QUANTUM GRAPHITE LIMITED - Capital/Financing Update 2013

STRATEGIC GRAPHITE LIMITED

ACN 008 101 979

(to be renamed Valence Industries Limited)

REPLACEMENT PROSPECTUS 2013

Proposed ASX Code: VXL

THIS REPLACEMENT PROSPECTUS REPLACES THE PROSPECTUS DATED 7 NOVEMBER 2013

REPLACEMENT PROSPECTUS FOR:

1. NON-RENOUNCEABLE RIGHTS ISSUE OFFER OF UP TO 43.2 MILLION SHARES AT A PRICE OF $0.20 PER SHARE ON THE BASIS OF THREE (3) SHARES FOR EVERY EIGHT (8) SHARES HELD WITH ONE FREE ATTACHING OPTION FOR EVERY SHARE SUBSCRIBED TO RAISE UP TO APPROXIMATELY $8,640,000; AND

2. A PUBLIC OFFER OF SHORTFALL SHARES AT A PRICE OF $0.20 PER SHARE WITH ONE FREE ATTACHING OPTION FOR EVERY SHORTFALL SHARE ISSUED.

THIS REPLACEMENT PROSPECTUS ALSO COVERS A PLACEMENT OF UP TO 7,500,000 SHARES AT $0.20 PER SHARE WITH ONE FREE ATTACHING OPTION FOR EVERY SHARE SUBSCRIBED TO RAISE $1,500,000, THE ISSUE OF 3,125,000 OPTIONS TO PRIOR PLACEMENT INVESTORS, AND THE ISSUE OF UP TO 16,250,000 OPTIONS TO UNDERWRITERS AND SUB-UNDERWRITERS.

THIS RIGHTS ISSUE AND PLACEMENT HAVE BEEN UNDERWRITTEN TO THE MINIMUM SUBSCRIPTION AMOUNT OF $6,500,000 AND SUBJECT TO THE CONDITIONS AS SET OUT IN SECTION 2.15

The Offers are conditional on the consolidation of the share capital of the Company being approved at the 2013 AGM of the Company and taking effect, ASX granting the Company admission to the Official List and quotation of the Securities and the Company receiving acceptances for the Minimum Subscription Amount of $6,500,000.

This is an important document that should be read in its entirety .

If you do not understand it you should consult your professional advisers without delay .

The New Securities offered by this Replacement Prospectus are of a speculative nature.

Lead Manager and Underwriter: Patersons Securities Limited (ACN 008 896 311) AFSL 239 052

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

CORPORATE DIRECTORY

DIRECTORS AND COMPANY SECRETARY

Mr Graham Spurling Non-Executive Chairman Mr Christopher Darby Managing Director and Chief Executive Officer Mr Glenister Lamont Non-Executive Director Mr Ian Schache Non-Executive Director Mr Jaroslaw (Jarek) Kopias Company Secretary and Chief Financial Officer

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS

Level 1, 67 Greenhill Road Ground Floor, 60 Hindmarsh Square Wayville SA 5034 Adelaide SA 5000 Ph: +61 8 8372 6666 Ph: +61 8 8418 8580 Fax: +61 8 8372 6677 Fax: +61 8 8215 0337

LEAD MANAGER & UNDERWRITER

Patersons Securities Limited Level 15, 333 Collins Street Melbourne VIC 3000 Ph: +61 3 9242 4000 Fax: +61 3 9242 4099

SHARE REGISTRY

Link Market Services Locked Bag A14 Sydney South NSW 1235 Ph: +61 2 8280 7111 Fax: +61 2 9287 0303

AUDITOR

Grant Thornton Audit Pty Ltd Level 1, 67 Greenhill Road Wayville SA 5034 Ph: +61 8 8372 6666 Fax: +61 8 8372 6677

SOLICITORS

Watsons Lawyers

Ground Floor, 60 Hindmarsh Square Adelaide SA 5000 Ph: +61 8 8418 8580 Fax: +61 8 8215 0337

INVESTIGATING ACCOUNTANT

Grant Thornton Audit Pty Ltd

Level 1, 67 Greenhill Road Wayville SA 5034 Ph: +61 8 8372 6666 Fax: +61 8 8372 6677

INDEPENDENT TECHNICAL

Ian D. Buckingham, Global Resources & Infrastructure Pty Ltd

395 Collins Street, Lower Ground Floor

Melbourne VIC 3000

Ph: +61 3 9629 4443 Fax: +61 3 9614 8692

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

INDICATIVE TIMETABLE

INDICATIVE TIMETABLE
Original prospectus lodged with ASIC	Thursday 7 November 2013
Record Date	Thursday 7 November 2013
Replacement Prospectus lodged with ASIC	Friday 15 November 2013
Despatch of Prospectus to Eligible Shareholders	Tuesday 19 November 2013
Opening Date	Tuesday 19 November 2013
Annual General Meeting	Tuesday 19 November 2013
Share Consolidation effective	Tuesday 19 November 2013
Closing Date	Thursday 5 December 2013
New Securities and Director Securities issued and allotted	Tuesday 17 December 2013
Despatch of transaction confirmation statements	Thursday 19 December 2013
Listing of Securities on ASX	Friday 20 December 2013

The dates are indicative only and are subject to change without notice. The Company reserves the right to close the Offers at any time before the

Closing Date and to extend the Offers without prior notice. Investors are encouraged to submit their Applications as soon as possible after the Offers open.

KEY CAPITAL INFORMATION

Key Capital Statistics	Minimum Subscription	Full Subscription
Current Shares on issue	230,389,316	230,389,316
Current Shares on issue post a 1 for 2 Consolidation1	115,195,013	115,195,013
Offer price per share	$0.20	$0.20
Total number of Shares issued under this Prospectus	32,500,000	50,698,130
Total number of Shares on issue upon listing on the ASX2	148,047,375	166,245,505
Current Options on Issue	Nil	Nil
Total Options issued under this Prospectus	51,875,000	70,073,130
Total Options to be issued to Directors and former directors3	6,500,000	6,500,000
Total Options on issue upon listing on the ASX	58,375,000	76,573,130
Total Performance Rights on issue upon listing on the ASX	2,750,000	2,750,000
Total amount to be raised under the Offers	$6,500,000	$10,139,626
Undiluted Market Capitalisation at the Offer price4	$29,609,475	$33,249,101

NOTE:

The Company intends to consolidate its share capital on a 1 for 2 basis subject to shareholder approval the 2013 AGM
Includes 352,362 Shares to be issued to Former Directors in payment of remuneration to date of resignation
Subject to obtaining Shareholder approval at the 2013 AGM.
Shares might not trade at the Offer price of $0.20 post Listing on the ASX.

HOW TO INVEST

Applications for New Securities can only be made by completing and lodging the personalised Rights Issue Application Form sent with this Prospectus to Eligible Shareholders or the Shortfall Application Form contained in this Prospectus.

Instructions on how to apply for Shares are set out in Section 2 (Offer Details) and on the back of the Application Form.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

CORPORATE DIRECTORY ........................................................................................................ 2 IMPORTANT INFORMATION ...................................................................................................... 5 LETTER FROM THE CHAIRMAN ................................................................................................. 7 1. INVESTMENT OVERVIEW ................................................................................................... 8 2. THE OFFERS .................................................................................................................. 12 3. COMPANY AND PROJECT OVERVIEW ................................................................................ 24 4. DIRECTORS AND CORPORATE GOVERNANCE ................................................................... 42 5. RISK FACTORS ............................................................................................................... 50 6. INDEPENDENT TECHNICAL REPORT ................................................................................. 56 7. FINANCIAL INFORMATION & INVESTIGATING ACCOUNTANT’S REPORT ............................... 119 8. SOLICITOR’S REPORT .................................................................................................... 132 9. MATERIAL & HISTORICAL AGREEMENTS .......................................................................... 166 10. ADDITIONAL INFORMATION .......................................................................................... 168 11. DIRECTORS’ RESPONSIBILITY AND CONSENT STATEMENT ............................................. 180 12. GLOSSARY ................................................................................................................. 181

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

IMPORTANT INFORMATION

LODGEMENT

This Replacement Prospectus (“Prospectus”) is dated 15 November 2013 and was lodged with ASIC on 15 November 2013. It replaces the prospectus dated and lodged with ASIC on 7 November 2013 (“Original Prospectus”).

Neither ASX nor ASIC take any responsibility for the content of this Prospectus. The fact that the ASX may admit the Company to its Official List is not to be taken in any way as an indication of the merits of the Company. No New Securities will be issued, allotted or traded on the basis of this Prospectus later than 13 months after the date of issue of this Prospectus.

NOTE TO APPLICANTS

It is important that you read this Prospectus in its entirety and seek professional advice where necessary.

An investment in New Securities should be considered speculative in nature. You should consider the risk factors set out in section 5 that could affect the performance of the Company as well as your own investment objectives financial situation and particular needs, and seek professional advice if necessary, before making any decision to invest.

JURSIDICTION

This Prospectus and the enclosed Application Form do not constitute an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer. In particular, the distribution of this Prospectus in jurisdictions outside Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. See section 2.16 for further details.

EXPOSURE PERIOD

In accordance with Chapter 6D of the Corporations Act, the Original Prospectus was subject to an exposure period of 7 days from the date of lodgement of the Original Prospectus with ASIC. The purpose of the exposure period is to allow the Original Prospectus to be examined by market participants prior to the acceptance of Applications. No Applications were received during the exposure period.

ELECTRONIC PROSPECTUS

An electronic copy of this Prospectus can be downloaded from the Company’s website: www.valenceindustries.com. Potential investors should download and read the entire Prospectus before applying for New Securities. Applications for New Securities may only be made on an Application Form attached to or accompanying this Prospectus. The Corporations Act prohibits any person from passing the Application Form onto another person unless it is attached to a hard copy of this Prospectus or the complete and unaltered electronic copy of this Prospectus.

A hard copy of this Prospectus will be provided free of charge to each Eligible Shareholder in accordance with the timetable and any person in Australia, on request. Please contact the Company or the Lead Manager (contact details are set out in the Corporate Directory on the inside front cover of this Prospectus) for such a copy.

The Offers constituted by this Prospectus in electronic form is available only to Australian residents accessing the website from Australia. It is not available to persons in the United States.

LISTING

Application has been made for the Company’s Shares (including the Shares offered under this Prospectus) and the Attaching Options to be admitted to the Official List on the ASX.

FORWARD LOOKING STATEMENTS

This Prospectus includes forward looking statements that have been based on current expectations about future acts, events and circumstances. All statements other than historical facts are forward looking statements, particularly those in relation in respect of the future prospects of the company, targets and intentions. These forward looking statements are subject to risks, uncertainties and assumptions that could cause those acts, events and circumstances to differ materially from the expectations described in such forward looking statements. The forward looking statements in this Prospectus reflect views held only as at the date of this Prospectus. The Company does not give any assurance that the anticipated results, performance or achievements expressed or implied in these forward looking statements will be achieved.

MAPS & DIAGRAMS

As part of the preparation of this Prospectus, the Company has commissioned and produced maps and diagrams to identify the Company’s Tenements, the land owned by the Company and its existing mineral processing facilities and infrastructure in relation to the Tenements. The maps and diagrams included in this Prospectus, and the program of development identified by the Company, should only be considered as an indication of the Company’ current intentions. These intentions may change at the Directors’ discretion.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Diagrams used in this Prospectus are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in charts, graphs and tables is based on information available at the date of this Prospectus.

FINANCIAL AMOUNTS

The financial amounts in this Prospectus are expressed in Australian dollars unless otherwise stated. Any discrepancies between the totals and sums of components in tables contained in this Prospectus are due to rounding.

DISCLAIMER

No person is authorised to give any information or to make any representation in connection with the Offers that is not contained in this Prospectus. Any information or representation not contained in this Prospectus may not be relied upon as having been authorised by the Company in connection with the Offers. Neither the Company nor any other person warrants the future performance of the Company or any return on any investment made under this Prospectus except as required by law and then only to the extent so required. The Company, the Lead Managers and the Share Registry disclaim all liability, whether in negligence or otherwise, to persons who trade New Securities before receiving their holding statement.

WARNING STATEMENT APPLICABLE TO NEW ZEALAND INVESTORS

The offers to New Zealand investors are regulated offers made under the mutual recognition provisions in Australian and New Zealand law. In Australia, this is Chapter 8 of the Corporations Act 2001 and Regulations. In New Zealand, this is Part 5 of the Securities Act 1978 and the Securities (Mutual Recognition of Securities Offerings—Australia) Regulations 2008. The Offers and the content of this Prospectus are principally governed by Australian rather than New Zealand law. In the main, the Corporations Act 2001 and Regulations (Australia) set out how the Offers must be made. There are differences in how securities are regulated under Australian law. For example, the disclosure of fees for collective investment schemes is different under the Australian regime. The rights, remedies, and compensation arrangements available to New Zealand investors in Australian securities may differ from the rights, remedies, and compensation arrangements for New Zealand securities.

Both the Australian and New Zealand securities regulators have enforcement responsibilities in relation to the Offers. If you need to make a complaint about the Offers, please contact the Securities Commission, Wellington, New Zealand. The Australian and New Zealand regulators will work together to settle your complaint.

The taxation treatment of Australian securities is not the same as for New Zealand securities. If you are uncertain about whether this investment is appropriate for you, you should seek the advice of an appropriately qualified financial adviser.

The Offers may involve a currency exchange risk. The currency for the securities is not New Zealand dollars. The value of the securities will go up or down according to changes in the exchange rate between that currency and New Zealand dollars. These changes may be significant. If you expect the securities to pay any amounts in a currency that is not New Zealand dollars, you may incur significant fees in having the funds credited to a bank account in New Zealand in New Zealand dollars.

If the securities are able to be traded on a securities market and you wish to trade the securities through that market, you will have o make arrangements for a participant in that market to sell the securities on your behalf. If the securities market does not operate in New Zealand, the way in which the market operates, the regulation of participants in that market, and the information available to you about the securities and trading may differ from securities markets that operate in New Zealand.

ENQUIRIES REGARDING THE OFFERS

If you have any queries about the terms of the Offers or how to apply for New Securities, you should contact your financial adviser or the Share Registry on 1300 554 474.

The Company is unable to advise you on the suitability or otherwise of an investment in the Company, and for such advice you must contact your own independent professional adviser.

This document is important and should be read in its entirety.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

LETTER FROM THE CHAIRMAN

Dear Shareholder,

On behalf of the Board of Strategic Graphite Limited (the “Company”), I am delighted to offer you the opportunity to participate in a nonrenounceable rights issue.

Each eligible shareholder will be entitled to subscribe for three (3) shares for every eight (8) existing shares registered in their name at 5.00pm EST on 7 November 2013 ( Record Date ), after taking into account the proposed 1 for 2 share consolidation, at an issue price of 20 cents per share. The new Shares will be issued after the consolidation, together with one (1) free Attaching Option for each new Share issued. The Rights Issue will raise up to $10.1 million and is underwritten to $6.5 million by Patersons Securities Limited, subject to the conditions shown in section 2.15. Including the Placement of $1.5 million, the offers under this Prospectus have a minimum raising of $6.5 million with the ability to raise up to $10.1 million before costs.

The Company is in the unique position of having a high quality graphite resource and existing processing infrastructure that we plan to bring back into production in early 2014. The Company’s graphite resource, existing plant and infrastructure, Mining Leases, Retention Leases and extensive Exploration Licence are located near Port Lincoln on the Eyre Peninsula in South Australia.

The proceeds from the offers will be used primarily to re-commence production and sales of graphite from the Company’s Uley Graphite Mine and to support listing of the Company’s shares on the ASX.

The Uley Graphite Mine produced graphite successfully from the early 1800’s up to 1993. The Company aims to fast track graphite production from the Uley Graphite Mine at a time when there is strong demand for high-grade flake graphite.

The investment highlights for the Company include:

High quality resource : 1.9Mt Indicated Mineral Resource and 4.5Mt Inferred Mineral Resource of high-grade flake graphite at a 3.5% graphitic carbon lower cut-off grade (JORC Code 2012) with metallurgy confirming high process grades (see Section 3.11 for further details).
Early production : The Company plans to recommence processing and sales from current stockpiles in early 2014, increasing to a target production rate of 50,000 tonnes of graphite concentrate per annum on completion of a new processing facility by late 2014, subject to obtaining the Additional Funding.
Existing infrastructure, plant & facilities : the Company owns the land around the Uley Graphite Mine, with processing facilities, workshops, electricity supply, roads, administration and laboratory buildings in place.
Proximity to regional infrastructure : The mine is located on the southern Eyre Peninsula within 22km of Port Lincoln and its established regional support infrastructure and multi-modal transport facilities.
Experienced Board and Management team : the Company is uniquely positioned with a Board and management team with extensive graphite industry, geological, processing and sales experience.

The Company’s Board and management have the technical and development experience to drive our production and processing objectives for exports to global markets. Managing Director& CEO, Christopher Darby, brings specific graphite processing and markets experience having previous responsibility as Managing Director (Asia Pacific) for MEGA Graphite, and for development of graphite operations in India and Canada. He has more than 20 years’ experience working on significant engineering, mining and infrastructure projects in Australia, Canada, India, Tanzania and Indonesia.

The Directors believe the Company’s high-grade flake graphite resources, existing plant, and Tenements, and our experienced management team position the Company to be a leading manufacturer of graphite.

The details of the Offers are set out in this Prospectus. You should read this carefully before making any decision to invest, in particular, the risks section set out in Section 5. An investment in the Company should be considered speculative.

On behalf of my fellow Directors, I encourage you to consider this investment opportunity and thank you for your ongoing support of the Company.

Yours sincerely,

==> picture [177 x 25] intentionally omitted <==

Mr Graham Spurling AM

Chairman

The information in this Prospectus relating to exploration targets or Inferred Resources should not be considered as an estimate of Mineral Resources or Ore Reserves. Hence the terms Resource(s) or Reserve(s) have not been used in this context. The potential quantity and grade is conceptual in nature, since there has been insufficient work completed to define them and it is uncertain if further exploration will result in the determination of a Mineral Resource, in cases other than the Uley Main Road deposit identified in the Coffey Mining Limited JORC 2012 Report. The production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

1. INVESTMENT OVERVIEW

1.1. About Strategic Graphite Limited

Topic1	Summary	For More Information
Who is the issuer of this	Strategic Graphite Limited ACN 008 101 979 (to be renamed Valence Industries	Section
Prospectus?	Limited following the 2013 AGM).	3.1
What is the nature of the	Strategic Graphite is in the business of mining, processing, selling and exporting	Sections
business conducted by	the industrial mineral graphite to global markets.	3 & 5
Strategic Graphite?	The Company has an existing mine and processing plant that produced flake
	graphite from the early 1900’s to 1993.
	Strategic Graphite intends to restart its operations in early 2014 to become
	Australia’s only graphite producer.
	The success of the business model is dependent on the Company achieving
	technical and commercial success with its processing operations, as well as other
	fiscal, economic, regulatory and environmental factors. Construction of the new
	process plant is also dependent on the Company undertaking further studies and
	securing the Additional Funding.
What are the key investment highlights?
*High Grade*	The Company holds:	Sections 3.11,
*Flake Graphite* *& existing JORC 2012* *Resource & Stockpiles*	• A 1.9Mt Indicated Mineral Resource with an average grade of graphitic carbon of 10.7% (at a lower cut-off grade of 3.5% graphitic carbon);	3.12 & 6
	• A 4.5Mt Inferred Mineral Resource with an average grade of graphitic carbon
	of 5.5% (at a lower cut-off grade of 3.5% graphitic carbon); and
	• A 74,454 tonne Inferred Mineral Resource comprised of mined stockpile
	material with an average grade of graphitic carbon of 11.42%.
	Metallurgical testing confirms high process grades exceeding 94% TGC across a
	range of graphite product lines.
*Existing Mining Leases*	The Company already holds two Mining Leases (ML 5561 and ML 5562).	Sections
	The Company conducted mining and processing operations on those Mining	3.5 & 8
	Leases until 1993 at which time the facilities were placed on active care and
	maintenance with approval of the regulator. The Company has an existing mine
	development plan and is working with DMITRE to bring the Uley Graphite Mine off
	care and maintenance and back into production.
	The production targets in this Prospectus are preliminary in nature to the extent
	conclusions are drawn from Inferred Mineral Resources. The conclusions in this
	Prospectus are also based on current technical and economic assessments, and
	are not sufficient to provide assurance of an economic development case at this
	stage, or to provide certainty that conclusions will be realised.
*Phase 1 Recommence*	The Company has existing stockpiles of mined material at the Uley Graphite Mine	Sections 2.12,
*Production*	site.	3.2, 3.12
	The Company proposes to restart the existing plant in early 2014 to process
	existing stockpiles located at site. The funds raised under the Offers will be applied
	towards Phase 1 and in accordance with the table set out in Section 2.12.
	The production targets in this Prospectus are preliminary in nature to the extent
	conclusions are drawn from Inferred Mineral Resources. The conclusions in this
	Prospectus are also based on current technical and economic assessments, and
	are not sufficient to provide assurance of an economic development case at this
	stage, or to provide certainty that conclusions will be realised.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Topic1	Summary	For More Information
*Phase 2 New Plant &*	The Company’s objectives include the construction of a new processing plant to	Section 3.2,
*Increased Production*	process graphite at a rate of 50,000 tonnes per annum from a new open cut mine
	to be operational by late 2014. Based on expressions of interest received
	previously, the Company expects to source the Additional Funding of
	approximately $34 million required for the development from a combination off-
	take contract factoring finance, royalty finance or straight debt finance and from
	cash flows from successful Phase 1 production and marketing of graphite.
	The production targets in this Prospectus are preliminary in nature to the extent
	conclusions are drawn from Inferred Mineral Resources. The conclusions in this
	Prospectus are also based on current technical and economic assessments, and
	are not sufficient to provide assurance of an economic development case at this
	stage, or to provide certainty that conclusions will be realised.
*Freehold Ownership of*	The Company owns the freehold title to the land (Certificate of Title Volume 5438	Section 3.6
*Land and Infrastructure*	Folio 571) on which the processing plant, haul roads, electricity infrastructure,
	workshops and facilities, administration and laboratory buildings, and the Indicated
	and Inferred Mineral Resource are located.
Have any experts provided an opinion on Strategic Graphite’s assets and plans?
JORC Code Resource	Coffey Mining Pty Ltd has generated an updated JORC Code 2012 resource model	Sections
Model	for the Uley Graphite Mine.	3.11 & 4.7
Independent Technical	The Independent Technical Report on the technical aspects of the Uley Graphite	Section 6
Report	Mine was prepared by Global Resources & Infrastructure Pty Ltd. The author of this
	report was Mr Ian D Buckingham, Managing Director of Global Resources &
	Infrastructure Pty Ltd.
Jorvik Resources	Jorvik Resources Pty Ltd has generated an addendum to the JORC Code 2012	Sections
	resource model for the Uley Graphite Mine and related to the existing mined	3.12 & 6
	stockpiled material. The conclusion from that assessment is that the Company holds
	an additional JORC Code 2012 compliant Inferred Mineral Resource of 74,454
	tonnes at an average grade of 11.42%.
Scoping Study	Bluechip Engineering, a firm with significant experience with graphite including with	Section 3.2
(New Plant &	processing operations in China, prepared the Scoping Study for the processing plant
Market Assessment)	and the market assessment for the Uley Graphite Mine. The author of the Scoping
	Study report was Mr Nick Fudlovski, Principal Engineer for Bluechip Engineering. The
	Scoping Study addresses the restart of the facilities existing at site and the process to
	take those process facilities off care and maintenance and perform the associated
	engineering and construction work as the Phase 1 program and to process existing
	stockpiled material at site. The Scoping Study also provides detail in relation to the
	Phase 2 program for the construction of a new open pit at the site and the
	development and construction of a new processing plant with a capacity of between
	50,000 and 60,000 tonnes of graphite production per annum. The program is
	discussed further in Section 3 and has been analysed and considered in the
	Independent Technical Report contained in Section 6.
	The production targets in this Prospectus are preliminary in nature to the extent
	conclusions are drawn from Inferred Mineral Resources. The conclusions in this
	Prospectus are also based on current technical and economic assessments, and are
	not sufficient to provide assurance of an economic development case at this stage, or
	to provide certainty that conclusions will be realised.
Investigating	The Investigating Accountants Report has been prepared by Grant Thornton Audit	Section 7
Accountant	Pty Ltd.
Lawyers	The Solicitor’s Report on Tenements was prepared by Watsons Lawyers. The	Section 8
	Company’s CEO Mr Darby is the Managing Partner of Watsons Lawyers but had no
	involvement in the preparation of the Solicitor’s Report on Tenements.

This program, timetable and dates are indicative only and are subject to change. The Directors reserve the right to vary the program, timetable and dates, without notice.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

1.2. Key Risks

Topic	Summary	For More Information
What are the key risks faced by investors in Strategic Graphite?
Investors should carefully consider the risk factors that affect the Company specifically and the resource, mining and		Section
exploration industry in which it operates. Investors should note that graphite exploration and development is a high-		5
risk endeavour.
Details of the risk factors of	which investors should be aware are disclosed in more detail in Section 5 (Risk Factors)
and set out below are a summary of the key risks:
Mineral Resource Risk	Strategic Graphite holds a defined Mineral Resource on its existing Mining Leases and	Section
	holds other Tenements which are at various stages of exploration.	5.3(b) & 5.3(a)
	Mineral processing and manufacturing any future exploration that the Company may
	engage in are high-risk undertakings. There is no guarantee that the Mineral
	Resource can be economically exploited.
Construction &	The capital expenditure and operating costs required to develop the Uley Graphite	Section
Operational Cost Risk	Mine may differ from the Company’s expectations as set out in Section 1.2 (Company	5.2(a)
	Overview).
Operational Risk	The Company’s projects are exposed to material operating risks including the potential	Section
	risk of sub-standard graphite qualities, mining and processing technical difficulties	5.2(f)
	encountered in commissioning and operating plant and equipment, mechanical failure
	as well as the potential for industrial and environmental accidents.
Infrastructure Risk	There is no guarantee that suitable and affordable electricity, water, rail and port	Section
	capacity will continue to be available to commercially mine, process or export graphite	5.2(c)
	from the existing or new facilities at the Uley site.
Future Funding Needs	Based on expressions of interest received previously, Strategic Graphite expects to	Section
	obtain the Additional Funding of $34 million comprised of off-take contract factoring	5.2(b)
	finance, royalty finance and/or straight debt finance and from cash flows from
	successful production and marketing of graphite. The planned plant expansion and
	Phase 2 will be delayed or may not occur if some or all of the Additional Funding is not
	available on acceptable terms or at all.
	The production targets in this Prospectus are preliminary in nature to the extent
	conclusions are drawn from Inferred Mineral Resources. The conclusions in this
	Prospectus are also based on current technical and economic assessments, and are
	not sufficient to provide assurance of an economic development case at this stage, or
	to provide certainty that conclusions will be realised.
Graphite Prices	Changes to graphite markets and prices, could have an adverse impact on the	Section
	commercial viability the Company’s proposed operations.	5.2(e)
Exchange Rate Risk	Graphite prices are denominated in US$ currency. Fluctuations in exchange rates will	Section
	impact on the A$ receipts from product sales.	5.2(e)
Key Personnel	Strategic Graphite has a specialist team of graphite, mining and processing personnel	Section
	and may be adversely affected if any of the Directors or management team leave the	5.2(k)
	Company.
Environmental Risks	Despite efforts to conduct its activities in an environmentally responsible manner, and	Section
	in accordance with all applicable laws, there is a risk of an adverse environmental	5.3(a)
	event occurring. Furthermore, the Company’s projects are exposed to possible
	environmental constraints or operational conditions and regulations that may restrict
	the full or economic development of the resources.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Topic	Summary	For More Information
Tenure and Title	The Mining Leases, Retention Leases and Exploration Lease held by Strategic	Section
	Graphite are subject to periodic renewal.	5.3(b)
	There are no guarantees that those tenements or interests will be renewed or that
	Strategic Graphite will be granted further or additional rights or tenements required for
	the conduct of operations. Further, issue, renewal, transfer or other conditions may be
	imposed upon Strategic Graphite in the future.
	If a tenement is not renewed for any reason, Strategic Graphite may suffer significant
	damage through the loss of the opportunity to develop and discover any mineral
	resources on that tenement.
Historical Agreements	The Company has received advice in relation to historical agreements entered into by	Section
	the Company and/or its subsidiaries. These Agreements are described in further detail	5.2(i)
	in Section 9.2. Except as expressed in Section 9.2 the Company has formed the view
	that all historical agreements have expired or have been superseded by subsequent
	events, but there is a risk that a court may form a different view, if a party disputed this.
Access	The Company owns freehold title to the land on which the Uley Graphite Mine Leases	Sections
	and planned operations and processing facilities are located.	5.3(c) & 8
	As identified in the Solicitor’s Report in Section 8 of this Prospectus, there may be a
	number of third party interests which overlay areas within the separate Retention
	Leases and Exploration Licence held by the Company, including: potential Native Title
	claims; potential Aboriginal heritage sites; Conservation Parks; Vegetation heritage
	agreements; pastoral leases; and private land.
	Under South Australian and Commonwealth legislation, Strategic Graphite may be
	required to obtain the consent of and pay compensation to the holders of these third
	party interests prior to commencing any activities on the affected areas within these
	Tenements. Any delay in obtaining these consents may impact on Strategic Graphite’s
	ability to carry out activities within the affected areas.
History	Strategic Graphite has an operating history and historical financial performance but	Section
	that history and performance relates to operations placed on care and maintenance in	5.2(h)
	1993.
	No assurance can be given that Strategic Graphite will achieve commercial viability
	through any of Strategic Graphite’s projects. Until Strategic Graphite is able to realise
	value from its projects, it is likely to incur ongoing operating losses.
Political and Regulatory	The possibility exists that new legislation and/or new regulations may be adopted that	Section
	adversely affect Strategic Graphite’s current and proposed mining operations, cost	5.2(g)
	structure and/or the ability of its customers to purchase or use graphite.
General Risks	Financial markets, changes in laws and government policy, taxation, insurance risks	Section
	and other unforeseen events may adversely impact Strategic Graphite.	5.4
	These general risks have the potential to impact the projects and programs set by
	Strategic Graphite.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2. THE OFFERS

2.1. The Offers

Under this Prospectus, the Company offers a total of 50.698 million Shares and up to 70.073 million Options, by way of the following Offers:

(1) a Rights Issue offered to Eligible Shareholders, of up to 43.198 million Shares, with 43.198 million free Attaching Options;
(2) a Shortfall Facility (to the extent new Securities are not taken up under the Rights Issue) offered to the public, of up to 43.198 million Shares, with 43.198 million free Attaching Options; and

(3) a Placement, of 7.500 million Shares, with 7.500 million free Attaching Options.

The Prospectus also covers the issue of 19.375 million Options, made to:

(1) Prior Placement Investors that subscribed or applied for shares prior to the issue of this Prospectus on the basis of one Attaching Option for every two Placement Shares (determined on a post consolidation basis); and
(2) the Underwriter and any Sub-underwriters, on the basis of one Underwriter Option for every two Shares underwritten.

The Offers will together raise up to $10,139,626 (without taking into account any funds that may be raised on the exercise of the Attaching Options).

2.2. Minimum Subscription

Applications under the Offers must be received for a minimum of $6,500,000 before expenses of the Offers. The Rights Issue and Placement is underwritten by Patersons Securities Limited to the Minimum Subscription amount subject to the Company receiving subscriptions of at least $2.3 million in Rights Issue or Shortfall applications.

No New Securities will be issued or allotted until the Minimum Subscription has been achieved. If the Minimum Subscription has not been raised within 3 months of the date of this Prospectus (or such longer period as may be permitted by the Corporations Act), the Company will either refund Application Monies in full or issue a supplementary prospectus and allow Applicants one month to withdraw their Applications and be repaid their Application Monies.

2.3. Rights Issue

If you are an Eligible Shareholder you are invited to apply for Shares and Attaching Options under this Prospectus under an underwritten pro-rata renounceable rights issue, on the basis of three (3) Shares for every eight (8) Shares held by you as at the Record Date (after taking into account the 1:2 Consolidation) at an issue price of $0.20 per Share. For every Share subscribed for, you will receive one (1) free Attaching Option.

The rights and liabilities attaching to the Shares are detailed in Section 0 of this Prospectus. Each Attaching Option will be exercisable at $0.25 and will expire on 31 July 2016 and will otherwise be issued on the terms and conditions set out in Section 10.10 of this Prospectus. The Company will apply for quotation for both the Shares and the Attaching Options, but there is no guarantee that the Attaching Options will satisfy the quotation requirements and, if they do not, the Attaching Options will be unquoted (see Section 10.10 of this Prospectus for further details).

The Rights Issue will raise a total of up to approximately $10,139,626, if fully subscribed and will raise a minimum of $6,500,000 if the Underwriting Agreement is not terminated.

You are an Eligible Shareholder if you have a registered address in Australia or New Zealand, and are registered as the holder of Shares at 5:00pm Sydney time on 7 November 2013. Your Entitlement will be calculated based on the number of Shares for which you are then registered as the holder.

Entitlements are non-renounceable. Accordingly, you will not be able to trade rights or transfer your Entitlement to another party.

2.4. Shortfall Facility

Any Shares offered but not subscribed for and allocated under the Rights Issue will be available under the Shortfall Facility at a price of $0.20 per Share. Applicants will receive one (1) free Attaching Option for every Share subscribed for under the Shortfall Facility.

The Shortfall Offer is a separate offer made pursuant to this Prospectus and will remain open for up to a further 3 months following the Closing Date. The New Securities issued under the Shortfall Facility will be issued on the same terms as those issued under the Rights Issue.

If you are an Eligible Shareholder and you subscribe for your Entitlement in full, you may apply for additional New Securities by completing the “Number of Additional Shortfall Shares” section on the Rights Issue Application Form sent to you with the Prospectus.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Non-shareholders may also apply for New Securities under the Shortfall Facility by completing the Shortfall Application Form accompanying this Prospectus. Applications from the general public must be for a minimum of 10,000 Shares ($2,000) with 10,000 free Attaching Options.

The Directors retain the discretion to allocate the Shortfall in their absolute discretion, but will endeavour to give priority to applications by existing Shareholders where possible, having regard to the overall capital structure and spread requirements. The balance of New Securities not applied for under the Shortfall Facility will be subject to the underwriting arrangements under the Underwriting Agreement (refer to section 2.15 for further detail).

2.5. How to accept the Rights Issue offer

( a) How Eligible Shareholders may apply:

Pay by BPAY®

Only Eligible Shareholders may apply and pay by BPAY®. If you wish to pay by BPAY®, you do not need to return your Entitlement and Acceptance Form. Refer to the Section titled “Payment using BPAY®” on the Entitlement and Acceptance Form for further details.

Payment must be received via BPAY® before the Closing Date, 5.00pm Sydney time on Thursday 5 December 2013. By paying by BPAY® you will be deemed to have completed an Entitlement and Acceptance Form for the number of Shares and Attaching Options that your application payment equates to.

Please make sure to use the specific Biller Code and unique Customer Reference Number on your Entitlement and Acceptance Form. If you received more than one personalised Entitlement and Acceptance Form, you will need to complete individual BPAY® transactions using the Customer Reference Number specific to each individual personalised Entitlement and Acceptance Form that you receive. If you inadvertently use the same Customer Reference Number for more than one of your Entitlements, you will be deemed to have applied for only your Entitlement to which that Customer Reference Number applies and any excess amount will be treated as an application under the Shortfall Facility.

Pay by cheque, bank draft or money order

If you wish to pay by cheque, bank draft or money order, complete the accompanying Application Form in accordance with the instructions set out in the form. Cheques must be in Australian currency only, made payable to “Strategic Graphite Limited” and crossed “Not Negotiable”. Applicants must not forward cash. Receipts for payment will not be issued.

Entitlement and Acceptance Forms, together with payment, should be sent by post to the Company’s Share Registry as detailed below, to arrive no later than the Closing Date, 5.00pm Sydney time on Thursday 5 December 2013. Payments by cheque, bank draft or money order will be deemed to have been made when the cheque, bank draft or money order is honoured by the bank on which it is drawn.

Applications made by Eligible Shareholders in excess of their Entitlement will be deemed to be an application under the Shortfall Facility.

The Company reserves the right to reject any Application or to allocate any Applicant fewer Shares than the number applied for.

(b) How non-shareholders may apply under the Shortfall Facility:

If you are not an Eligible Shareholder and you wish to subscribe for New Securities under the Shortfall Facility, you must:

(a) complete the Shortfall Application Form accompanying this Prospectus according to the instructions on that form; and
(b) forward the completed form together with payment by cheque, bank draft or money order of the appropriate Application Monies (at $0.20 per Share subscribed for) to the address below by no later than 5.00pm Sydney time on Thursday 5 December 2013.

If you are not an Eligible Shareholder, your Application must be for a minimum of 10,000 Shares ($2,000) and thereafter in multiples of 2,500 Shares ($500).

Shortfall Shares will only be issued if the Rights Issue is undersubscribed and will only be issued to the extent necessary to make up any shortfall in subscriptions. The Directors will allocate Shortfall Shares in their absolute discretion and reserve the right to reject any application for Shortfall Shares or to allot a lesser number of Shortfall Shares than applied for.

Cheques, bank drafts or money orders must be in Australian currency only, made payable to “Strategic Graphite Limited” and crossed “Not Negotiable”. Applicants must not forward cash. Receipts for payment will not be issued.

Entitlement and Acceptance Forms, together with payment, should be sent by post to the Company’s Share Registry as detailed below, to arrive no later than the Closing Date, 5.00pm Sydney time on Thursday 5 December 2013. Payments by cheque will be deemed to have been made when the cheque, bank draft or money order is honoured by the bank on which it is drawn.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

(c) Submitting Application Forms and Application Cheques

Completed Application Forms together with Application Monies (by cheque, bank draft or money order) must be sent by post to:

Entitlement Form – by post Entitlement Form – by hand delivery Shortfall Form	Entitlement Form – by post Entitlement Form – by hand delivery Shortfall Form
Strategic Graphite Limited C/- Link Market Services Limited GPO Box 3560 Sydney NSW 2001 *(please*	Strategic Graphite Limited Link Market Services Limited C/- Link Market Services Limited Locked Bag A14 1A Homebush Bay Drive Sydney South NSW 1235 Rhodes NSW 2138 *do not use this address for mailing purposes)*

Completed Application Forms may be lodged at any time after the Opening Date and must be received (with the appropriate Application Monies) by 5.00pm Sydney time on Thursday 5 December 2013.

Full instructions on how to apply for New Securities under the Offers and how to complete the relevant Application Forms are set out on the reverse side of the Application Form. If you have any doubt on how to make an Application or complete an Application Form, please consult your professional adviser.

2.6. Placement

This Prospectus also covers the Placement of up to an additional 7.5 million Shares at a price of $0.20 per New Share, with one (1) free Attaching Option for every Share subscribed for, to raise up to $1.5 million.

Subscriptions under the Placement are restricted to sophisticated and professional investors identified by the Company and Patersons Securities Limited in their absolute discretion, and is not open to the general public.

2.7. Prior Placement Options

Prior to lodgement of this Prospectus with ASIC, the Company raised $1,000,000 pursuant to a placement of Shares at $0.08 each pre Consolidation (equivalent to $0.16 post Consolidation) to institutional and professional investors ( Prior Placement ). Under the terms of the Prior Placement, investors are entitled to receive one (1) free Attaching Option for every two (2) Shares subscribed for, on a post Consolidation basis.

The Attaching Options will be allotted and granted to Prior Placement Investors with disclosure under this Prospectus, regardless of whether the Company is admitted to the official list of ASX or not. The Attaching Options will be unquoted securities if the Company is not admitted to the official list of ASX (or if admitted, the Attaching Options do not meet the quotation conditions (refer to Section 10.10 for more details). However, these Options will only be issued if Shareholders approve the consolidation of the Company’s share capital at the 2013 AGM.

2.8. Underwriter Options

Under the terms of the Underwriting Agreement, the Company has agreed to grant Options to the Underwriter as part consideration for the underwriting of the Offers on the basis of one (1) Underwriter Option for every two (2) Shares underwritten. The Underwriter Options are in addition to the Attaching Options, but will be issued on the same terms as the Attaching Options.

The Underwriter Options will be issued with disclosure under this Prospectus.

2.9. Conditional Offer

The Offers (other than the Prior Placement Option Offer) are conditional upon:

(1) Shareholders approving the consolidation of the Company’s share capital at the 2013 AGM to be held on 19 November 2013 (please refer to Section 10.5 for more details);
(2) the Company receiving valid applications for the Minimum Subscription;
(3) ASX advising the Company that it will be granted admission to the Official List and that it will admit the Shares to Official Quotation within the required period (see Section 2.10 below)

If these conditions are not satisfied within 3 months of the date of this Prospectus (or such longer period as may be permitted by the Corporations Act), the Company will either refund Application Money in full or issue a supplementary prospectus and allow Applicants one month to withdraw their Applications and be repaid their Application Money.

2.10. ASX Listing

Application for Official Quotation by ASX of the Shares, Attaching Options and Underwriter Options offered pursuant to this Prospectus will be made within 7 days after the date of this Prospectus. If the ASX does not grant permission to admit the Shares to the Official List within 3 months after the date of this Prospectus, or any longer period permitted by the Corporations Act, the Company will not issue

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

any New Securities pursuant to the Offers (other than the Prior Placement Options) and will repay all Application Monies without any interest as soon as practicable.

The Attaching Options and Underwriter Options will not be quoted unless the quotation conditions are satisfied (see Section 10.8 for the further details). If the Attaching Options and Underwriter Options are not quoted but the Shares are, the New Securities will still be issued and allotted, but the Attaching Options and Underwriter Options will be unlisted and will not be traded on ASX.

The fact that ASX may grant Official Quotation to the Shares and Options is not to be taken in any way as an indication of the merits of the Company or the Shares now offered for subscription.

If granted, quotation of the Securities will commence as soon as practicable after allotment of New Securities to Applicants.

2.11. Purpose of the Offers

The purpose of the Offers is to provide the Company with the funds required to progress the development of the Uley Graphite Mine and for general working capital.

Further details of the Company’s strategy are detailed in Section 3 and are reported on in detail in the Independent Technical Report set out in Section 6.

2.12. Use of Funds

The funds raised pursuant to the Offers, are intended to be applied in accordance with the following tables (depending on whether the Full Subscription or Minimum Subscription is raised):

Table 2.12 – Use of funds

Assuming Full Subscription		Assuming Minimum Subscription
Application of Funds Total $ Year 1 $ Year 2 $		Application of Funds Total $ Year 1 $ Year 2 $
Tenements1 $200,000 $100,000 $100,000 Phase 1 processing2 $4,600,000 $4,600,000 - Engineering & Metallurgy3 $1,100,000 $800,000 $300,000 Mining Related4 $1,100,000 $800,000 $300,000 Costs of the Offers and Listing5 $1,009,000 $1,009,000 - Working capital6 $2,131,000 $1,331,000 $800,000 Total $10,140,000 $8,640,000 $1,500,000		Tenements1 $50,000 $25,000 $25,000 Phase 1 processing2 $2,800,000 $2,800,000 - Engineering & Metallurgy3 $800,000 $700,000 $100,000 Mining Related4 $400,000 $400,000 - Costs of the Offers and Listing5 $785,000 $785,000 - Working capital6 $1,665,000 $900,000 $765,000 Total $6,500,000 $5,610,000 $890,000

This relates to expenditure required to maintain the Tenements in good standing, and for exploration work on the Exploration Licence.
The Phase 1 program work is discussed further in Section 3 and Section 6.
This relates to the costs of conducting the technical and physical engineering, laboratory work and construction required to refurbish and bring the existing processing facility off care and maintenance in line with the Phase 1 program. A portion of these funds will also be applied to relevant future development work in terms of obtaining further engineering and design for future programs planned by the Company including the projected Phase 2 operations.
This relates to the costs in respect to moving raw material from the existing stockpiles into the existing processing facility once it has been refurbished in line with the Phase 1 program. A portion of these funds will also be applied to relevant future development work in terms of obtaining further engineering and design for future programs planned by the Company including the projected Phase 2 operations related to the design of any new open pit.
See section 10.14 for a break-down of costs.
The provision for working capital by the Company has been set at a level which the Company considers to be prudent for the ongoing conduct of operations in the second year following Admission and then to provide for activities to be conducted after the Second Year

For further details please refer to section 3.2 and the Independent Technical Report in section 6.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The Directors believe that the Company will have sufficient funds to meet the business objectives set out in the use of funds as expressed in this Prospectus, upon successful completion of the Offers.

Actual expenditure may differ significantly from the above estimates due to a number of factors including market conditions, unforeseen circumstances, the development of new opportunities and other risk factors set out in Section 5.

The Company intends to raise Additional Funding of approximately $34 million in order to commence full scale mining operations and to complete construction of the new 50,000 tonnes per annum graphite processing plant in 2014. Based on previous expressions of interest received, Strategic Graphite expects (but cannot guarantee) to be able to obtain the Additional Funding by way of off-take sales contract factoring, royalty finance and/or debt facilities.

2.13. Indicative Dates

The following are the current indicative timetable of dates being followed by the Company:

EVENT	INDICATIVE DATE
Replacement Prospectus lodged with ASIC	Friday 15 November 2013
Record Date	Thursday 7 November 2013
Despatch of Prospectus to Eligible Shareholders	Tuesday 19 November 2013
Opening Date	Tuesday 19 November 2013
Annual General Meeting	Tuesday 19 November 2013
Share Consolidation effective	Tuesday 19 November 2013
Closing Date	Thursday 5 December 2013
New Securities and Director Securities issued and allotted	Tuesday 17 December 2013
Despatch of transaction confirmation statements	Thursday 19 December 2013
Listing of Securities on ASX	Friday 20 December 2013

The dates in the above table are indicative only and are subject to change without notice. The Company reserves the right to close the Offers at any time before the Closing Date and to extend the Offers without prior notice. Investors are encouraged to submit their Applications as soon as possible after the Offers open.

2.14. Allocation policy

The Company will allocate New Securities as soon as possible after the Closing Date and receiving ASX’s confirmation that the Shares will be admitted to the Official List (other than the Prior Placement Options, which will be issued regardless of whether the Company is admitted to the Official List and within 1 month of the close of the Offers).

The Company reserves the right to allocate to any Applicant a lesser number of Shares than are applied for, or to decline any Application. Where no allocation is made to a particular Applicant or the number of New Securities allocated is less than the number applied for by an Applicant, surplus Application Monies will be returned to that as soon as practicable. No interest will be paid on refunded Application Monies.

If the Company receives Applications that would result in the Offers being oversubscribed then the Company will not accept such oversubscriptions and will reject or scale back applications at its absolute discretion.

The Company will endeavour to allocate oversubscriptions to existing Shareholders as a priority in consultation with and at the full discretion of the Underwriter.

If the Offers are undersubscribed, any additional Shortfall Securities will then be allocated to the Underwriter, in accordance with the terms of the Underwriting Agreement.

In accordance with the provisions of the Corporations Act, all Application Monies shall, pending allotment and issue of the New Securities pursuant to the Offers, be held by the Company in trust in a bank account established solely for the purpose of depositing the Application Monies received. Any interest earned on such Application Monies shall be to the Company's account. No interest will be paid on Application Monies held and returned. It is anticipated that transaction confirmation statements will be dispatched on or about Thursday 19 December 2013.

If you are a successful Applicant, you will be notified in writing of the number of New Securities allocated to you as soon as possible following the allocation being made after the Closing Date.

It is your responsibility to confirm the number of New Securities allocated to you prior to trading in the New Securities. If you sell New Securities before you receive notice of the number of New Securities allocated to you, you do so at your own risk.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

No New Securities will be allotted or issued on the basis of this Prospectus later than 13 months after the date of this Prospectus.

The Company will not issue New Securities where it is aware that to do so would result in a breach of the Corporations Act or any other relevant legislation or law. If you wish to apply for New Securities, you must consider whether the issue of the New Securities applied for would breach any laws, including the Corporations Act or the Foreign Acquisitions and Takeovers Act, having regard to your own circumstances (see Section 2.16 and 2.17 for further details).

2.15. Underwriting

Pursuant to an Underwriting Agreement dated 7 November 2013 between the Company and the Underwriter, the Underwriter has agreed to act as Lead Manager and underwrite the Placement and Rights Issue up to the Minimum Subscription, thereby guaranteeing (unless the Underwriting Agreement is terminated) that the Offers will raise A$6.5 million in total (before costs and expenses of the Offers and subject to the terms and conditions of the Underwriting Agreement). A condition of the Underwriting Agreement is that the Company receives applications through the Rights Issue and Shortfall or otherwise for a minimum of $2.3 million.

Under the terms of the Underwriting Agreement, the Underwriter will receive a fee for providing the underwriting service along with a corporate advisory fee for acting as Lead Manager (detailed in Section 10.19 below). The services that the Underwriter will perform as Lead Manager relate to the management, marketing and selling/distribution of the Offers.

Under the terms of the Underwriting Agreement, the Company has agreed to grant Options to the Sub-Underwriters as part consideration for the underwriting of the Offer and Shortfall Facility on the basis of one (1) Underwriter Option for every two (2) Shares subscribed for by the relevant Sub-Underwriter.

The Company has given warranties, covenants and indemnities in favour of the Underwriter which are usual for agreements of this kind.

The Underwriter may terminate its obligations under the Underwriting Agreement if any one of a number of events ( Termination Events ) occur before the date on which allotment of the last of the New Securities occurs. The Termination Events in the Underwriting Agreement are usual for agreements of this kind, with significant Termination Events set out below:

Market Changes: if the S&P/ASX 200 or the S&P/ASX Small Resources Index falls 7.5% or more below its respective level on the day prior to execution of the Underwriting Agreement;
Prospectus: if the Prospectus or the Rights Issue is withdrawn by the Company;
Copies of Prospectus: if the Company fails to provide electronic and paper copies of the Prospectus as required;
No Official Quotation: if the ASX has not granted quotation for all the New Securities offered under the Rights Issue by the Shortfall Notice Deadline Date;
Supplementary Prospectus: if a supplementary prospectus is lodged without the prior written consent of the Underwriter, or if the Underwriter forms the view that a supplementary prospectus is required and the Company fails to lodge a supplementary prospectus within a reasonable time;
Non-compliance with disclosure requirements: if the Prospectus does not contain all the information required by Part 2D.2 of the Corporations Act;
Misleading prospectus: if there is a statement or omission in the Prospectus that is misleading or deceptive (or likely to mislead or deceive) or if the issue of the Prospectus is or becomes misleading or deceptive (or likely to mislead or deceive);
Restriction on issue: if the Company is prevented from issuing the New Securities within the time required by the Underwriting Agreement or any applicable law, the ASX Listing Rules, any regulation or a court order;
Withdrawal of consent: if any person (other than the Underwriter) who has previously consented to the inclusion of its, his or her name in the Prospectus, withdraws that consent;
ASIC application: if an application is made by ASIC for an order under the Corporations Act in relation to the Prospectus (provided the Shortfall Notice Deadline Date has arrived), and that application is not dismissed or withdrawn;
ASIC hearing: if ASIC gives notice of its intention to hold a hearing in relation to the Prospectus to determine if it should make a stop order in relation to the Prospectus, or if ASIC makes an interim or final stop order in relation to the Prospectus;
Takeovers panel: if the Takeovers Panel makes a declaration of unacceptable circumstances under Part 6.10 of the Corporations Act;
Hostilities: if there is an outbreak of hostilities or a material escalation of hostilities (whether or not war has been declared) after the date of the Underwriting Agreement involving Australia and any one or more of New Zealand, Indonesia, Japan, Russia, the United Kingdom, the United States of America, or the Peoples Republic of China, Israel or any member of the European Union, or a terrorist act is perpetrated on any of those countries or any diplomatic, military, commercial or political establishment of any of those countries anywhere in the world, provided that such circumstance is not existing at the date of the Underwriting Agreement, which has or is reasonably likely to have a Material Adverse Effect;

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Authorisation: if any required authorisation is revoked, terminated or expires, or modified in a manner unacceptable to the Underwriter;
Indictable offence: if a director or senior manager of the Company is charged with an indictable offence;
Conditions not satisfied: any condition of the Rights Issue set out in the Prospectus is not satisfied by the requisite date;
Termination Events: if any of the following events occurs, provided the event has (or is reasonably likely to have) a Material Adverse Effect on the Rights Issue, or could be reasonably expected to give rise to a liability of the Underwriting under the Corporations Act or otherwise:
Default: the company defaults under the Underwriting Agreement and does not remedy the relevant breach promptly;
Incorrect of untrue representation: if any representation, warranty or undertaking given by the Company in the Underwriting Agreement is incorrect;
Contravention of applicable rules and laws: the Company or one of its subsidiaries contravenes a provision of its constitution or any applicable legislation or requirement of ASX (including the Corporations Act and the Listing Rules);
Adverse change: any change occurs which is adverse to the financial position or operations of the Company of any of its subsidiaries;
Error in Due Diligence Results: any results of the Underwriter’s due diligence or any part of the material relating to verification of the Prospectus are false, misleading or deceptive;
Significant change: a new circumstance (as referred to in section 719(1) of the Corporations Act) arises that is materially adverse from the point of view of an investor;
Public Statement: a public statement is made in relation to the Offer without the prior approval of the Underwriter;
Misleading information: any information provided by the Company to the Underwriter in respect of the Rights Issue is misleading or deceptive;
Official Quotation qualified: the Official Quotation is subject to additional qualifications or conditions;
Change in Act or policy: legislation is introduced that would result in a major change to existing monetary, taxation, exchange or fiscal policy;
Prescribed Occurrence: a Prescribed Occurrence occurs;
Suspension of debt payments: the Company suspends payment of its debts;
Event of Insolvency: an Event of Insolvency occurs in respect of the Company (or a subsidiary);
Judgement against the Company: a judgement exceeding $100,000 is obtained against the Company or a subsidiary and is not set aside or satisfied within 7 days;
Litigation: litigation or similar proceedings commence or are threatened having a claim value in excess of $500,000;
Board and senior management composition: there is a change in composition of the Board or senior management without prior written consent of the Underwriter;
Change in shareholdings: there is a material change in the major shareholdings of the Company (or a subsidiary) or a takeover offer or scheme of arrangement is announced in relation to the Company (or a subsidiary);
Timetable: there is a delay in any specified date in the timetable in the Underwriting Agreement which is greater than 3 Business Days (without the prior consent of the Underwriter);
Force Majeure: a Force Majeure affecting the Company's business or any obligation under the Underwriting Agreement lasting in excess of 7 days occurs;
Certain resolutions passed: the Company (or a subsidiary) passes or takes steps to pass a resolution that unpaid share capital be called up, that the Company buy back its own shares; that financial assistance be given to a person to acquire Shares; or that the Constitution be amended (without the prior consent of the Underwriter);
Capital Structure: the Company (or a subsidiary) alters its capital structure in any manner not contemplated by the Prospectus;
Investigation : any person is appointed under applicable legislation to investigate the affairs of the Company or a subsidiary;
Market conditions : a suspension in trading generally on ASX occurs or any material disruption occurs in international financial markets; or
Material breach : the Company fails to rectify a material breach after being given 10 business days’ notice of such breach having occurred.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The potential effect on control of the Company of the Underwriting Agreement is set out in Section 2.19 of this Prospectus.

2.16. Overseas Applicants

No action has been taken to register or qualify the New Securities, the Offers or this Prospectus in any jurisdiction outside of Australia and New Zealand.

This Prospectus does not constitute an offer of New Securities in any jurisdiction outside of Australia and New Zealand, or to any person to whom it would not be lawful to make the offer or issue this Prospectus.

The distribution of this Prospectus in jurisdictions outside of Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus should inform themselves about, and observe any such restrictions. Failure to comply with these restrictions may constitute a violation of those laws.

This Prospectus may not be released or distributed in the United States. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The New Securities have not been, and will not be, registered under the US Securities Act or the securities laws of any state of the United States, and may not be offered or sold in the United States, or to, or for the account or benefit of a US Person, except in a transaction exempt from the registration requirements of the US Securities Act and applicable United States state securities laws.

Nominees applying for New Securities on behalf of overseas residents are responsible for ensuring that such an Application does not breach any regulation applicable to any such overseas resident. If you are a nominee, or a person proposing to act as a nominee, you should seek independent advice as to how you should proceed.

Overseas or foreign applicants should also be aware that the Company is an ‘Australian urban land corporation’ under the Foreign Acquisitions and Takeovers Act, and any investment in the Company may require notification and the Foreign Acquisitions and Takeovers Act. If you are a foreign person within the meaning of the Foreign Acquisitions and Takeovers Act, you should seek independent legal advice as to how you should proceed before making any Application.

If you lodge an Application Forms accompanied by the relevant Application Monies this will be taken by the Company to constitute a representation from you that no breaches of any law or regulation in any jurisdiction has occurred and that all necessary approvals and consents have been obtained.

2.17. Prohibition on exceeding the 20% voting power threshold

You must have regard to and comply with the takeovers prohibition in Section 606 of the Corporations Act (that is, the 20% voting power threshold), when applying for New Securities offered pursuant to this Prospectus, and exercising any Attaching Options or Underwriter Options acquired.

The Company reserves the right to reject or scale back any application for Shares under the Offers which it considers may result in breach of Section 606. The Company expressly disclaims any responsibility for monitoring such applications or ensuring that individual Shareholders and the Underwriter or sub-underwriters do not breach Section 606 as a result of participation in the Offers or exercise of Attaching Options or Underwriter Options.

If you may be at risk of breaching Section 606 as a result of the exercise of Attaching Options or Underwriter Options, you have the following choices available to you:

(a) sell your Attaching Options or Underwriter Options, either on market (if the Options are admitted to quotation), or off-market;
(b) sell some or all of your Shares prior to exercising any Attaching Options or Underwriter Options you hold; or
(c) rely on another exemption from the takeovers prohibition in Section 611 (such as the 3% creep exemption).

If you may be at risk of exceeding the 20% voting power threshold in Section 606 or increasing your voting power from a position above 20% as a result of applying for Shares under the Offers or the acquiring Shares following exercise of Attaching Options or Underwriter Options, you should seek professional advice before applying for Shares or exercising Options.

The Company has not appointed a nominee for the purposes of Section 615 of the Corporations Act and the rights issue exemption from the takeovers prohibition in Section 611 will not apply to the acquisition of Entitlements.

2.18. Effect of the Offers on the Capital Structure of the Company

As at the date of this Prospectus, the Company has 230,389,316 Shares on issue (and no other securities) on issue. At its 2013 AGM, to be held on 19 November, the Company will seek approval from Shareholders to consolidate its share capital on a 1:2 basis, such that following the Consolidation the Company will have 115,195,013 Shares on issue (taking into account the impact of rounding post Consolidation.)

The Company has agreed to issue 352,362 Shares and, subject to obtaining shareholder approval, 3,000,000 Options to former Directors. The Shares and, subject to approval, the Options will be issued after the Consolidation and on or before the date the New Securities are issued under this Prospectus.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The Company is also proposing to issue, on the basis of specified performance targets, 2,750,000 Performance Rights and 2,000,000 Options to the Managing Director, and 1,500,000 Options to Non-Executive Directors, subject to all shareholder approvals that are required and after the Consolidation (see Section 10 for further details).

A summary of the capital structure is set out in the table below:

Table 2.18 – Strategic Graphite Capital Structure Summary

		Options	Performance Rights
	Shares

Securities on issue as at date of Prospectus	230,389,316	Nil	Nil
Securities on issue post Consolidation	115,195,013	Nil	Nil
Securities to Directors and Former Directors1	352,362	6,500,000	2,750,000
Minimum Subscription
New Securities to be issued under Offers3based on the Minimum Subscription	32,500,000	51,875,0002	Nil
Total Securities on issue following issue of New Securities under the Offers3based on the Minimum Subscription	148,047,375	58,375,000	2,750,000
Full Subscription
New Securities to be issued under Offers3based on the Full Subscription	50,698,130	70,073,1302	Nil
Total Securities on issue following issue of New Securities under the Offers4based on the Full Subscription	166,245,505	76,573,130	2,750,000
Performance Based Securities5
Securities held by current Directors to vest upon listing	Nil	500,000	687,500
Securities held by current Directors to vest between 1 January 2014 and 30 June 2015 for delivery of specific performance hurdles	Nil	3,000,000	2,062,500

Assuming any shareholder approval required at the 2013 AGM is obtained. See section 10 for further details.
This includes the Attaching Options under the Offers and 16,250,000 Underwriter Options which may granted to the Sub-Underwriters in accordance with the terms of the Underwriting Agreement.
Assuming that the Offers are fully subscribed and/or underwritten, and without taking into account the impact of rounding.
Assuming that the Consolidation is approved, any Shareholder approval required to issue the Director and employee Options is obtained, the Offers are fully subscribed and/or underwritten, and without taking into account the impact of rounding.
The performance based securities will be issued to current Directors at the same time that New Securities are issued under the Offers (subject to obtaining the requisite Shareholder approvals at the 2013 AGM). Performance Rights will vest (and convert into Shares) upon satisfaction of the relevant performance based vesting conditions. Performance based Options will vest (and become exercisable) upon satisfaction of the relevant performance based vesting conditions.

2.19. Potential effect on Control

As at the date of this Prospectus, the Shareholders who have a substantial shareholding in the Company are as follows:

Table 2.19.A – Existing Substantial Shareholdings

	Number of Shares	Number of Shares
Name			%
	Pre Consolidation	post Consolidation

Strategic Energy Resources Limited	43,577,813	21,788,907	18.91
Avatar Energy Pty Ltd	15,356,060	7,678,030	6.67
E.E.R.C. Australasia Pty Ltd	13,262,940	6,631,470	5.76

No Shareholder will, as a result of the Offers, acquire a voting power in the Company of more than 19.9%. The potential effect the Offers will have on the control of the Company’s undiluted share capital will depend on the extent to which Shareholders take up their Entitlements under the Rights Issue and the extent to which other investors subscribe for New Securities under the Shortfall Facility.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The Company was advised by SER on 21 September 2013 that SER is a junior exploration company with limited cash resources and does not intend to take up its Entitlement.

Any Shareholder that does not participate in the Rights Issue will be diluted by up to 44% based on the Full Subscription (assuming no Attaching Options are exercised).

If all Eligible Shareholders other than SER take up their Entitlements under the Rights Issue in full, the substantial shareholders in the Company would be as follows:

Table 2.19.B – Potential Substantial Shareholdings Post Offer

	Number of Shares
Name		Number of Shares post Offer	%
	Post Consolidation


Strategic Energy Resources Limited	21,788,907	21,788,907	13.11

Avatar EnergyPtyLtd	7,678,030	10,557,292	6.35
E.E.R.C. Australasia Pty Ltd	6,631,470	9,118,272	5.48

The Rights Issue is fully underwritten or sub-underwritten to the Minimum Subscription amount. If there is a 100% Shortfall (i.e., no Entitlements are applied for), then no sub-underwriter will acquire voting power in the Company of more than 20%. The Underwriter will only acquire voting power in the Company if a sub-underwriter defaults on its sub-underwriting obligation.

The Underwriter does not have a relevant interest in any Shares in the Company. If there is a 100% Shortfall and all sub-underwriters default on their obligations, the Underwriter could acquire up to 32,500,000 Shares (based on the amount underwritten), such that the maximum Underwriter’s voting power could be as follows:

Table 2.19.B – Maximum Underwriter’s Voting Power

Voting power
	New Shares	%
before Rights Issue


Nil	32,500,000	21.95

The Underwriter has advised the Company that if the Underwriter significantly increased its voting power in the Company the Underwriter's present intention is to exercise its voting power to cause the Company to continue its current business in the ordinary course and to pursue the strategies outlined in this Prospectus.

2.20. Withdrawal

The Directors may at any time decide to withdraw the Prospectus and the Offers, in which case the Company will return all Application Money received, without interest, within 28 days of giving notice of the withdrawal.

2.21. CHESS

The Company will participate in the Clearing House Electronic Sub-register System (CHESS), in accordance with ASX Listing Rules and operates an electronic issuer-sponsored sub-register and an electronic CHESS sub-register. The two sub-registers together will make up the Company's principal register of Shares and Options (if quoted on ASX).

Consequently, the Company will not issue certificates to you in relation to quoted securities. You will be provided with transaction confirmation statements (similar to a holding statement), which will set out the number of New Securities allotted to you under this Prospectus. At the end of the month of allotment, CHESS (acting on behalf of the Company) will provide you with a holding statement that will confirm the number of Securities then held.

A holding statement or transaction confirmation statement (whether issued by CHESS or the Company) will also provide details of a your Holder Identification Number in the case of a holding on the CHESS sub-register or security holder reference number in the case of a holding in the issuer-sponsored sub-register. Following distribution of these initial statements, a holding statement will be provided to you at the end of any subsequent month during which the balance of your holding of Securities changes.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2.22. Restricted Securities

The ASX may, as a condition of granting the Company's application for admission to the Official List, classify certain securities as Restricted Securities. If so, prior to the Company's Shares being admitted to the Official List, the holders of the Restricted Securities will be required to enter into agreements with the Company not to do, or omit to do, any act which would have the effect of transferring effective ownership and control of any Restricted Security, for a period determined by the ASX, without first obtaining the prior written consent of the ASX.

The Share Registry will be requested to provide a holding lock on the Securities classified as Restricted Securities, and to not remove the holding lock without the ASX’s written consent. No New Securities offered under the Rights Issue or the Shortfall Facility will be subject to restriction.

It is anticipated that the following Shares and Options held or to be issued to SER (classified as a promoter for the purposes of the ASX Listing Rules) and Former Directors (classified as related parties for the purposes of the ASX Listing Rules) as detailed in Table 2.22A below will be escrowed for a period of twenty-four (24) months from the date of quotation of Shares on the ASX. It is noted that ASX will confirm such restrictions after it has considered the Company’s listing application.

Table 2.22.A – Anticipated Restricted Securities for Former Parent Company & Former Directors

Role	Relevant Individual	Reason for Restriction	No. of Shares1	No. of Options2
Former parent company	SER	Promoter	21,788,907	Nil
Former Director	M Muzzin	Related Party	3,304,954	1,000,000
Former Director	T Rechner	Related Party	6,842,687	1,000,000
Former Director	P Armitage	Related Party	167,594	1,000,000

This includes existing Shares (on a post Consolidation basis) and Shares issued to Former Directors in lieu of remuneration (see section 10.16 of the Prospectus).
Options will be subject to Shareholder approval at the 2013 AGM.

It is anticipated that the following Shares and Options held or to be issued to Directors (classified as related parties for the purposes of the ASX Listing Rules) as detailed in Table 2.22B below will be escrowed for a period of twenty-four (24) months from the date of quotation of Shares on the ASX. It is noted that ASX will confirm such restrictions after it has considered the Company’s listing application.

Table 2.22.B – Anticipated Restricted Securities for current Directors

Role	Relevant Individual	Reason for Restriction	No. of Shares1	No. of Options2	Performance Rights2
Non-Executive Director	G Spurling	Related Party / Promoter	Nil	500,000	Nil
Managing Director & CEO	C Darby	Related Party / Promoter	Nil	2,000,000	2,750,000
Non-Executive Director	G Lamont	Related Party / Promoter	25,000	500,000	Nil
Non-Executive Director	I Schache	Related Party / Promoter	Nil	500,000	Nil

Existing Shares (on a post Consolidation basis).
Options and Performance Rights will be subject to Shareholder approval at the 2013 AGM.

It is expected that all Shares and Options identified in Tables 2.22A and 2.22B above will be escrowed for twenty-four (24) months from the date of official quotation of the Company’s securities. Any New Securities acquired by these investors under the Offers will not be subject to escrow.

The anticipated number of Shares subject to a twenty-four (24) month escrow period is 32,129,142 which will account for between approximately 21.7% and 19.3% of the Shares on issue following completion of the Offers.

The Underwriter Options are expected to be Restricted Securities subject to a twenty-four (24) month escrow period.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2.23. Taxation and Stamp Duty Implications

The Directors do not consider that it is appropriate to give you advice regarding the taxation consequences of being issued New Securities under this Prospectus, as it is not possible to provide a summary of the possible taxation positions of all Applicants. The Company, and its advisors and officers, do not accept any responsibility or liability for any taxation consequences to you in respect of this issue of the New Securities pursuant to this Prospectus, or the subsequent sale of those New Securities or the exercise of the Attaching Options. You should, therefore, consult your own professional tax advisor in connection with the taxation implications of the issue of New Securities pursuant to this Prospectus, or the subsequent sale of those New Securities or exercise of the Attaching Options.

2.24. Risk Factors

An investment in the Company is speculative and involves a number of risks associated with small companies involved in mineral exploration, production and processing. While the Directors intend to focus management on investment risk minimisation, no assurances can be given by the Company to you as to the success or otherwise of its business. The production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised. You should consider the risk factors identified in this Prospectus, particularly those identified in Section 5 of this Prospectus, before applying for New Securities pursuant to this Prospectus.

2.25. Privacy

By completing an Application Form, you will be providing personal information to the Company (directly or via the Share Registry). The Company will collect, hold and use that information to assess the Application and, for successful Applications, to service your needs, communications and related administration. The information may also be disclosed to persons inspecting the register, bidders for securities in the context of takeovers, regulatory bodies, print service providers, mail houses and share registry activities generally. You can access, correct and update the personal information that the Company holds for you by contacting the Company.

Collection, maintenance and disclosure of certain personal information is governed by legislation including the Privacy Act 1988 (Cth), the Corporations Act, the Listing Rules and the ASX Settlement Operating Rules. If you do not provide the information required on the Application Form, the Company may not be able to accept or process your Application.

You may request access to your personal information held by or on behalf of the Company. You can request access to your personal information or obtain further information about the Company’ privacy practices by contacting the Share Registry or the Company. The Company aims to ensure that the personal information it retains about you is accurate, complete and up to date. To assist with this, please contact the Company or the Share Registry if any of the details you have provided change.

In accordance with the requirements of the Corporations Act, information on the Shareholder register will be accessible by members of the public.

Information contained in the Company’ registers is also used to facilitate dividend payments and corporate communications (including the Company’ financial results, annual reports and other information that the Company may wish to communicate to its security holders) and to comply with legal and regulatory requirements.

2.26. Rounding

Any amounts subscribed under the Rights Issue where the three (3) for eight (8) calculation results in a fraction of a share will be rounded up to the nearest whole number of shares. As noted in the 2013 notice of AGM, the Company is seeking approval for a conversion of every two (2) Shares held by a Shareholder into one (1) Share and any resulting fractions of a Share will rounded up to the next whole number of Shares.

2.27. Enquiries

If you have any enquiries as to the terms of the Issue please contact the Company’s Share Registry on1300 554 474.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

3. COMPANY AND PROJECT OVERVIEW

3.1. Strategic Graphite

Strategic Graphite Limited (previously named Tarcoola Gold Limited) is an unlisted public company limited by shares and was formerly a 100% owned subsidiary of ASX listed Strategic Energy Resources Limited (ASX Code: SER).

The Company was demerged from SER on 27 April 2012. SER maintained a 20% shareholding in the Company at the demerger and the other 80% of the issued capital of the Company was distributed to eligible SER shareholders by way of an in-specie pro rata dividend.

It is proposed that Strategic Graphite will be renamed and will operate under the name Valence Industries Limited with a proposed ASX code on listing of VXL. Valence bonds are the bonds between atoms and in carbon (graphite) there are four valence bonds. This name for the company signifies the importance and focus which we place on the bonds and relationships we have with our:

Customers: Understanding our customers’ needs and delivering quality, consistency and reliability is critical for success in industrial minerals and is our key focus;
Investors: We are shareholder focussed and committed to building shareholder value and delivering sustained strong returns;
Community: We rely upon and value our local, regional, State and global communities – this is our social licence to operate and our commitment to continuously build and deliver valued outcomes; and
Team : We respect and value the relationships between every member of our team whether they be employees, contractors or advisors – these are essential for the Company to deliver on its goals.

3.2. Business Objectives

The Company’s primary objective is to recommence mining and processing of the mineral resource at the Uley Graphite Mine near Port Lincoln in South Australia.

The Company has established a program for the phased restart of processing operations. That initial program will take the site and the existing process facilities and infrastructure off care and maintenance and allow the Company to commence processing and sale of graphite contained in existing stockpiles at site.

The Company has commissioned and received reports which outline the work that will need to be undertaken in relation to the initial engineering, procurement and construction work at the site to recommence graphite processing and sales operations. The reports also address the further work to develop new open pit mining operations at the site over the medium term and the associated construction of a new large scale processing facility. The outcomes of those reports, including the Scoping Study received by the Company, are assessed and discussed in the Independent Technical Report contained in Section 6.

This program set by the Company has two basic phases:

Phase One

The Phase 1 program is designed to allow Strategic Graphite to make the best use of the significant and valuable existing infrastructure, plant, equipment and facilities located on the land owned by the Company. Phase 1 is expected to commence in the first quarter of 2014 with the re-commencement of processing of existing stockpiles of graphite ore at site.

The Company commissioned a Scoping Study which contains a detailed analysis of the capital and operating costs required to execute Phase 1. This Phase 1 program requires approximately $3 million in capital expenditure and essentially involves:

Restart: bring the existing processing plant and associated infrastructure off care and maintenance and acquire or lease the required plant and equipment necessary to commence processing along with associated infrastructure and construction work to refurbish the existing plant;
Existing Stockpiles: recommence production using the existing plant to process existing stockpiled material to produce graphite.

The planning and the anticipated costs for Phase 1 are supported by the Scoping Study completed for the Company and this program is discussed further in Section 6.

The Company holds two separate stockpiles and the nature and extent of those stockpiles is considered and discussed in Section 6. The first stockpile, estimated at 800 tonnes, contains graphite which has already been pre-processed. The second, and larger, stockpile is unprocessed campaign mined material. It is anticipated that the planned program of processing from the existing stockpiles will produce 7,800 tonnes of graphite. The production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The Company has obtained a JORC Code 2012 compliant statement in relation to the existing stockpiles from Jorvik Resources Pty Ltd ( Jorvik ) and this is summarised in the following table:

Table 3.2 - Uley Main Road Graphite Deposit: Stockpiled Material Classified Resource applied to +80µm Crushed and Screened Material.

*Table 3.2- Uley Main Road Graphite Deposit: Stockpiled Material* Classified Resource applied to +80µm Crushed and Screened Material.	*Table 3.2- Uley Main Road Graphite Deposit: Stockpiled Material* Classified Resource applied to +80µm Crushed and Screened Material.	*Table 3.2- Uley Main Road Graphite Deposit: Stockpiled Material* Classified Resource applied to +80µm Crushed and Screened Material.
Classification	Tonnage (t)	Average Grade (Graphitic Carbon %)
Inferred	74,454	11.42%
*Total*	74,454	11.42%

The Company intends to process the stockpiled material during the first half of 2014. The Company has received a strong level of customer enquiry seeking to purchase Uley graphite products, and is in the process of committing supply of processed graphite to customers within Australia and in markets across the Asia Pacific, Europe and North America.

Phase Two

The Company intends to further expand its mining and processing operations in the future. Costs related to the planning for such future operations form part of the application of the funds to be raised under this Prospectus but the actual development of those proposed expanded operations will be the subject of Additional Funding which the Company intends to secure from a mixture of offtake, royalty and debt finance facilities and not through any equity placement.

The Company has obtained a detailed assessment of the proposed Phase 2 operations in the completed Scoping Study. This proposed Phase 2 program and the assessment of the Scoping Study conclusions related to the Phase 2 program are discussed in further detail in Section 6. It has been assessed in the Scoping Study that the following capital cost of the new 50,000 to 60,000 tonnes of graphite plant ( New Plant ) would be $34,000,000. The Company will not progress to the proposed Phase 2 capital or operating expenditure without raising the Additional Funding.

The Scoping Study details each area of operational expenditure relevant to Phase 2 including:

Consultancy, tendering and contract management costs;
Utilities including water and electricity costs;
Direct processing consumables including reagents and bagging materials costs;
Personnel costs including all related regulatory and compliance costs;
Regulatory costs including royalties and taxes;
Management and administration costs and expenses;

related to both the operation of the New Plant and the conduct of the associated mining operations. The operating costs analysis as contained in the Scoping Study has allowed for up to a 30% contingency.

The Operating Cost estimate for the conduct of full-scale mining and processing operations to service the New Plant under the Scoping Study has identified an annual estimated mining cost of $3,900,000 per year at a mining rate of 500,000 tonnes of raw material per year.

The Operating Cost estimate as expressed in the Scoping Study for the conduct of New Plant has been estimated at $23,000,000 per year for production of an estimated 50,000 tonnes of graphite per year. The future Phase 2 program planned by the Company involves a proposed program of construction for a new graphite processing plant with a capacity of 50,000 tonnes to 60,000 tonnes of graphite production per annum and which will process material to be extracted from a new open pit operation which is intended to be located on the Mining Leases held by the Company and extracting and processing the material identified in the JORC 2012 Mineral Resource. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

The planning for Phase 2 and as expressed above is supported by a series of studies and investigations commissioned by the Company with external experts. Those studies and investigations are discussed and considered in Section 6 and they include:

the Uley Graphite Project JORC Report from Coffey Mining Pty Ltd and which is compliant with the JORC Code 2012 ( JORC 2012 Report ) and the results of which are considered and discussed in Section 6;
the Scoping Study Report for the Uley Graphite Project ( Scoping Study ) issued by Bluechip Engineering and the results of which are considered and discussed in Section 6;
the Preliminary Engineering Assessment Report completed by Bluechip Engineering and the results of which are considered and discussed in Section 6.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

It is noted that further studies will be required in relation to Phase 2 and form part of the proposed application of funds by the Company. Those further studies may include a bankable feasibility study for the development of the new open pit and the new processing plant ( BFS ) which the Company proposes to commence in 2013 and have completed in the first quarter of 2014.

The Company will be using its detailed understanding of the project obtained from these sources and from detailed historical records and reports held by the Company related to the site and prepared and developed both while the Company conducted operation at the site up until 1993 and in the period after 1993 in order to undertake Phase 2 of the program at the Uley site. This Phase 2 program essentially involves:

Mineral Resource (Indicated): develop the existing deposit located on the Mining Leases which are held by the Company including mining of the current Indicated Resource of 1.9 million tonnes at 10.7% average graphite grade ( Indicated Mineral Resource );
Mineral Resource (Inferred) : undertake such additional studies and wok as may be required to further assess the current Inferred Resource of 4.3 million tonnes at 5.5% average graphite grade ( Inferred Mineral Resource ); and
New 50,000 to 60,000 tonnes of Graphite Production Plant: development and construction of a new graphite processing plant adjacent to the existing plant and the Mineral Resource on the freehold land held by the Company.[1]

The Company will also pursue future exploration programs[2] as appropriate beyond the development of its existing Mineral Resource. This will involve a combination of work on the Mining Leases, Retention Leases and Exploration Licence and the identification of opportunities to add further value to the graphite which will be produced at the Uley Graphite Mine. The development of such programs forms part of the first year of operations to be conducted by the Company.

On completion of the Offers, the Board believes Strategic Graphite will have sufficient working capital to meet the use of funds as expressed in this Prospectus and to achieve the Phase 1 objectives and the planning for future exploration programs, but it is noted that the Additional Funding will be required for Phase 2 and for the conduct of future exploration programs.

3.3. Use of Funds Raised under this Prospectus

The Company’s proposed application of funds in the first 2 years following Admission is set out in the table in Section 2.12. This use of funds relates to Phase 1 and parts of Phase 2, which are discussed and assessed in the Independent Technical Report contained in Section 6 of this Prospectus. In summary:

Tenements : The Company will apply these funds to conduct a program to maintain the existing tenements with particular focus on the Exploration Licence and the surface exploration work and data studies of historical programs to delineate targets and work programs. In addition upon the expected renewal of the Retention Licences the Company will allocate a portion of the funds designated for the Tenements to work on development of the Retention Licences with the intention of converting those Tenements into mining leases to the extent and manner required for operations. Finally a portion of these funds will be applied to maintaining the existing Mining Leases and to pay the standard administrative and regulatory fees across all Tenements.
Phase 1 Processing : The Company will apply these funds in accordance with the conclusions reached in the Scoping Study as discussed in Section 6 with respect to operating the existing processing facility once it has been refurbished in line with the Phase 1 program. The amount of funds to be attributed to the physical processing of material by the Company can be adjusted with the Company able to either reduce or increase the potential rate of production of material proposed in the Phase 1 program by reference to available funds. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised. The Phase 1 program work is discussed further in section 3.2 and section 6. A portion of these funds will also be applied to relevant future development work in terms of obtaining further engineering and design for future programs planned by the Company including the projected Phase 2 operations related to the engineering and design of any new processing facility and for which the Company proposes to obtain off-take, royalty and debt finance to meet the relevant capital requirements should that program proceed.
Engineering & Metallurgy : The Company will apply these funds in accordance with the conclusions reached in the Scoping Study as discussed in Section 6 with respect to conducting the technical and physical engineering, laboratory work and construction required to refurbish and bring the existing processing facility off care and maintenance in line with the Phase 1 program. The amount of funds to be attributed to the program of physical engineering, laboratory work and construction for Phase 1 by the

1 The production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

2 The information in this Prospectus relating to exploration targets should not be considered as an estimate of Mineral Resources or Ore Reserves. Hence the terms Resource(s) or Reserve(s) have not been used in this context. The potential quantity and grade is conceptual in nature, since there has been insufficient work completed to define them beyond exploration targets and it is uncertain if further exploration will result in the determination of a Mineral Resource, in cases other than the Uley Main Road deposit identified in the Coffey Mining Limited JORC 2012 Report.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Company can be adjusted by reference to the amount of capital available to the Company which will either reduce or increase the potential rate of production of material proposed in the Phase 1 program. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised. The Phase 1 program work is discussed further section 3.2 and section 6. A portion of these funds will also be applied to relevant future development work in terms of obtaining further engineering and design for future programs planned by the Company including the projected Phase 2 operations related to the design of any new open pit and for which the Company proposes to obtain off-take, royalty and debt finance to meet the Additional Funding required should that program proceed.

Mining Related : The Company will apply these funds in accordance with the conclusions reached in the Scoping Study as discussed in section 6 with respect to moving raw material from the existing stockpiles into the existing processing facility once it has been refurbished in line with the Phase 1 program. The amount of funds to be attributed to the program of moving material by the Company can be adjusted with the Company able to either reduce or increase the potential rate of production of material proposed in the Phase 1 program by reference to available funds. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised. The Phase 1 program work is discussed further in section 3.2 and section 6. A portion of these funds will also be applied to relevant future development work in terms of obtaining further engineering and design for future programs planned by the Company including the projected Phase 2 operations related to the design of any new open pit and for which the Company proposes to obtain off-take, royalty and debt finance to meet the relevant capital requirements should that program proceed.
Costs of the Offers & the Listing : These are one-off costs incurred by the Company with respect to the program to list the Company as contemplated in this Prospectus and those costs are discussed in further detail in section 10.14.
Working Capital : The provision for working capital by the Company has been set at a level which the Company considers to be prudent for the ongoing conduct of operations in the second year following Admission and then to provide for activities to be conducted after the second year following Admission

3.4. Location

The Uley Graphite Mine is located on land owned by Strategic Graphite, located on the Eyre Peninsula in South Australia 23km westsouthwest by road from the port and rural centre of Port Lincoln. Port Lincoln is the regional centre for the Lower Eyre Peninsula.

The region is composed almost entirely of freehold and perpetual leasehold cereal cropping and livestock (primarily sheep and cattle) grazing properties. Access is via a regular network of all-weather sealed and gravel public roads. Most major roads in the region are registered double road train routes. A two lane highway connects Port Lincoln to other regional towns on the Eyre Peninsula and through to Adelaide, a total road distance of just over 600 kilometres.

Port Lincoln is the major cultural centre of southern Eyre Peninsula and has a population of about 14,000 people. It has extensive public facilities including a modern hospital and an airport that is serviced several times a day by flights to and from Adelaide. Port Lincoln has a modern deep-water port, capable of handling ships up to Panamax in size.

There are numerous smaller communities and towns on Eyre Peninsula including the regional centres of Cummins, Tumby Bay, Cowell and Cleve. All have local hospitals and various support services.

A narrow gauge railway services central Eyre Peninsula extending from Port Lincoln north through farmland and then to just west of Cleve.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

3.5. Existing Mining Licences & Other Tenements

The tenements for the Company consist of five (5) contiguous tenements, comprised of:

two (2) mining leases (MLs),
two (2) retention leases (RLs), and
one (1) exploration licence (EL).

These mining tenements are detailed in Table 3.5 below.

Table 3.5 – Uley Graphite Mine– Mining Tenements

Type of Tenement	Tenement Number	Area	Expiry / Renewal
Mining Leases	ML 5561 ML 5562	44 ha 22 ha	16 March 2017 16 March 2017
Retention Leases1	RL 66 RL 67	225 ha 187.5 ha	1 October 2011 (renewal pending) 1 October 2011 (renewal pending)
Exploration Licence	EL 4778	75 km2	12 October 2014

Application for renewal of the Retention Leases has been submitted and consistent with communications entered into with the regulator the Company expects that the Retention Leases will be renewed.

The Tenements are owned by Strategic Energy Graphite Pty Ltd ( SEG ) which is the wholly owned (100%) subsidiary of Strategic Graphite. A map of the Tenements held for the Uley Graphite Mine is found in the Independent Technical Report in section 6.

3.6. Existing Freehold Title

Strategic Graphite owns the freehold land on which it proposes to restart and expand its mining and processing operations.

The Uley Graphite Mine and the area the subject of the Mining Leases held by Strategic Graphite (as well as a portion of the area the subject of the Retention Leases held by Strategic Graphite) are the subject of freehold title to the land owned by the Company’s subsidiary SEG.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The area of land owned by the Company through its subsidiary SEG is shown in the plan from the Certificate of Title below:

– Map 3.6 Plan of Freehold Land Owned by Strategic Graphite

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Notably the freehold land covers the defined area of mining and processing operations the subject of the current Uley Graphite Mine and the JORC Mineral Resource.

The freehold title held by Strategic Graphite through its subsidiary SEG is specified in 3.6 below.

Table 3.6 – Uley Graphite Mine– Freehold Title

Type of Holding	Registration	Area
Freehold Title	Allotment 1 Plan 28872 Hundred of Uley	117 ha

Ownership of the freehold title to the land on which mining and processing operations have been conducted provides the Company with a distinct competitive advantage in terms of access and timing for project development.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

3.7. Existing Processing Plant & Site Infrastructure

The Company has previously conducted mining and processing operations at the Uley Graphite Mine. Those operations processed and exported graphite to global markets and the facility was placed on care and maintenance in 1993.

The plant and infrastructure at the Uley Graphite Mine includes:

A graphite processing facility which held a nameplate capacity of 14,000 tonnes of graphite per annum and which will be refurbished and used for graphite processing during the Company’s Phase 1 operations;
Existing site access and haul roads joining the sealed road to Port Lincoln and associated port infrastructure;
Established 22kv power lines and transformer to the processing facility and associated workshops and buildings;
Engineering workshops, CRIB rooms, laboratory buildings and administration buildings;
Established water retention ponds, tailings ponds and designated ROM and Overburden Arenas;
A standing water resource in the former open pit containing sufficient volumes of water for 90 days of processing.

This existing site infrastructure has been assessed under the terms of the completed Scoping Study and a defined program to conduct refurbishment and new engineering work on that plant and infrastructure and then to utilise these assets and recommence operations and then expand graphite processing operations has been developed and costed by the Company.

The conclusions of the Scoping Study are discussed in further detail in section 6.

3.8. Physiography & Climate

With rolling topography and coastal cliffs, the areas average maximum temperatures range from 25 - 29°C in summer to a slightly cooler 15-18°C in winter. Rainfall is about 500mm or 20 inches, which mainly falls during the winter months (June to August).

The major land use in the project area is pastoral, where the value of agricultural production varies from year to year due to climatic conditions and commodity prices. Settlements in the wider region follow the major transport routes.

These climate characteristics indicate limited likelihood of impacts on 24-7 mining production and processing operations from the local climate. These factors are discussed in further detail in the Scoping Study and the JORC 2012 Report as considered and described in section 6.

3.9. Local Personnel and Resources

Port Lincoln offers a nearby workforce and substantial engineering, procurement, trucking, electrical, training and accommodation infrastructure. The personnel who will work at the Uley Graphite Mine will live in the regional centres and will drive to work from their homes for their shifts.

These local resources substantially reduce the estimated project costs particularly in terms of operational expenditure as it mitigates the need for the investment in such resources that would be required for projects with remoter operations.

These factors are discussed in further detail in the Scoping Study and the JORC 2012 Report as considered and described in section 6.

3.10. Regional Specific Infrastructure and Services

(a) Regional Facilities & Buildings

There are historical camp facilities located at Uley. It is not proposed that these would be used for the project. Facilities within the city of Port Lincoln will be utilised for accommodation required for personnel working at the nearby Uley Graphite Mine, this will include personnel employed by Strategic Graphite and those personnel managed by contractors engaged by the company. These factors are discussed in further detail in the Scoping Study as considered and described in section 6.

(b) Electricity

The project area is connected to the National Electricity grid. At the Uley Graphite mine and processing plant electricity is supplied through the established electricity infrastructure to the site.

This proximity and connection to the established electricity network obviates the need for independent power generation requirements at the site with provision only to be made for generated power interruption supplies (either on-site generator or on-call contracted generator).

This electricity supply is discussed in further detail in the Scoping Study as considered and described in section 6.

(c) Water Supply

The city of Port Lincoln and the pastoralists operating in and around the project area utilise underground water resources for stock watering and town water supplies. The Uley Graphite Mine utilises surface water supplies present at site and provision for bore supply is underway for the project. Water supply is discussed in further detail in the Scoping Study as considered and described in section 6.

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(d) Communications

There are established and reliable fixed land-line and aerial communication networks in the project area and for the Uley site. Communications are discussed in further detail in the Scoping Study as considered and described in section 6.

(e) Roads

An established network of haul roads and sealed highways connect the project to the available port facilities and the national road and rail networks. The existing haul roads and the associated regional road infrastructure is discussed in further detail in the Scoping Study as considered and described in section 6.

(f) Air

The project area is located near one commercial airport serviced by the airlines Qantas and Regional Express. Multiple regular flights service the Port Lincoln Airport each day and the airport facility is currently undergoing upgrading and expansion. This regional infrastructure is discussed in further detail in the Scoping Study as considered and described in section 6.

(g) Ports

Flinders Ports manages the privately owned port in Port Lincoln. Port Lincoln accommodates larger vessels, however does not currently have container-loading facilities.

Port Adelaide accepts imports and exports of minerals and has an established container-loading facility.

Access to the port in Darwin to the north incorporates additional rail length; however use of this export route may be compensated by shorter marine shipping routes to potential customers in the Asia Pacific.

The relevant port infrastructure for the Uley Graphite Mine is discussed in further detail in the Scoping Study as considered and described in section 6.

(h) Area for Proposed Infrastructure

The Uley site is elevated with mild topographic relief. The project contains sufficient areas on the freehold land owned by Strategic Graphite, which have been used, and which will be suitable for infrastructure including tailings storage, spoils management and the processing plant site. These factors are discussed in further detail in the Scoping Study as considered and described in section 6.

3.11. Existing Mineral Resource

The Company has proved up an existing indicated and inferred JORC Code 2012 compliant mineral resource. This Mineral Resource is located on the Mining Leases held by the Company and is located immediately adjacent to the existing processing plant.

This Mineral Resource is intended to become Strategic Graphite’s Uley Main Road Open Pit # 1 with mining planned to commence through 2014. These plans by the Company and the Mineral Resource are discussed in further detail in the Scoping Study and the JORC 2012 Report as considered and described in section 6.

(a) Indicated Resource

The Mineral Resource statement prepared by Coffey Mining for the Company has concluded that Strategic Graphite currently holds the following indicated resource:

Table 3.11A – Uley Graphite Mine – Main Road Open Pit # 1

Resource Classification	Lower Cut-off Grade (% Graphitic Carbon)	Tonnage (Mt)	Average Grade (% Graphitic Carbon)
Indicated	3.5	1.9	10.7

(b) Inferred Resource

The Mineral Resource statement prepared by Coffey Mining for the Company has concluded that Strategic Graphite currently holds the following inferred resource:

Table 3.11B– Uley Graphite Mine – Main Road Open Pit # 1

Resource Classification	Lower Cut-off Grade (% Graphitic Carbon)	Tonnage (Mt)	Average Grade (% Graphitic Carbon)
Inferred	3.5	4.5	5.5

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3.12. Existing Stockpiled Materials

The Company undertook a round of campaign mining and established stockpiled material at the Uley Graphite Mine as late as 1993. Those stockpiles have been maintained at the site and have been further assessed during the program of work being performed by Strategic Graphite to bring the existing processing plant of care and maintenance.

Table 3.12 – Uley Main Road Graphite Deposit: Stockpiled Material

Classified Resource	applied to +80µm Crushed and Screened Material.	applied to +80µm Crushed and Screened Material.
Classification	Tonnage (t)	Average Grade (Graphitic Carbon %)
Inferred	74,454	11.42%
*Total*	74,454	11.42%

The Company proposes to process the run of mine stockpiled material through the existing processing plant after following the Phase 1 program to re-commission and restart to be conducted through 2014 which is discussed and considered in further detail in Section 6. The Company has completed the Scoping Study discussed above and considered and discussed in in Section 6. The Scoping Study has assessed the process to undertake a program from bringing the existing Uley Graphite Mine off care and maintenance through a program of refurbishment, construction and engineering including the installation of new equipment into the existing facility and that program is considered and assessed further in Section 6.

3.13. Future Graphite Prospects

Strategic Graphite also holds an extensive Exploration Licence to the south of the established Uley Graphite Mine on the Eyre Peninsula. There are three key targets which were identified and drilled during historical campaigns in the 1980s. The Company’s targets are known as the Homestead Prospect, the Fisheries Prospect and the Salt Lake Prospect. It is noted that it is common practice for a company to comment on and discuss its exploration in terms of target size and type. The information in this Prospectus relating to exploration targets should not be considered as an estimate of Mineral Resources or Ore Reserves. Hence the terms Resource(s) or Reserve(s) have not been used in this context. The potential quantity and grade is conceptual in nature, since there has been insufficient work completed to define a Mineral Resource and it is uncertain if further exploration will result in the determination of a Mineral Resource.

The exploration targets for Strategic Graphite are designated as Uley 1, 3, 4, 5 and 6 as shown in Map 3.13 below:

Map 3.13 – Other Adjacent Anomalies

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Source: Coffey Mining Pty Ltd, JORC 2012 Report

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Coffey Mining in the JORC 2012 Report provided to the Company an identified range of prioritised targets arising from historical drilling and exploration programs across the area of the Exploration Licence based on previous exploration results and the Company will further consider the priority and order for those targets.

3.14. JORC 2012 Report – Modifying Factors

The following constitutes a fair and balanced representation of the information contained in the separate JORC 2012 Report as prepared for the Company:

The Uley prospect is hosted by a suite of graphitic schists and biotite-garnet gneisses. Locally, pegmatities intrude the preserved stratigraphy. Graphite ore zones are largely stratabound, being high-grade metamorphic equivalents of carbonaceous sediments.
The current geological interpretation is based on review of previous models, datasets and reports, and site visits which suggest the graphite lenses occur within an anticlinorium. This interpretation was validated during mining production in the now depleted Uley mine.
The current dataset allows geological modelling at a more simplified level. As such an open antiform has been used to define the mineralised bodies.
All holes used in the Mineral Resource estimate were vertical HQ diamond core drill holes (63.5mm) drilled from surface, sampling moderately dipping stratabound graphite mineralised zones. Half core samples (an appropriate, industry standard technique) were obtained on geological intervals, typically 1m in length but ranging from 0.3m to 4m.
Drilling at the Uley Graphite Mine has been undertaken since 1982. Diamond drilling on an infill spacing of up to 25m X 50M was used to estimate geological and grade continuity for use in the Mineral Resource estimation (Indicated and Inferred Categories). 2m sample composites were applied during the estimation process. As all drill holes were vertical and their orientation considered appropriate for the deposit type and orientation, sampling bias relating to the orientation of sampling is considered minimal.
Assay techniques used measured total carbon, non-carbonate carbon (porcelain crucible) and non-carbonate carbon (glass crucible) which allowed the calculation of carbonate %. Assays in the database have been checked against laboratory certificates and original logs which contained assay data. No inconsistencies were identified.
Although limited, the quality control protocols implemented during historical production at Uley are considered to represent good industry practice at the time and allow some assessment of analytical precision and accuracy. The assay data is considered to display acceptable precision.
Non-carbonate carbon (%) was estimated using Ordinary Kriging (OK) utilising cut 2m composites in Vulcan mining software. Grade estimation was constrained to blocks inside the mineralisation wireframes with hard boundaries applied. Non-sampled intervals were ignored.
The deposit was domained into the following units:
High Grade (based on a 10% non-carbonate Carbon lower cut-off)
Low Grade (a broad zone of influence based on a >3% non-carbonate Carbon cut-off)
Waste (coherent regions within the low grade domain with <3% non-carbonate Carbon values)
A top cut of 45% non-carbonate Carbon was used within the High Grade domain and a top cut of 20% non-carbonate Carbon was used within the Low Grade domain. These values were determined based on statistical analysis of the composites within each domain.
A graphitic carbon cutoff of 3.5% was adopted based on a graphite product price of $1,500/t, a processing cost of $28.50/t, a coarse fraction of 60% and an overall recovery of 90%.
No assumptions were made concerning the selective mining unit size, mining dilution or any other modifying factors.

In addition the following tables of factors (and considerations expressed as Sections 1, 2 and 3) were established and provided to the Company for compliance with the JORC Code 2012 requirements for the reporting of Mineral Resources:

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Section 1 – Sampling Techniques and Data (criteria in this section apply to all succeeding sections) In this table KL refers to Ms. Karen Lloyd.

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Section 2 – Reporting on Exploration Results (criteria in this section apply to all succeeding sections)

In this table KL refers to Ms. Karen Lloyd, EM refers to Ms. Ellen Maidens.

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Section 3 – Estimation and Reporting of Mineral Resources

(criteria listed in section 1, and where relevant section 2, also apply this section)

In this table KL refers to Ms. Karen Lloyd, EM refers to Ms. Ellen Maidens and IK refers to Mr. Ingvar Kirchner.

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3.15. Flake Graphite Specifications

Historical metallurgy supported by more recent metallurgy programs conducted by Strategic Graphite have permitted the Company to identify a series of preliminary product lines for graphite capable of being produced from the Mineral Resource at Uley.

It is anticipated that the Company’s metallurgy programs and the restart of the existing processing plant will facilitate more detailed definition of a broader range of potential graphite products to be produced from future operations at Uley. The outcomes of those metallurgy programs were considered in the Scoping Study obtained by the Company and are considered and discussed in Section 6. The summary of those results as expressed in the Scoping Study and with reference to four of the graphite grades able to be obtained from the Uley Graphite Project is contained in Table 3.15 below.

Table 3.15 – Uley – Graphite Products

Mesh Size 1	+50
Mesh Size 2	+80
Mesh Size 3	+100
Mesh Size 4	-100
Mesh Size 5	-200

Source: Bluechip Engineering, Scoping Study, 2013

The Scoping Study has identified that the projected graphite product lines will permit the Company to re-enter a diverse range of graphite markets. With the flake graphite product range identified by Strategic Graphite it is anticipated that the Company will be in a position to service a range of diverse markets within Australia and in the Asia Pacific, India, North America and Europe.Those markets will range from traditional applications through to newer technologies and emerging applications for graphite. This assessment has been considered and further assessed in Section 6.

3.16. Flake Graphite Markets

(a) Introduction

There are a large number of graphite products already identified for delivery from the Uley site under the Scoping Study, details of those products are commercially confidential but high levels of purity across a range of mesh sizes have been identified by the company with a substantial portion at or exceeding 94% total graphitic carbon see Table 3.15 (above).

These factors are discussed in further detail in the Scoping Study as considered and described in Section 6.

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(b) Market Scope

There are a large number of markets and applications with sub-applications that use natural flake graphite. The Scoping Study has identified a range of diverse markets for Uley graphite. Those markets are diverse in terms of regions and they are diverse in terms of product applications and usage. This diversity has the potential to assist the Company in managing its risks of exposure to specific regional or end use factors for the graphite it proposes to sell.

The Company will supply graphite in a range of base applications including for refractories, crucibles, foundries, pencils, foils and lubricants. Strategic Graphite also intends to supply graphite grades to high tech applications ranging from batteries through to graphite foils and electronics.

These factors are discussed in further detail in the Scoping Study as considered and described in Section 6.

(c) Demand & Global Graphite Prices

Each graphite powder type has technical and morphology advantages and disadvantages that natural flake can exploit. From the analysis performed on graphite produced by Strategic Graphite it is anticipated that the Company will be able to meet a range of both traditional and specialist applications for graphite with a high quality product.

The prices paid for flake graphite are negotiated directly between the supplier company and the end user customer. Publicly published data on such pricing is therefore limited as both the seller and the buyer consider such information to be commercial-in-confidence.

The Company received the Scoping Study and in that document a process to determine the pricing applicable to the identified graphite product ranges from the Uley Graphite Mine was undertaken. These pricing factors and the process of assessment are discussed in further detail in the Scoping Study as considered and described in Section 6.

The conclusions on pricing reached in the Scoping Study are set out in Table 3.16.A below. Take note that the pricing is expressed in United States Dollars (USD$) as this is the currency in which graphite is predominantly sold.

Table 3.16.A – Scoping Study Pricing Conclusions

Source	Price Range Across all Mesh Sizes & Purities ($USD)	Weighted Average Price Across all Grades ($USD)	Measure
Uley Graphite – Main Road Open Pit	890 to 2,500	1,400	per tonne

In assessing graphite pricing as provided to it by is consultants the Company has also given consideration to published pricing data available in the general market from sources such as Industrial Minerals run and owned by Euromoney Institutional Investors PLC ( Industrial Minerals Reports ). The utility and application of the pricing available from the Industrial Minerals Reports is limited for the Company due to its European port focus and its inability to take into account the full range of graphite products already identified as potentially able to be produced from the Company’s Uley Graphite Mine.

These conclusions and assessment of pricing are discussed in further detail in the Scoping Study as considered and described in Section 6 including in the charts and tables contained in Section 6.

3.17. No Forecasts in Prospectus

Strategic Graphite is currently in a restart and development phase as outlined in this Section 3 and split into Phase 1 – Restart of Existing Plant and Phase 2 – Development of New Processing Plant & Mining Operations.

The Company has defined an indicated and inferred Mineral Resource of 6.4Mt at an average grade of 7.1% Total Graphitic Carbon. (refer to Section 3.11 for Mineral Resource breakdown) and holds existing mining leases and process infrastructure which it operated up until 1993 for the export of graphite to global markets.

Further progress to recommence mining and production of graphite is planned but has not yet progressed beyond the planning and initial stages outlined in this Prospectus. Therefore, Strategic Graphite’s immediate operational and financial historical performance is limited. It is noted that production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

The Directors believe that they do not have a reasonable basis to forecast future earnings for Strategic Graphite as development activities are subject to a number of inherently uncertain influences. Although the Company will seek to ensure that strategies are pursued to further the success of its development programmes, revenue generation cannot be reliably predicted. Accordingly, any forecast or projected financial information would contain such a broad range of potential outcomes and possibilities that it is not possible and the Company is not permitted to provide a clear estimate, forecast or prediction in this Prospectus.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Notwithstanding the above statement, to the extent that there may be matters discussed in this Prospectus that are forward-looking, such statements are predictions and actual events or results may differ materially. In addition, there are statements in this Prospectus concerning the envisaged operations of the Company following completion of the Offers. These forward-looking statements are subject to a number of risks. For a discussion of the risk factors which could cause actual events or results to differ materially from such forward-looking statements, please refer to Section 5 (Risk Factors).

3.18. Regulatory Approvals

(a) Mining Act 1971 (SA)

The Mining Act 1971 (SA) ( Act ) regulates all activities associated with mining in South Australia. The conduct of mining and processing operations under the Act is managed and regulated by the South Australian Government, Department of Manufacturing, Innovation, Trade, Resources and Energy ( DMITRE ). The Solicitor’s Report on Tenements set out in Section 8 contains a summary of the Act and how it relates to the Tenements.

Strategic Graphite holds all MLs, RLs and ELs required to conduct the proposed operations which the Company has planned and the project does not have a current identified need to hold any further tenements, including any miscellaneous purpose licence ( MPL ), as the freehold land on which the Uley mining and processing operations are located is owned by Strategic Graphite. That freehold land can and will be utilised for the purposes that might otherwise be contemplated by an MPL.

To comply with Mining Lease conditions Strategic Graphite holds an historically approved program for the mining and rehabilitation of the Uley Graphite Mine from DMITRE. The Company will be taking the existing Mining Leases and the associated plans and approvals off care and maintenance and, as required, working with DMITRE to upgrade or amend the content of such plans and approvals.

(b) Development (SA) Act 1993 (SA)

The Development Act (South Australia) 1993 (SA) provides for planning and regulates development in the State; to regulate the use and management of land and buildings, and the design and construction of buildings; to make provision for the maintenance and conservation of land and buildings where appropriate; and for other purposes. The mining and processing operations at Uley to date have and will continue to be developed under the regulations and controls applied by the Mining Act 1971 (SA).

(c) Native Title (SA) Act 1994 (SA)

The Solicitor’s Report on Tenements set out in Section 8 contains a summary of the Native Title (SA) Act 1994 (SA) and how it impacts on the Tenements.

(d) Environmental Protection Act 1993 (SA)

In summary, the Environment Protection Act 1993 ( EP Act ) provides for the protection of the environment. The EP Act is administered by the Environment Protection Authority ( EPA ).

In addition to the various conditions of lease that have been applied to the operation, Strategic Graphite also has a “general environmental duty” under the EP Act. This general duty specifies that a person must not undertake an activity that pollutes, or might pollute, the environment unless the person takes all reasonable and practicable measures to prevent or minimise any resulting environmental harm.

In determining what measures are required to be taken, consideration is being given by Strategic Graphite to:

the nature of the pollution or potential pollution, and the sensitivity of the receiving environment;
the financial implications of the various measures that might be taken as those implications relate to the class of persons undertaking activities of the same or a similar kind; and
the current state of technical knowledge and likelihood of successful application of various measures that might be taken.

Approvals, which are administered by the EPA, are required for activities, which are classified as a prescribed activity of environmental significance under Schedule 1 of the EP Act. Authorisations for prescribed activities under the EP Act take the form of a Works Approval, Licence or Exemption.

It is not anticipated that such approvals will be a significant requirement or impediment for the operations at the Uley site; a site which has seen mining and processing activity since the 1800s and farming operations before that time.

(e) Environment Protection & Biodiversity Conservation Act 1999 (Cth)

Under the provisions of the Environment Protection and Biodiversity Conservation Act 1999 (Cth) ( EPBC Act ), referral of a proposal to the Commonwealth Environment Minister is required for actions that may have a significant impact on matters of national environmental significance.

The EPBC Act identifies seven matters of national environmental significance: World Heritage properties; National Heritage places; Wetlands of international importance (Ramsar wetlands); Threatened species and ecological communities; Migratory species; Commonwealth marine areas; Nuclear actions (including uranium mining).

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

The EPBC referral is necessary to determine whether a project requires assessment and approval under the Act. When a project is referred under the EPBC Act, the Commonwealth Department of the Environment, Water, Heritage and the Arts ( DEWHA ) makes a determination regarding the status of the proposal as a “Controlled Action”, “Not a Controlled Action” or “Not Controlled Action Particular Manner”.

No EPBC Act Referral for the project has been submitted to DEWHA as assessments to date have determined that there are no potentially significant impacts on threatened flora, fauna and migratory species resulting from the limited vegetation clearance for the site.

If it is determined through later assessment that a referral would be prudent then it will be submitted that following assessment of the referral by DEWHA, the proposed action (the Uley Graphite operations) should be designated “Not a Controlled Action” and accordingly does not require further assessment by DEWHA.

(f) Natural Resources Management Act 2004

The extraction and use of groundwater and the diversion of any watercourses within the Uley Graphite Mine is governed by the Natural Resources Management Act 2004 ( NRM Act ). The NRM Act promotes sustainable and integrated management of South Australia’s natural resources and provides for their protection. The NRM Act brings together three Acts, the Animal and Plant Control (Agricultural Protection and Other Purposes) Act 1986 , the Soil Conservation and Land Care Act 1989 and the Water Resources Act 1997 and is administered by the Department of Water, Land and Biodiversity Conservation ( DWLBC ).

Groundwater is subject to responsible use requirements regulated by DWLBC. Extraction and use of groundwater from the site (as opposed to surface water requires approval (in the form of a licence and water allocation). In the case of the Uley Graphite Mine no such groundwater extraction and use is proposed with reliance being placed on a variation to the licence and allocation held by an adjacent landowner who will supply water to the Uley site via a pipeline to the extent that such water is required after use of surface water, reclaim and recycling at site.

Surface water in the area of the Uley operations would normally require permits under the NRM Act for “water affecting activities”, such as the diversion of watercourses. However, surface water diversion required for the Uley operation is assessed under the Mining Act 1971 approval process, rather than the NRM Act and will be the subject of further discussions with DWLBC and DMITRE.

(g) Native Vegetation Act 1991 (SA)

The Native Vegetation Act 1991 (SA) ( NVA ) regulates the clearance, and provides for the management of native vegetation throughout the State of South Australia. It also ensures that areas of high conservation value are protected and that minor vegetation clearance is subject to a thorough assessment process. Under the NVA, the clearance of native vegetation requires the consent of the Native Vegetation Council, which is advised by the Native Vegetation Branch of DWLBC. Heritage Agreements are also covered and protected by this Act.

For mining projects, DMITRE currently has delegation for the administration of the NVA. The existing approvals under the ML address these issues and any proposed revisions to the mine development plan for Uley will, as required, include a Native Vegetation Management Plan ( NVMP ), which will be assessed against the requirements of the NVA, including any arrangements for compensation (provision of a Significant Environmental Benefit ( SEB )).

(h) National Parks and Wildlife Act 1972 (SA)

This National Parks and Wildlife Act 1972 (SA) was designed to allow for the establishment and maintenance of a system of reserves, as well as the protection of threatened species of flora and fauna. The Act identifies and protects certain species located within conservation parks and reserves, as well as any species listed under Schedules 7, 8 and 9 of the Act. No conservation parks or reserves are located on the area of the mining and processing operations for the Uley Graphite Mine,. It is noted that there is an adjacent area to the primary mine site at Uley which contains a conservation park covering areas of EL 4778 and RL 67 but no intrusion on that area is anticipated by the mining and processing operations at the site. In future, development of areas currently the subject of the EL held by Strategic Graphite will, to the extent required, amend the MARP to a PEPR and to include any relevant details regarding potential threatened fauna species in the project area, and measures to protect them including a Native Vegetation Management Plan.

3.19. Impact of Regulations

The legislation, regulations and the relevant policies that relate to or affect the Uley Graphite Mine have been described in this Section and are also discussed in the Solicitor’s Report on Tenements in Section 8. Where applicable the Prospectus has detailed the work carried out to date and the future work required conforming to those regulatory requirements. Strategic Graphite has incorporated the costs and timing of any future requirements into their forward plans and the process of conforming to those relevant regulatory requirements should have no material impact on the outcomes for the Uley Graphite Mine.

3.20. Independent Technical Report

Investors are referred to the Independent Technical Report in Section 6 of this Prospectus for a more detailed overview of the Company’s projects.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

4. DIRECTORS AND CORPORATE GOVERNANCE

4.1. Directors’ Experience

The Company’s Board of Directors has extensive experience in the exploration, development and operation of mines, marketing and finance and is well placed to implement the Company’s strategies and achieve the Company’s financial objectives. The Directors also have a broad overall skill base in relation to acquisitions, mergers and investments which they will apply in assessing direct and indirect investment activities for the Company. The Directors’ global network of contacts will also provide further opportunities to develop the Company’s investment portfolio.

All Directors will be involved in the investment process and will provide such time as reasonably necessary to enable adequate review of operations generally and investment decisions in particular.

4.2. Director and Senior Management Profiles

The following Directors and Senior Management will continue with the Company after its admission to the Official List:

Graham Spurling – Non Executive Chairman

Mr Spurling is a qualified mechanical engineer and the former Managing Director and Chief Executive Officer of Mitsubishi Motors Australia. He has significant knowledge of both the foundry and battery industries directly relevant to graphite and a deep understanding and experience in global markets and with delivering productivity in manufacturing.

Christopher Darby – Managing Director and Chief Executive Officer

Mr Darby joined the Company in September 2013 and is the Managing Director and CEO. He is a globally experienced director particularly with governance, finance and strategic development of emerging mining, energy and infrastructure companies and projects. He holds Bachelor’s Degrees in Arts (Anthropology & International Politics) and Law, as well as postgraduate qualifications from the University of Sydney, Graduate School of Business (GAICD) and from the Australian Graduate School of Management (AGSM), University of New South Wales & University of Sydney (GDM(Exec)).

He has worked on and advised boards of public and private companies for over 19 years in the Asia Pacific, North America and Africa. He has extensive commercial, management, governance and operations experience with companies engaged in hard rock, oil, gas, energy, manufacturing, international procurement, engineering, industrial minerals and construction operations.

Mr Darby has current global graphite mining, processing and markets experience as an Executive Director and Founder of the Tech Minerals Consulting Group, as Managing Director (Asia Pacific) for Mega Graphite (Australia), including on the Uley Graphite Mine, as CEO of Australian Graphite Limited and as General Counsel (Global) for MEGA Graphite Inc. He is the author of published articles and papers on project delivery and he frequently presents at conferences on mining, project delivery, finance and management

Glenister Lamont – Non-Executive Director

Mr Lamont is a professional non-executive Director. Recent roles include Managing Director and consultant for a range of resource companies. Previously, as a GM with Ashton Mining, he led strategy and commercial implementation of business development initiatives and managed all aspects of investor and corporate affairs. Prior to that, as an Executive Director at the leading European investment bank UBS Warburg, he conducted financial, technical and strategic evaluation of mining companies and participated in a wide range of corporate transactions. He has international mining experience in base metals, gold, coal and other commodities that has included experience as a mining engineer with Preussag in Germany as well as a rock mechanics engineer and mining engineer in South Africa for Goldfields of South Africa.

Ian Schache – Non Executive Director

Mr Schache has over 40 years’ experience across a diverse range of development, operations and production activities in the mining industry. He is a Director of New South Resources Limited and was previously Executive General Manager for Bemax Resources Ltd, Senior VP and COO for Tiomin Resources Inc. and Executive General Manager Operations for Westralian Sands/Iluka Resources Ltd. Prior experience includes 16 years in engineering and management with Mount Isa Mines Ltd.

David J Salari – Chief Operating Officer

Mr Salari is a highly capable metallurgical engineer with more than 30 years mining and mineral processing experience including engineering and manufacturing graphite processing plant and equipment. Recognised for his ability to achieve timely delivery of solutions that increase production and sales in the industrial minerals space. He is currently a Director and Principal engineer of D.E.N.M. Engineering and has a detailed knowledge and understanding of the Uley Graphite Mine and facilities gained over the last two years.

Jarek Kopias – Company Secretary & Chief Financial Officer

Mr Kopias joined Strategic Graphite in September 2013 and is the Company Secretary and Chief Financial Officer. He is a Certified Practicing Accountant and Chartered Secretary with over 15 years’ experience in a wide range of financial and secretarial roles in the mining and resources industry.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Mr Kopias has worked in numerous financial roles for public and private companies, specialising in the resource sector (including 5 years at WMC’s Olympic Dam operations), 5 years at Newmont Mining Corporation (Australia’s corporate office) and 5 years at oil and gas producer and explorer Stuart Petroleum Limited (prior to its merger with Senex Energy Limited).

He is currently the CFO and Company Secretary of Lincoln Minerals Limited (ASX: LML), Core Exploration Limited (ASX: CXO) and Crest Minerals Limited (ASX: CTT) (of which he is also a Director), and has previously been Company Secretary of Stuart Petroleum Limited (formerly ASX: STU) prior to its merger with Senex Energy Limited (ASX: SXY) and CFO and Company Secretary of AO Energy Limited (ASX: AOM).

4.3. Remuneration of Directors

The Remuneration of the Directors is set out in the table below:

Table 4.3- Remuneration of Directors

Director	Role	Remuneration (per annum)	Performance Options	Performance Rights
Mr Graham Spurling	Chairman	$75,000	500,000	Nil
Mr Christopher Darby	Managing Director & CEO	$260,000	2,000,000	2,750,000
Mr Glenister Lamont	Non-Executive Director	$50,000	500,000	Nil
Mr Ian Schache	Non-Executive Director	$50,000	500,000	Nil

See Section 4.4, 10.15 and 10.17 for further details, including the vesting conditions of the Performance Rights and Options. The Performance Rights and Options will be subject to Shareholder approval at the 2013 AGM.

4.4. Engagement of Managing Director & CEO

Strategic Graphite has entered into an executive service agreement with Crallan Pty Ltd as trustee of the Van Wyk Trust pursuant to which Mr Darby performs the role, functions and responsibilities of Managing Director & CEO, effective from 16 September 2013, for the payment of a base salary of $260,000 per annum (inclusive of all government mandated superannuation). The fees payable under the agreement for the engagement of the Managing Director & CEO will be reviewed on 1 July 2014 and annually. Mr Darby will not currently be paid a separate director's fee for serving on the Board. Subject to shareholder approval at the 2013 AGM, Mr Darby will also be entitled to receive 2,750,000 Performance Rights and 2,000,000 Options (refer to Section 10.15 for more details).

Either party may terminate the engagement by the summary notice upon limited events akin to breach (without rectification within 40 business days of notice, where the breach is capable of rectification) or insolvency. Additionally, Strategic Graphite may terminate the agreement without cause upon 12 months written notice.

4.5. Corporate Governance

The Company has adopted a Corporate Governance statement which is available on the Company’s website at www.valenceindustries.com.

The primary responsibility of the Board is to represent and advance Shareholders' interests and to protect the interests of all stakeholders. To fulfil this role the Board is responsible for Strategic Graphite’s overall corporate governance including our strategic direction, establishing goals for management and monitoring the achievement of these goals.

The responsibilities of the Board include:

Protection and enhancement of Shareholder value;
Formulation, review and approval of our objectives and strategic direction;
Approving all significant business transactions including acquisitions, divestments and capital expenditure;
Monitoring our financial performance by reviewing and approving budgets and monitoring results;
Ensuring that adequate internal control systems and procedures exist and that compliance with these systems and procedures is maintained;
The identification of significant business risks and ensuring that such risks are adequately managed;
The review and performance and remuneration of executive directors and key staff;
The establishment and maintenance of appropriate ethical standards; and
Evaluating and, adopting, as appropriate, the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

To the extent applicable, in light of Strategic Graphite’s size and nature, Strategic Graphite has adopted The Corporate Governance Principles and Recommendations (2nd Edition) as published by ASX Corporate Governance Council (Recommendations). Such policies include, but are not limited to, the Board Charter, Code of Conduct, Disclosure Policy, Trading Policy, Risk Management Policy and Diversity Policy. Copies of Strategic Graphite’s corporate governance policies will be available on Strategic Graphite’s website at www.valenceindustries.com.

The Board also recognises its duty to ensure that its Shareholders and other stakeholders are informed of all major developments affecting Strategic Graphite’s state of affairs.

As our activities develop in size, nature and scope the implementation of additional corporate governance structures will be given further consideration.

Following admission to the Official List of ASX, Strategic Graphite will be required to report any departures from the Recommendations in its annual financial report.

Strategic Graphite’s compliance and departures from the Recommendations as at the date of this Prospectus are set out on the following table:

ASX Principles & Recommendations	Comment
Principle 1 - Lay Solid Foundations for Management and Oversight. Companies should establish and disclose the respective
roles and responsibilities of Board and management.
Recommendation 1.1:	Strategic Graphite’s Corporate Governance Plan includes a Board Charter, which
Companies should establish the functions	discloses the specific responsibilities of the Board and those delegated to senior
reserved to the Board and those delegated to	executives.
senior executives and disclose those functions.
	The Board currently delegates responsibility for the day!to!day operations and
	administration of Strategic Graphite to the Managing Director / Chief Executive
	Officer.
Recommendation 1.2:	Strategic Graphite’s Corporate Governance Plan includes a Section on
Companies should disclose the process for	performance evaluation practices adopted by Strategic Graphite.
evaluating the performance of senior executives.	The chair will monitor the Board and the Board will monitor the performance of any
	senior executives who are not directors, including measuring actual performance
	against planned performance.
Recommendation 1.3:	Explanation of departures from Principles and Recommendations 1.1 and 1.2 (if
Companies should provide the information	any) are set out above.
indicated in the Guide to reporting on Principle 1.	Strategic Graphite will also explain any departures from Principles and
	Recommendations 1.1 and 1.2 (if any) in its future annual reports.
	No performance evaluation of senior executives has taken place to date as this
	process is conducted annually and the current board and management have been
	appointed in September 2013.
	Future annual reports will disclose whether such a performance evaluation has
	taken place in the relevant reporting period and whether it was in accordance with
	the process disclosed.
	The Corporate Governance Plan, which includes the Board Charter, is posted on
	the Company’s website www.valenceindustries.com.

Principle 2 - Structure the Board to Add Value.	Companies should have a Board of an effective composition, size and
commitment to adequately discharge its responsibilities and duties.
Recommendation 2.1:	Two of the four Directors of the Company are independent Directors.
A majority of the board should be independent directors.	Strategic Graphite’s Corporate Governance Plan outlines that the majority of the
	Board will be comprised of non!executive directors, and where practical at least
	50% of the Board will be independent.
	The current Board comprises a Director/Chief Executive Officer and three non!
	executive directors. Two of the three directors are independent and Glenister
	Lamont is a director of SER. SER currently holds 18.91% of the Shares in Strategic
	Graphite prior to the Rights Issue.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

ASX Principles & Recommendations	Comment
Recommendation 2.2:	The Chairman is an independent director.
The Chair should be an independent Director	The Board considers that Graham Spurling is the most appropriate candidate for
	the position of Chairman of the Board in light of his capability and experience as
	detailed in this Prospectus. He is independent of the management of the company
	and is likely to exercise unfettered and independent judgement. He has the
	experience, background and skills required by the Board and those skills are
	complementary to the other members of the Board. Mr Spurling also provides
	personal qualities that will promote the critical and objective review of the
	company’s performance as well as an expression of opinions which is balanced and
	committed. The company is considered to be a medium sized business, without the
	capacity to appoint additional independent Directors.
Recommendation 2.3:	The role of Chair and CEO are separate.
The roles of chair and chief executive officer should not be exercised by the same individual.	The Board considers that Christopher S. Darby is the most suitable candidate to act as CEO of Strategic Graphite in light of his 20 years of experience in the mining and
	resources industry, and his full capability as expressed in this Prospectus. Mr
	Darby also brings a depth of experience and knowledge around the delivery of
	complex multinational projects and the process of entry into global markets and
	international trade in resources with a particular expertise in industrial minerals
	including graphite. He has also had significant experience in the areas of corporate
	finance, capital and debt facilities and the conduct of mergers, acquisitions and joint
	ventures. He has managed and participated in transactions involving a significant
	range of ASX listed companies as well as a number of participants in the Australian
	and Canadian graphite sectors.
Recommendation 2.4:	The Board has not established a separate nomination committee as it is not
The board should establish a nomination	considered appropriate at this time due to the size of the Company. The Board as a
committee.	whole performs the functions of a nomination committee.
	Where necessary, the Board seeks advice of external advisers in connection with
	the suitability of Applicants for Board membership.
Recommendation 2.5:	Until a formal nomination committee is established, the chair will review the
Companies should disclose the process for	performance of the Board, its committees (if any) and individual directors to ensure
evaluating the performance of the board, its	that Strategic Graphite continues to have a mix of skills and experience necessary
committees and individual directors.	for the conduct of its activities.
Recommendation 2.6:	Strategic Graphite has provided details of each director, such as their skills,
Companies should provide the information	experience and expertise relevant to their position in this Prospectus and will also
indicated in the Guide to reporting on Principle 2.	provide these details on its website and in future annual reports.
	Explanation of departures from Principles and Recommendations 2.1, 2.2, 2.3, 2.4
	and 2.5 (if any) are set out above. Strategic Graphite will also explain any
	departures from Principles and Recommendations 2.1, 2.2, 2.3, 2.4 and 2.5 (if any)
	in its future annual reports.
	No performance evaluation of the Board, its committees and individual directors has
	taken place to date as this process is conducted annually and the current board and
	management have been appointed in September 2013. Future annual reports will
	disclose whether such a performance evaluation has taken place in the relevant
	reporting period and whether it was in accordance with the process disclosed.
	The Corporate Governance Plan, which includes the Nomination Committee
	Charter, is posted on the Company’s website www.valenceindustries.com.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

ASX Principles & Recommendations	Comment
Principle 3 - Promote Ethical and Responsible Decisions Making. Companies should actively promote ethical and responsible
decision-making.
Recommendation 3.1:	Strategic Graphite’s Corporate Governance Plan includes a ‘Corporate Code of
Companies should establish a code of conduct	Conduct’, which provides a framework for decisions and actions in relation to ethical
and disclose the code or a summary of the code	conduct in employment.
as to:
• the practices necessary to maintain confidence in the company’s integrity	The Corporate Governance Plan, which includes the Corporate Code of Conduct’, is posted on the Company’s website www.valenceindustries.com.
• the practices necessary to take into account
their legal obligations and the reasonable
expectations of their stakeholders
• the responsibility and accountability of
individuals for reporting and investigating
reports of unethical practices.
Recommendation 3.2:	Strategic Graphite’s Corporate Governance Plan includes a ‘Diversity Policy’, which
Companies should establish a policy concerning	provides a framework for establishing measureable objectives for achieving gender
diversity and disclose the policy or a summary of	diversity and for the Board to assess annually both the objectives and progress in
that policy. The policy should include requirements for the board to establish	achieving them.
measureable objectives for achieving gender
diversity and for the board to assess annually both
the objectives and progress in achieving them.
Recommendation 3.3:	This disclosure has not yet been made as the Company has not been listed since
Companies should disclose in each annual report	the gender diversity changes came into place. Future annual reports will disclose
the measureable objectives for achieving gender	the measureable objectives for achieving gender diversity set by the board in
diversity set by the board in accordance with the	accordance with the diversity policy and progress in achieving them.
diversity policyandprogress in achievingthem.
Recommendation 3.4:	This disclosure has not yet been made as the Company has not been listed since
Companies should disclose in each annual report	the gender diversity changes came into place. Future annual reports will disclose
the proportion of women employees in the whole	the proportion of women employees in the whole organisation, women in senior
organisation, women in senior executive positions	executive positions and women on the board.
and women on the board.
Recommendation 3.5:	Explanation of departures from Principles and Recommendations 3.1, 3.2, 3.3 and
Companies should provide the information	3.4 (if any) are set out above. Strategic Graphite will also explain any departures
indicated in the Guide to reporting on Principle 3.	from Principles and Recommendations 3.1, 3.2, 3.3 and 3.4 (if any) in its future
	annual reports.
Principle 4 - Safeguard Integrity in Financial Reporting. Companies should have a structure to independently verify and
safeguard the integrity of their financial reporting.
Recommendation 4.1:	The Board has established an audit committee. The charter of the committee is
The board should establish an audit committee.	included in the Company’s Corporate Governance Charter.
Recommendation 4.2	The audit committee consists of three non-executive Directors, a majority of who
The audit committee should be structured so that it:	are independent Directors. The chair of the audit committee is Glenister Lamont
• consists only of Non-Executive Directors;	and is not an independent Director, though he is not the chair of the Board. Glenister’s experience as a non-executive Director provides him with the skills and
• consists of a majority of Independent Directors;	experience to chair the committee. The other members of the audit committee are
	Graham Spurling and Ian Schache.
• is chaired by an independent chair, who is not
chair of the board;
• has at least three members.
Recommendation 4.3:	Strategic Graphite’s Corporate Governance Plan includes an Audit and Risk
The audit committee should have a formal charter.	Committee Charter, which discloses its specific responsibilities.
Recommendation 4.4:	Explanation of departures from Principles and Recommendations 4.1, 4.2 and 4.3
Companies should provide the information	(if any) are set out above. Strategic Graphite will also explain any departures from
indicated in the Guide to reportingon Principle 4.	Principles and Recommendations 4.1, 4.2 and 4.3 (if any) in its future annual

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

ASX Principles & Recommendations Comment

	reports.
Principle 5 - Make Timely and Balanced Disclosure. Companies should promote timely and balanced disclosure of all material
matters concerning the company.
Recommendation 5.1:	Strategic Graphite has a continuous disclosure program in place designed to
Companies should establish written policies	ensure the compliance with the ASX Listing Rule disclosure requirements and to
designed to ensure compliance with the ASX	ensure accountability at a senior executive level for compliance and factual
Listing Rule disclosure requirements, as well as ensuring accountability at a Senior Executive level	presentation of Strategic Graphite’s financial position.
for that compliance and disclose those policies or
a summaryof thosepolicies.
Recommendation 5.2:	Strategic Graphite has not currently departed from Principle and Recommendation
Companies should provide the information	5.1. Strategic Graphite will provide an explanation of any departures from Principle
indicated in the Guide to Reporting on Principle 5.	and Recommendation 5.1 (if any) in its future annual reports.
	The Corporate Governance Plan, which includes a continuous disclosure program,
	is posted on Strategic Graphite’s website www.valenceindustries.com.
Principle 6 - Respect the Rights of Shareholders.	Companies should respect the rights of shareholders and facilitate the
effective exercise of those rights.
Recommendation 6.1:	Strategic Graphite’s Corporate Governance Plan includes a shareholders
Companies should design a communications	communication strategy, which aims to ensure that the shareholders are informed of
policy for promoting effective communication with	all major developments affecting Strategic Graphite’s state of affairs.
shareholders and encouraging their participation
at general meetings and disclose their policy or a
summaryof thatpolicy.
Recommendation 6.2:	Strategic Graphite has not currently departed from Principle and Recommendation
Companies should provide the information	6.1. Strategic Graphite will provide an explanation of any departures from Principle
indicated in the Guide to reporting on Principle 6.	and Recommendation 6.1 (if any) in its future annual reports.
	The Corporate Governance Plan, which includes a shareholders communication
	strategy, will be posted on Strategic Graphite’s website www.valenceindustries.com.
Principle 7 - Recognise and Manage Risks. Companies should establish a sound system of risk oversight and management
and internal control.
Recommendation 7.1:	Strategic Graphite’s Corporate Governance Plan includes a risk management
Companies should establish policies for the	policy.
oversight and management of material business risks and disclose a summary of those policies.	The Board determines Strategic Graphite’s “risk profile” and is responsible for overseeing and approving risk management strategy and policies, internal
	compliance and internal control.
Recommendation 7.2:	Strategic Graphite’s Corporate Governance Plan includes a risk management
The board should require management to design	policy.
and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those	The Board will require either the Chief Executive Officer or the Chief Financial Officer to provide a report at the relevant time.
risks are being managed effectively. The board
should disclose that management has reported to
it as to the effectiveness of the company’s
management of its material business risks.
Recommendation 7.3	The Board will seek this relevant assurance from the Chief Executive Officer and
The board should disclose whether it has received	Chief Financial Officer at the relevant time.
assurance from the Chief Executive Officer (or
equivalent) and the Chief Financial Officer (or
equivalent) that the declaration provided in
accordance with Section 295A of the Corporations
Act is founded on a sound system of risk
management and internal control and that the
system is operating effectively in all material
respects in relation to financial reportingrisks.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

ASX Principles & Recommendations		Comment
Recommendation 7.4:		Strategic Graphite has not currently departed from Principles and
Companies should provide the information		Recommendations 7.1, 7.2 and 7.3. Strategic Graphite will provide an explanation
indicated in Guide to Reporting on Principle 7.		of any departures from Principles and Recommendations 7.1, 7.2 and 7.3 (if any) in
		its future annual reports.
		The Corporate Governance Plan, which includes a risk management policy, is
		posted on Strategic Graphite’s website www.valenceindustries.com.
Principle 8 - Remunerate Fairly and Responsibly.		Companies should ensure that the level and composition of remuneration is
sufficient and reasonable and that its relationship		to performance is clear.
Recommendation 8.1:	The Directors do not view that the size of Strategic Graphite currently warrants a
The board should establish a remuneration	separate remuneration committee. The Board will decide on remuneration, and in the
committee.	instance where this is of a Board member, that member will not be included in
	discussions and be excluded from voting.
Recommendation 8.2:	Although no formal remuneration committee has been established, the Board currently
The remuneration committee should be	serves as the remuneration committee. The current Board comprises a Chief
structured so that it:	Executive Officer and three Non!executive Directors.
• consists of a majority of independent directors	Further, the Board does not consider that Strategic Graphite is of sufficient size to
	justify the appointment of additional directors for the sole purpose of satisfying this
• is chaired by an independent director	recommendation, as it would be cost prohibitive and counterproductive.
• has at least three members.
Recommendation 8.3:	The Board has distinguished the structure of Non-executive Directors remuneration
Companies should clearly distinguish the	from that of Executive Directors and Senior Executives. Strategic Graphite’s
structure of non!executive directors’	constitution provides that the remuneration of Non-executive Directors will be not be
remuneration from that of executive directors	more than the aggregate fixed sum set by the constitution and subsequently varied by
and senior executives.	resolution at a general meeting of shareholders.
	The Board is responsible for determining the remuneration of Executive Directors and
	Senior Executives (without the participation of the affected director). It is the Board’s
	objective to provide maximum stakeholder benefit from the retention of a high quality
	Board and executive team by remunerating Executive Directors and Senior Executives
	fairly and appropriately with reference to relevant employment market conditions and
	by	linking the nature and amount of Executive Directors’ and Senior Executives
	emoluments to Strategic Graphite’s financial and operational performance.
Recommendation 8.4:	Explanation of departures from Principles and Recommendations 8.1, 8.2 and 8.3 (if
Companies should provide the information	any) are set out above. Strategic Graphite will also provide an explanation of any
indicated in the Guide to reporting on Principle	departures from Principles and Recommendations 8.1, 8.2 and 8.3 (if any) in its future
8.	annual reports.
	The Corporate Governance Plan, which includes the Remuneration Committee
	Charter, is posted on Strategic Graphite’s website www.valenceindustries.com.

4.6. Continuous Disclosure Obligations

Following admission of Strategic Graphite to the Official List, Strategic Graphite will be a “disclosing entity” (as defined in Section 111AC of the Corporations Act) and, as such, will be subject to regular reporting and disclosure obligations. Specifically, like all listed companies, Strategic Graphite will be required to continuously disclose any information it has to the market which a reasonable person would expect to have a material effect on the price or the value of Strategic Graphite’s securities.

Price sensitive information will be publicly released through ASX before it is disclosed to shareholders and market participants. Distribution of other information to shareholders and market participants will also be managed through disclosure to the ASX. In addition, Strategic Graphite will post this information on its website (www.valenceindustries.com) after the ASX confirms an announcement has been made, with the aim of making the information readily accessible to the widest audience.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

4.7. Competent Persons Statements

The information in this Prospectus which relates to the 2013 Indicated and Inferred Mineral Resource compiled in accordance with the JORC Code 2012 is based on information supplied by Ms. Karen Lloyd, Mr. Ingvar Kirchner and Ms. Ellen Maidens (none of whom are employed by the Company).

Ms Lloyd is employed by Jorvik. Ms Lloyd is the Managing Director and Principal Geologist at Jorvik. Ms Lloyd is a member of the Australasian Institute of Mining and Metallurgy. Jorvik is a consultant to the Company.

Mr. Ingvar Kirchner and Ms. Ellen Maidens are employed by Coffey Mining Pty Ltd. Mr. Ingvar Kirchner is Manager – Resource Geology and Ms. Ellen Maidens is Resource Geologist, Perth at Coffey Mining Pty Ltd. Coffey Mining Pty Ltd is a consultant to the Company. Mr Kirchner is a Fellow of Australasian Institute of Mining and Metallurgy and a member of the Australian Institute of Geoscientists. Mr Maidens is a member of the Australian Institute of Geologists.

Ms Lloyd Mr Ingvar Kirchner and Ms. Ellen Maidens each have sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration and to the activity, which they are undertaking to qualify as a Competent Person as defined in the 2012 edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code 2012).

Each of Ms Lloyd Mr Ingvar Kirchner and Ms. Ellen Maidens consent to the inclusion of information in this Prospectus, based on their respective information in the form and context in which it appears.

Assumptions on the metallurgical factors and the mining factors as relate to the 2013 resource documentation have been provided by Mr Chris Campbell-Hicks and Mr Harry Warries respectively. Mr Chris Campbell-Hicks and Mr Harry Warries are employees of Coffey Mining Pty Ltd.

4.8. ASIC & ASX Relief

Spread requirements

The Company has sought in principle advice from ASX as to whether it will waive the spread requirements under Condition 7 of Listing Rule 1.1, such that Shares held by existing shareholders will not be excluded from the spread required. ASX has provided in principle advice that it would likely grant a waiver if sought by the Company, to permit the Company to include up to 150 existing shareholders (excluding related parties and promoters of the Company) who hold a parcel of ordinary shares with a value of at least $2,000 shares by reason of the previous in specie distribution of shares held by SER in the calculation of the spread on the condition that

(a) there are no fewer than 150 investors subscribing for ordinary shares with a value of at least $2,000 under the Offers; and
(b) the Company raises at least $1,000,000 under the Offers. The Company will seek this waiver, if required, following close of the Offers. It is noted that this waiver will not be required if the acceptances under the Offers meet the spread requirements in Condition 7 of Listing Rule 1.1.

The Company has not sought any ASIC modifications or relief in connection with this Prospectus, but has relied on ASIC Class Order 00/44 in relation to electronic prospectuses, and ASIC Class Order 13/523 in relation to quoting statements without consent. Further details in relation to this are set out below.

Electronic Prospectus

Pursuant to ASIC Class Order 00/44 ASIC has exempted compliance with certain provisions of the Corporations Act to allow distribution of an electronic prospectus and electronic application form on the basis of a printed prospectus lodged with ASIC, subject to compliance with certain conditions.

If you have received this Prospectus as an electronic prospectus, please ensure that you have received the entire Prospectus accompanied by the Application Forms. If you have not, please email the Company at [email protected] and the Company will send you, free of change, either a printed copy or a further electronic copy of the Prospectus or both. Alternatively, you may obtain a copy of the Prospectus from the Company’s website at www.valenceindustries.com.

The Company reserves the right not to accept an Application Form from a person if it has reason to believe that when the person was given access to the electronic Application Form, it was not provided together with the electronic Prospectus and any relevant supplementary or replacement prospectus or any of those documents were incomplete or altered.

Consent to Quote

Pursuant to ASIC Class Order 13/523 ASIC has given relief to allow a statement to be included in a prospectus without obtaining consent if it cites or is based on statements by an official person, contained in a public official document or is already published in a book, journal or comparable publication. Accordingly the Company has not sought consents statements in this Prospectus that come within this Class Order.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

5. RISK FACTORS

5.1. Risk Factors

An investment in the Company should be considered to be a speculative investment because of the nature of the Company’s business and activities.

Investors should recognise there are a number of general and specific risks that the Company faces, which may materially and adversely impact the future operating and financial performance of the Company and the value of its Securities. As many of these risks are outside the control of the Company and/or its Directors, there can be no guarantee that the Company can achieve its objectives.

Prospective investors should read this Prospectus in its entirety and carefully consider the risk factors impacting on the Company as well as their own investment objectives and their financial position prior to making a decision to invest in Shares. Any Applicant should realise that their investment may become subject to those risks in due course. As a consequence of those risks any company’s share price may rise or fall. If prospective investors are uncertain of matters detailed in this Prospectus and/or their financial circumstances in respect of investing in the Company, they should take appropriate advice from their stockbrokers, solicitors, accountants or other professional advisers.

The following is not intended to be an exhaustive list of the risk factors to which the Company is exposed.

5.2. Company specific risks

(a) Construction & Operational Cost Risk

The capital expenditure required to develop the Uley Graphite Mine may differ from the Company’s expectations as set out in section 1.2 (Company Overview).

In addition, actual operating costs may differ from current estimates and the operating costs for mining and for processing have only been determined on a conceptual basis to date.

Variations in capital or operating expenditure may result in material impacts on the profitability of the Company’s projects.

(b) Future funding

Whilst the Company anticipates that it will be able to generate cash flow from processing of existing stockpiles and then from production in the fourth quarter of 2014, no guarantee or assurance can be given that the Uley Graphite Mine will generate cashflow, or be able to generate appropriate cashflow to fund itself. This would be dependent on many factors, including the building of infrastructure and commissioning and operational performance, as well as the ability to secure sales for graphite produced. Until the Company is able to generate cash flow to support itself, the Company will be dependent on being able to obtain future equity or debt funding to support its operations, after the expenditure of the net proceeds raised under the Offers.

The Company will require Additional Funding of approximately $34 million in order to commence full scale mining operations and to complete construction of the new 50,000 tonnes per annum graphite processing plant in 2014. Based on previous expressions of interest received, Strategic Graphite expects to be able to obtain the Additional Funding by way of off-take contract factoring finance, royalty finance and/or straight debt finance and from cash flows from successful production and marketing of graphite. However, this no guarantee of this. The planned plant expansion and Phase 2 will be delayed or may not occur if the Additional Funding is not available on acceptable terms or at all.

Neither the Company nor any of the Directors or any other party can provide any guarantee or assurance that if further funding is required, such funding will be raised on terms acceptable to the Company. Any additional equity funding will dilute existing Shareholders. Any debt facility may need to be secured by the Company’s assets, including those constituting the Uley Graphite Mine.

Strategic Graphite has a defined Mineral Resource and existing stockpiles of material but the company has not restarted production from its existing facilities. Revenues or profits for Strategic Graphite depend on the performance of that plant and the availability of investor funds. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

If, and until, Strategic Graphite obtains the planned debt finance (offtake contract factoring finance, royalty finance or straight debt finance) or the company generates cash flows from successful production and marketing of graphite, or acquires revenue producing assets, or sells or divests any of its assets (in whole or in part) no assurance can be given that future funding (if required, for further activities) will be made available on acceptable terms (if at all).

(c) Infrastructure Risk

There is no guarantee that suitable and affordable electricity, water, rail and port capacity will continue to be available to commercially mine, process or export graphite from the existing or new facilities at the Uley site.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

(d) Graphite Quality Risk

Actual graphite qualities produced during the life of the project may vary from those expected currently, which are based on sampling, drilling and metallurgy to date. If this occurs then the ability to sell the graphite may vary and the price at which it may be sold can also change.

(e) Graphite and Currency Price Volatility

Graphite prices are subject to influencing factors beyond the control of the Company and can be subject to significant fluctuations. Some of these influencing factors include:

the level of production costs in major graphite producing regions;
expectations regarding inflation, interest rates and US dollar exchange rates;
supply and demand fluctuations for graphite;
changes in investor sentiment toward graphite;
speculative trading;
technological advancements;
forward selling activities; and
macro-economic factors such as inflation and interest rates.

Substantial changes to graphite markets, graphite prices and other macroeconomic factors including foreign exchange rates, could have an adverse impact on the commercial viability the Company’s proposed operations. Those factors have the potential to negatively impact the ability of Strategic Graphite to pursue its defined program (if at all).

Graphite prices are denominated in US $ currency. Fluctuations in exchange rate between US$ and AUD$ will impact on the certainty of Australian dollar cash receipts from potential product sales. This may result in higher or lower Australian Dollar cash receipts upon currency conversion than is currently forecast.

(f) Operational Risk

The Company’s projects are exposed to material operating risks including the potential risk of sub-standard graphite qualities, mining and processing technical difficulties encountered in commissioning and operating plant and equipment, mechanical failure as well as the potential for industrial and environmental accidents.

Each of these elements have been considered in the Scoping Study and an approach has been identified by Strategic Graphite but there remains no certainty that the Company will obtain the necessary ongoing access to that infrastructure and other project requirements. If that occurs the cost and the timeline for the delivery of any program will be affected or may not be capable of being delivered at all.

(g) Political and Regulatory

The possibility exists that new legislation and/or new regulations may be adopted that adversely affect Strategic Graphite’s current and proposed mining operations, cost structure and/or the ability of its customers to purchase or use graphite.

The sale of graphite is particularly dependent on export markets and there is the potential that the ability to import graphite into a country for a customer could be limited by regulatory or governmental intervention.

(h) History

Strategic Graphite has a current operating history and historical financial performance but that history and performance relates to operations placed on care and maintenance in 1993.

Mining, production, processing, exploration and export of graphite has previously been conducted on the land owned by Strategic Graphite and the subject of the Tenements (including to define the existing Mineral Resource) since the late 1800’s. However, Strategic Graphite is yet to recommence the conduct of those activities and will not conduct these activities until it has been admitted to the Official List.

No assurance can be given that Strategic Graphite will achieve commercial viability through any of Strategic Graphite’s projects. Until Strategic Graphite is able to realise value from the Uley Graphite Mine, it is likely to incur ongoing operating losses.

(i) Historical Agreements

The Company has received advice in relation to historical agreements entered into by the Company and/or its subsidiaries. These Agreements are described in further detail in Section 9.2. Except as expressed in Section 9.2 the Company has formed the view that all historical agreements have expired or have been superseded by subsequent events, but there is a risk that it may be necessary for Strategic Graphite to seek or defend legal remedies including through a court action in relation to this. Legal action can be costly and

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there can be no guarantee that a legal remedy would be ultimately granted to Strategic Graphite on the appropriate terms (if at all). Further, it is possible that a court may form a different view than the Company in relation to the historical agreements, which could impact on the Company’s rights and liabilities, including in relation to its Tenements.

(j) Tenements and Contractual Risk

Strategic Graphite intends to enter into a number of agreements relating to the development of its existing assets and the Mineral Resource on the land owned by the Company.

The ability of Strategic Graphite to achieve its objectives will depend on the performance by counter parties and their obligations under those agreements. If a counter party defaults in performance of its obligations or wishes to enforce its rights, it may be necessary for Strategic Graphite to seek or defend legal remedies including through a court action.

Legal action can be costly and there can be no guarantee that a legal remedy would be ultimately granted to Strategic Graphite on the appropriate terms (if at all).

(k) Directors and Management

The Company is dependent on a small and skilled team to undertake the business of the Company. The current board and management team have specialist graphite, mining and processing personnel and might not be able to replace them with persons of equivalent expertise and experience. Strategic Graphite may be adversely affected if any of the Directors or management team leave the Company and Strategic Graphite may find it difficult to secure suitable replacements within a reasonable period of time or at all. Further, Strategic Graphite may incur additional expenses to recruit, train and retain personnel should they be available.

Consequently, the production and development programs and the management of the Company could be affected by the lack of suitable Directors, managers, employees or staff.

(l) Dilution

Eligible Shareholders that do not accept all of their Entitlement under the Rights Issue, or having accepted, do not exercise any of the Attaching Options before the expiration of those Attaching Options, will have their Shareholding in the Company diluted. Exercise of any Underwriter Options will also result in dilution of existing Shareholders.

(m) Quotation of Attaching options and Underwriter Options

The Attaching Options and Underwriter Options will only be admitted to quotation by ASX if the conditions for quotation of a new class of securities are satisfied. Those conditions include, amongst other things, there being a minimum of 100,000 Attaching Options and Underwriter Options on issue, with at least 50 holders with a Marketable Parcel.

If quotation is not granted, the Attaching Options will be issued under this Prospectus but will not be traded on ASX.

5.3. Industry specific risks

(a) Environmental

Mining is an industry that has become subject to increasing environmental responsibility and liability. The potential for liability is an ever present risk. The use and disposal of chemicals in the mining industry is under constant legislative scrutiny and regulation.

The Company’s Uley Graphite Mine has historically been in production and it is possible that previous activities on the land the subject of the Company’s tenements could have impacted on the environment, giving rise to rehabilitation obligations.

The Company intends to carry out any exploration work will be carried out in a way that causes minimum impact on the environment. Consistent with this, it may be necessary in some cases to undertake baseline environmental studies prior to certain exploration or mining activities, so that environmental impact can be monitored, and as far as possible, minimised. While the Company is not aware of any endangered species of fauna and flora within any of its project areas, no baseline environmental studies have been undertaken to date, and discovery of such could prevent further work in certain areas.

Despite efforts to conduct its activities in an environmentally responsible manner, and in accordance with all applicable laws, there is a risk of an adverse environmental event occurring.

Such an event could delay or otherwise stop the development of the Uley Graphite Mine or the other development timetables set by Strategic Graphite and, any project that does proceed, may then be made subject to or involve Strategic Graphite incurring substantial penalties including fines, damages, clean-up costs or other penalties.

Furthermore, the Company’s projects are exposed to possible environmental constraints or operational conditions and regulations that may restrict the full or economical development of the resources.

(b) Development, Mining & Process

The Tenements of the Company as described in this Prospectus are at various stages of development and exploration and potential investors should understand that mineral exploration and development are high risk undertakings.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

In summary, project development and mining by their nature contain elements of significant risk. Ultimate and continuous success of these activities is dependent on many factors such as:

the discovery and/or acquisition of additional economically recoverable ore reserves;
successful conclusions to bankable feasibility studies;
access to adequate capital for project development;
design and construction of efficient mining and processing facilities within capital expenditure budgets;
securing and maintaining title to tenements;
obtaining consents and approvals necessary for the conduct of mining and production; and
access to competent operational management and prudent financial administration, including the availability and reliability of appropriately skilled and experienced employees.

Other factors that could affect the operations of the Company include:

failure to achieve predicted grades in exploration and mining;
poor performance levels from external contractors;
operational and technical difficulties encountered in mining;
difficulties in commissioning and operating plant and equipment;
availability of suitable plant and expertise from contractors and consultants;
mechanical failure or plant breakdown;
unanticipated metallurgical problems which may affect extraction rates and costs;
adverse weather conditions;
industrial and environmental accidents;
industrial disputes;
availability of water and power; and
unexpected shortages or increases in the costs of labour, consumables, spare parts, plant and equipment.

Consequently, there can be no assurance that through the projects the Company will be able to develop and commercialise mineral extraction from its tenements and generate positive cashflow to sustain the financial viability of the Company.

Until the Company is able to realise value from its projects, it is likely to incur ongoing operating losses.

(a) Exploration

The Company holds a 2012 JORC Indicated and Inferred Resource but one of the Company’s tenements is an exploration licence. Mineral exploration by its nature is a high-risk endeavour and consequently there can be no assurance that exploration of the exploration licence, or any other projects that may be pursued in the future, will result in discovery of an economic mineral deposit.

Should a discovery be made, there is no guarantee that it will be commercially viable for a host of factors beyond the control of the Company, for example, to the economics of mining operations. While the Directors will make every effort to reduce the above risks through their experience in the exploration and mining industry, the fact remains that a commercially viable mineral discovery is very much the exception rather than the rule and success can never be guaranteed.

(b) Tenure

Mining and exploration tenements are subject to periodic renewal. There is no guarantee that current or future tenements or future applications for mining leases will be approved.

The two Retention Licences held by the Company were due to expire on 1 October 2011, but are currently in the application process for renewal.

There are no guarantees that those Tenements will be renewed or that Strategic Graphite will be granted further or additional rights or tenements required for the conduct of operations. Further, issue, renewal, transfer or other conditions may be imposed upon Strategic Graphite in the future. Renewal conditions may include increased expenditure and work commitments or compulsory relinquishment of areas of the tenements comprising the Uley Graphite Mine. The imposition of new conditions or the inability to meet those conditions may adversely affect the operations, financial position and/or performance of the Company. If a Tenement is not renewed for any reason, Strategic Graphite may suffer significant damage through the loss of the opportunity to develop and discover any mineral resources on that tenement.

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The further development and conduct of operations on the land owned by Strategic Graphite and the ability to use the Mining Leases, Retention Licences and Exploration Licence is subject to regulatory approvals and monitoring by the South Australian Government and the Federal Government. The Company may not receive or continue to hold the relevant approvals.

(c) Access

As identified in the Solicitor’s Report in Section 8 of this Prospectus, there may be a number of third party interests which overlay areas within the Tenements held by the Company, including: potential Native Title claims; potential Aboriginal heritage sites; Crown reserves for various purposes; Vegetation heritage agreements; pastoral leases; and private land.

Under South Australian and Commonwealth legislation, Strategic Graphite may be required to obtain the consent of and pay compensation to the holders of these third party interests prior to commencing any activities on the affected areas.

Whilst the requirement to seek and obtain such consents and pay such compensation is customary in South Australia, any delay in obtaining these consents may impact on Strategic Graphite’s ability to carry out activities within the affected areas. It is noted that this will not apply to the land underlying the Mining Leases for which the freehold is owned by the Company.

5.4. General Risks

(a) Economic Factors

The Company’s future possible revenues, operating costs, Share price and returns to Shareholders may be affected by changes in factors such as:

local and world economic conditions;
inflation or inflationary expectations;
currency movements;
interest rates;
supply and demand;
levels of tax, taxation law and accounting practice;
government legislation or intervention;
industrial disruption; and
natural disasters, social upheaval or war in Australia or elsewhere.

These factors are beyond the control of the Company and its Directors.

(b) Geopolitical

Politics on a global, regional or local scale could impact the Company’s operations, its access to certain countries and its right to continue operating in a particular country. Acts of terrorism or outbreak of war may disrupt or prevent the Company from operating its business programs.

(c) Regulatory

Activities undertaken by the Company will require compliance with various laws relating to the protection and rehabilitation of the environment, health and safety, culture and heritage and other matters.

In addition the Company is required to obtain numerous government permits, leases, licences and approvals in respect of its exploration and mining operations.

There is a risk that the Company may not obtain or may lose permits, leases, licences or approvals, essential to the Company’s operations.

The Company cannot predict how existing, or future laws and regulations may be interpreted by enforcement agencies or court rulings, whether additional laws and regulations will be adopted, or the effect such changes may have on the Company’s business or financial condition.

(d) Joint Ventures

The Company may wish to participate with others to develop future projects. Any joint ventures entered into by, or interests in joint ventures assigned to, the Company could be affected by the failure or default of its joint venture partner(s).

(e) No Valuation

No formal valuation has been completed of the Company’s Projects or the Company itself. The Company makes no representation as to the value of the Company or its assets. It is recommended that intending investors and their advisers make their own assessment as to the value of the Company and its asset.

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

(f) Competition Risk

The industry in which the Company will be involved is subject to domestic and global competition. While the Company will undertake all reasonable due diligence in its business decisions and operations, the Company will have no influence or control over the activities or actions of its competitors, which activities or actions may, positively or negatively, affect the operating and financial performance of the Company’s projects and business.

(g) Profit Risk

There can be no certainty that the Company will achieve or sustain profitability or achieve or sustain positive cash flow from its operating activities.

The ability of the Company to pay dividends to its Shareholders will in part depend upon the ability of the Directors to make profits through the acquisition and realisation of investments. It is not possible to predict at what point in time profits will be generated or at what point in time the Company will generate sufficient earnings to cover its operating expenses.

(h) Tax Issues

There may be tax implications arising from the acquisition of New Securities, any possible receipt of dividends (both franked and unfranked) and the disposal of New Securities (including the exercise of Attaching Options). All prospective investors should carefully consider these tax implications and if uncertain as to the relevant taxation issues, obtain further advice from a qualified professional adviser. Tax liabilities are the responsibility of each individual investor and the Company will not be responsible for any tax or related penalties incurred by investors.

(i) Stock Market Fluctuations

There are risks associated with any investment in a company listed on a prescribed securities exchange. The value of the Company’s Shares may rise above or below the Issue Price depending on the financial and operating performance of the Company and external factors over which the Company’s Directors have no control. These external factors include:

economic conditions in Australia and overseas, which may have a negative impact on equity capital markets;
changing investor sentiment in the local and international stock markets;
changes in domestic or international fiscal, monetary, regulatory and other government policies; and
developments and general conditions in the markets in which the company proposes to operate and which may impact on the future value and pricing of shares.

Investors should recognise that once the Shares (and Attaching Options, if applicable) are listed on ASX, the price of the securities may rise and fall.

(j) Solvency and Liquidity

The Company will initially not have any income other than the interest on the cash deposits from its capital raising. If the Company was not able to meet the ongoing expenditure commitments, the Company may not be able to maintain its interests in the tenements. Accordingly, the Company may potentially lose entitlement or rights to interests in these projects.

(k) Unforeseen Expenditure

Expenditure may need to be incurred that has not been taken into account in the preparation of this Prospectus. Although the Company is not aware of any such additional expenditure requirements, if such expenditure is subsequently incurred, this may adversely affect the expenditure proposals of the Company.

(l) Uninsured Loss and Liability

Exploration for and development of minerals involves hazards and risks that could result in the Company incurring losses and liabilities to third parties. There is a risk that the Company may not be insured against all losses or liabilities that could arise from its operations. If the Company incurs losses or liabilities which are not covered by its insurance policies, the funds available for exploration and development will be reduced and the value and/or tenure of the Company’s assets may be at risk.

(m) Unforeseen Risks

There may be other risks which the Directors are unaware of at the time of issuing this Prospectus which may impact on the Company and its operations, and on the valuation and performance of the New Securities.

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6. INDEPENDENT TECHNICAL REPORT

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7. FINANCIAL INFORMATION & INVESTIGATING ACCOUNTANT’S REPORT

Historical Statement of Profit or Loss and Other Comprehensive Income

Set out below is the historical Statement of Profit or Loss and Other Comprehensive Income of Strategic Graphite for the years ended 30 June 2011, 2012 and 2013.

	Audited1 30 June 2013 30 June 2012 30 June 2011
Revenue Loan forgiveness2 Total revenue Expenses Occupancy expenses Legal fees Administration costs Depreciation Employee benefits expense Finance Costs Exploration written off Total expenses Profit/(Loss) from ordinary activities before income tax expense Income tax expense Profit/(Loss) from ordinary activities after income tax expense Other comprehensive income Total comprehensive income	- 6,251,992 -
	- 6,251,992 -
	- (13,853) - (58,157) - - (33,726) (6,352) - (4,082) (4,303) (5,322) (72,525) (144,847) - (9,608) - - - (15,961) (641,278)
	(178,098) (185,316) (646,600)
	(178,098) 6,066,676 (646,600)
	- - -
	(178,098) 6,066,676 (646,600)
	- - -
	(178,098) 6,066,676 (646,600)

1 The historical Statement of Profit or Loss and Other Comprehensive Income has been extracted from the audited financial statements of Strategic Graphite (previously Tarcoola Gold) for the years ended 30 June 2011, 30 June 2012 and 30 June 2013.

2 During the year ended 30 June 2012, Strategic Energy Resources Limited (SER) (the previous 100% owner of the Group) entered into a demerger scheme of arrangement. Under the Scheme, 80% of Tarcoola's shares have been distributed to eligible SER shareholders. Under the scheme, any obligation to repay loans received from SER prior to 30 June 2012 was waived and a revenue item, Loan Forgiveness, was recognised in the year.

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Historical and pro forma Statement of Financial Position

The pro forma Statement of Financial Position set out below, has been prepared to illustrate the effects of the Offers and assumes completion of the pro forma transactions set out in Note 2 as if they had occurred on 30 June 2013.

Note	Audited 30 June 20131	Reviewed Pro Forma Minimum Subscription	Reviewed Pro Forma Maximum subscription
Current assets Cash and cash equivalents 3 Total current assets Non current assets Property, Plant & Equipment Exploration expenditure 4 Total non current assets Total assets Current liabilities Trade Payables Loan from Strategic Energy Resources Limited 5 Total current liabilities NET ASSETS Shareholders equity Issued capital 6 Reserves 7 Retained earnings 8 TOTAL EQUITY	5,029 5,029 3,428 192,129 195,557 200,586 82,524 282,380 364,904 (164,318) 3,228,050 - (3,392,368) (164,318)	6,365,421 6,365,421 3,428 240,674 244,102 6,609,523 46,466 - 46,466 6,563,057 10,053,086 1,337,113 (4,827,142) 6,563,057	9,781,047
			9,781,047
			3,428 240,674
			244,102
			10,025,149
			46,466 -
			46,466
			9,978,683
			13,525,758 1,337,113 (4,884,188)
			9,978,683

1 The historical Statement of Financial Position has been extracted from the audited financial statements of Strategic Graphite as at 30 June 2013.

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Note 1 - Statement of Significant Accounting Policies

The financial information presented herein has been prepared in accordance with the measurement and recognition, but not all of the disclosure, requirements of Australian Accounting Standards. The financial information is presented in abbreviated form insofar as it does not comply with all disclosure requirements set out in the Australian Accounting Standards, the Australian Accounting Interpretations and the Corporations Act 2001.

In the view of the Directors of the Company, the omitted disclosures would provide no further relevant information to potential investors.

(a) Basis of Preparation

The Company has prepared financial information in accordance with the Australian Equivalents to International Financial Reporting Standards (AIFRS).

Reporting Basis and Conventions

The financial information has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

(b) Principals of consolidation

The financial information incorporates the assets and liabilities of all the subsidiaries of Strategic Graphite Limited. Intercompany transactions, balances and unrealised gains on transactions between the entities are eliminated in full on consolidation.

(c) Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(d) Exploration and Evaluation Expenditure

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area of interest are written off in full against profit in the year in which the decision to abandon the area of interest is made.

When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. It is noted that the production targets in this Prospectus are preliminary in nature to the extent conclusions are drawn from Inferred Mineral Resources. The conclusions in this Prospectus are also based on current technical and economic assessments, and are not sufficient to provide assurance of an economic development case at this stage, or to provide certainty that conclusions will be realised.

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Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis.

Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extend of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the site.

(e)

Property, plant and equipment

Plant and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated on a straight line basis to write off the cost of each item of plant and equipment over their expected useful lives as follows:

plant and equipment 3-7 years

(f) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of six months, less any bank overdrafts.

(g) Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Loan forgiveness revenue is recognised when the liability to repay is forgiven.

(h) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST.

(i) Equity-settled compensation

The cost of equity-settled transactions is measured by the fair value at the date at which the equity instruments are granted. The fair value is determined using the Black-Scholes pricing model. The cost is recognised as an expense in the Statement of Profit and Loss and Other Comprehensive Income with a corresponding increase in the share option reserve or issued capital when the options or shares are issued.

Where the grant date and the vesting date are different, the total expenditure will be allocated between the two dates taking into account the terms and conditions attached to the instruments and the counterparties as well as management's assumptions about probabilities of payments and compliance with and attainment of the terms and conditions.

(j) Impairment of Non-Financial Assets

At each reporting date, the Company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit and loss and other comprehensive income. Impairment testing is performed annually for intangible assets with indefinite lives and intangible assets not yet available for use. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

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(k) Borrowings

Loans and borrowings are initially recorded at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.

(l) Critical accounting estimates and judgments

The Directors evaluate estimates and judgments incorporated into the financial information are based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and from within the Company.

(m) New Accounting Standards for Application in Future Periods

There have been new Australian Accounting Standards and Australian Accounting Interpretations issued or amended which are applicable to the Company but are not yet effective. The Company’s assessment of the impact of these new standards and interpretations has been completed with no material effect on the Company’s historical and pro forma financial information. The new standards and interpretations have not been adopted in the preparation of the historical and pro forma financial information.

Note 2 – Pro forma adjustments

The pro forma financial information has been prepared to illustrate the effects of the Offers and is based on the assumption that the transactions and events contemplated in this Prospectus, summarised below and referred to as the pro forma adjustments, had taken place on or before 30 June 2013.

2.1 Subsequent events

Subsequent to balance date the following material transactions have taken place:
! The company has borrowed a further $69,770 from Strategic Energy Resources Limited to fund exploration ($48,545) and other operating expenses ($21,225). The total loan received was repaid on 3 October 2013 totalling $352,150.
! The issue of 12,500,000 ordinary shares (pre consolidation) at an issue price of $0.08 per share to raise $1,000,000 (Prior Placement). The Company has also agreed to issue 3,125,000 (post consolidation) attaching share options for no consideration as part of the offer.
! The issue of 352,362 ordinary shares to the former directors of the company with a fair value price of $70,472 and $2,458 cash in settlement of outstanding directors fees.
! At the 2013 Annual General Meeting of the company to be held on 19 November 2013, shareholders have been requested to approve the following:
- A consolidation of the share capital of the company through the conversion of every two shares held by a shareholder to one share with fractions rounded up to the nearest whole share. The consolidation will result in a reduction of shares on issue by 115,194,303.
- The issue of 2,000,000 unlisted share options to the Managing Director. These options have an exercise price of $0.25, are exercisable at any time until 31 July 2016 subject to certain key performance indicators and have a fair value of $69,197.
- The issue of 2,750,000 Performance Rights to the Managing Director. The Performance Rights will be subject to certain key performance indicators and will convert to one ordinary share for each right held. The fair value of the Performance Rights to be issued is $550,000.
- The issue of 500,000 unlisted share options to each of the current non-executive directors and 1,000,000 unlisted share options to each of the past non-executive directors (4,500,000 in total). These options have an exercise price of $0.25, are exercisable at any time until 31 July 2016 and options to current non-executive Directors are subject to certain key performance indicators and have a total fair value of $155,693.

2.2 Minimum subscription

The issue of 32,500,00 ordinary shares at an issue price of $0.20 per share through a combination of a 3 for 8 rights issue to existing shareholders, Placement shares and pursuant to the prospectus, any issue under the Shortfall to raise $6,500,000 with one free attaching option per share; and
The payment of expenses associated with the Offers (including advisory, legal, accounting, listing and administrative fees) estimated to be $785,000. In addition, the fair value of options to be issued pursuant to the Underwriting Agreement has been recognised as capital raising costs totalling $562,223. In accordance with Australian Accounting Standards an amount of $745,436 (net of tax) has been offset against share capital and $601,787 has been charged against retained earnings.

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2.3 Full subscription

The issue of an additional 18,198,130 ordinary shares at an issue price of $0.20 per share via a 3 for 8 rights issue from existing shareholders and any issue under the Shortfall to raise a further $3,639,626 (“Full Subscription”) pursuant to the Offers with one free attaching option per share; and
Additional expenses associated with the Offers are estimated to be $224,000. In accordance with Australian Accounting Standards an additional amount of $166,954 (net of tax) has been directly off set against share capital and $57,046 has been charged against retained earnings.

A deferred tax asset has not been recognised in relation to the capitalised Offer costs due to the uncertainty surrounding the economic benefits that will flow to Strategic Graphite in future periods.

Note 3 – Cash and cash equivalents

The pro forma cash and cash equivalents are set out below:

	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Cash and cash equivalents at 30 June 2013 Pro forma transactions: Gross Proceeds from Prior Placement Gross Proceeds from shares issued pursuant to the Offers Repayment of the Strategic Energy Resources Loan account Payment of Offer costs Payment of fees to Former Directors	5,029 5,029
	1,000,000 1,000,000 6,500,000 10,139,626 (352,150) (352,150) (785,000) (1,009,000) (2,458) (2,458)
Totalpro forma cash and cash equivalents	6,365,421 9,781,047

Note 4 – Exploration expenditure

The pro forma exploration expenditure is set out below:

pro forma exploration expenditure is set out below:
	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Exploration expenditure at 30 June 2013 Pro forma transactions: Cashpayments	192,129 192,129
	48,545 48,545
Totalpro forma exploration expenditure	240,674 240,674

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Note 5 – Financial liabilities – Loan from Strategic Energy Resources Ltd

The pro forma financial liabilities are set out below:

	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Financial liabilities at 30 June 2013 Pro forma transactions: Additional loan proceeds Repayment of loan from Strategic EnergyResources Ltd	282,380 282,380
	69,770 69,770 (352,150) (352,150)
Totalpro forma financial liabilities	- -

The loan from Strategic Energy Resources Limited is interest bearing at a rate of 13% per annum compounding monthly.

Note 6 – Issued capital

The pro forma issued capital is set out below:

	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Issued capital at 30 June 2013 Pro forma transactions: Proceeds from shared issued to Prior Placement Proceeds from shares issued pursuant to Offers Fair value of shares issued to former directors in lieu of directors fees Capital raisingcostspursuant to the Offers(net of tax)	3,228,050 3,228,050
	1,000,000 1,000,000 6,500,000 10,139,626 70,472 70,472 (745,436) (912,390)
Totalpro forma issued capital	10,053,086 13,525,758

The pro forma number of shares on issue is set out below:

	Pro Forma Minimum Subscription # of shares Pro Forma Full Subscription # of shares
Number of shares on issue at 30 June 2013 Pro forma transactions: New Shares issued to Prior Placement Total pre-consolidation shares on issue Reduction in shares due to consolidation Total post-consolidation shares on issue New shares issued to former directors for outstanding directors fees New shares issued pursuant to the Offers	217,889,316 217,889,316
	12,500,000 12,500,000
	230,389,316 230,389,316 (115,194,303) (115,194,303)
	115,195,013 115,195,013 352,362 352,362 32,500,000 50,698,130
Totalpro forma shares on issue	148,047,375 166,245,505

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Note 7 – Reserves

The pro forma reserves are set out below:

The pro forma reserves are set out below:
	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Reserves at 30 June 2013 Pro forma transactions: Fair value of options to be issued to the Managing Director pursuant to the agreement of shareholders Fair value of Performance Rights to be issued to the Managing Director Fair value of options to be issued to the current and former non-executive directors Fair value of options to be issued to underwriters and sub-underwriters Totalpro forma reserves	- -
	69,197 69,197 550,000 550,000 155,693 155,693 562,223 562,223 1,337,113 1,337,113

The inputs used in the Black-Scholes fair value calculation are outlined below:

	Options
Exercise price	$0.25
Option life (years)	2.9
Underlying share price1	$0.16
Expected share price volatility2	50%
Risk free rate	2.85%

1 The lack of trading activity of Strategic Graphite shares makes the determination of the underlying share price problematic. In the absence of other applicable data, we have deemed the most recent share issue price to Prior Placement capital investors of $0.16 (post consolidation) an appropriate proxy for the underlying share price.
2 As Strategic Graphite has no share trading history, the expected share price volatility has been based on the historical volatility of comparable companies listed on the ASX. It has been assumed this historical proxy will be indicative of future trends, however it should be noted that this outcome may not eventuate and the actual volatility may vary significantly.

Note 8 – Retained earnings

The pro forma retained earnings are set out below:

The pro forma retained earnings are set out below:
	Pro Forma Minimum Subscription 30 June 2013 $ Pro Forma Full Subscription 30 June 2013 $
Retained earnings at 30 June 2013 Pro forma transactions: Fair value of share based payments Interest costs recognised on loan from Strategic Energy Resources Limited Offer costs recognised through Statement of Profit or Loss and other Comprehensive Income (net of tax)	(3,392,368) (3,392,368)
	(980,429) (980,429) (21,225) (21,225) (433,120) (490,166)
Totalpro forma retained earnings	(4,827,142) (4,884,188)

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Note 9 – Share Options

The pro forma number of options on issue is set out below:

The pro forma number of options on issue is set out below:
	Pro Forma Minimum Subscription # of options Pro Forma Full Subscription # of options
Number of options on issue at 30 June 2013 Pro forma transactions: Attaching options to Prior Placement Impact of share consolidation Total post consolidation Options issued to current and former non-executive directors Options issued to the Managing Director Attaching options (1 for 1) Placement Underwriter options (1 for 2) Attaching options (1 for 1) from rights issue Totalpro forma options on issue	- -
	6,250,000 6,250,000 (3,125,000) (3,125,000)
	3,125,000 3,125,000 4,500,000 4,500,000 2,000,000 2,000,000 7,500,000 7,500,000 16,250,000 16,250,000 25,000,000 43,198,130
	58,375,000 76,573,130

Note 10 – Commitments

The Company has standard rental payments made in relation to each of the tenements held by the Company. The Company has committed to spend $240,000 over three years on the Exploration Licence held by the Company.

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8. SOLICITOR’S REPORT

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9. MATERIAL & HISTORICAL AGREEMENTS

9.1. Material Agreements

Each of the documents described below is a contract that is material to the operations and affairs of the Company and which prospective investors and their advisers would reasonably expect to be disclosed in this Prospectus to enable an informed decision to be made regarding the Offer. The information supplied below is a summary only.

(a) Underwriting Agreement

Please refer to Section 2.15 of this Prospectus for details of the key terms of the Underwriting Agreement and Section 10.19 for details of fees payable by the Company to the Underwriter in connection with the Rights Issue.

(b) Engagement of Managing Director & CEO

The Company has engaged Mr Darby as Managing Director and CEO. Please refer to Section 4.4 of this Prospectus for the details of the key terms of this engagement.

(a) SER Royalty Agreement

Prior to the demerger of the Company from SER a royalty agreement was entered into between the Company’s subsidiary Strategic Energy Graphite Pty Ltd and SER on 8 July 2011 ( SER Royalty Agreement ). Pursuant to the SER Royalty Agreement the Company has an obligation to pay SER a 1.5% gross revenue royalty on any graphite or graphite related products and other minerals in whatever for or state, that a removed, produced or otherwise recovered from the area of the Tenements ( Minerals ).

The royalty is payable quarterly, for each quarter in which any Minerals are produced and sold or otherwise disposed of. The royalty is based on the gross proceeds actually received by SEG (or any related party) from the sale or other disposal of Minerals, including the proceeds received from an insurer in the case of loss of, or damage to the Minerals (net of any excess paid in respect of that loss) less any applicable penalties from third party processors, refunds, claims or discounts.

Under the Minerals Royalty Deed, SEG is obliged to keep the Tenements in good standing, including by observing the Mining Act and all other legislation, paying all fees, rates, royalties, taxes and rental payments due in respect of the Tenements, ensuring that the expenditure commitments are met (or exemptions are duly obtained) and making all necessary applications for renewals of the Tenements. However, SEG has the sole and unfettered discretion on the nature, timing and extent of all exploration, mining and other operations conducted on the Tenements.

Under the Minerals Royalty Deed, SEG may not sell, transfer, grant assign or otherwise dispose of any interest in the Tenements or any rights in relation to any Minerals extracted and recovered or to be extracted and recovered from the area the subject of the Tenements except by an encumbrance which is expressly subject to the royalty, by the sale of Minerals in the ordinary course of business or with the prior consent of SER (with SEG first having executed and delivered to SER an assumption deed in favour of SER executed by SEG and the assignee or other recipient of the interest and rights being the subject of the transfer). SEG has agreed to fully indemnify SER from all loss, damage claims and expenses resulting from any breach by SEG in relation to a transfer. If SER wishes to dispose of any of its rights under the Minerals Royalty Deed (other than to a related body corporate), it must first offer them to SEG for cash consideration, and otherwise on the terms and conditions in the offer to the third party.

Both parties have agreed that they will not grant any encumbrance over the Tenements unless the encumbrancee enters into a deed of covenant with the other party, under which the encumbrancee agrees to be bound by the terms of the Minerals Royalty Deed in exercising its powers or remedies under the encumbrance.

9.2. Historical Agreements

As the Company has been incorporated since 1987 there are a number of historical agreements potentially affecting the Tenements and the Property. The Company has received advice from Rigby Cooke Lawyers (former lawyers to the Company and lawyers to SER, the Company’s former parent company) in respect of the effect of certain historical agreements, as follows:

Restrictive Covenant

In or around 1989 or 1990, Mr John Casanova sold the Property (then described by certificate of title volume 4387 folio 696) to SEG. The sale was subject to covenants giving Mr Casanova the right to re-purchaser the Property from SEG. The precise terms of those covenants are no longer relevant as they have been supplanted by subsequent transactions. By a Deed dated 29 November 1991 between International Carbon Pty Ltd, SEG and Mr Casanova ( Casanova Deed ) Mr Casanova consented to the transfer of the Property to International Carbon subject to certain conditions. By a deed dated 3 March 1997, SEG assumed the obligations of International Carbon under the Casanova Deed ( Deed of Assumption ), in contemplation of reacquiring the Property. There are 3 key concepts contained in the Casanova Deed:

(1) If at any time mining operations on the Property are temporarily ceased, SEG must notify Mr Casanova of this matter and allow him to agist animals on the Property for the duration of such temporary cessation of mining;
(2) Until such time that mining operations are permanently ceased (even if they are temporarily ceased) SEG may sell the Property to any party without giving Mr Casanova any first right of refusal, as long as it procures that the purchaser agrees to be bound by the terms of the Casanova Deed;

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(3) Once mining is permanently ceased in respect of the deposit known as the Uley Graphite Deposit, SEG must not sell the property without first offering it to Mr Casanova for a price of $10. Further, if Mr Casanova accepts the offer, SEG would be required to remove all of its mining equipment and build a shed on the land within a short period of time after the sale.

The distinction between ‘permanent’ and ‘temporary’ cessation of mining is not defined in the Casanova Deed. However, clause 5 of the Casanova Deed clarifies that the procedures for an offer to Mr Casanova for a re-purchase of the land do not apply where the mining has ceased “on a temporary basis, for such period of time as International Carbon may, in its discretion, have deemed appropriate, for any reason whatsoever”. Rigby Cooke Lawyers have concluded that this suggests SEG has a wide discretion to decide whether a cessation is temporary or permanent and that a cessation may be prolonged without necessarily being permanent. It should also be noted that there is nothing in the Casanova Deed that would compel SEG to sell or otherwise transfer the property to any person at any time. If SEG chooses to retain ownership of the Property indefinitely after the cessation of mining it would not be required to offer the Property to Mr Casanova at any time.

CRAE Royalty Agreement

SEG previously entered into a number of different agreements whereby it agreed to pay various payments and royalties to Rio Tinto Exploration Pty Limited (then called CRA Exploration Pty Ltd), including:

(a) a fixed payment of up to $3million;
(b) a tonnage royalty of $50 per tonne; and
(c) a 5% gross revenue royalty up to $475,000 in total (assuming an initial payment of $125,000 had already been made).

These payments and royalties were only due in certain prescribed situations. Rigby Cooke Lawyers have advised the Company that it appears that SEG has been released from its obligations in respect of the fixed payment and tonnage royalty, and that because the joint venture to which the gross revenue royalty relates has been wound up, there is no basis on which to calculate the tonnage royalty and, as a result, SEG should have no liability in relation to it.

Agreements with Mega Graphite Inc.

Under a merger implementation deed entered into in 2011 by the Company, SEG, SER, MEGA Graphite Inc. ( MGI ) and its wholly owned subsidiary MEGA Graphite Australia Pty Ltd ( MEGA Australia ), it was intended the Company would partly demerge from SER, following which MEGA Australia would acquire all the shares in the Company in exchange for shares in MGI. The Company, SEG and SER also entered into a related agreement with MEGA Australia on 26 April 2012 under which MEGA Australia would conduct certain works on the Uley Graphite Mine ( Operations Agreement ).

Under the Operations Agreement, MEGA Australia acquired certain contingent rights to recover its costs for works performed on the Uley Graphite Mine if the merger implementation agreement was terminated. If the merger implementation deed was terminated in circumstances other than as a result of a takeover, then there would be no obligation on SEG to repay any expenditure or administration costs, but SEG would allow MEGA Australia to remain at the Uley Graphite Mine and to continue to sell graphite for a period of 12 months from the termination date, or until its expenditure was fully recouped, whichever was the earlier. If after 12 months, that expenditure was not full recouped and there remained any liens over new plant and equipment installed by MEGA Australia at the Uley Graphite Mine, then MEGA Australia would receive title to that new plant and equipment and could deal with it at its discretion (provided that in doing so it must not cause any physical damage to the existing property). The Company is unaware of any new plant and equipment that was installed by MEGA Australia.

The part demerger of the Company from SER was completed, but the acquisition of the Company was not completed. The merger implementation agreement was terminated in late 2012, in circumstances other than as a result of a takeover, and MEGA Australia abandoned the Uley Graphite Mine.

Rigby Cooke Lawyers has advised the Company that:

(i) MGI has claimed it has expended AUD $1,052,626 and CDN $204,162 for works on the Uley Graphite Mine and provided various invoices and reports supporting these claims;
(ii) Rigby Cooke Lawyers has responded to MGI, on behalf of SER and the Company, and has advised that, of the amount claimed, they consider only AUD $212,820.57 and CDN$163,921.27 is recoupable and, in the circumstances, this could only be recovered by MEGA Australia through the sale of graphite which it extracts from the Uley Graphite Mine within the 12 month period from the termination date (which is due to expire on 12 November 2013).

The Company and its subsidiary now have physical control and possession of the Uley Graphite Mine and all the associated plant and equipment. MEGA Australia has made no effort to access the Uley Graphite Mine to sell graphite to recover its expenditure. Rigby Cooke Lawyers have advised the Company that because Operations Agreement only allows MEGA Australia to remain on the site to undertake the processing, and does not give MEGA Australia any other proprietary rights in relation to the Uley Graphite Mine, neither the Company nor SEG would be required to allow MEGA Graphite to re-enter the Uley Graphite Mine, and in any case, any right MEGA Australia did have is due to expire on 12 November 2013.

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10. ADDITIONAL INFORMATION

10.1. Corporate

The Company, originally called Insight Mining Pty Ltd was incorporated on 15 May 1986 in South Australia under the Corporations Act as a proprietary company. The Company changed its status to a public company limited by shares and then changed its name to Tarcoola Gold Limited in 1987. The Company was listed on ASX under the name Tarcoola Gold Limited from 27 March 1987 to 29 December 1991, when it became a wholly owned subsidiary of Strategic Energy Limited (ASX: SER).

The Company remained a wholly owned subsidiary of Strategic Energy Limited until the demerger of the Company via the pro-rata distribution in specie of 80% of the shares in the Company to the shareholders of Strategic Energy Limited under a Court approved scheme of arrangement in April 2012. Strategic Energy Limited has retained an 18.91% shareholding in SGL.

The Company currently has approximately 3,600 shareholders.

The Company has a wholly owned subsidiary named Strategic Energy Graphite Pty Ltd (SEG).

SEG has been a wholly owned subsidiary since the year ended 30 June 1993. SEG has at all times been a proprietary company limited by shares. It was incorporated on 7 August 1972 under the name of Solution Mining Pty Ltd. It changed its name to Eagle Bay Graphite Pty Ltd on 20 January 2000 and to Strategic Energy Graphite Pty Ltd on 25 July 2008.

10.2. ASX Codes

The Company has reserved the ASX code “VXL”. Upon admission to the official list of ASX, the Company’s shares will trade under the code VXL and listed Options, assuming quotations conditions are met, under the code VXLO.

10.3. Tax Status

The Company will be taxed as an Australian resident at the prevailing corporate tax rate which is currently 30%.

10.4. Balance Date

The Company has a balance date of 30 June.

10.5. 2013 AGM

At the Company’s 2013 AGM, existing shareholders will consider resolutions in relation to:

(1) the change of the Company’s name to Valence Industries Limited;
(2) the consolidation of the Company’s Share capital on a 1:2 basis, such that after the Consolidation, the number of Shares on issue will reduce from 230,389,316 to 115,195,013;
(3) the election of Graham Spurling as a Director;
(4) the election of Ian Schache as Director;
(5) the re-election of Glenister Lamont as Director;
(6) replacement of the constitution and approval of proportional takeover provisions;
(7) setting the maximum aggregate annual remuneration of non-executive directors;
(8) the approval of the Performance Rights and Options Plan;
(9) the issue of Performance Rights and performance based Options to Mr Chris Darby (please refer to Section 10.15 for more details);
(10) the issue of performance based Options to current non-executive Directors (please refer to Section 10.15 for more details); and
(11) the issue of Options to Former Directors in lieu of accrued remuneration (please refer to Section 10.16 for more details).

Consolidation

The ASX Listing Rules provide a number of conditions to Admission, including a minimum issue price of 20 cents per Share and a capital structure appropriate for an ASX listed entity. The Consolidation will ensure that the conditions to Admission can be satisfied.

If the Consolidation is not approved for any reason, no securities will be issued under this Prospectus and any Application Money received will be refunded in full, without interest, within 28 days of the date of the 2013 Annual General Meeting.

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Replacement of Constitution

At the 2013 AGM the Company will seek Shareholder approval, by special resolution, to repeal the existing Constitution and replace it with a new Constitution which is substantially in the same form as the existing Constitution, but with the minor typographical and cross references fixed.

The majority of amendments are to rectify minor clerical errors. The substantive changes are as follows:

(1) the name of the Company (wherever it appears in the Constitution) is changed to the Company Limited;
(2) the time frame for nominating the ‘snap shot’ in time for the purposes of determining shareholders entitlements to vote at a general meeting will be amended so it is not more than 48 hours before the meeting, consistent with the requirements of Regulation 7.11.37 of the Corporations Regulations 2001 (Cth).

Proportional takeover provisions

Shareholder approval will also be sought for the inclusion of proportional takeover provisions in the new Constitution. These proportional takeover provisions re identical to the proportional takeover provisions set out in Rule 7 of the existing Constitution of the Company. Rule 7 enables the Company to refuse to register shares acquired under a proportional takeover bid unless a resolution is passed by the shareholders in general meeting approving the offer. Under the Corporations Act and the existing Constitution, the proportional takeover provisions in the existing Constitution will cease to have effect at the end of a third year period after they were last renewed or adopted by the Company. If approved by special resolution, the proportional takeover provisions will be included in the new Constitution for a period of 3 years from the date of the 2013 Annual General Meeting. For more details on this, please refer to the Notice of Meeting (available at www.valenceindustries.com)

The existing Constitution and the new Constitution (if the necessary approvals are obtained at the Annual General Meeting) will be available to inspect at the Company’s registered office.

For further information regarding any of the approvals sought at the 2013 AGM, please refer to the Notice of Meeting, available to download at www.valenceindustries.com.

10.6. Market Capitalisation

Based on an Issue Price of $0.20 per Share the Company will have a market capitalisation (on an undiluted basis), following the Consolidation and issue of Shares under this Prospectus of approximately:

$29.6 million based on the Minimum Subscription; and
$33.2 million based on the Full Subscription.

10.7. Dividend Policy

Due to the activities of the Company as outlined in this Prospectus, the Directors do not intend to pay dividends at any time in the near future. No assurance can be provided about future dividend policy, the extent of future dividends or the franking of dividends.

10.8. Top 20 Holders of Ordinary Shares

As at the date of this Prospectus, the following are the top 20 shareholders of the Company:

Rank	Holder	Pre consol	Post consol	%
1	Strategic Energy Resources Ltd	43,577,813	21,788,907	18.91%
2	Avatar Energy Pty Ltd	15,356,060	7,678,030	6.67%
3	E E R C Australasia Pty Ltd	13,262,940	6,631,470	5.76%
4	Mr Mark Anthony Muzzin	6,375,000	3,187,500	2.77%
5	Mr Carl Eric Holt & Mrs Lorraine Holt	6,000,000	3,000,000	2.60%
6	J P Morgan Nominees Australia Limited	5,519,044	2,759,522	2.40%
7	ABN Amro Clearing Sydney Pty Ltd	5,000,000	2,500,000	2.17%
8	Citicorp Nominees Pty Limited	3,433,516	1,716,758	1.49%
9	Whitesman Investments Pty Ltd	3,237,113	1,618,557	1.41%
10	Pacific Custodians Pty Limited	3,107,862	1,553,931	1.35%
11	HSBC Custody Nominees (Australia) Limited	2,967,428	1,483,714	1.29%

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Rank	Holder	Pre consol	Post consol	%
12	Mr Makram Hanna & Mrs Rita Hanna	1,855,000	927,500	0.81%
13	Mr Patrick Thomas Bergin	1,500,000	750,000	0.65%
14	Success Oil Company Limited	1,434,493	717,247	0.62%
15	A P Reyem Pty Limited	1,380,000	690,000	0.60%
16	Kevin Barry Building Service Pty Ltd	1,221,689	610,845	0.53%
17	Stuart Turner	1,150,000	575,000	0.50%
18	F Terranova Investments Pty Ltd	1,000,000	500,000	0.43%
19	CJN Bloodstock Pty Ltd	1,000,000	500,000	0.43%
20	Mr Todd Anthony Wilson & Mrs Jodie Lee Wilson	1,000,000	500,000	0.43%
	Total	119,377,958	59,688,981	51.82%

10.9. Shares: Rights and Liabilities

The following is a summary of the provisions of the Constitution governing the rights and liabilities that attach to Shares. This summary is not exhaustive nor does it constitute a definite statement of the rights and liabilities of the Company’s members. To obtain such a statement, Applicants should seek independent legal advice.

Ranking

The Shares are fully paid ordinary shares and will rank equally in all respects with the existing Shares in the Company.

Partly Paid Shares and Liability for Calls

The Company has no partly paid shares on issue.

Reports and Notices

Members are entitled to receive all notices, reports, accounts and other documents required to be furnished to members under the constitution of the Company, the Corporations Act and the Listing Rules.

General Meetings

Members are entitled to be present in person, or by proxy, attorney or representative to vote at general meetings of the Company. Members may requisition general meetings in accordance with the Corporations Act and the constitution of the Company.

Voting

Subject to any rights or restrictions for the time being attached to any class or classes of shares (at the present time there are none) at a general meeting of the Company every ordinary member present in person, or by proxy, attorney or representative shall on a show of hands have one vote and upon a poll every member present in person or by proxy, attorney or representative has one vote for every share held. A qualification to the above is that where a person is present at a meeting as proxy or representative for more than one member then on a show of hands that person shall have only one vote and not one vote for each person represented by him. That vote will be taken as having been cast for all the members the person represents and the person must not exercise that vote in a way which would contravene any directions given to the person in accordance with any instrument appointing the person as proxy or attorney.

A member who holds a share which is not fully paid shall be entitled to a fraction of a vote equal to the proportion that the amount paidup bears to the total issue price of the share. Amounts paid or credited as paid in advance of a call are ignored when calculating the fraction.

Dividends

The Directors may declare and authorise the distribution, from the profits of the Company, of dividends to be distributed to members according to their rights and interests.

Winding Up

Subject to any special or preferential rights attaching to any class or classes of shares, members will be entitled in a winding up to share in any surplus assets of the Company in proportion to the shares held by them respectively, less any amount which remains unpaid on their shares at the time of distribution.

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Transfer of Shares

Subject to the constitution of the Company, the Corporations Act and the Listing Rules, the Shares will be freely transferable.

Future Increases in Capital

The allotment and issue of Shares is under the control of the Directors of the Company. Subject to restrictions on the allotment of Shares to Directors or their associates contained in the Listing Rules, the constitution of the Company and the Corporations Act, the Directors may allot or otherwise dispose of Shares on such terms and conditions as they see fit.

Variation or Cancellation of Rights

(a) Subject to the Listing Rules, if at any time the share capital of the Company is divided into different classes of shares, the rights attached to shares in any class of shares (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied or cancelled by special resolution of the Company and:
i. by special resolution passed at a meeting of the class of members holding shares in that class; or
ii. with the written consent of members with at least 75% of the votes in the class.
(b) The Company must give written notice of the variation or cancellation to the members of the class within seven days after the variation or cancellation is made.

10.10. Attaching Options and Underwriter Options: Terms and Conditions

Each of the Attaching Options and Underwriter Options will be granted on the following terms and conditions:

(1) Each of the Options will entitle the holder ( Optionholder ) to subscribe for one Share (subject to possible adjustments referred to in paragraphs (10), (11) and (12) below).
(2) Each of those Options will be exercisable during the period from the date it is granted until 5.00pm (Sydney time) on 31 July 2016 ( Expiry Date ). Options not exercised before the Expiry Date will lapse.
(3) The exercise price of each of those Options will be 25 cents ( Exercise Price ).
(4) Those Options will be exercisable by notice in writing to the Company, delivered to the registered address of the Company and accompanied by the full payment of the Exercise Price in cleared funds.
(5) Some or all of the Options will be able to be exercised at any one time or times prior to the Expiry Date.
(6) Shares issued pursuant to the exercise of any of those Options will rank in all respects on equal terms with the existing Shares.
(7) The Company will make application for Shares allotted on exercise of the Options to be admitted to the official list of ASX.
(8) The Options will be freely transferable.
(9) The Options will not entitle the Optionholder to participate in any new issue of securities by the Company unless the Option has been duly exercised prior to the relevant record date. The Company will ensure that for the purposes of determining entitlements to participate in any new issues of securities to holders of Shares (other than a share purchase plan), that the record date will be at least six business days after the date the issue is announced.
(10) If there is a bonus issue to the holders of Shares:
(a) the number of Shares over which each of the Options are exercisable will be increased by the number of Shares which the holder of the Option would have received if the Option had been exercised before the record date for the bonus issue; and
(b) no change will be made to the Exercise Price.
(11) If, prior to the Expiry Date the issued capital of the Company is reorganised, the rights of the holders of the Options may be varied to comply with the ASX Listing Rules which apply to the reorganisation.
(12) If the Company makes a rights issue (other than a bonus issue), the Exercise Price of the Options will be reduced in accordance with the following formula:

Reduced Option O - E(P – (S + D)) Exercise Price =

(N + 1)

Where:

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O = the old Exercise Price of the Option;
E = the number of underlying Shares into which one Option is exercisable;
P = the volume weighted average price per Share recorded on the stock market of ASX during the 5 trading day immediately preceding the ex rights date or ex-entitlements date;
S = the subscription price for a Share under the pro rata issue;
D = the dividend due but not yet paid on existing underlying Shares (except those to be issued under the pro rata and
N = the number of Shares with rights or entitlements that must be held to receive a right to one new Share.

The Company will apply for quotation of the Attaching Options and Underwriter Options on ASX, but there is no guarantee quotation will be granted, unless the conditions for quotation are satisfied. The conditions for quotation include, amongst other things, there being a minimum of 100,000 Attaching Options and Underwriter Options (in aggregate) on issue, with at least 50 holders (in aggregate) with a Marketable Parcel. This will depend on the take up of Entitlements under the Rights Issue and the Shortfall.

If the Attaching Options and Underwriter Options do not satisfy the quotation conditions, the Attaching Options and Underwriter Options will be issued and allotted but will be unlisted Options that cannot be traded on ASX.

10.11. Performance Rights and Option Plan

The Company has adopted a Performance Rights and Option Plan ( Plan ).

Under the Plan, Directors, employees and consultants ( Personnel ) may be offered the opportunity to receive Options or Performance Rights in the Company in order to assist in the attraction, retention and motivation of Personnel.

The Plan is designed to provide incentives to Personnel and to recognise their contribution to the Company’s success. Under the Company’s current circumstances the directors of the Company consider that Options and Performance Rights are a cost effective and efficient means of incentivising Personnel. To enable the Company to secure personnel who can assist the Company in achieving its objectives, it is necessary to provide remuneration and incentives to such Personnel. The Plan is designed to achieve this objective, by encouraging continued improvement in performance over time.

Under the Plan, the Board may offer to eligible persons the opportunity to receive such number of Options or Performance Rights as the Board may decide on the terms and conditions set out in the Plan. Options or Performance Rights granted under the Plan will be offered to eligible persons on the basis of the Board’s view of the contribution of the eligible person to the Company.

It should be noted that Directors will not be eligible to participate in the Plan without first obtaining specific shareholder approval. Shareholder approval will be sought at the 2013 Annual General Meeting to be held on 19 November 2013 to the grant of 2,750,000 Performance Rights and 2,000,000 Option to the Managing Director and 500,000 Options to each Non-Executive Director (refer to Section 10.15for further details).

It should be noted that Directors will not be eligible to participate in the Plan without first obtaining specific shareholder approval.

The material terms of the Plan are summarised as follows:

(1) The Board may, in its absolute discretion, grant Performance Rights and/or Options to any member of Personnel.
(2) A Performance Right entitles its holder to a Share, subject to satisfaction of certain performance conditions determined by the Board. If the performance conditions are satisfied, the Performance Rights vest and upon exercise of the Performance Right Shares will be delivered to the holder.
(3) A Performance Right or Option entitles its holder to subscribe for a Share in the Company, subject to satisfaction of certain performance or vesting conditions determined by the Board. If the performance or vesting conditions are satisfied, the Options vest and may be exercised by the holder by payment of the exercise price, at any time up to the expiry date.
(4) Performance Rights or Options will lapse on the expiry date, or earlier in the following circumstances:
(a) where performance conditions have not been met by the date they were required to be satisfied;
(b) a determination is made by the Board that the relevant member of Personnel has acted fraudulently, dishonestly or in breach of their obligations to the Company and the Performance Rights or Options are to be forfeited;
(c) a determination by the Board that, where the invitation is accepted by an associate of a member of Personnel, the applicable member of Personnel has ceased to control the associate;

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(d) cessation of employment of the relevant member of Personnel, other than because of ‘qualifying reason’ (being death, retirement, retrenchment termination other than for cause or any other reason determined by the Board in its discretion);
(e) on the occurrence of a ‘control event’ (including a takeover bid being made for the Company, a proposed scheme of arrangement being announced, or any other event that Board considers should be regarded as a control event).
(5) No payment will be required for the grant of an Option or Performance Right, unless the Board determines otherwise.
(6) The maximum number of Options and Performance Rights that can be issued under the Plan is that number which equals 5% of the total number of issued Shares in existence from time-to-time subject to the Corporations Act, the ASX Listing Rules or any other statutory or regulatory requirements.
(7) If a ‘control event’ occurs, the Board may determine that all or a specified number of any unvested Performance Rights and/or Options granted will vest, subject to an conditions the Board may impose, or if the Board does not make such a determination, 50% of the unvested Performance Rights will vest and all unvested Options will vest and become exercisable, and must be exercised within 30 days or they will lapse.
(8) If any Shares are held in trust under the Plan following exercise of Performance Rights or Options, a member of Personnel may forfeit any right they have to Shares allocated to them if the Board determines they have acted fraudulently, dishonestly or in breach of their obligations to the Company.
(9) The Board also has the power, subject to the Listing Rules, to reset vesting conditions, adjust exercise prices and periods, deem Performance Rights or Options have lapsed in circumstances where a member of Personnel has acted fraudulently or dishonestly, is in breach of tis obligations to the Company, commits an act which brings the Company in disrepute or fails to perform.
(10) Participants in the Plan are prohibited from transferring Performance Rights or Options without the consent of the Board.
(11) Performance Rights and Options will not be listed for quotation on the ASX.
(12) Performance Rights and Options do not carry any rights or entitlements to dividends, return of capital or voting in shareholder meetings.
(13) Neither a Performance Right nor an Option entitles the holder to participate in any new issues of securities unless, before the record date for determining entitlements under the new issue, the Performance Right has vested or the Options has vested, been exercised and a Share has been issued in respect of that Options.
(14) If there is a pro-rata issue of shares by the Company, then unless the Board determines otherwise, the number of Shares a person is entitled to on exercise of a Performance Right or an Option will not change. The exercise price of an Option will be adjusted in accordance with the formula in the Listing Rules.
(15) If there is a bonus issue, the number of Shares over which as Performance Right or Option is exercisable will be increased by the number of Shares which the holder would have received under the bonus issue, had they exercised the security before the record date.
(16) Adjustments to Performance Rights and Options may also be made for capital reorganisations, subject to the Listing Rules.

10.12. Deeds of Access, Indemnity and Insurance

The Company has entered into a Deed of Access Indemnity and Insurance with each Director.

Under the terms of those Deeds, the Company has undertaken, subject to the restrictions under the Corporations Act and any other applicable law, to:

(1) indemnify each Director in certain circumstances;
(2) advance money to a Director for the payment of any legal costs incurred by a Director in defending legal proceedings before the outcome of those proceedings is known (subject to an obligation by the Director to repay any money advanced if the costs become costs in respect of which the Director is not entitled to be indemnified under the Deed);
(3) maintain Directors’ and Officers’ insurance cover (if available) in favour of each Director whilst they remain a director of the Company and for a run out period after ceasing to be such a director; and
(4) provide each Director with access to Board papers and other documents provided or available to the Director as an officer of the Company.

Deeds of Access, Indemnity and Insurance on similar terms were also entered into with the Former Directors of the Company who resigned on 16 September 2013.

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10.13. Litigation

The Directors are not aware of any current or threatened litigation, arbitration proceeding, administrative appeal or criminal or governmental prosecution of a material nature in which the Company is directly or indirectly concerned which is likely to have a material adverse impact on the business or the financial position of the Company.

10.14. Expenses of the Offers

The total expenses estimated to be incurred by the Company in relation to this Prospectus are approximately $785,000 (based on the Minimum Subscription) or $1,009,000 (based on the Full Subscription) and are expected to be applied towards the items set out in the table below:

Table 10.14 – Expenses of the Offers

Item of Expenditure	Minimum Subscription $ Full Subscription $
ASX and ASIC Legal fees Investigating Accountants Independent Technical Reports Printing, postage and share registry Underwriter, broker commissions and advisory fees Miscellaneous Total	85,000 91,000 90,000 90,000 10,000 10,000 60,000 60,000 50,000 50,000 450,000 668,000 40,000 40,000
	785,000 1,009,000

Additionally, the expenses of the offer include the fair value of Options granted to the underwriter at a valuation of $562,223.

10.15. Interests of Directors

a) Interests in Securities

The Directors are not required to hold any Shares in the Company under the Company's Constitution.

Subject to shareholder approval at the 2013 AGM and post Consolidation, the Chairman and Non-Executive Directors will also be entitled to a total of 500,000 Options each under the Plan as follows:

Table 10.15A - Securities to be issued to Non-Executive Directors subject to Shareholder approval

Director	Options (exercisable at $0.25 each on or before 31 July 2016)	Vesting Condition	Timeframe for satisfaction of Vesting Condition
Graham Spurling Non-Executive Chairman	150,000	Delivery of first 1,000 tonnes of graphite from the Uley Graphite Mine	31 May 2014
Glenister Lamont Non-Executive Director	150,000
Ian Schache Non-Executive Director	150,000
Graham Spurling Non-Executive Chairman	350,000	Practical completion of the full scale process plant for the Uley Graphite Mine and the completion of commissioning with 3 months’ operation at capacity	30 June 2015
Glenister Lamont Non-Executive Director	350,000
Ian Schache Non-Executive Chairman	350,000

Subject to shareholder approval at the 2013 AGM and post Consolidation, Mr Christopher Darby (or his nominee) will also be entitled to the 2,750,000 Performance Rights and 2,000,000 Options under the Plan as follows:

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Table 10.15B – Securities to be issued to Managing Director & CEO subject to Shareholder approval

Performance Rights	Options (exercisable at $0.25 each on or before 31 July 2016)	Vesting Condition	Timeframe for satisfaction of the Vesting Condition
687,500	500,000	Admission to Official List of ASX.	31 March 2014
687,500	500,000	Delivery of first 1,000 tonnes of graphite from the Uley Graphite Mine.	31 May 2014
687,500	500,000	Execution of definitive transaction documents for finance facility for the full-scale process plant for the Uley Graphite Mine.	31 October 2014
687,500	500,000	Practical completion of the full-scale process plant for the Uley Graphite Mine and the completion of commissioning with 3 months’ operation at capacity.	30 June 2015

No other securities will be issued to current Directors prior to listing, unless they participate in the Offers.

Current Directors intend to participate in the Rights Issue on the same terms as all other shareholders participating in the Offer and/or Shortfall Facility up to the amounts listed below:

Table 10.15C– Directors intended investment in Offers

Director	Investment	Shares	Attaching Options
Graham Spurling	$20,000.00	100,000	100,000
Ian Schache	$20,000.00	100,000	100,000
Glenister Lamont	$10,000.00	50,000	50,000

The table below sets out details of direct and indirect interests of the Directors in the securities of the Company at the date of this Prospectus and proposed to be issued, subject to approval at the Company’s 2013 AGM, and allocations under the Offers.

Table 10.15D– Relevant interests of Directors

	As at date of Prospectus	As at date of Prospectus	Following AGM and Consolidation and Offers1	Following AGM and Consolidation and Offers1
Name	Shares	Options and Performance Rights	Shares	Options and Performance Rights2
Graham Spurling	Nil	Nil	100,000	600,000 Options
Christopher Darby	Nil	Nil	Nil	2,000,000 Options 2,750,000 Performance Rights3
Glenister Lamont	50,000	Nil	75,000	550,000 Options
Ian Schache	Nil	Nil	100,000	600,000 Options

Based on the intended investments of each Director set out in Table 10.15C
The Options will each be exercisable at $0.25 on or before 31 July 2016. The Options (other than the Attaching Options taken up under the Offers) and the Performance Rights will be issued under the Performance Rights and Option Plan and will have additional vesting conditions as set out in Tables 10.15A and 10.15B.
When the Company is granted Admission to the Official List, 687,500 of these Performance Rights will vest for Shares.

b) Other Interests of Directors

Except as disclosed in this Prospectus, no Director (whether individually or in consequence of a Director's association with any company or firm or in any material contract entered into by the Company) has now, or has had, in the 2 year period ending on the date of this Prospectus, any interest in:

the formation or promotion of the Company; or

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property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offers; or
the Offers under the Prospectus.

Except as disclosed in this Prospectus, no amounts of any kind (whether in cash, Shares, Options or otherwise) have been paid or given or agreed to be paid or given to any Director or to any company or firm with which a Director is associated to induce him or her to become, or to qualify as, a Director, or otherwise for services rendered by him or her or any company or firm with which the Director is associated in connection with the formation or promotion of the Company or the Offer of the Shares.

10.16. Interests of Former Directors

a) Issue of securities in lieu of cash payment for accrued fees

Former Directors of the Company that resigned on 16 September 2013 will be entitled to Shares and Options to satisfy accrued but unpaid fees, to be issued Post Consolidation and conditional on the Company being granted Admission as follows:

Table 10.16A – Securities to be issued to former Directors in lieu of fees

Name	Accrued but unpaid fees (inclusive of superannuation)	Shares in lieu	Options in lieu1
Mark Muzzin	$23,491	117,454	1,000,000
Anthony Rechner	$23,491	117,454	1,000,000
Peter Armitage	$23,491	117,454	1,000,000
Total	$70,473.00	352,362	3,000,000

The Options will each be exercisable at $0.25 on or before 31 July 2016 and will be issued subject to Shareholder approval at the 2013 AGM.

b) Interests in securities

The table below sets out details of direct and indirect interests of the Former Directors in the securities of the Company at the date of this Prospectus and proposed to be issued, subject to approval at the Company’s 2013 AGM.

Table 10.16B– Relevant interests of Former Directors

	As at date of Prospectus	As at date of Prospectus	Following AGM and Consolidation1	Following AGM and Consolidation1
Name	Shares	Options	Shares	Options2 (exercisable at $0.25 each on or before 31 July 2016)
Mark Muzzin	6,375,000	Nil	3,304,954	1,000,000
Anthony Rechner	13,450,466	Nil	6,842,687	1,000,000
Peter Armitage	100,280	Nil	167,594	1,000,000
Total	19,925,746	Nil	10,315,235	3,000,000

This does not take into account any Shares or Attaching Options that may be issued to the Former Directors under the Offers. The Former Directors were unable to advise of their intentions in relation to the Offers as at the date of this Prospectus.
The Options in will each be exercisable at $0.25 on or before 31 July 2016 and will be issued subject to Shareholder approval at the 2013 AGM

b) Other Interests of Former Directors

Except as disclosed in this Prospectus, no Former Director (whether individually or in consequence of a Director's association with any company or firm or in any material contract entered into by the Company) has now, or has had, in the 2 year period ending on the date of this Prospectus, any interest in:

the formation or promotion of the Company; or
property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offers; or
the Offers under the Prospectus.

Except as disclosed in this Prospectus, no amounts of any kind (whether in cash, Shares, Options or otherwise) have been paid or given or agreed to be paid or given to any Former Director or to any company or firm with which a Former Director is associated to

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induce him or her to become, or to qualify as, a Former Director, or otherwise for services rendered by him or her or any company or firm with which the Former Director is associated in connection with the formation or promotion of the Company or the Offer of the Shares.

10.17. Directors Remuneration

The Directors are currently entitled to be remunerated as set out below:

Table 10.17A – Directors’ Remuneration

Name	Remuneration (Inclusive of Superannuation)	Options (exercisable at $0.25 each on or before 31 July 2016)	Performance Rights
Graham Spurling - Non-Executive Chairman	$75,000	500,000	Nil
Christopher Darby - Managing Director & CEO	$260,000	2,000,000	2,750,000
Glenister Lamont - Non-Executive Director	$50,000	500,000	Nil
Ian Schache - Non-Executive Director	$50,000	500,000	Nil
Total	$435,000	3,500,000	2,750,000

The issue of the Options and the Performance Rights and Options in the above table are subject to Shareholder approval at the 2013 AGM and will be subject to the Vesting Conditions described in Section 10.15. At the 2013 AGM, Shareholder approval will be sought to set the total remuneration of non-executive directors at $500,000 inclusive of superannuation. If approved, the total remuneration of non-executive directors must not exceed this cap in aggregate in any financial year unless Shareholders approve otherwise.

If a Director undertakes any work additional to that usually required by a director of a company similar to the Company, the Directors may award such special remuneration and fix the amount hereof at any time during or after the rendering of such special service or the undertaking of such additional work. Directors are also entitled to travelling expenses for or in connection with any journeys undertaken by them on the Company’s business.

There are no Directors' retirement benefits under any contracts or plan entered into between the Company and any Director and no such agreements are presently contemplated to be entered into.

Glenister Lamont is owed director fees of $36,465 owing to him up to the point of resignation of the Former Directors. Mr Lamont will be paid this amount in addition to the amount set out in table 10.17A upon the Company’s admission to the ASX.

The Former Directors have also been paid the following fees in cash:

Table 10.17B – Fees paid to Former Directors

Former Directors & Management (Resigned as at 16 September 2013)	Former Directors & Management (Resigned as at 16 September 2013)
Name	Cash
Mark Muzzin – Director	$820
Peter Armitage – Director	$820
Anthony Rechner – Director	$820

As at the date of this Prospectus, the Directors have been paid the following fees in cash (since the date of their appointment):

Table 10.17C – Fees paid to Directors

Current Directors & Management	Current Directors & Management
Name	Cash
Graham Spurling	Nil
Christopher Darby	$61,500
Glenister Lamont	Nil
Ian Schache	Nil

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STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Subject to any contract with the Company and to the Listing Rules, the Board may fix the remuneration of each Executive Director. That remuneration may consist of salary, bonuses or any other elements but must not be a commission on or percentage of profits or operating revenue. Executive Directors do not receive additional remuneration to act as Directors of the Company.

10.18. Number of Directors and Tenure

The number of Directors must not be less than three and, unless otherwise determined by the Company in general meeting, no more than six. Following Admission, at every annual general meeting of the Company, one-third of the Directors (excluding the Managing Director) must retire from office. Directors may be appointed or removed by resolution of the Company in general meeting. In addition, the Directors themselves may appoint additional Directors provided that any such Directors must have their appointment ratified by Shareholders at the next annual general meeting. Directors who retire at an annual general meeting may offer themselves for re-election.

10.19. Interests of Advisors and Experts

Except as disclosed in this Prospectus, no expert, promoter or any other person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of the Prospectus, nor any firm in which any of those persons is or was a partner nor any company with which any of those persons is or was associated, has now, or has had, in the 2 year period ending on the date of this Prospectus, any interest in:

the formation or promotion of the Company; or
property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offers; or
the Offers under this Prospectus.

Except as disclosed in this Prospectus, no amounts of any kind (whether in cash, Shares, options or otherwise) have been paid or given or agreed to be paid or given to any expert, promoter or any other person named in this Prospectus as performing a function in a professional advisory or other capacity in connection with the preparation or distribution of the Prospectus, or to any firm in which any of those persons is or was a partner or to any company in which any of those persons is or was associated with, for services rendered by that person in connection with the formation or promotion of the Company or the Offer under this Prospectus.

(a) In accordance with the terms of its engagement, Global Resources & Infrastructure Pty Ltd will be paid $50,000 (plus applicable GST) by the Company in relation to the provision of the Independent Technical Report set out in Section 6 of this Prospectus.
(b) In accordance with the terms of their engagement, Grant Thornton Audit Pty Ltd will be paid approximately $10,000 (plus applicable GST) by the Company in relation to provision of the Independent Accountants’ Report set out in Section 7 of this Prospectus.
(c) In accordance with the terms of the Mandate, Patersons Securities Limited, will be paid an underwriting fee of 6.0% of the gross amount raised by the Rights Issue (but in the case of any amount taken up by SER under the Rights Issue or any subunderwriters introduced by the Company, an underwriting fee of 2.0% will apply). Patersons Securities Limited will also be paid a corporate advisory fee of $60,000 (plus applicable GST) by the Company in relation to the provision of their services as Lead Manager. The Company will also reimburse Patersons Securities Limited for all out of pocket expenses of an incidental to the Rights Issue. All sub-underwriting fees will be the responsibility of Patersons Securities Limited.
(d) In accordance with the terms of their engagement, Watsons Lawyers will be paid approximately $90,000 (plus applicable GST and disbursements) by the Company for the provision of the Independent Solicitor’s Report set out in Section 8 of this Prospectus and services relating to the preparation of this Prospectus, associated due diligence and in relation to its role in assisting with the admission of the Company to the Official List. Further amounts may be paid to Watsons Lawyers in accordance with their usual time based fees. Mr Christopher Darby (Managing Director) is a Partner of Watsons Lawyers.
(e) In accordance with the terms of their engagement, Rigby Cooke Lawyers were paid approximately $6,000 (including GST and disbursements) by the Company for providing the advice on historical agreements referred to in Section 9.2
(f) In accordance with the terms of its engagement, Coffey Mining Consultants was paid approximately $50,500 (plus applicable GST and disbursements) by the Company for services relating to the updated JORC Code 2012 resource model for the Uley Graphite Mine.
(g) In accordance with the terms of its engagement, Jorvik Resources Pty Ltd was paid approximately $7,000 (plus applicable GST and disbursements) by the Company for services relating to supervising delivery of the updated JORC Code 2012 resource model for the Uley Graphite Mine.
(h) In accordance with the terms of its engagement, Pantera Holdings Pty Ltd (trading as Bluechip Engineering) was paid approximately $40,090 (plus applicable GST and disbursements) by the Company for the preparation of this Scoping Study Report referred to in this Prospectus.
(i) In accordance with the terms of its engagement, Tech Minerals Consulting Group Pty Ltd was paid approximately $22,800 (plus applicable GST and disbursements) by the Company for assisting in the preparation of this Scoping Study Report referred to in

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this Prospectus. Mr Christopher Darby (Managing Director) is a Director of Tech Minerals Consulting Group Pty Ltd and Crallan Pty Ltd (a company controlled by Christopher Darby) holds 50% of the shares in Tech Minerals Consulting Group Pty Ltd.

(j) In accordance with the terms of its engagement, Mimko Pty Ltd (a company controlled by Company Secretary, Jaroslaw Kopias), has been paid approximately $15,650 (plus applicable GST and disbursements) for services rendered to the Company up to 30 September 2013. Further amounts will also be paid for company secretarial and CFO services in accordance with usual fees.

10.20. Consents

Grant Thornton Audit Pty Ltd has given its written consent to being named as auditors of the Company and the inclusion in Section 7 of this Prospectus of its Investigating Accountants’ Report and to all statements referring to that report in the form and context in which they appear and have not withdrawn such consent before lodgement of this Prospectus with ASIC.

Patersons Securities Limited has given, and at the time of lodgement of this Prospectus, has not withdrawn its consent to be named as Lead Manager and Underwriter to the offer of securities under this Prospectus, in the form and context in which it is named.

Patersons Securities Limited was not involved in the preparation of any part of this Prospectus and did not authorise or cause the issue of this Prospectus. Patersons Securities Limited makes no express or implied representation or warranty in relation to the Strategic Graphite Limited Prospectus or the offer and does not make any statement in this Prospectus, nor is any statement in it based on any statement made by Patersons Securities Limited. To the maximum extent permitted by law, Patersons Securities Limited expressly disclaims and takes no responsibility for any material in, or omission from, this Prospectus other than the reference to its name.

Further, each of the following has consented in writing to being named in the Prospectus in the capacity noted below and in the form and context in which they have been named, and has not withdrawn such consent prior to the lodgement of this Prospectus with ASIC:

(a) Link Market Services Limited, has given, and not withdrawn, its consent to be named as the Share Registry of the Company.
(b) Ian Buckingham and Global Resources & Infrastructure Pty Ltd have given, and not withdrawn, their consent to be named as Independent Technical Consultants to the Company with respect to the Independent Technical Report contained in this Prospectus. Ian Buckingham is the Managing Director of Global Resources & Infrastructure Pty Ltd. Ian Buckingham (in his individual capacity) and Global Resources & Infrastructure Pty Ltd does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Ian Buckingham or Global Resources & Infrastructure Pty Ltd other than the Independent Technical Report.
(c) Watsons Lawyers has given, and not withdrawn, its consent to be named as solicitors to the Company with respect to the Offer and the Company’s application for admission to the Official List, but it does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Watsons Lawyers, other than the Solicitor’s Report.
(d) Coffey Mining Consultants has given, and not withdrawn, its consent to be named as mining consultant to the Company with respect to the Company’s Uley Main Road Graphite Mineral Resource, but it does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Coffey Mining Consultants other than in relation to the 2013 Report and the competent persons statement in Section 4.2.
(e) Jorvik Resources Pty Ltd and Karen Lloyd have given, and not withdrawn, its consent to be named as mining consultant to the Company with respect to the Company’s Uley Graphite Mine, but it does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Jorvik Resources Pty Ltd other than as expressly stated in this Prospectus and the Competent persons statement in Section 4.2.
(f) Rigby Cooke Lawyers has given and not withdrawn its consent to the inclusion of the statements in this Prospectus expressly attributed to Rigby Cooke Lawyers, in the form and context in which those statements are included.
(g) Strategic Energy Resources Limited has given, and not withdrawn, its consent to be named in this prospectus, but does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Strategic Energy Resources Limited other than with respect to its intention to participate in the Rights Issue in section 2.19 of this Prospectus.
(h) Pantera Holdings Pty Ltd (trading as Bluechip Engineering) has given, and not withdrawn, its consent to be named as consultant to the Company with respect to preparation of the Scoping Study Report referred to in this Prospectus, but it does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Bluechip Engineering other than the information included in section 3 of this Prospectus.
(i) Ingvar Kirchner, Ellen Maidens, Chris Campbell-Hicks and Harry Warries have given, and not withdrawn, their consent to be named as a Competent Person with respect to the Company’s Uley Graphite Mine, but does not make any statement in this Prospectus, nor is any statement in this Prospectus based on any statement by Ingvar Kirchner, Ellen Maidens, Chris CampbellHicks and Harry Warries other than as specified in the Prospectus and in Section 4.2.

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STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

11. DIRECTORS’ RESPONSIBILITY AND CONSENT STATEMENT

The Directors of the Company report that for the purposes of Section 731 of the Corporations Act, they state that they have made all enquiries that were reasonable in the circumstances and have reasonable grounds to believe that any statements by them in this Prospectus are true and not misleading or deceptive, and that with respect to any other statements made in this Prospectus by persons other than the Directors, the Directors have made reasonable enquiries and have reasonable grounds to believe that persons making the statement or statements were competent to make such statements, those persons have given the consent required by Section 716(2) of the Corporations Act and have not withdrawn that consent before lodgement of this Prospectus with ASIC.

Each Director of the Company consents to the lodgement of this Prospectus with ASIC, and has not withdrawn that consent prior to this Prospectus being lodged.

This Prospectus is prepared on the basis that:

certain matters may be reasonably expected to be known to professional advisers of the kind with whom applicants may reasonably be expected to consult; and
information is known to Applicants or their professional advisers by virtue of any Acts or laws of any State or Territory of Australia or the Commonwealth of Australia.

This Prospectus is dated 15 November 2013.

Signed on behalf of the Company by

==> picture [223 x 41] intentionally omitted <==

Chairman

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STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

12. GLOSSARY

These definitions are provided to assist investors in understanding some of the expressions used in this Prospectus:

2013 AGM	The Annual General Meeting of the Company to be held on 19 November 2013.
Additional Funding	The additional funding of approximately $34 million required to fund Phase 2, which may be
	obtained through offtake contract factoring finance, royalty finance or straight debt finance.
Admission	Admission to the Official List of ASX.
Applicant	A person who submits an Application.
Application	A valid application to subscribe for New Securities using an Application Form.
Application Form	A Rights Issue Application Form or a Shortfall Application Form.
Application Monies	Monies received from an Applicant in respect of their Application.
ASIC	Australian Securities and Investments Commission.
ASX	ASX Limited (ACN 008 624 691).
ASX Settlement	ASX Settlement Pty Ltd (ACN 008 504 532).
ASX Settlement Operating Rules	The settlement rules of ASX Settlement.
Attaching Option	An Option offered under this Prospectus exercisable at $0.25 for a Share and expiring on 31
	July 2016 and otherwise on the terms and conditions set out in Section 10.10 (including
	Attaching Options offered under the Rights Issue and the Shortfall Facility, and Prior
	Placement Options as applicable)
Bluechip Engineering	Pantera Holdings Pty Ltd, trading as Bluechip Engineering
Board	The Board of Directors of the Company.
CHESS	Clearing House Electronic Sub Register System operated by ASX Settlement.
Closing Date	5 December 2013 or such other date as determined by the Board.
Company	Strategic Graphite Limited (ACN 008 101 979).
Consolidation	the consolidation of the Share capital of the Company on a 1:2 basis.
Constitution	The constitution of the Company from time to time.
Corporations Act	Corporations Act 2001(Cth).
Directors	each of the Directors of the Company from time to time.
DMITRE	the South Australian Departmentfor Manufacturing, Innovation, Trade, Resources and Energy.
Eligible Shareholders	a registered holder of Shares with a registered address in either Australia or New Zealand as
	at the Record Date.
Entitlement	Each Eligible Shareholder’s right to subscribe for 3 Shares at the Issue Price for every 8
	Shares recorded in their name on the Share register on the Record Date (after taking into
	account the Consolidation) with a free Attaching Option for every Share subscribed for.
Event of Insolvency	(a) a receiver, manager, receiver and manager, trustee, administrator, controller or
	similar officer is appointed in respect of a person or any asset of a person;
	(b) a liquidator or provisional liquidator is appointed in respect of a corporation;
	(c) any application (not being an application withdrawn or dismissed within 7 days) is
	made to a court for an order, or an order is made, or a meeting is convened, or a
	resolution is passed, for the purpose of:

(i) appointing a person referred to in paragraphs (a) or (b);

(ii) winding up a corporation; or (iii) proposing or implementing a scheme of arrangement;

(d) any event or conduct occurs which would enable a court to grant a petition, or an order is made, for the bankruptcy of an individual or his estate under any Insolvency

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Provision;

(e) a moratorium of any debts of a person, or an official assignment, or a composition, or an arrangement (formal or informal) with a person's creditors, or any similar proceeding or arrangement by which the assets of a person are subjected conditionally or unconditionally to the control of that person's creditors or a trustee, is ordered, declared, or agreed to, or is applied for and the application is not withdrawn or dismissed within 7 days; (f) a person becomes, or admits in writing that it is, is declared to be, or is deemed under any applicable Act to be, insolvent; or

(g) any writ of execution, garnishee order, mareva injunction or similar order, attachment, distress or other process is made, levied or issued against or in relation to any asset of a person.

Exposure Period The seven day period beginning on the day when the original prospectus dated 7 November 2013 was lodged with ASIC. Former Directors Anthony Rechner, Mark Muzzin and Peter Armitage Foreign Acquisitions and Takeovers Foreign Acquisitions and Takeovers Act 1975 (Cth). Act Full Subscription the amount of $10,139,626 by the acceptance of at least 50,698,130 Shares at $0.20 per Share and 66,948,130 free Attaching Options under this Prospectus. HIN Holder Identification Number. Insolvency Provision means any Act relating to insolvency, sequestration, liquidation or bankruptcy (including any Act relating to the avoidance of conveyances in fraud of creditors or of preferences, and any Act under which a liquidator or trustee in bankruptcy may set aside or avoid transactions), and any provision of any agreement, arrangement or scheme, formal or informal, relating to the administration of any of the assets of any person. Issue the issue of New Securities under this Prospectus. Issue Price $0.20 per Share. Jorvik Resources Jorvik Resources Pty Ltd (ABN 83 163 383 677) Lead Manager Patersons Securities Limited (ACN 008 896 311). Listing Rules the official listing rules of the ASX. Mandate the mandate letter from the Underwriter to the Company dated 7 August 2013 and signed by the Company on 8 August 2013. Marketable Parcel in respect to Shares means a parcel of Shares of not less than $500 and based on a $0.20 issue price means of parcel of not less than 2,500 Shares and in respect of Options means a parcel of Option that if exercised in full would give a parcel of Shares of not less than $500, being 2,500 based on a $0.20 issue price. Material Adverse Event (a) a material adverse effect on the outcome of the Rights Issue or on the subsequent market for the New Securities (including, without limitation, matters likely to have a material adverse effect on a decision of an investor to invest in New Securities); (b) a material adverse effect on the assets, condition, trading or financial position, performance, profits and losses, results, prospects, business or operations of the Company and its Subsidiaries either individually or taken as a whole;

(c) the Underwriter's obligations under the Underwriting Agreement becoming materially more onerous than those which exist at the date of the Underwriting Agreement; (d) a material adverse effect on the tax position of either: (i) the Company and its Subsidiaries either individually or taken as a whole; or (ii) an Australian resident shareholder in the Company.

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STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Mineral Resource

The defined mineral resource at the Company’s Uley Main Road deposit at Uley in South Australia, reported under the JORC Code 2012, comprising:

1.9Mt Indicated Resource (at a lower cut-off grade of 3.5% graphitic carbon) with average grade of 10.7% graphitic carbon; and
4.5 Mt Inferred Mineral Resource (at a lower cut-off grade of 3.5% graphitic carbon) with average grade of 5.5% graphitic carbon.

the amount of $6,500,000 by the acceptance of at least 32,500,000 Shares at $0.20 per Share and 32,500,000 free Attaching Options under this Prospectus.

Minimum Subscription

Shares and/or Attaching Options offered under this Prospectus.

New Securities

Offers The Rights Issue, the Shortfall Facility the Placement and/or the Option Issue (as applicable) Official List The official list of the ASX. Opening Date 19 November 2013 Option An option to acquire a Share. Option Issue The Prior Placement Option Issue and the Underwriter Option Issue. Phase 1 Phase 1 of the Company’s proposed operations, covering restart processing at the Uley Graphite Mine, as detailed in Section 3.2. Phase 2 Phase 2 of the Company’s operations, covering the construction of a new graphite processing plant and a program of pit design for associated open pit mining operations. Placement The placement of 7,500,000 Shares at $0.20, with one (1) free Attaching Option for every Share subscribed for. Plan The Performance Rights Plan described in Section 10.11. Prescribed Occurrence

(a) the Company (or a subsidiary) converting all or any of its shares into a larger or smaller number of shares;
(b) the Company (or a subsidiary) resolving to reduce its share capital in any way;

(c) the Company (or a subsidiary): (i) entering into a buy-back agreement; or (ii) resolving to approve the terms of a buy-back agreement under Section 257C or 257D of the Corporations Act;

(d) the Company (or a subsidiary) making an issue of, or granting an option to subscribe for, any of its shares, or agreeing to make such an issue or grant such an option, other than an issue or agreement to issue in accordance with the Offers or the terms of this Agreement;
(e) the Company (or a subsidiary) issuing, or agreeing to issue, convertible notes;
(f) the Company (or a subsidiary) disposing, or agreeing to dispose, of the whole, or a substantial part, of its business or property;
(g) the Company (or a subsidiary) charging, agreeing to charge, the whole, or a substantial part, of its business or property;
(h) the Company (or a subsidiary) resolving that it be wound up;
(i) the appointment of a liquidator or provisional liquidator to the Company (or a subsidiary); or
(j) the making of an order by a court for the winding up of the Company (or a subsidiary).

Prior Placement

Prior Placement Investors

The placement of 12,500,000 Shares at $0.08 to raise $1million (or 6,250,000Shares at $0.16 post Consolidation) prior to the lodgement of this Prospectus.

Institutional and professional investors that participated in the Prior Placement.

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STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

Prior Placement Option Issue	The offer of 3,125,000 Attaching Options (post Consolidation), made to investors that
	subscribed or applied for Shares under the Prior Placement.
Prospectus	This replacement prospectus dated 15 November 2013, which replaces the original prospectus
	issued by the Company dated 7 November 2013.
Record Date	5:00pm Sydney time on 7 November 2013.
Restricted Securities	Has the meaning given to that term in the Listing Rules.
Rights Issue	The offer of Shares to Eligible Shareholders on the basis of 3 Shares for every 8 Shares held
	by those Eligible Shareholders as at the Record Date (after taking into account the 1:2
	Consolidation), at a price of $0.20 per Share, with one (1) free Attaching Option for every
	Share subscribed for.
Rights Issue Application Form	A personalised Application Form attached to or accompanying this Prospectus for acceptance
	of the Rights Issue.
Scoping Study	A scoping study in respect of the Uley Graphite Mine published by Pantera Holdings Pty Ltd
	trading as Bluechip Engineering (October 2013).
Securities	Shares and/or Options (as appropriate).
SER	Strategic Energy Resources Limited ACN 051 212 429
Share	A fully paid ordinary share in the Company.
Share Registry	Link Market Services Limited (ACN 083 214 537).
Shareholder	A holder of Shares.
Shortfall or Shortfall Shares	Those Shares forming Entitlements or part of Entitlements not accepted under the Rights
	Issue.
Shortfall Application Form	The Shortfall Application Form accompanying this Prospectus for application under the
	Shortfall Facility.
Shortfall Notice Deadline Date	9 December 2013
Shortfall Facility	The offer of to subscribe for Shortfall Shares with one (1) free Attaching Option for every
	Shortfall Share subscribed for.
Sub-Underwriter	A person identified by the Underwriter who act subscribe for Shortfall Shares as sub-
	underwriters to the Rights Issue and the Shortfall Facility, in accordance with the terms of the
	Underwriting Agreement
Tenements	Mining leases ML 5561 and ML5562, Retention Leases RL 66 and RL 67 and Exploration
	Licence EL 4778 granted under the_Mining Act 1971_(SA)
TGC	Total Graphite Carbon
Uley Graphite Mine	The Company’s main project comprising an established graphite processing facility and
	associated infrastructure on land owned by the Company and the associated Mineral Resource
Underwriter	Patersons Securities Limited (ACN 008 896 311)
Underwriter Option Issue	The issue of Underwriter Options to the Sub-Underwriters in accordance with the terms of the
	Underwriting Agreement on the basis of one (1) Underwriter Option for ever two (2) Shares
	subscribed for by the relevant Sub-Underwriter
Underwriter Options	The Options to be granted to the Sub-Underwriters under the Underwriter Option Issue as part
	consideration for the underwriting of the Rights Issue and Shortfall Facility, on the terms and
	conditions set out in Section 10.10 .
Underwriting Agreement	The Underwriting Agreement between the Company and the Underwriter dated 7 November
	2013.

184

AI assistant

QUANTUM GRAPHITE LIMITED — Capital/Financing Update 2013

65646_rns_2013-11-17_feaaa6df-984a-4d06-a7ec-1c2a767c7132.pdf

STRATEGIC GRAPHITE LIMITED

REPLACEMENT PROSPECTUS 2013

REPLACEMENT PROSPECTUS FOR:

CORPORATE DIRECTORY

DIRECTORS AND COMPANY SECRETARY

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS

LEAD MANAGER & UNDERWRITER

SHARE REGISTRY

AUDITOR

SOLICITORS

INVESTIGATING ACCOUNTANT

INDEPENDENT TECHNICAL

INDICATIVE TIMETABLE

KEY CAPITAL INFORMATION

HOW TO INVEST

CONTENTS

IMPORTANT INFORMATION

LODGEMENT

NOTE TO APPLICANTS

JURSIDICTION

EXPOSURE PERIOD

ELECTRONIC PROSPECTUS

LISTING

FORWARD LOOKING STATEMENTS

MAPS & DIAGRAMS

FINANCIAL AMOUNTS

DISCLAIMER

WARNING STATEMENT APPLICABLE TO NEW ZEALAND INVESTORS

ENQUIRIES REGARDING THE OFFERS

This document is important and should be read in its entirety.

LETTER FROM THE CHAIRMAN

1. INVESTMENT OVERVIEW

1.1. About Strategic Graphite Limited

1.2. Key Risks

2. THE OFFERS

2.1. The Offers

2.2. Minimum Subscription

2.3. Rights Issue

2.4. Shortfall Facility

2.5. How to accept the Rights Issue offer

Pay by BPAY®

Pay by cheque, bank draft or money order

(c) Submitting Application Forms and Application Cheques

2.6. Placement

2.7. Prior Placement Options

2.8. Underwriter Options

2.9. Conditional Offer

2.10. ASX Listing

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2.11. Purpose of the Offers

2.12. Use of Funds

The Directors believe that the Company will have sufficient funds to meet the business objectives set out in the use of funds as expressed in this Prospectus, upon successful completion of the Offers.

2.13. Indicative Dates

2.14. Allocation policy

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2.15. Underwriting

2.16. Overseas Applicants

2.17. Prohibition on exceeding the 20% voting power threshold

2.18. Effect of the Offers on the Capital Structure of the Company

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

2.19. Potential effect on Control

2.20. Withdrawal

2.21. CHESS

2.22. Restricted Securities

2.23. Taxation and Stamp Duty Implications

2.24. Risk Factors

2.25. Privacy

2.26. Rounding

2.27. Enquiries

3. COMPANY AND PROJECT OVERVIEW

3.1. Strategic Graphite

3.2. Business Objectives

Phase One

Phase Two

3.3. Use of Funds Raised under this Prospectus

STRATEGIC GRAPHITE LIMITED – REPLACEMENT PROSPECTUS 2013

QUANTUM GRAPHITE LIMITED Capital/Financing Update 2013