THORNEY TECHNOLOGIES LTD - Proxy Solicitation & Information Statement 2007

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

NOTICE OF GENERAL MEETING

PROXY FORM

and

EXPLANATORY MEMORANDUM

DATE OF MEETING Wednesday, 29 August 2007 TIME OF MEETING 9.30 am WST PLACE OF MEETING

Broadwater Pagoda Resort Hotel 112 Melville Parade, Como, Western Australia

This Notice of General Meeting and Explanatory Memorandum should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser without delay.

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

NOTICE OF GENERAL MEETING

Notice is hereby given of a General Meeting of Australian Renewable Fuels Limited (“ the Company ”) to be held at the Broadwater Pagoda Resort Hotel, 112 Melville Parade, Como, Western Australia on Wednesday, 29 August 2007 at 9.30am Western Standard Time for the purpose of transacting the following business.

An Explanatory Memorandum containing information in relation to each of the following Resolution accompanies this Notice of Meeting.

Please note terms used in the Resolution contained in the Notice of Meeting have the same meaning as set out in the glossary of the Explanatory Memorandum accompanying this Notice.

A G E N D A

BUSINESS:

Resolution 1 - Issue of Common Stock by American Renewable Fuels Inc to the Company

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

"That, pursuant to and in accordance with Listing Rule 10.9.2 and for all other purposes, the Shareholders of the Company agree to the issue by American Renewable Fuels Inc (" ARF Inc ") of 5.5 million shares of common stock to the Company in full and final satisfaction of debts and liabilities totalling US$5.5 million owing by ARF Inc to the Company, on the terms and conditions as more particularly described in the Explanatory Memorandum accompanying this Notice of Meeting.”

The Company will disregard any votes cast on this Resolution 1 by a party to this transaction and any associates of a party to this transaction. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

By order of the Board

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Max L Ger

Finance Director/Company Secretary

20 July 2007

PROXIES

Votes at the General Meeting may be given personally or by proxy, attorney or representative.
A Shareholder entitled to attend and vote at the above meeting may appoint not more than two proxies to attend and vote at this meeting. Where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the Shareholder's voting rights.
A proxy may, but need not be, a Shareholder of the Company.
The instrument appointing the proxy must be in writing, executed by the appointor or his attorney duly authorised in writing or, if such appointor is a corporation, either under seal or under hand of an officer of his attorney duly authorised.
The instrument of proxy (and the power of attorney or other authority, if any, under which it is signed) must be lodged by person, post, courier or facsimile and reach the Registered Office of the Company at least 48 hours prior to the meeting. For the convenience of Shareholders a Proxy Form is enclosed.

ENTITLEMENT TO VOTE

For the purposes of section 1074E(2) of the Corporations Act and regulation 7.11.37 of the Corporations Regulations, the Company determines that members holding ordinary shares at 5.00 pm WST on Monday, 27 August 2007 will be entitled to attend and vote at the General Meeting.

CORPORATIONS

A corporation may elect to appoint a representative in accordance with the Corporations Act in which case the Company will require written proof of the representative's appointment which must be lodged with, or presented to the Company before the meeting.

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

EXPLANATORY MEMORANDUM

This Explanatory Memorandum has been prepared for Shareholders in connection with the business to be conducted at a General Meeting of Australian Renewable Fuels Limited ("the Company ") to be held at Broadwater Pagoda Resort Hotel, 112 Melville Parade, Como, Western Australia on Wednesday 29 August 2007 at 9.30am WST.

An Independent Expert’s Report prepared by BDO Consultants (WA) Pty Ltd (a copy of which is attached as Annexure B to this Explanatory Memorandum) comments on whether the transactions, the subject of Resolution 1, are fair and reasonable to the non-associated Shareholders of the Company.

Shareholders should note that BDO Consultants (WA) Pty Ltd has concluded that the proposals, the subject of Resolution 1, are fair and reasonable to the non-associated Shareholders of the Company.

The Directors recommend that Shareholders read this Explanatory Memorandum before determining whether or not to support the Resolution.

Resolution 1 - Debt to Equity Conversion

Background

On 15 February 2007, ARF Inc issued 5,500,000 shares of Common Stock to the Company. Immediately prior to the share issue, the Company held 57.45% of the issued Common Stock and Energea Umwelttechnologie GmbH's (" Energea ") held the remaining 42.55% of issued Common Stock. The issue of the additional 5,500,000 shares of Common Stock to the Company on 15 February 2007 increased the Company's interest in ARF Inc to 65.52% and diluted Energea's interest to 34.48%.

As disclosed by the Company in its Prospectus dated 12 March 2007 for a pro-rata nonrenounceable rights issue to raise $11.655 million, the Common Stock was issued to the Company in satisfaction of debts totalling US$5.5 million payable by ARF Inc to the Company. US$5 million of these debts related to the acquisition by ARF Inc of all of Energea's right, title and interest in the patents held in the NAFTA Zone, as well as the right to exploit the technology and know-how for the construction and operation of plants of any capacity to produce biodiesel in the NAFTA Zone (" NAFTA Rights "). The US$5 million debt had accrued pursuant to the following transactions:

(a) the Company paid two instalments of US$1million each in March 2006 and October 2006 to Energea on behalf of ARF Inc for the acquisition of the NAFTA Rights pursuant to Development Agreements between the Company and Energea dated 25 March 2006 and 8 September 2006; and
(b) the Company advanced an amount of US$3 million to ARF Inc for the purposes of ARF Inc making a final payment for the NAFTA Rights to ARF Inc pursuant to a loan agreement dated 21 December 2006 (" Loan Agreement ").

The remaining amount of US$500,000 had been advanced by the Company to ARF Inc for working capital pursuant to the Loan Agreement.

In February 2007, the board of directors and shareholders of ARF Inc unanimously resolved to issue 5.5 million shares of Common Stock to the Company at an issue price of US$1 each to repay the aggregate amount of US$5.5 million.

ARF Inc's history of Incorporation and Issued Share Capital

The history of ARF Inc's incorporation and issued capital is as follows:

ARF Inc was incorporated on 29 August 2006 in the State of Delaware, USA, with the authority to issue 23,500,000 shares of Common Stock. At that time, no shares in ARF Inc were issued;
on 27 November 2006, 100,000 shares of Common Stock in ARF Inc were issued to the Company at an issue price of US$0.0001 each, at which time ARF Inc became a wholly owned subsidiary of ARF;
on 13 December 2006, 13,400,750 shares of Common Stock were issued to the Company and 9,999,250 shares of Common Stock were issued to Energea, at an issue price of US$0.0001 each, whereby the shareholdings in ARF Inc became: ARF 57.45% and Energea 42.55%;
on 6 February 2007, the board of directors and stockholders of ARF Inc unanimously resolved to increase the authorised share capital of ARF Inc to 50,000,000 shares of Common Stock and 1,000,000 shares of preferred stock;
on 15 February 2007, 5,500,000 shares in ARF Inc were issued to the Company pursuant to a unanimous resolution of the board of directors and stockholders of ARF Inc, so that the shareholdings in ARF Inc became: ARF 65.52% and Energea 34.48%; and
in May 2007, the board of directors and stockholders of ARF Inc unanimously resolved to increase the authorised capital of preferred stock to 5,000,0000 shares.

Security offering by ARF Inc

On or about 25 May 2007, ARF Inc and its subsidiary, ARFuels LLC, issued a Confidential Private Offering Memorandum (" CPOM ") for the offer of 395,400 units, with each unit comprising one share of Series A Redeemable and Convertible Preferred Stock (" Series A Preferred Stock ") and one unit of membership interest (" LLC Unit ") in ARFuels LLC (" Offering ") at a purchase price of US$17 per unit. ARFuels LLC was formed by ARF Inc to evaluate, construct and ultimately operate the first ARF Inc Group biodiesel plant in the United States. The majority of the funds from the Offering will be made available to LLC for the purposes of undertaking a validation study in relation to the first biodiesel plant and working capital for general corporate purposes. Additional funding of approximately US$70 million will be needed to construct the first proposed biodiesel plant. Working capital requirements are estimated to be US$25 million.

The Offering is being made to accredited investors within the meaning of the Securities Act. The Offering was due to close on 29 June 2007, but it was extended by ARF Inc to address the enquiries of potential investors.

The purchase price of US$17 per unit comprises US$10 for each share of Series A Preferred Stock and US$7 for each LLC Unit.

The 395,400 shares of Series A Preferred Stock are currently convertible into 3,954,000 shares of Common Stock. Accordingly, the deemed issue price of US$1 per share in relation to the Common Stock issued to the Company pursuant to the debt to equity conversion in February 2007 is the same price per share of Common Stock under the Offering.

If the Offering is fully subscribed, the shareholding of Common Stock in ARF Inc on a fully diluted basis will be as follows:

Shareholder	Current	Current	After the Offering	After the Offering
	Shares	Percentage	Shares	Percentage
ARF	19,000,750	65.52%	19,000,750	57.66%
Energea	9,999,250	34.48%	9,999,250	30.34%
US accredited investors	Nil	0%	3,954,000	12%
Total	29,000,000	100%	32,954,000	100%

The CPOM states that the net proceeds from the Offering after payment of Offering expenses are estimated to be US$6,641,800, comprising US$3,954,000 from the issue of the Series A Preferred Stock by ARF Inc and US$2,687,800 from the issue of the LLC Units by ARFuels LLC. ARF Inc intends to contribute US$2,767,800 to ARFuels LLC and the remaining US$1,186,200 will be used by ARF Inc for working capital. It is anticipated that the US$5,455,600 will be used by LLC to conduct the validation study in relation to ARF Inc Group's first biodiesel plant in the US, to secure a contract with an engineering, procurement and construction company and to provide working capital.

The CPOM replaced an Offering Memorandum by ARF Inc dated 9 February 2007 to raise up to US$6.7 million as disclosed by the Company in its Prospectus dated 12 March 2007.

Listing Rule 10.1

Listing Rule 10.1 prohibits a listed company from acquiring a substantial asset from, or disposing of a substantial asset to, a subsidiary (unless that subsidiary is wholly owned), without first obtaining shareholder approval. In February 2007, ARF Inc was a subsidiary of the Company for the purposes of Listing Rule 10.1.

An asset is substantial if its value or the value of the consideration for it is 5% or more of the sum of the equity interests of the Company set out in the latest accounts given to ASX under the Listing Rules prior to the date of the relevant transaction. The amount of US$5.5 million constituted a "substantial asset" of the Company, as that term is defined in Listing Rule 10.2, having regard to the Company's 31 December 2006 accounts. Accordingly, the issue by ARF Inc of 5.5 million shares of Common Stock to discharge debts of US$5.5million payable by ARF Inc to the Company gave rise to acquisition by the Company of a substantial asset from a subsidiary for the purposes of Listing Rule 10.1.

In December 2006 the Company loaned US$3.5m to ARF Inc to finance the acquisition of the NAFTA Rights and for working capital. In September 2006, when the Company entered into the agreement with Energea for the acquisition of the NAFTA Rights, it was agreed that after ARF Inc was incorporated, the Company would be granted the right to take up additional equity in ARF Inc. The loan has been converted by the Company into equity in ARF Inc. When the initial Common Stock in ARF Inc was issued, ARF Inc was a wholly owned subsidiary of the Company, but at the time the Company converted its loan into equity in ARF Inc, as contemplated by the September 2006 agreement, ARF Inc had ceased to be a wholly owned subsidiary of the Company. The Company made an application to the ASX for a waiver of Listing Rule 10.1. ASX did not grant this waiver and by letter dated 4 June 2007, ASX requested the Company to take corrective action in relation to this breach by seeking Shareholder approval under Listing Rule 10.9.2 by 4 September 2007.

Accordingly, the Company seeks Shareholder approval under Listing Rule 10.9.2 to the issue by ARF Inc of 5.5 million shares of Common Stock to the Company at an issue price of US$1 each to discharge debts totalling US$5.5million payable by ARF Inc to the Company.

The Independent Expert's Report prepared by BDO Consultants (WA) Pty Ltd has been prepared in accordance with the requirements of Listing Rule 10.10 and is attached as Annexure B to this Explanatory Memorandum.

Recommendations of the non-associated Directors

Messrs Alan Mulgrew, Max Ger, Graham Scott, Glyn Denison, Robert Scott and Geoffrey Towner are considered independent for the purposes of Resolution 1, as they do not have any personal interest in the outcome of Resolution 1.

Messrs Alan Mulgrew, Max Ger, Graham Scott, Glyn Denison Robert Scott and Geoffrey Towner seek Shareholder approval for the transaction which has already been undertaken on the basis that, in their opinion, the transaction was in the best interests of the Company and its Shareholders as:

(a) the debt to equity conversion has allowed the Company to maintain a greater controlling interest in ARF Inc, than otherwise would have been the case once the funds are raised pursuant to ARF Inc’s current fundraising activity;
(b) as disclosed by the Company in its Prospectus dated 12 March 2007, the Directors view the US expansion through ARF Inc as a major strategic initiative for the Company and they currently wish to undertake this, via a subsidiary (greater than 50%). The Directors are of the view that support for the biofuels sector in the US is both bipartisan and strong. In addition to State Government initiatives in the US supporting the biodiesel industry, there is also an existing US$1 per gallon Federal blending credit for eligible biofuels. ARF Inc currently anticipates access to this payment. It should be noted that this program ends in 2008, but is expected to be extended, perhaps indefinitely under the provisions of the Renewable Fuels and Energy Independence Promotion Act. To this end, the House of Representatives has already passed this Democrat sponsored bill which would remove the termination provisions of the current arrangements and give the Blending Credit indefinite life;
(c) the Company has been able to manage any reduction in working capital arising from the discharge of the debt by the issue of Common Stock rather than cash, through a combination of equity raisings and its existing debt facilities with HSBC Bank Australia Limited; and
(d) the Directors are of the view that if the Company did not agree to the debt to equity conversion then:
ARF Inc would not at that time have had the money to repay the indebtedness to the Company; and
ARF Inc would have had greater difficulty in raising money from potential investors in the United States (as it is currently doing) as investors would not want to fund ARF Inc only to see the funds raised, used to repay inter-company debt.

GLOSSARY

In this Explanatory Memorandum and the Notice, the following terms have the following meanings unless the context otherwise requires:

ARForCompany	Australian Renewable Fuels Limited ABN 66 096 782 188.
ARF Inc	American Renewable Fuels Inc., a company incorporated in the
	State of Delaware, USA.
ARFuels LLC	ARFuels LLC, a limited liability company incorporated in the
	State of Delaware, USA.
ASIC	Australian Securities and Investments Commission.
ASX	ASX Limited ACN 008 624 691 (formerly the Australian Stock
	Exchange Limited and now operating under the name, Australian
	Securities Exchange).
Board	The board of Directors of the Company.
Business Day	Monday to Friday inclusive except New Year's Day, Good Friday,
	Easter Monday, Christmas Day, Boxing Day and any other day
	that ASX declares is not a business day.
Common Stock	Common stock in the capital of ARF Inc. The principal rights
	attaching to such common stock is set out in Annexure A.
Corporations Act	Corporations Act 2001 (Cth).
Corporations	Corporations Regulations 2001 (Cth).
Regulations
Director	A director of the Company.
Energea	Energea Umwelttechnologie GmbH.
General Meeting	The general meeting of Shareholders convened by the Notice.
Loan Agreement	Loan Agreement dated 21 December 2006 for the advance by the
	Company of US$3.5 million to ARF Inc.
Listing Rules	The Listing Rules of ASX.
NAFTA Rights	All of Energea's right, title and interest in the patents held in the
	NAFTA Zone, as well as a right to exploit the technology and
	know-how for the construction and operation of plants of any
	capacity to produce biodiesel in the NAFTA Zone.
NAFTA Zone	The area comprising the United States of America, Canada and
	Mexico.
Notice or Notice of	The Notice of General Meeting accompanying this Explanatory
Meeting	Memorandum.
Resolution	A resolution contained in the Notice.
Shareholder	A holder of ordinary shares in the Company.
WST	Australian Western Standard Time.

ANNEXURE A

PRINCIPAL RIGHTS ATTACHING TO COMMON STOCK

(a) Relative Rights . Each share of Common Stock shall have the same relative rights as, and be identical in all respects to, all other shares of Common Stock. The voting, dividend, liquidation and other rights of the holders of Common Stock are subject to and qualified by the rights of holders of any series of Preferred Stock.
(b) Dividends . Whenever there shall have been paid, or declared and set aside for payment, to the holders of Preferred Stock, then dividends may in accordance with the Amended and Restated Certificate of Incorporation of American Renewable Fuels Inc (" ARF Inc "), be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends thereon, but only when, as and if declared by the Board of Directors of ARF Inc.
(c) Dissolution, Liquidation, Winding Up : In the event of any dissolution, liquidation or winding up of ARF Inc, whether voluntary or involuntary, the holders of the Common Stock, and holders of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets in such event, shall become entitled to participate in the distribution of any assets of ARF Inc remaining after ARF Inc shall have paid, or provided for payment of, all debts and liabilities of ARF Inc and after ARF Inc shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts, if any, to which they are entitled.
(d) Voting Rights : Each holder of shares of Common Stock shall be entitled to attend all special and annual meetings of the stockholders of ARF Inc and, together with the holders of all other classes of stock entitled to attend such meetings and to vote, to cast one vote for each outstanding share of Common Stock so held upon any matter or thing properly considered and acted upon by the stockholders of ARF Inc; provided, however, that except as otherwise required by the General Corporation Law of the State of Delaware, holders of Common Stock, as such, shall not be entitled to vote on any amendment to ARF Inc's Amended and Restated Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holder of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to ARF Inc's Amended and Restated Certificate of Incorporation or the General Corporation Law of the State of Delaware.

ANNEXURE B INDEPENDENT EXPERT'S REPORT (REFER FOLLOWING PAGE)

FINANCIAL SERVICES GUIDE

AND

INDEPENDENT EXPERT’S REPORT

AUSTRALIAN RENEWABLE FUELS LIMITED

9 JULY 2007

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Level 8, 256 St George’s Terrace Perth WA 6000 PO Box 7426 Cloisters Square Perth WA 6850 Tel: (61-8) 9360 4200 Fax: (61-8) 9481 2524 AFS Licence Number 246328 Email: [email protected] www.bdo.com.au

BDO Consultants (WA) Pty Ltd

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Financial Services Guide

9 July 2007

BDO Consultants (WA) Pty Ltd ABN 92 008 864 435 (“ BDO Consultants ” or “ we ” or “ us ” or “ ours ” as appropriate) has been engaged by Australian Renewable Fuels Limited (“ ARF ”) to provide an independent expert’s report on the conversion of a US$5.5 million debt owed by American Renewable Fuels Inc into 5.5 million shares in American Renewable Fuels Inc. You will be provided with a copy of our report because you are a shareholder of ARF.

Financial Services Guide

In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (“ FSG ”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.

This FSG includes information about:

♦ Who we are and how we can be contacted;
♦ The services we are authorised to provide under our Australian Financial Services Licence, Licence No. 246328;
♦ Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice;
♦ Any relevant associations or relationships we have; and
♦ Our internal and external complaints handling procedures and how you may access them.

Information about us

BDO Consultants (WA) Pty Ltd is ultimately owned by the Perth partnership of BDO. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. Our Directors are partners in the Perth partnership of BDO.

The Perth partnership of BDO is a member firm of BDO in Australia, a national association of separate partnerships and entities. The financial product advice in our report is provided by BDO Consultants (WA) Pty Ltd and not by the Perth partnership of BDO or its related entities.

We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and the Perth partnership of BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business.

Financial services we are licensed to provide

We hold an Australian Financial Services Licence that authorises us to provide general financial product advice to retail and wholesale clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate restructures or share issues in relation to:

♦ derivates limited to old law securities options contracts and warrants;
♦ debentures, stocks or bonds issued or proposed to be issued by a government;
♦ interests in managed investments schemes (excluding investor directed portfolio services);
♦ securities; and
♦ superannuation.

When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you.

BDO CONSULTANTS (WA) PTY LIMITED

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Financial Services Guide

General Financial Product Advice

We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice.

Fees, Commissions and Other Benefits that we may receive

We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee for this engagement is approximately $15,000.

Except for the fees referred to above, neither BDO Consultants, nor any of its Directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

Remuneration or other benefits received by our employees

All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report.

We have received a fee from Australian Renewable Fuels Limited for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report.

Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Complaints resolution

Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Consultants (WA) Pty Ltd, PO Box 7426 Cloisters Square, Perth WA 6850.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Industry Complaints Service Limited (“ FICS ”). FICS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FICS will be able to advise you as to whether or not they can be of assistance in this matter. Our FICS Membership Number is F-3820.

Further details about FICS are available at the FICS website www.fics.asn.au or by contacting them directly via the details set out below.

Financial Industry Complaints Services Limited PO Box 579 Collins Street West Melbourne VIC 8007 Toll free: 1300 78 08 08 Facsimile: (03) 9621 2291

Contact details

You may contact us using the details set out at the top of our letterhead on page 1 of this FSG.

BDO CONSULTANTS (WA) PTY LIMITED

AUSTRALIAN RENEWABLE FUELS LIMITED

INDEPENDENT EXPERT’S REPORT

1.	I NT R OD U CTI ON ...............................................................................2
2.	SU M M ARY ANDO PINI O N ....................................................................2
3.	D ET A ILS O F T H ECO N V E R SION ............................................................3
4.	RE PO RTREQ U IREM EN T S ...................................................................5
5.	BA SI S O FE V ALU AT IO N......................................................................5
6.	BA CK GR O UN D O FA UST R ALI ANR EN EW AB LEFU EL SL IM IT ED ........................6
7.	M AR KETOVER VI EW..........................................................................9
8.	BA CK GR O UN D O FARF IN C ............................................................... 11
9.	VAL U AT IO NM ET H OD OLO GI ES ........................................................... 12
10.	VAL U AT IO N O F D EB T OWED B Y AR F I NC ................................................ 14
11.	VAL U AT IO N O F SH ARE S IN ARF INC ..................................................... 15
12.	I STH EC ON V ERSIO NFAI R? .............................................................. 18
13.	I STH EC ON V ERSIO NRE AS ON ABL E? ................................................... 18
14.	CO NCL U SIO N ................................................................................ 19
15.	SO UR CE SO FIN FO RM AT IO N ............................................................. 20
16.	I ND EP END EN C E............................................................................. 20
17.	Q UAL IFI C AT ION S ........................................................................... 20
18.	D IS CL AIM ER SAN DCON S ENT S .......................................................... 21
APP	END IX1 G LO SS ARY OF T ERM S
APP	END IX2 AS SE S SM E NT OF T HE AP PR O PRIAT E D ISCO U NT RAT E

BDO CONSULTANTS (WA) PTY LTD

BDO Consultants (WA) Pty Ltd

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Our ref: SA/7993

9 July 2007

The Directors Australian Renewable Fuels Limited PO Box 837 SOUTH PERTH WA 6951

Dear Sirs

INDEPENDENT EXPERT'S REPORT – DEBT CONVERSION

1. I NTRODUCTION

BDO Consultants (WA) Pty Ltd (“BDO”) has been engaged by Australian Renewable Fuels Limited (“ ARF ” or “ the Company ”) to prepare an Independent Expert’s Report (“ our Report ”) to express an opinion as to whether or not the conversion of a US$5.5 million debt owed by American Renewable Fuels Inc (“ ARF Inc ”) into 5.5 million shares in ARF Inc (“ the Conversion ”) is fair and reasonable to non-associated shareholders (“ Shareholders ”).

Our Report is to be included in the Explanatory Memorandum for ARF to be sent to all Shareholders to assist them in deciding whether to accept or reject the Conversion.

2. S UMMARY AND O P INION

2.1 Opinion

We have considered the terms of the Conversion as outlined in the body of this report and have concluded that the Conversion is fair and reasonable to Shareholders.

2.2 Fairness

In Section 10 we determined the fair value of the debt owed by ARF Inc before the Conversion and in Section 11 we determined the value of the 5.5 million shares in ARF Inc after the Conversion, as detailed below:

		Ref	Low	High
			US$’m	US$’m
Value of the	debt owed by ARF Inc	10.3	5.5	5.5
Value of the	5.5 million shares in ARF Inc	11.5	7.0	10.0

The above pricing indicates that the Conversion is fair for Shareholders.

2.3 Reasonableness

We have considered the analysis in Section 13 of this report in terms of the advantages and disadvantages of the Conversion.

In our opinion, the position of Shareholders if the Conversion proceeds is more advantageous than the position if the Conversion does not proceed. Accordingly, we believe that the Conversion is reasonable for Shareholders. The respective advantages and disadvantages considered are summarised below:

BDO CONSULTANTS (WA) PTY LTD

The Directors Australian Renewable Fuels Limited

Page 3 9 July 2007

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ADVANTAGES AND DISADVANTAGES	ADVANTAGES AND DISADVANTAGES
Section Advantages	Section Disadvantages
13.1.1 The Conversion is fair	13.2.2 Delayed return on investment
13.1.2 Increased interest in ARF Inc	13.2.1 Increased risk on return of investment
13.1.3 Increase exposure to the United States	13.2.3 Loss of ability to demand payment
13.1.4 Uncertainty of debt collection eliminated
13.1.5 Reducing financial pressure on a current investment

3. D ETAILS OF THE C ONVERSION

3.1 The Conversion

On 15 February 2007 ARF extinguished a debt of US$5.5 million owed to it by ARF Inc who, at the time, was a 57.45% subsidiary of ARF. In exchange for extinguishing the debt, ARF Inc issued 5.5 million shares of common stock to ARF. At the time of the Conversion ARF did not obtain Shareholder approval. However, Shareholder approval is required for such transactions and ARF is now seeking Shareholder approval in accordance with ASX Listing Rule 10.9.2 which allows a company to seek Shareholder approval after a transaction.

3.2 Conversion Overview

The debt owed by ARF Inc to ARF arose primarily as a result of payments made on behalf of ARF Inc and funds advanced to ARF Inc in relation to the purchase of the right, title and interest in patents held in the NAFTA Zone by Energea Umwelttechnologie GmbH (“ Energea ”) as well as the right to exploit the technology and know-how for the construction and operation of plants designed to produce biodiesel in the NAFTA Zone (“ NAFTA Rights ”). The debt was accrued as a result of the following instalments:

Two instalments of US$1 million each in March 2006 and October 2006 paid by ARF to Energea on behalf of ARF Inc for part payment of the NAFTA Rights;
A loan of US$3 million by ARF to ARF Inc so that ARF Inc could make a final payment for the NAFTA Rights; and
A loan, consisting of a combination of payments totalling US$500,000, by ARF to ARF Inc for working capital.

The initial US$2 million paid on behalf of ARF Inc did not carry any repayment terms. However, the additional US$3.5 million loaned to ARF Inc carried an interest rate that was 2% above HSBC’s bank bill rate. Interest was to be calculated daily and the loan was to be repaid by 28 February 2007. However, no interest was charged on the loan.

In February 2007 the board of directors and shareholders of ARF Inc, being Energea and ARF, resolved to issue 5.5 million shares to ARF as repayment of the US$5.5 million debt.

The 5.5 million shares are in the common stock of ARF Inc, which entitles ARF to dividends and one vote per share held.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 4 Australian Renewable Fuels Limited 9 July 2007

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The issue of the 5.5 million shares increases the interest that ARF already holds in ARF Inc to 65.52%. The table below demonstrates the change in interest of ARF in ARF Inc as a result of the Conversion:

	Pre Conversion Share	Pre Conversion Share	Post Conversion	Post Conversion
	Structure		Share Structure
Number of Shares	Number	%	Number	%
ARF	13,500,750	57.45%	19,000,750	65.52%
Energea	9,999,250	42.55%	9,999,250	34.48%
Total	23,500,000	100.00%	29,000,000	100.00%

3.3 Capital Structure

The capital structure of ARF as at 4 July 2007 was as follows:

Ordinary Shares	Ordinary Shares
Total Ordinary Shares on Issue		172,215,287
Top Twenty Shareholders – Ordinary Shares		118,248,285
Top Twenty Shareholders - % of Ordinary Shares on Issue		68.7%

Source: ARF share registry reports

The spread of ARF shareholders as at 29 June 2007 was as follows:

Range of Shares Held	No. of	No. of
	Ordinary	Ordinary
	Shareholders	Shares
1-1,000	271	189,927
1,001-5,000	1,138	3,419,239
5,001-10,000	591	4,848,224
10,001-100,000	959	30,271,561
100,001 – and over	97	133,486,336
TOTAL	3,056	172,215,287
Source:ARF share registry reports

The current number of shares held by the most substantial shareholders is detailed below:

Shareholder	Ordinary Shares	% Shares Held
ANZ Nominees Limited	43,498,667	25.3%
Mr Darryl Butcher	21,464,286	12.5%
Local Government	13,916,667	8.1%
M F Custodians Ltd	11,848,642	6.9%
Equity Trustees Limited	8,282,269	4.8%
Australian Enterprise Holdings Pty Ltd	3,715,000	2.2%
SourceARF share registry reports

In addition to the ordinary shares on issue, ARF had 48,013,286 options on issue with the top 20 optionholders holding 75.3% of total options on issue. The options have an exercise price of 60 cents and an expiry date of 24 April 2009.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 5 9 July 2007

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4. R EPORT R EQUIREMENTS

4.1 Listing Rule 10.1 prohibits a listed company from disposing of a substantial asset to a subsidiary, unless that subsidiary is wholly owned, without first obtaining shareholder approval.

An asset is substantial if its value is 5% or more of the sum of equity interests of the company as set out in the latest accounts provided to ASX prior to the relevant transaction. The amount of $5.5 million is in excess of 5% of the equity interests of ARF as at 31 December 2006 and is, therefore, considered a substantial asset.

In addition to this, at the time of Conversion ARF Inc was not wholly owned by ARF.

4.2 Listing Rule 10.10.2 requires the Notice of Meeting for shareholders’ approval to be accompanied by a report by an independent expert expressing their opinion as to whether the transaction is fair and reasonable to the shareholders whose votes are not to be disregarded in respect of the transaction (“non-associated shareholders”).

Accordingly, an independent experts’ report is required for the Conversion. The report should provide an opinion by the expert stating whether or not the terms and conditions in relation thereto are fair and reasonable to non-associated shareholders of ARF.

5. B ASIS OF E VALUATION

5.1 Regulatory Guidelines

In determining whether the Conversion is fair and reasonable, we have had regard to the views expressed by the ASIC in their Policy Statements 74 and 75 and Practice Notes 42 and 43. These pronouncements suggest that an opinion as to whether transactions are fair and reasonable should entail consideration of all the circumstances of the transaction.

Such consideration includes a comparison of the likely advantages and disadvantages for Shareholders of the Conversion being accepted, with the advantages and disadvantages to those Shareholders of it not being accepted.

5.2 Adopted Basis of Evaluation

Having regard to the pronouncements above, BDO has completed this comparison in two parts:

♦ A comparison between the value of the debt owed by ARF Inc and the shares issued in ARF Inc to ARF (fairness – see Section 12 “Is the Conversion Fair?”); and
♦ An investigation into other significant factors to which Shareholders might give consideration, prior to approving the Conversion, after reference to the value derived above (reasonableness – see Section 13 “Is the Conversion Reasonable?”).

The Conversion could be considered “reasonable” if there are valid reasons to approve the Conversion, notwithstanding that it may not be regarded as “fair” to Shareholders.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 6 Australian Renewable Fuels Limited 9 July 2007

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6. B ACKGROUND OF A USTRALIAN R ENE WABLE F UELS L IMITED

6.1 History & Background

ARF was founded by parent company Amadeus Energy Limited (“ AMU ”) in May 2001.

In March 2003 ARF successfully completed an equity raising for its first project.

On 22 June 2004 the project was given substantial backing by the Commonwealth Government, with an offer of $7.15 million in assistance awarded to ARF under the first round of the Australian Government’s Biofuels Capital Grants Program.

With all funding arrangements and core documentation in place, the plant was ordered in September 2004.

A $16 million capital raising was completed on 1 December 2004, through the placement of non-interest bearing Convertible Notes, to further fund the growth of the business. This capital raising was followed by an ASX listing in May 2005, raising an additional $20 million and a capital raising carried out in March 2006 raising approximately $26 million.

ARF owns 100 percent of Australian Renewable Fuels Adelaide Pty Ltd and Australian Renewable Fuels Picton Pty Ltd, 50 percent of ASG Analytik Pty Ltd and 65.5 percent of Australian Renewable Fuels Inc with Energea Unwelttechnologie GmbH (Energea) owning the remainder.

ARF’s vision is to become the pre-eminent Australian biodiesel producer by managing a planned roll-out of biodiesel plants within Australia. The Company’s expansion program includes the establishment of biodiesel plants in the NAFTA Zone.

The technology to be used in its plants is developed from the Energea technologies. ARF has an exclusivity agreement with Energea for the use of the technology in the Australian region, including manufacturing rights. ARF also has an interest through ARF Inc in the use of the Energea technologies in the United States.

During the six month period to 31 December 2006 ARF has made the transition from developing biodiesel plants within Australia to operating the biodiesel plants and generating biofuels.

In May 2007, ARF entered into three supply agreements with Piacentini and Sons Pty Limited, Caltex Australia Petroleum Pty Limited and Wesfarmers Premier Coal to supply 8 million litres, 5 million litres and 1 million litres of biodiesel per year respectively. This is the first step for ARF in establishing ongoing sales and provides a customer base for the production of biodiesel. The provision of biodiesel to these customers also allows ARF to demonstrate the suitability of its biofuels for each of the respective purposes.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 7 9 July 2007

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6.2 Historical Income Statements

ARF	Six months ended 31 December 2006 $’000	Year ended 30 June 2006 $’000	Year ended 30 June 2005 $’000
Revenue Other income Total Income Expenses Raw materials and consumables Employee expenses Administration cost Finance costs Depreciation and amortisation Other expense Loss before income tax expense Income tax benefit/(expense) Loss attributable to equity shareholders	4,076 187 75 414 1,326 724
	4,490 1,513 799 (4,293) (626) (63) (2,846) (2,706) (181) (534) (3,115) (937) (63) (103) (79) (1,388) (446) (10) (3,003) (559) (46)
	(7,637) (6,042) (517) 2,493 2,534 -
	(5,144) (3,508) (517)

Source: Reviewed consolidated financial statement from six months ended 31 December 2006 and audited consolidated financial statements for the years end 30 June 2005 and 2006.

ARF commenced production and sales of biodiesel during the six months ended 31 December 2006. This is the reason for the increase in income and expenditure during the period.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 8 9 July 2007

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6.3 Historical Balance Sheets

ARF	Reviewed as at 31 December 2006 Audited as at 30 June 2006 Audited as at 30 June 2005
	$’000 $’000 $’000
ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total Current Assets Non-Current Assets Property, plant and equipment Intangible assets Deferred tax asset Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Short-term borrowings Total Current Liabilities Non-Current Liabilities Trade and other payables Long-term borrowings Deferred tax liabilities Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Minority shareholder interest TOTAL EQUITY	- 10,023 32,167 2,262 230 803 227 939 31 4,461 1,933 24
	6,950 13,125 33,025 46,596 45,010 10,431 5,980 3,830 - 43,292 31,999 25,570
	95,868 80,839 36,001
	102,818 93,964 69,026
	3,002 4,518 3,193 9,370 24 -
	12,372 4,542 3,193 1,886 2,437 2,512 400 75 - 9,733 6,688 6,686
	12,019 9,200 9,198
	24,391 13,742 12,391
	78,427 80,222 56,635
	83,900 83,779 57,259 773 595 19 (9,261) (4,152) (643) 3,015 - -
	78,427 80,222 56,635

Source: Reviewed financial statement as at 31 December 2006 and audited financial statements as at 30 June 2005 and 2006.

The transition from construction to production has seen a significant drop in the cash balance of ARF.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 9 Australian Renewable Fuels Limited 9 July 2007

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7. M ARKET O VERV IEW

Biodiesel is a diesel engine fuel made from natural vegetable oils and animal fats. The process replaces the glycerine in the oil/fat with an alcohol, creating an oxygenated fuel that is naturally very pure and extremely low in toxicity.

Biodiesel is the only alternative fuel that can be used in a totally unmodified vehicle from straight Biodiesel (B100) through to the smallest of blends (where petroleum manufacturers are using Biodiesel for its lubricity benefits).

Depending on the source of the oil or fat used in the production of Biodiesel a greenhouse benefit of up to 90 percent can be obtained.

Emissions from Biodiesel are also very low with up to a 90 percent reduction in unburned hydrocarbons and other carcinogenic components, along with a 50 percent reduction in carbon monoxide and a 30 percent reduction in particulates.

The main challenge for Biodiesel is finding enough of the right source of fats and oils.

The current production facilities in Australia are relying on Used Cooking Oil (“ UCO ”) and animal fats (Tallow). There are only limited supplies of these oils/fats, however there is more than enough available in Australia to well exceed the current goal of 350ML/y by the Federal Government.

Source	Quantity
UCO Tallow New Oil (Canola)	<60ML/y collected/available1 >400ML/y exported/available2 >750ML/y grown/exported3

The limiting factor in developing the production of Biodiesel is how to get the oils and fats in a way that does not impact of the food market.

There is already more than 400ML/y in Biodiesel plants planned for Australia over the next 2- 3 years. The first plants will take all the available UCO and a large portion of the available tallow from the market.

If Biodiesel is to become a sustainable industry in Australia, new crops and cropping areas outside of the current food crop areas will need to be developed.

A significant risk for the industry is the displacement of food crops for Biodiesel production and expansion of crops that rely heavily on pesticides and herbicides.

Globally and particularly in Europe, the production and use of biodiesel has become well accepted. Outlined below is a graph related to the 2006 production of biodiesel in tonnes via countries who are a part of the European Union.

1 Industry Estimates

2 Meat and Livestock Association of Australia

3 AOF (http://www.australianoilseeds.com/info/industry_facts_and_figures)

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 10 9 July 2007

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

2006 Production by Country Austria
Belgium
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
UK
Latvia
Lithuania
Luxemburg
Malta
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
The Netherlands
----- End of picture text -----

Source: www.ebb-eu.org/stats

The total number of tonnes produced in 2006 was 6,069,000. The calculation was based on 330 working days per year, per plant. The above figures represent an overall picture of EU-25 biodiesel capacity on 1 July 2006.

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

EU2 5 Bi odi e se l P r oduc t i on
3 50 0
3 00 0
2 50 0
M e t r i c
Tonne s 2 00 0
( ' 0 0 0s) 150 0
100 0
50 0
0
19 9 8 2 00 0 2 0 02 2 0 0 3 20 0 4 2 00 5
Ye ar
Germany France It aly Ot hers EU Tot al EU
----- End of picture text -----

Source: graph adapted from information at www.ebb-eu.org/stats

The graph above represents total EU25 biodiesel production for 2005 was just over 3.1 million metric tonnes, an increase of 65 percent from the 2004 figures.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 11 Australian Renewable Fuels Limited 9 July 2007

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8. B ACKGROUND OF ARF I NC

ARF Inc is based in Dallas, Texas and was formed in August 2006 by ARF to pursue biodiesel opportunities in the United States using the current technology acquired from Energea and implemented in their Australian plants. ARF Inc currently intends to commence construction of their first 75 million gallon capacity plant in early 2008.

ARF Inc acquired the right, title and interest in patents held in the NAFTA Zone as well as the right to exploit the technology and know-how for the construction and operation of plants of any capacity to produce biodiesel. These rights, titles and interests are for use in Canada, Mexico and the United States. ARF Inc is also permitted to sublicense the use of the technology acquired from Energea.

ARF Inc intends to operate its plants through separate Limited Liability Companies (“ LLC ”). It is intended that capital raisings will occur at the LLC level. ARF Inc has already established a 100% owned LLC called ARFuels LLC.

ARF Inc is currently 65.52% owned by ARF and 34.48% owned by Energea. However, ARF Inc recently issued a Confidential Private Offering Memorandum (“ COPM ”) which may dilute the interest held by ARF and Energea in ARF Inc, as well as diluting the interest that ARF Inc holds in ARFuels LLC.

The capital raising by ARF Inc has been constructed so that investors ultimately receive 395,400 shares in ARFuels LLC at $7 a share and 3,954,000 shares of common stock in ARF Inc at US$1 a share. This will result in a decrease in the interest held by ARF in ARF Inc to approximately 57.66% on a fully diluted basis after the COPM capital raising is completed.

The funds raised from the capital raising will be used to fund working capital of ARF Inc and ARFuels LLC and allow ARFuels LLC to conduct validation studies in relation to developing a biodiesel plant in the United States and to secure an engineering, procurement and construction contract. ARF Inc has already commenced investigations and has forecast the development of a 75 million gallon plant in New Mexico, with a two year construction period commencing in 2008.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 12 9 July 2007

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8.1 Balance Sheet

The balance sheet of ARF Inc as at 31 May 2007 is set out below:

ARF Inc	Unaudited as at 31 May 2007
	US$
ASSETS Current Assets Cash and cash equivalents Total Current Assets Non-Current Assets Capitalised costs Intangible assets Property, plant and equipment Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Loan from ARF Ltd Payroll liabilities Total Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity TOTAL EQUITY	37,277
	37,277 1,080,723 5,000,000 29,012
	6,109,735
	6,147,012
	256,807 385,360 2,494
	644,661
	644,661
	5,502,350
	5,502,350
	5,502,350

Source: Unaudited Balance Sheet as at 31 May 2007.

All the costs of ARF Inc have been capitalised. This means that all costs are included as assets on the balance sheet because it is believed they will generate future income. These costs will be reduced as future income is generated or if it becomes apparent that no future income will be realised.

9. V ALUATION M ETHODOLOGIES

9.1 Methodologies commonly used for valuing assets and businesses are as follows:

9.1.1 Capitalisation of future maintainable earnings (“FME”)

This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 13 Australian Renewable Fuels Limited 9 July 2007

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The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax (“ EBIT ”) or earnings before interest, tax, depreciation and amortisation (“ EBITDA ”). The capitalisation rate or “earnings multiple” is adjusted to reflect which base is being used for FME.

9.1.2 Discounted future cash flows (“DCF”)

The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, that are experiencing growth, in a start up phase, or experiencing irregular cash flows.

9.1.3 Net asset value

Asset based methods estimate the market value of an entity’s securities based on the realisable value of its identifiable net assets. Asset based methods include:

♦ Orderly realisation of assets method
♦ Liquidation of assets method
♦ Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity’s valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for project

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 14 9 July 2007

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based companies where investments are in defined finite life producing assets which can be accurately modelled.

These asset based methods ignore the possibility that the entity’s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when entities are not profitable, a significant proportion of the entity’s assets are liquid or for asset holding companies.

9.1.4 Quoted Market Price Basis

Another alternative valuation approach that can be used in conjunction with (or as a replacement for) any of the above methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume trading, creating a “deep” market in that security.

9.2 Valuation methods adopted to value the debt owed by ARF Inc

The debt owed by ARF by ARF Inc was made up of a US$3.5 million loan and a US$2 million receivable.

The US$3.5 million loan to ARF Inc had a limited term of approximately 3 months. Therefore we have valued the loan at its face value plus the interest that would have accrued up to 28 February 2007.

We have valued the receivable at its face value without taking into account any interest.

9.3 Valuation methods adopted to value the shares in ARF Inc

We consider the most appropriate method of valuing the shares in ARF Inc is the discounted cash flow method. We consider this method to be most appropriate because ARF Inc does not have a steady trading history and does not own any significant assets beyond the value of the rights acquired from Energea.

10. V ALUATION OF DEBT OWED BY ARF INC

10.1 Principal portion

The debt owed by ARF Inc of US$5.5 million was made up of the following amounts:

Date	Amount	Terms
March 2006 September 2006 December 2006 December 2006	US$1,000,000 US$1,000,000 US$3,000,000 US$500,000	None None Estimated interest rate of 7%, repayable by 28 February 2007 Estimated interest rate of 7%, repayable by 28 February 2007

The first two instalments in the table above can be considered receivables and do not have interest terms attached. The second two instalments have been made in the form of a loan with terms as set out in the table above.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 15 Australian Renewable Fuels Limited 9 July 2007

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Due to the near immediate repayment of the US$3.5 million loan as at the date of the Conversion, we have valued the principal portion of the loan at the face values of each of the December instalments. We have assessed the face value of the loan to be US$3.5 million.

In addition to this, we have valued the receivables at the face value of US$2 million. Therefore, the total face value of the debt owed to ARF by ARF Inc is US$5.5 million.

10.2 Interest portion

The US$3.5 million loan made by ARF to ARF Inc attracted an interest rate that was 2% above HSBC’s bank bill rate. Interest was to be calculated daily and paid monthly. However, ARF did not charge any interest on the loan. In order to calculate the value of the interest payments we have first calculated the number of days between the initial lending of cash to ARF Inc (21 December 2006) and the repayment date (28 February 2007). The number of days that the loan was outstanding is 69 days.

Based on an estimated interest rate of 7% and a principal amount of US$3.5 million, the total interest accrued during the period of the US$3.5 million loan was approximately US$47,299.

10.3 Summary value of the debt owed by ARF Inc

In order to calculate the total value of the debt owed by ARF Inc we have combined the value of the principal with the value of the interest accrued. The table below demonstrates the value of the debt:

	Amount
Principal Interest Total value of the debt	US$5,500,000 US$47,299 US$5,547,299

The table indicates a total debt value of US$5,547,299.

11. V ALUATION OF SHARES IN ARF INC

11.1 Valuation approach adopted to value the shares in ARF Inc

The method which we have adopted in valuing the shares in ARF Inc is to perform a discounted cash flow valuation on 100% of ARF Inc and then calculate the portion of this value attributable to ARF’s interest in that value. We then calculated the value of ARF’s interest that is attributable to the 5.5 million shares that were issued to ARF in consideration for converting the debt.

The discounted cash flow method estimates the fair market value by discounting the future cash flows arising from the operations of ARF Inc to their net present value. To value ARF Inc in this way requires the determination of the following:

♦ future cash flows
♦ an appropriate discount rate to be applied to the cash flows
♦ an estimate of the terminal value

Our consideration of each of these factors is presented below:

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 16 Australian Renewable Fuels Limited 9 July 2007

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11.2 Future Cash Flows

The management of ARF Inc has prepared a detailed cash flow model for ARF Inc which we have used to assist us in the preparation of our own model. Our model has been prepared having regard to ARF Inc’s base case model but has been amended to reflect our own alternative assumptions where considered appropriate, and to calculate the value of the 5.5 million shares issued to ARF as a result of converting the debt. The cash flow model extends to 31 December 2017.

We have not undertaken a review of the cash flow forecasts in accordance with Australian Auditing Standard AUS 804 ‘The Audit of Prospective Financial Information’ and do not express an opinion on the reasonableness of the assumptions or their achievability. However, nothing has come to our attention as a result of our procedures to suggest that the assumptions on which the forecasts are based have not been prepared on a reasonable basis.

We have undertaken an analysis of ARF Inc’s cash flow model that included:

♦ reviewing the financial model provided by ARF Inc’s management;
♦ reviewing the reasonableness of the assumptions adopted by ARF Inc such as plant capacity, sale price of biodiesel, sales combinations and costs of inputs; and
♦ preparing our own cash flow model.

11.3 Assumptions

The key assumptions adopted in the preparation of the cash flow forecasts were:

♦ Average sales prices for biodiesel (B100) of US$3.10;
♦ Plant capacity of 75 million gallons per annum;
♦ Sales consist of 100% B100 biodiesel;
♦ A tax rate of 30%;
♦ The estimated terminal value is approximately 37% of the net present value of the cash flows attributable to ARF;
♦ A US$40 million capital raising will be undertaken at US$7 a share; and
♦ ARF will hold a 57.66% interest in ARF Inc, which in turn holds an approximate 17% interest in ARFuels LLC, assuming the above capital raising is supplemented with debt at a debt to equity ratio of 1.2.

11.4 Discount Rate

A range of discounts have been used in calculating our net present values. We have used discount rates from 10% to 20%. We have selected a wide range of discount rates due to the large fluctuations in risk when analysing comparable companies. This is typical of new and emerging markets. We consider a discount rate of 15% to be our preferred discount rate.

In selecting this range of discount rates we considered:

♦ The required rates of return on comparable Australian listed companies who are developing or operating biodiesel plants, some in the United States;
♦ The specific business and financing risks of ARF Inc;

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 17 Australian Renewable Fuels Limited 9 July 2007

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♦ ARF Inc’s forecast cost of debt; and
♦ ARF Inc’s forecast level of financial gearing.

A detailed consideration of how we arrived at the adopted discount range is shown in Appendix 2.

11.5 ARF Inc Valuation Summary

In estimating the value of ARF Inc we have undertaken a range of sensitivities. We have set out the sensitivity of the valuation of ARF Inc to changes in certain assumptions adopted in the preparation of the cash flow forecasts as set out below:

Value of 5.5 million shares				Discount rate
	10.0%	12.5%		15.0%	17.5%	20.0%
	US$’m	US$’m		US$’m	US$’m	US$’m
Base Case	11.25		9.78	8.62	7.69	6.94
Change in Nameplate capacity (base case 75 million gallons)
Reduction to 65 million gallons	9.19		8.04	7.13	6.40	5.81
Reduction to 70 million gallons	10.22		8.91	7.87	7.05	6.38
Change in Biodiesel (B100) % of sales (base case 100%)
80%	10.88		9.47	8.36	7.47	6.76
85%	10.97		9.55	8.43	7.53	6.80
90%	11.07		9.63	8.49	7.58	6.85
95%	11.16		9.71	8.56	7.64	6.89
Change in Biodiesel (B100) selling price (base case US$3.10)
US$2.80	6.64		5.74	5.04	4.49	4.07
US$2.95	8.94		7.76	6.83	6.09	5.50
US$3.25	13.56		11.81	10.41	9.29	8.38
US$3.40	15.87		13.83	12.20	10.89	9.81
Change in Feedstock costs
10% decrease	15.08		13.15	11.60	10.35	9.33
10% increase	7.42		6.42	5.64	5.03	4.55
Change in Chemicals costs
10% decrease	11.63		10.12	8.92	7.96	7.18
10% increase	10.87		9.45	8.32	7.43	6.70
Change in Utilities costs
10% decrease	11.36		9.88	8.71	7.77	7.01
10% increase	11.14		9.69	8.53	7.61	6.87
Change in value of equity raising	(base case US$7 per share)
US$6 per share	10.30		9.01	7.99	7.17	6.51
US$8 per share	12.14		10.51	9.21	8.18	7.34

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 18 Australian Renewable Fuels Limited 9 July 2007

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The analysis above indicates that the net present value is highly sensitive to assumptions on the future sales price of B100 biodiesel and the cost of feedstock.

The cash flows prepared by ARF Inc include the construction and operation of one biodiesel plant. If ARF Inc were to construct another biodiesel plant and operate it based on the same assumptions as the current proposed plant then the value of ARF Inc would increase.

Based on the above analysis we have adopted a value range for the 5.5 million shares acquired by ARF as a result of the conversion of the US$5.5 million debt of US$7 million to US$10 million.

12. I S T HE C ONVERSION F AIR ?

The following table summarises our assessment of the value of the debt to ARF Inc and the value of the 5.5 million shares in ARF Inc.

		Ref	Low	High
			US$m	US$m
Value of	debt to ARF Inc	10.3	5.5	5.5
Value of	5.5 million shares in ARF Inc	11.5	7.0	10.0

As such in our opinion the Conversion is fair to Shareholders.

13. I S T HE C ONVERSION R EASONABLE ?

We have considered the position of the Shareholders if the Conversion is accepted and have taken into account the following advantages and disadvantages in this assessment.

We have assessed that in all cases the advantages and disadvantages of rejecting the Conversion are the inverse of accepting the Conversion. Thus for simplicity and ease of evaluation of the Conversion, we have set out the significant factors only in the context of accepting the Conversion.

13.1 Advantages of Accepting the Conversion

13.1.1 The Conversion is fair

As shown in Section 12 we have assessed the Conversion to be fair to Shareholders. ASIC Policy Statement 75 states that “an offer is reasonable if it is fair”.

13.1.2 Increased holding in ARF Inc

Through the conversion of the debt to shares in ARF Inc, ARF has acquired a greater interest in ARF Inc. This means that ARF will be entitled to a greater share of the returns that ARF Inc may generate than would have been the case if the debt had not been converted. This means that the value of the investment in ARF Inc may increase, resulting in an increase in the value of ARF and, hence, ARF shares. Any flow of income from ARF Inc may also result in an increase in dividends payable to Shareholders.

13.1.3 Increased exposure to the United States

ARF has stated that it has ambitions to expand into the United States. By increasing it’s holding in ARF Inc, ARF has increased its exposure to the United States market.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 19 Australian Renewable Fuels Limited 9 July 2007

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13.1.4 Uncertainty of debt collection eliminated

It is possible that ARF Inc would not have been able to repay the US$3.5 million owed to ARF. This means that ARF may not have received the outstanding amount by 28 February 2007. The debt was not secured which means that the amount to be repaid cannot be forcibly collected. However, it is likely that the repayment period for the debt would be extended until such time that ARF Inc could repay.

13.1.5 Reducing financial pressure on ARF Inc

Prior to the Conversion, ARF had a 57.45% interest in ARF Inc. This means that ARF has an active interest in the future success of ARF Inc because for ARF to realise its investment ARF Inc must generate cash flows. If ARF were to collect the debt of US$5.5 million then this may have placed ARF Inc in financial difficulty, therefore, reducing its ability and likelihood of generating future income. This would have adversely affected the investment in ARF Inc prior to the Conversion. However, it is reasonable to expect that if the debt could not be repaid comfortably then ARF could extend the period of time in which the debt could be repaid. The forecasts indicate that the debt could be repaid in three years time.

13.2 Disadvantages of Accepting the Conversion

13.2.1 Delayed return

ARF Inc does not forecast distributing profits until the fourth year of the forecast period. This means that ARF will have to wait for up to four years before it will receive a cash return in the form of a dividend, assuming it does not sell its shares before hand.

13.2.2 Increased risk of return on investment

There is no guarantee that ARF Inc will generate the cash flows that have been forecast. This means that there is an increase in the risk that the return from the investment may not be realised. However, we have noted previously that ARF Inc’s ability to repay the debt would have been restricted in any case.

13.2.3 Loss of ability to demand payment

Under the loan agreement ARF had the right to demand payment of the US$3.5 million loan plus any outstanding interest. As a shareholder, ARF no longer has the ability to demand a return on its investment. However, we have noted previously that ARF Inc’s ability to repay the debt would have been restricted in any case.

14. C ONCLUS ION

We have considered the terms of the Conversion as outlined in the body of this report and have concluded that the Conversion is fair and reasonable to Shareholders.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 20 Australian Renewable Fuels Limited 9 July 2007

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15. S OURCES O F I NFOR MATION

This report has been based on the following information:

♦ financial statements of ARF for the six months ended 31 December 2006 and the financial years ended 30 June 2006 and 2005;
♦ management accounts of ARF Inc as at 31 May 2007;
♦ the draft Notice of Meeting and Explanatory Memorandum;
♦ cash flow forecasts for the 10 years ending 31 December 2017;
♦ loan agreement between ARF Inc and ARF;
♦ discussions with Directors and Management of ARF; and
♦ information available in the public domain, such as Bloomberg, brokers’ reports, comparable companies’ annual reports and ASX announcements.

16. I NDEPENDENCE

BDO Consultants (WA) Pty Ltd is entitled to receive a fee of approximately $15,000 for the preparation of this report. Except for this fee, BDO Consultants (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report.

Prior to accepting this engagement BDO Consultants (WA) Pty Ltd considered its independence with respect to ARF and any of their respective associates with reference to the ASIC Practice Note 42 entitled “Independence of Expert’s Reports”.

BDO Kendalls Audit & Assurance (WA) Pty Ltd is the independent auditor of ARF and BDO Kendalls Corporate Tax (WA) Pty Ltd has provided tax advice to ARF, other than this, neither the two signatories to this report nor BDO Consultants (WA) Pty Ltd have had within the past two years any professional relationship with ARF, or their associates, other than in connection with the preparation of this report.

The provision of our services is not considered a threat to our independence as auditors under APES 110 ‘Code of Ethics for Professional Accountants’. The services provided have no material impact on the financial report of ARF.

A draft of this report was provided to ARF and its advisors for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review.

In addition, BDO Consultants (WA) Pty Ltd has been indemnified by ARF in respect of any claim arising from BDO Consultants (WA) Pty Ltd’s reliance on information provided by the ARF, including the non provision of material information, in relation to the preparation of this report.

17. Q UALIFICATIONS

BDO Consultants (WA) Pty Ltd is wholly owned by BDO, a member of BDO International, which has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 21 9 July 2007

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BDO Consultants (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Sherif Andrawes, Matt Giles and Peter Gray of BDO Consultants (WA) Pty Ltd. They have significant experience in the preparation of independent expert reports and valuations.

18. D ISCLA IMERS A ND C ONSENTS

This report has been prepared at the request of ARF for inclusion in the Explanatory Memorandum which will be sent to all ARF Shareholders. ARF engaged BDO Consultants (WA) Pty Ltd to prepare an independent expert’s report to consider the conversion of a debt owed by ARF Inc into shares in ARF Inc.

BDO Consultants (WA) Pty Ltd hereby consents to this report accompanying the above Explanatory Memorandum. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Consultants (WA) Pty Ltd.

BDO Consultants (WA) Pty Ltd takes no responsibility for the contents of the Explanatory Memorandum other than this report.

BDO Consultants (WA) Pty Ltd has not independently verified the information and explanations supplied to us, nor has it conducted anything in the nature of an audit of ARF. However, we have no reason to believe that any of the information or explanations so supplied are false or that material information has been withheld.

The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete.

The terms of this engagement are such that BDO Consultants (WA) Pty Ltd has no obligation to update this report for events occurring subsequent to the date of this report.

Yours faithfully BDO CONSULTANTS (WA) PTY LTD

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Sherif Andrawes Director

Matt Giles Director

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 22 9 July 2007

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Appendix 1 – Glossary of Terms

Reference	Definition
AMU	Armadeus Energy Limited
ARF	Australian Renewable Fuels Limited
ARF Inc	American Renewable Fuels Inc
ASIC	Australian Securities and Investments Commission
ASX	Australian Stock Exchange
BDO	BDO Consultants (WA) Pty Ltd
DCF	Discounted Future Cash Flows
EBIT	Earnings before interest and tax
EBITDA	Earnings before interest, tax, depreciation and amortisation
Energea	Energea Umwelttechnologie GmbH
FMD	Future Maintainable Dividends
FME	Future Maintainable Earnings
LLC	Limited Liability Company
NAFTA Rights	The rights to exploit the technology and know how for the construction and
	operation of plants designed to produce biodiesel in the NAFTA Zone
NAFTA Zone	North American Free Trade Area
Our Report	This Independent Expert’s Report prepared by BDO
ROC	Reorganisation of Capital
Shareholders	Shareholders of ARF
The Act	The Corporations Act 2001
The Company	Australian Renewable Fuels Limited
The Conversion	The proposed conversion of a US$5.5 million debt owed by ARF Inc into 5.5 million shares in ARF Inc
UCO	Used Cooking Oil
USD or US$	United States Dollar

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 23 Australian Renewable Fuels Limited 9 July 2007

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Appendix 2

Assessment of the Discount Rate

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 24 9 July 2007

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Appendix 2 - Assessment of the Appropriate Discount Rate

Determining the correct discount rate, or cost of capital, for a business requires the identification and consideration of a number of factors that affect the returns and risks of a business, as well as the application of widely accepted methodologies for determining the returns of a business.

The discount rate applied to the forecast cash flows from a business represents the financial return that will be before an investor would be prepared to acquire (or invest in) the business.

The capital asset pricing model (“ CAPM ”) is commonly used in determining the market rates of return for equity type investments and project evaluations. In determining a business’ weighted average cost of capital (“ WACC ”) the CAPM results are combined with the cost of debt funding. WACC represents the return required on the business, whilst CAPM provides the required return on an equity investment.

Cost of Equity and Capital Asset Pricing Model

CAPM is based on the theory that a rational investor would price an investment so that the expected return is equal to the risk free rate of return plus an appropriate premium for risk. CAPM assumes that there is a positive relationship between risk and return, that is, investors are risk averse and demand a higher return for accepting a higher level of risk.

CAPM calculates the cost of equity and is calculated as follows:

CAPM
Ke	= Rf+βx (Rm– Rf)
Where:
Ke	= expected equity investment return or cost of equity in nominal terms
Rf	= risk free rate of return
Rm	= expected market return
Rm– Rf	= market risk premium
β	= equity beta

The individual components of CAPM are discussed below.

Risk Free Rate (Rf)

The risk free rate is normally approximated by reference to a long term government bond with a maturity equivalent to the timeframe over which the returns from the assets are expected to be received. Having regard to the period of the operations we have used the current yield to maturity on the June 2017 Commonwealth Government Bond which was 6.26% per annum as at 29 June 2007. We have used the Australian bond rate because this reflects the risk free rate of return on an investment made in Australia and which ARF could expect in return for an investment in Australia.

Market Risk Premium (Rm – Rf)

The market risk premium represents the additional return that investors expect from an investment in a well-diversified portfolio of assets. It is common to use a historical risk premium, as expectations are not observable in practice.

For the purpose of this report we have adopted a market risk premium of 6% to 8%.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 25 9 July 2007

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Equity Beta

Beta is a measure of the expected correlation of an investment’s return over and above the risk free rate, relative to the return over and above the risk free rate of the market as a whole. A beta greater than one implies that an investment’s return will outperform the market’s average return in a rising market and underperform the market’s average return in a falling market. On the other hand, a beta less than one implies that the business’ performance compared to that of a business whose beta is greater than one will provide an inverse relationship in terms of the market’s average return.

Equity betas are normally either an historical beta or an adjusted beta. The historical beta is obtained from the linear regression of a stock’s historical data and is based on the observed relationship between the security’s return and the returns on an index. An adjusted beta is calculated based on the assumption that the relative risk of the past will continue into the future, and hence derived from the historical data. It is then modified by the assumption that a stock will move towards the market over time, taking into consideration the industry risk factors which make the operating risk of the investment project greater or less risky than comparable listed companies when assessing the equity beta for an investment project.

It is important to note that it is not possible to compare the equity betas of different companies without having regard to their gearing levels. Thus, a more valid analysis of betas can be achieved by “ungearing” the equity beta (βa) by applying the following formula

βa = β / (1+(D/E x (1-t))

In order to assess the appropriate equity beta for ARF Inc we have also had regard to the equity betas of listed companies involved in similar activities in similar industry sectors:

Company	Market	Geared	Gross	Ungeared
	Capitalisation	Beta	debt/equity	Beta
	A$’m		%
Linc Energy Ltd	202	2.52	0.00%	2.52
Mission Biofuels Ltd	116	2.83	0.00%	2.83
Natural Fuel Limited	100	4.18	0.00%	4.18
Australian Renewable Fuels Limited	72	0.73	0.00%	0.73
Australian Biodiesel Group Limited	33	-1.82	2.00%	-1.79
Sterling Biofuels International Limited	18	-2.52	0.00%	-2.52
Average	90	0.99		0.99
Median	86	1.63		1.63

Source: Bloomberg

Having regard to the above we consider it appropriate to apply an ungeared beta to ARF Inc’s operations of 1.6.

Having determined an appropriate ungeared beta it is necessary to regear the beta to reflect the financial gearing of ARF. In doing this we have adopted the forecast gearing ratio of ARF Inc of 48% to give a geared beta of 2.14.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Australian Renewable Fuels Limited

Page 26 9 July 2007

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Cost of Equity

On this basis we have assessed the cost of equity for ARF Inc’s operations as follows:

Input	Value
Risk free rate of return	6.26%
Equity market risk premium	6.00% to 8.00%
Beta	2.14
Cost of Equity	19.1% to 23.4%

Weighted Average Cost of Capital

The WACC represents the market return required on the total assets of the undertaking by debt and equity providers. WACC is used to assess the appropriate commercial rate of return on the capital invested in the business, acknowledging that normally funds invested consist of a mixture of debt and equity funds. Accordingly the discount rate should reflect the proportionate levels of debt and equity relative to the level of security and risk attributable to the investment.

In calculating WACC there are a number of different formulae which are based on the definition of cash flows (ie, pre-tax or post-tax), the treatment of the tax benefit arising through the deductibility of interest expenses (included in either the cash flow or discount rate), and the manner and extent to which they adjust for the effects of dividend imputation. The commonly used WACC formula is the post-tax WACC, without adjustment for dividend imputation, which is detailed in the below table.

CAPM
WACC	=	E Ke+D Kd(1– t)
		E+D D+E
Where:
Ke	=	expected return or discount rate on equity
Kd	=	interest rate on debt (pre-tax)
T	=	corporate tax rate
E	=	market value of equity
D	=	market value of debt

Gearing

Before WACC can be determined, the proportion of funding provided by debt and equity (ie, gearing ratio) must be determined. The gearing ratio adopted should represent the level of debt that the asset can reasonably sustain (ie, the higher the expected volatility of cash flows, the lower the debt levels which can be supported). The optimum level of gearing will differentiate between assets and will include:

♦ the variability in earnings streams;
♦ working capital requirements;
♦ the level of investment in tangible assets; and
♦ the nature and risk profile of the tangible assets.

We have adopted a net debt to capital ratio of 48% for ARF Inc, reflecting the forecast gearing.

BDO CONSULTANTS (WA) PTY LIMITED

The Directors Page 27 Australian Renewable Fuels Limited 9 July 2007

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Cost of Debt

A cost of debt of 8% has been used as this is the figure reflected in the forecasts for ARF Inc. This equates to an after tax cost of debt of 5.6% based on a tax rate of 30%.

Calculation of WACC

Based on the above inputs we have calculated the WACC as detailed below:

Input	Value
Cost of equity	19.1% to 23.4%
Cost of debt	5.6%
Corporate tax rate	30%
Proportion of debt (D/E+D)	67%
Proportion of equity (E/E+D)	33%
WACC (rounded)	14.7% to 17.6%

We have used the Australian tax rate above as we are valuing the cash flows attributable to ARF, where the Australian tax rate will apply to any returns.

Adjustment for modeling excluding inflation

It is necessary to convert the WACC obtained above from nominal to real terms. In order to do this we have adopted the Fisher equation, which is defined as:

k = (1+r)(1+i) – 1

Where:

k is the real WACC R is the nominal WACC, calculated above I is the expected inflation rate over the forecast period

Applying the Fisher equation, assuming an inflation rate of 2.5% to 3% gives a real post-tax WACC of 12% to 14% for ARF Inc.

We have selected 15% to be our preferred discount rate because the shares of ARF Inc will be unlisted and the comparable companies have all been listed. This means we have increased our discount rate attributable to the cost of equity to reflect the illiquidity of holding shares in an unlisted company. Further, we have used a range of discounts to demonstrate the change in value as a result of assessing the risks of ARF Inc differently. Therefore, we have used a range of discounts between 10% and 20%.

BDO CONSULTANTS (WA) PTY LIMITED

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

PROXY FORM

The Company Secretary Australian Renewable Fuels Limited Registered Office Address:

Suite 1B, Level 5 South Shore Piazza 85 South Perth Esplanade SOUTH PERTH WA 6151 (08) 9363 3511

Facsimile: (08) 9363 3511 I/We (name of Shareholder) ........................................................................................................................ of (address) ...................................................................................................................................................... being a member/members of AUSTRALIAN RENEWABLE FUELS LIMITED hereby appoint (name) ............................................................................................................................................................... of (address) ...................................................................................................................................................... and/or failing him (name) ...................................................................................................................................... of (address) .................................................................................................................................................... or failing that person then the Chairperson of the General Meeting as my/our proxy to vote for me/us and on my/our behalf at the General Meeting of the Company to be held at Broadwater Pagoda Resort Hotel, 112 Melville Parade, Como, Western Australia on Wednesday, 29 August 2007 commencing at 9.30 am WST and at any adjournment of the meeting.

Should you so desire to direct the Proxy how to vote, you should place a cross in the appropriate box(es) below:

I/We direct my/our Proxy to vote in the following manner:

For Against Abstain

Resolution 1 – Issue of Common Stock by American Renewable Fuels Inc to the Company

If no directions are given, my proxy may vote as the proxy thinks fit or may abstain.

If the Chair of the meeting is appointed as your proxy, or may be appointed by default and you do not wish to direct your proxy how to vote as your proxy in respect of all of the Resolution, please place a mark in this box.

By marking this box, you acknowledge that the Chair of the meeting may exercise your proxy even if he has an interest in the outcome of all of the Resolution and that votes cast by the Chair of the meeting for other than as proxy holder will be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chair will not cast your vote on all of the Resolution and your vote will not be counted in calculating the required majority if a poll is called on all of the Resolution.

The Chairperson intends to vote any undirected proxies in favour of the Resolution.

This Proxy is appointed to represent ___ % of my voting right, or if 2 proxies are appointed Proxy 1 represents _% and Proxy 2 represents % of my total votes My total voting right is _ Shares If the Shareholder(s) is an individual : ____ _____________________________ Dated: 2007 Dated: 2007 _If the Shareholder is a company : Affix common seal (if required by Constitution) _____ ______ Director/Sole Director and Secretary Director/Secretary Dated: 2007

INSTRUCTIONS FOR APPOINTMENT OF PROXY

A Shareholder entitled to attend and vote is entitled to appoint no more than two proxies to attend and vote at this General Meeting as the Shareholder’s proxy. A proxy need not be a Shareholder of the Company.
Where more than one proxy is appointed, each proxy must be appointed to represent a specific proportion of the Shareholder’s voting rights. If such appointment is not made, then each proxy may exercise half of the Shareholder’s voting rights. Fractions shall be disregarded.
The proxy form must be signed personally by the Shareholder or his attorney, duly authorised in writing. If a proxy is given by a corporation, the proxy must be executed under either the common seal of the corporation or under the hand of an officer of the company or its duly authorised attorney. In the case of joint Shareholders, this proxy must be signed by at least one of the joint Shareholders, personally or by a duly authorised attorney.
If a proxy is executed by an attorney of a Shareholder, then the original of the relevant power of attorney or a certified copy of the relevant power of attorney, if it has not already been noted by the Company, must accompany the proxy form.
To be effective, forms to appoint proxies must be received by the Company no later than 48 hours before the time appointed for the holding of this General Meeting, (that is by 9.30am WST on Monday, 27 August 2007) by post, facsimile or e-mail to the respective addresses stipulated in this proxy form.
If the proxy form specifies a way in which the proxy is to vote on any of the Resolution stated above, then the following applies:
(a) the proxy need not vote on a show of hands, but if the proxy does so, the proxy must vote that way;
(b) if the proxy has 2 or more appointments that specify different ways to vote on the resolution, the proxy must not vote on a show of hands;
(c) if the proxy is Chairperson, the proxy must vote on a poll and must vote that way; and
(d) if the proxy is not the Chairperson, the proxy need not vote on a poll, but if the proxy does so, the proxy must vote that way.

If a proxy is also a Shareholder, the proxy can cast any votes the proxy holds as a Shareholder in any way that the proxy sees fit.

The Chairperson intends to vote in favour of all Resolution in relation to undirected proxies.

AI assistant

THORNEY TECHNOLOGIES LTD — Proxy Solicitation & Information Statement 2007

65908_rns_2007-07-19_f20b0183-f4e2-4fe5-b326-587863eb9e31.pdf

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

NOTICE OF GENERAL MEETING

PROXY FORM

and

EXPLANATORY MEMORANDUM

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

NOTICE OF GENERAL MEETING

A G E N D A

BUSINESS:

Resolution 1 - Issue of Common Stock by American Renewable Fuels Inc to the Company

PROXIES

ENTITLEMENT TO VOTE

CORPORATIONS

AUSTRALIAN RENEWABLE FUELS LIMITED ABN 66 096 782 188

EXPLANATORY MEMORANDUM

Resolution 1 - Debt to Equity Conversion

Security offering by ARF Inc

GLOSSARY

ANNEXURE A

PRINCIPAL RIGHTS ATTACHING TO COMMON STOCK

ANNEXURE B INDEPENDENT EXPERT'S REPORT (REFER FOLLOWING PAGE)

FINANCIAL SERVICES GUIDE

AND

Financial Services Guide

Financial Services Guide

Information about us

Financial services we are licensed to provide

Financial Services Guide

General Financial Product Advice

Fees, Commissions and Other Benefits that we may receive

Remuneration or other benefits received by our employees

Referrals

Complaints resolution

Referral to External Dispute Resolution Scheme

Contact details

AUSTRALIAN RENEWABLE FUELS LIMITED

INDEPENDENT EXPERT’S REPORT

TABLE OF CONTENTS

INDEPENDENT EXPERT'S REPORT – DEBT CONVERSION

1. I NTRODUCTION

2. S UMMARY AND O P INION

2.1 Opinion

2.2 Fairness

The above pricing indicates that the Conversion is fair for Shareholders.

2.3 Reasonableness

3. D ETAILS OF THE C ONVERSION

3.1 The Conversion

3.2 Conversion Overview

3.3 Capital Structure

4. R EPORT R EQUIREMENTS

5. B ASIS OF E VALUATION

5.1 Regulatory Guidelines

5.2 Adopted Basis of Evaluation

6. B ACKGROUND OF A USTRALIAN R ENE WABLE F UELS L IMITED

6.1 History & Background

6.2 Historical Income Statements

6.3 Historical Balance Sheets

7. M ARKET O VERV IEW

8. B ACKGROUND OF ARF I NC

8.1 Balance Sheet

9. V ALUATION M ETHODOLOGIES

9.1.1 Capitalisation of future maintainable earnings (“FME”)

9.1.2 Discounted future cash flows (“DCF”)

9.1.3 Net asset value

9.1.4 Quoted Market Price Basis

9.2 Valuation methods adopted to value the debt owed by ARF Inc

9.3 Valuation methods adopted to value the shares in ARF Inc

10. V ALUATION OF DEBT OWED BY ARF INC

10.1 Principal portion

10.2 Interest portion

10.3 Summary value of the debt owed by ARF Inc

11.1 Valuation approach adopted to value the shares in ARF Inc

11.2 Future Cash Flows

11.3 Assumptions

11.4 Discount Rate

11.5 ARF Inc Valuation Summary

12. I S T HE C ONVERSION F AIR ?

THORNEY TECHNOLOGIES LTD Proxy Solicitation & Information Statement 2007