latest
project
NPV[1] has
improved
by
$62m
over
the
interim
DFS.
Although
the
analysis demonstrates
some
softening
in
the
sales
price
in
recent
times,
together
with
the
improved

1
Of
future
cash
flows
discounted
at
a
10%
rate

10

Gulf Alumina Limited ACN 108 086 371

USD:AUD
exchange
rate
this
has
been
offset
by
the
approximate
$25m
reduction
in
upfront
capex and
an
average
$3.00
/t
reduction
in
the
opex
cost.

The
upfront
capex
reduction
of
$25m
represents
an
improvement
of
more
than
30%,
significantly lowering
the
funding
to
be
raised
by
the
Company
to
complete
mine
setup.
The
working
capital allowance
represents
the
funding
to
bring
the
project
into
production
inclusive
of
corporate
office expenses.
The
significant
reduction
from
$16.3m
to
$7.4m
follows
a
reassessment
of
these
costs and
higher
confidence
from
negotiations
with
prime
contractors.
The
reduction
flows
from
the initial
conservative
estimate
for
start-­‐up
production
costs
and
a
higher
allowance
for
the transhipment
security
deposit
in
the
interim
DFS.

The
DFS
continues
to
be
based
on
a
9
month
dry
season
operation
with
an
initial
start-­‐up production
of
3mtpa
for
the
first
2
years
before
ramping
up
to
a
5mtpa
production
rate. Practically
and
subject
to
securing
the
product
offtake,
Gulf
may
increase
the
production
rate over
a
shorter
than
2
year
period.

**Capital

Expenditure**

Capital Cost Item Final DFS $m
Project design, EPC contract & mobilisation $ 6.0m
Construction – non marine $14.2m
Construction – marine $ 7.1m
Camp setup & operations $9.5m
Transshipment mobilisation and asset deposit $3.2m
Other infrastructure $6.5m
Contingency $4.0m
Owners costs $ 1.9m
Total $52.4m
Operating Cost Estimates
Operating Cost Item Final DFS Average /t
Mining, haulage & loading $10.74
Transhipment $ 5.17
Site & Cairns administration $ 2.57
Royalties $6.88
Total $25.36

**Project

Development
Schedule
(February
2016
estimation)**

Event	Scheduled Dates
Preliminaries (EA approval, recruitment, etc)	June 2016 – October 2016
Mine and wharf loading construction	July 2016 – March 2017
Mobilisation to site	July 2016
Site infrastructure	July 2016 – March 2017
Commence mining	April 2017

11

First Supplementary Target’s Statement

The
Table
above
shows
the
development
timeline
estimation
assuming
all
regulatory
approvals are
granted
by
June
2016
and
project
funding
is
obtained
prior
to
the
commencement
of
project development.
The
project
development
is
expected
to
take
9
months
to
involve
the
following activities:

• Ø Completion
  of
  preliminaries,
  final
  design,
  construction
  planning
  and
  mobilisation

• Ø Construction
  of
  a
  new
  wharf
  loading
  facility
  consisting
  of
  dolphin
  piers
  north
  of
  the
  cargo ramp

• Ø Acquisition
  and
  upgrade
  and
  expansion
  of
  the
  camp
  and
  related
  services

• Ø Construction
  of
  other
  site
  infrastructure
  around
  the
  port
  for
  run
  of
  mine
  (ROM) stockpiling
  and
  processing,
  warehousing,
  workshops,
  water
  supply
  and
  site communications

The
estimation
of
the
SRBP
Ore
Reserves
has
been
made
in
accordance
with
the
requirements
of the
JORC
Code
(2012)
by
John
Wyche,
a
Competent
Person
who
is
a
member
of
The
Australian Institute
of
Mining
and
Metallurgy.
He
is
a
full
time
employee
of
Australian
Mine
Design
and Development
Pty
Ltd
and
has
sufficient
experience
that
is
relevant
to
the
style
of
mineralisation and
type
of
deposit
under
consideration
to
qualify
as
a
Competent
Person
as
defined
in
the
2012 Edition
of
the
“Australasian
Code
for
Reporting
of
Exploration
Results,
Mineral
Resources
and
Ore Reserves.”
.
John
Wyche
has
consented
in
writing
to
the
inclusion
in
this
First
Supplementary Target’s
Statement
of
the
information
set
out
above,
in
the
form
and
context
in
which
it
appears.

The
estimation
of
SRBP
Mineral
Resources
has
been
made
in
accordance
with
the
requirements of
the
JORC
Code
(2012)
by
Jeff
Randell,
a
Competent
Person
who
is
a
member
of
The
Australian Institute
of
Geoscientists.
He
is
a
full
time
employee
of
Geos
Mining,
an
independent
geological consultancy,
and
has
sufficient
experience
that
is
relevant
to
the
style
of
mineralisation
and
type of
deposit
under
consideration
and
to
the
activity
being
undertaken
to
qualify
as
a
Competent Person
as
defined
in
the
2012
Edition
of
the
“Australasian
Code
for
Reporting
of
Exploration Results,
Mineral
Resources
and
Ore
Reserves.”
Jeff
Randell
has
consented
in
writing
to
the inclusion
in
this
First
Supplementary
Target’s
Statement
of
the
information
set
out
above,
in
the form
and
context
in
which
it
appears.

The
DFS
referred
to
in
this
section
was
complied
by
Weidong
Zhang,
the
Managing
Director
of Gulf,
and
George
Gaal,
a
Business
and
Commercial
Consultant
to
Gulf.

Weidong
Zhang
obtained
a
Ph.D
in
Chemical
and
Materials
Engineering
from
Auckland
University in
1992.
He
has
over
20
years
of
aluminium
industry
experience
which
includes
the
technology and
project
development
division
of
Comalco
Limited,
now
part
of
Rio
Tinto
Group
from
1992
to 1997.
In
1998
he
joined
Sino
Mining
International
Limited
in
Sydney
specialized
in
resource project
development
targeting
the
demand
of
the
Chinese
market
and
the
associated
project financing
and
product
marketing.
Since
2000
Weidong
was
involved
in
the
development, implementation
and
management
of
Sino
Mining’s
US$240
million
investment
project
in
Alcoa worldwide
bauxite
and
alumina
production
facilities
until
2008.
Weidong
Zhang
was
engaged
by Gulf
in
2008.

George
Gaal
(B
Bus,
Dip
CM,
FGIA,
CPA)
was
engaged
by
Gulf
in
September
2009
to
provide advice
and
support
to
executive
management
covering
a
range
of
pre
development
activities involving
commercial,
general
management
issues
and
financial
matters.
Prior
to
this
role, George
Gaal
was
the
CFO
of
the
ASX
listed
Minerals
Corporation
Limited
that
operated
the
kaolin business
at
Skardon
River.

12

Gulf Alumina Limited ACN 108 086 371

9 Retraction of statement regarding Skardon River North Tenement

The
Skardon
River
North
Tenement
has
not
been
explored
by
Gulf
and
has
not
been
valued. The statement
in
Section
2
of
the
Target’s
Statement
that
Gulf
will
also
endeavour
to
increase
the Skardon
River
Mine
life
by
mining
at
Skardon
River
North
Tenement
should
be
ignored
and
such statement
is
retracted. The
Gulf
Directors
are
not
relying
on
such
statement
in
recommending
to shareholders
not
to
accept
the
Metro
Offer.

10 Retraction of statement regarding Convertible Notes

In
Section
3.2
of
the
Target’s
Statement
Gulf
stated
that
convertible
notes
were
purchased
by
a party
on
an
arm’s
length
basis
for
the
equivalent
price
of
$0.2756
per
share
(including
transaction costs)
and
not
$0.15
as
claimed
by
Metro. Gulf
was
not
involved
so
the
purchase
was
arms length
from
Gulf
but
Gulf
is
not
certain
whether
the
Notes
were
in
fact
purchased
on
an
arm’s length
basis
between
the
seller
and
the
buyer,
and
accordingly the
statement
that
they
were purchased
on
arms
lengths
basis
should
be
ignored
and
is
retracted .
Gulf
Directors
do
not
base their
recommendations
on
this
statement.

11 Update on EIS Approval and Project Timeframe

Submissions
on
Gulf’s
EIS
were
received
on
21
December
2015.
Key
issues
in
submissions
have been
identified
and,
where
required,
specialist
studies
are
underway
to
respond
to
particular technical
aspects
of
submissions.
These
technical
aspects
can
be
summarised
as
providing
greater detail
on
particular
design
issues
and
impacts
of
the
Project,
rather
than
fundamental
issues
with the
assessment
of
Project
impacts.
The
response
to
the
majority
of
submissions
requires
clarifying information
already
presented
in
the
EIS,
the
provision
of
minor
additional
information
or additional
commitments
from
Gulf
on
environmental
and
social
management.

The
amended
EIS
and
submission
response
document
is
expected
to
be
submitted
by
not
later than
24
March
2016.
The
Queensland
Department
of
Environmental
and
Heritage
Protection ( EHP )
will
then
review
the
EIS
responses
for
adequacy
and,
if
satisfied
with
responses,
prepare
an EIS
Assessment
Report.
The
EIS
Assessment
Report
may
be
finalised
in
May
2016.
This
will
form the
basis
for
the
Project’s
EA,
in
approximately
June
2016.
Note
that
the
estimated
timeline
is dependent
on
EHP’s
process
in
finalising
the
EIS
Assessment
Report
and
the
EA.

The
EA
is
prerequisite
for
Project
construction
to
commence
which
is
also
subject
to
adequate funding
for
the
project
capital
expenditure
being
secured
in
time.

12 Consents

The
following
persons
have
given
and
have
not,
before
the
date
of
this
First
Supplementary Target’s
Statement,
withdrawn
their
consent:

• a) To
  be
  named
  in
  this
  First
  Supplementary
  Target’s
  Statement
  in
  the
  form
  and
  context
  in which
  they
  are
  named;

13

First Supplementary Target’s Statement

• b) For
  the
  inclusion
  of
  their
  respective
  reports
  or
  statement’s
  (if
  any)
  noted
  next
  to
  their names
  and
  the
  references
  to
  those
  reports
  or
  statements
  in
  the
  form
  and
  context
  in which
  they
  are
  included
  in
  this
  First
  Supplementary
  Target’s
  Statement;
  and

• c) For
  the
  inclusion
  of
  other
  statements
  in
  this
  First
  Supplementary
  Target’s
  Statement which
  are
  based
  on
  or
  referable
  to
  statements
  made
  in
  those
  reports
  or
  statements,
  or which
  are
  based
  on
  or
  referable
  to
  other
  statements
  made
  by
  those
  persons
  in
  the
  form and
  context
  in
  which
  they
  are
  included.

Name of person	Named as	Reports or statements
ACT2 Pty Limited Mathew (Jun Jie) Gu Cheng Wang Weidong Zhang Hong Jiang George Birch George Gaal Aulis John Keppo Quiyun Shen Amanda (Yitong) Li Yanhua Liu Wenzhen Zhang John Wardman and Associates Pty Ltd Shandong Nanshan Aluminium Co. Ltd	Non-Participating Gulf Shareholders	As to their intention not to accept the Offer other than a substantially improved offer, taking account of whether it has been recommended to Gulf Shareholders unanimously by the Gulf Board, and the reasons for that recommendation.
Edale Capital Pty Limited	Non-Participating Gulf Shareholder	As to its intention not to accept the Offer other than an improved offer.
The Directors of Gulf Alumina Limited	Directors or Gulf Board	Statements of Opinion and Intention.
John Wyche	Competent Person	Information relating to Gulf’s mineral reserves
Jeff Randell	Competent Person	Information relating to Gulf’s mineral resource
George Gaal	Consultant	Information contained in Section 8
Weidong Zhang	Managing Director of Gulf	Information contained in Section 8

14

Gulf Alumina Limited ACN 108 086 371

13 Authorisation

This
document
has
been
approved
by
a
resolution
passed
by
the
directors
of
Gulf. Signed
for
and
on
behalf
of Gulf
Alumina
Limited

==> picture [110 x 97] intentionally omitted <==

Weidong
Zhang Director

15

First Supplementary Target’s Statement

THIS PAGE LEFT BLANK INTENTIONALLY

16

Gulf Alumina Limited ACN 108 086 371

==> picture [34 x 40] intentionally omitted <==

==> picture [90 x 50] intentionally omitted <==

Target’s Statement

==> picture [596 x 202] intentionally omitted <==

Suite 503, Level 5 37 Bligh Street Sydney, NSW, 2000 +61 2 9221 4689 info@gulfalumina.com.au

==> picture [596 x 106] intentionally omitted <==

18

Gulf Alumina Limited ACN 108 086 371