The Changing Face of Australian Export Coal Industry

The Changing Face of Australian Export Coal Industry The divestment of coal assets by Rio Tinto, Vale and Anglo American is creating a new industry dynamic enabling Yancoal, Glencore and Whitehaven Coal to strengthen their export positions and with junior companies seizing opportunities to rapidly become coal producers. Perhaps of the greatest significance is the acquisition of producing mines and projects by private Equity firms, USA and Indonesian companies. 1 Rio Tinto divestment of Coal & Allied Hunter Valley Coal Assets strengthens Yancoal and Glencore position in Australian Thermal Coal Exports 2 Rio Tinto divestment of Hail Creek to Glencore strengthens Glencore in Metallurgical Coal Market 3 Rio Tinto divestment of Kestrel opened door for Australian Private Equity and Indonesian Investment 4 Rio Tinto divestment of Winchester South gives NSW coal producer Whitehaven Coal a large Queensland Project with Metallurgical Coal Potential 5 Rio Tinto divestment of Mt Pleasant Project gives Indonesia Salim Group a major well advanced Australian Thermal Coal Project 6 Vale divestment of Isaac Plains gave junior explorer Stanmore Coal opportunity to rapidly become coal producer 7 Anglo American divestment of Foxleigh to Tarus Funds gave Realm Resources opportunity to become PCI coal producer in Bowen Basin 8 Anglo American divestment of Dartbrook and Drayton coal assets provides project opportunities for Australian Pacific Coal and Malabar Coal 9 Vale divestment of Integra Mining Operations Complex enabled Glencore to secure Integra Underground Mine and on sell the Open cut Mine, CHPP and Rail Loading Facility to Australian coal producer Bloomfield Collieries 10 Wesfarmers sale of Curragh coal mine to US Coronado Coal Group establishes Coronado in Australian Export Coal Industry 11 Anglo American divestment of Callide to Batchfire Resources was supported by Singapore based Avra Commodities 12 Glencore divestment of Tahmoor Mine enabled GFG Alliance to become Australia s only fully integrated steel producer 13 Caledon Coal Voluntary Administration provided opportunity for junior company Bounty Mining to become coal producer 14 BHP Billiton Demerger formed South 32 Illawarra Metallurgical Coal NSW 15 Divestment by Gujarat NRE of Wollongong Coal to Jindal Steel and Power Limited retains the operations in Indian Ownership having been originally divested by BHP Bede Boyle will chair Coal Session and Investment Round Table at Queensland Energy, Mines and Money in Brisbane 20 & 21 June 2018 and will present on The Changing Face of the Australian Export Coal Industry to the Australian Coal Conference in Sydney on 16 & 17 August 2018. Contact Bede +61 [0] 419 213 010 boyle.bede@bigpond.com

1 Rio Tinto divestment of Coal & Allied Hunter Valley Coal Assets strengthens Yancoal and Glencore position in Australian Thermal Coal Exports Yancoal Australia acquired Rio Tinto's Coal & Allied Hunter Valley 17Mtpa thermal coal business in a deal with Glencore holding 49%. The US$2.69billion acquisition included: 67.6% of Hunter Valley Operations (HVO), 80% of Mount Thorley mine, 55.6% of Warkworth joint venture, 36.5% of Port Waratah Coal Services terminal at Port of Newcastle together with other undeveloped coal assets and property holdings Yancoal will have marketing rights for China, Taiwan, Thailand and Malaysia and Glencore will have marketing rights for Japan and South Korea and all other countries. Yancoal has also concluded the US$230m purchase of Mitsubishi s 29% stake in the Warkworth joint venture and now owns 83% of the operation. Yancoal major shareholder is Yanzhou Coal Mining Company Limited (78%) in the People s Republic of China. Yanzhou is publicly listed on the Shanghai, Hong Kong and New York stock exchanges. Yancoal Australia was formed in 2004 with the acquisition of the Austar underground mine in the Hunter Valley and has subsequently built its business via strategic acquisition to become one of the country s most innovative coal exploration companies. Yancoal successfully introduced the pioneering LTCC coal mining method in 2006, following its acquisition of the former Southland Coal Mine in the Hunter Valley. In 2009, Yancoal completed the successful takeover of Felix Resources, acquiring the Moolarben mine and becoming a key player within the NSW coal industry. In 2012, Yancoal strategically merged with Gloucester Coal, listing with the Australian Securities Exchange as Yancoal Australia (ASX code: YAL), and becoming one of Australia's largest listed pure-play coal producers. Glencore will take a 49% stake in Hunter Valley Operations [HVO] coal mine and form a joint venture with Yancoal to operate the mine. The deal enables Glencore to become the dominant producer in the Hunter Valley, controlling the seaborne thermal and semi soft coking coal market. Post acquiring the 49% stake in HVO, Glencore will have a combined production capacity of 69Mtpa. The deal gives Glencore exclusive marketing rights for HVO coal sales into Japan, South Korea and other countries with the exception of Yancoal HVO rights for China, Taiwan, Thailand and Malaysia. Source Australian Coal Report 2 August 2017

2 Rio Tinto divestment of Hail Creek to Glencore strengthens Glencore in Metallurgical Coal Market Rio Tinto has agreed to sell its interests in the Hail Creek coal mine and Valeria coal project in Queensland s Bowen Basin to Glencore for $US1.7 billion ($2.2 billion). Glencore s acquisition includes Rio s 82 per cent share in Hail Creek and a 71.2 per cent interest in Valeria. The Hail Creek Complex is in the northern Bowen Basin, 120km south-west of Mackay. It includes the Hail Creek, Lake Elphinstone and Mount Robert tenements. Hail Creek is a large-scale open cut mining operation which first produced in 2003. In 2017, the Hail Creek mine produced 9.4 million tonnes (Mt) of saleable coal, comprising 5.25Mt of hard coking coal and 4.13Mt of thermal coal. The remaining 18 per cent of the Hail Creek mine is owned by Nippon Steel, (8 per cent), Marubeni Coal (6.67 per cent) and Sumisho Coal Development (3.33 per cent). Each JV partner has the right to sell its share to Glencore through a tag-along right, which could result in additional payment of up to $US340 million. 3 Rio Tinto divestment of Kestrel opens door for Australian Private Equity and Indonesian Investment Rio Tinto has agreed to sell its 80 per cent stake in the Kestrel underground coal mine in Queensland to a consortium of EMR Capital and Indonesia s PT Adaro Energy for $US2.25 billion ($2.9 billion). Kestrel is about 40km from Emerald and produced 5.1 million tonnes (Mt) of coal in 2017, comprising 4.25Mt of hard coking coal and 0.84Mt of thermal coal. Rio reported last December that Kestrel had reserves of 146Mt and resources of 241Mt. If the transaction is approved, Melbourne-based equity fund EMR and Adaro will jointly manage and operate Kestrel. ERM Capital is a specialist resources private equity manager with a proven track record in successful resources project development, operation, and investments and deep linkages to Asian markets. Adaro, one of Indonesia largest coal miners, produces more than 50Mt a year and supplies thermal coal to global seaborne market. 4 Rio Tinto divestment of Winchester South gives NSW coal producer Whitehaven Coal a large Queensland Project with Metallurgical Coal Potential Whitehaven Coal has secured a deal to buy Rio Tinto s 75 per cent interest in the Winchester South coal project in Queensland s Bowen Basin for $US200 million ($260 million). Winchester South is a large, undeveloped coal project about 30km from Moranbah. The Winchester South tenement contains 356 million tonnes (Mt) of coal resources and is expected to produce both coking and thermal coal products once developed. According to Whitehaven, a developed Winchester South will potentially have a mine life of 20 30 years with annual production of between 7.5 15Mt/y.

The agreement will involve Whitehaven paying Rio $US150 million on the completion date of the deal and then making another $US50 million payment 12 months later. The remaining 25 per cent of the project is owned by the Spectre Group. The deal is subject to the usual regulatory approvals and conditions, but is expected to be completed by the second half of 2018. 5 Rio Tinto divestment of Mt Pleasant Project gives Indonesia Salim Group a well advanced major Australian Thermal Coal Project MACH Energy [Indonesia Salim Group] acquired Mt Pleasant NSW from Rio Tinto Coal & Allied with Approvals in place for 10.4Mtpa [ROM] Open Cut Mine. MACH Energy is progressing development for production in Q1 2018 and are reportedly seeking Joint Venture Partners. 6 Vale and Sumitomo divestment of Isaac Plains provided junior explorer Stanmore Coal opportunity to rapidly become coal producer Stanmore Coal illustrates the successful strategic acquisition by an ASX listed junior explorer of Isaac Plains metallurgical coal resource from Vale & Sumitomo in July 2015 and rapid recommencement of production from the shuttered mine, in less than 12 months, with first shipments to Asian steel mill customers in May 2016. Source Stanmore Coal, ASX Announcement 6 April 2016 Private Equity firm Taurus Funds provided acquisition finance and development finance for brownfield coking coal project. Stanmore Coal is progressing its future plans for Isaac Plains East - which will be an offshoot from its existing 1.1 mt/y Isaac Plains open cut mine. The company is exploring two future projects for the site, the 1.2 mt/y Isaac Plains East open cut project and the 1.4 mt/y Isaac Plains East underground project. Importantly Stanmore was able to secure A$3m of funding from the Japan, Oil, Gas and Metals National Corporation (JOGMEC). The funding will allow Stanmore to accelerate exploration and approvals for the Isaac Plains projects. In return Stanmore will provide JOGMEC the right to tender a portion of the coking coal produced from this project to Japanese buyers for five to seven years. 7 Anglo American divestment of Foxleigh to Taurus Funds gave Realm Resources opportunity to become PCI coal producer in Bowen Basin Anglo American divested its 70% holding in Foxleigh PCI Mine to Taurus in August 2016. Taurus funded the purchase of Foxleigh and vended the asset into its majority owned and listed company Realm Resources - a move that raised the ire of the ASX, which saw the deal as a substantial transaction and an attempt at a backdoor listing, which merited closer scrutiny. Source Australian Coal Report 11 April 2018 Realm Resources through Middlemount South operates the 3Mtpa Low Volatile PCI Mine and achieved a net profit after tax of A$103.1m for the year ended 31 December 2017, following the first full year of operating the Foxleigh coal mine in Queensland s Bowen Basin.

The 70% owned Foxleigh mine produced 2.96 mt of saleable coal, mainly low volatile PCI coal for the export market. Coal sales from the mine were 2.77 mt on a 100% basis. Steel manufacturers, Korea s POSCO and Japan s Nippon Steel & Sumitomo Metal own the remaining 20% and 10% respectively of the mine. Australian Coal Report 4 April 2018 8 Anglo American divestment of Dartbrook and Drayton coal assets provided project opportunities in NSW for Australian Pacific Coal and Malabar Coal Australian Pacific Coal acquired the closed Anglo American Dartbrook Open Cut Mine for approximately $50million. Australia Pacific Coal are progressing operational and risk assessments focused on a lowcapex, low production recommencement of underground mining operations. The Company is evaluating the potential underground project economics in light of the current coal price environment. Malabar Coal - Drayton acquired from Anglo American Anglo American and Malabar Coal entered into a sale and purchase agreement in April 2017 of Anglo American s Drayton coal assets. A New South Wales government decision in December 2017 to allow underground coal mining at Drayton South effectively gives a green light for Malabar Coal to finalise acquisition. The underground mine will be renamed Project Maxwell 9 Vale divestment of Integra Mining Operations Complex enabled Glencore to secure Integra Underground Mine and on sell the Open cut Mine, CHPP and Rail Loading Facility to Australian coal producer Bloomfield Collieries On 18 December 2015, HV Coking Coal Pty Limited (HVCC) (a 100% Glencore owned company) completed the purchase of 100% of the Vale Integra Mining Operations Complex which was placed in care and maintenance in 2014. Glencore recommenced production at Integra longwall mine in February 2017 and has made application to extract a further 9.9million tonnes. Bloomfield Collieries Pty Limited (BCL) subsequently purchased from Glencore the Integra Open Cut Operations, Coal Handling Preparation Plant, Train Loading Infrastructure and the Rail Loop. Bloomfield renamed the Integra open cut operations Rix s Creek North as part of Rix s Creek Mine. 10 Wesfarmers divestment of Curragh coal mine to US Coronado Coal Group establishes Coronado in Australian Export Coal Industry Australian diversified company Wesfarmers has completed the sale of its large-scale Curragh coal mine in Queensland to major US metallurgical coal producer Coronado Coal Group. This is Coronado Group s first Australian acquisition. Wesfarmers announced in December 2017 it had agreed to sell Curragh to Coronado for A$700 million in a deal that includes a value share mechanism linked to future metallurgical coal prices. Under the mechanism, Wesfarmers will receive 25% of Curragh's export coal revenue generator above realized metallurgical coal prices of $145/mt, paid quarterly over the next two years.

Curragh is one of the world's largest metallurgical coal mines with a baseline production of 8.5 million mt/year of export metallurgical coal and 3.5 million mt/year of steam coal. The thermal coal is sold to the Queensland government's Stanwell Corporation. Coronado has three mining complexes in West Virginia and Virginia that are currently producing 8.2 million mt/year. Wesfarmers acquired Curragh in 2000 for around A$200 million when it was producing 4.5 million mt/year of coal. It will have delivered Wesfarmers an after-tax internal rate of return of around 49%/year over the past 17 years. Curragh is in Queensland's Bowen Basin and transports coal about 190 miles via rail to Gladstone port for export to Japan, Southeast Asia, Europe and South America. Wesfarmers is also undertaking a strategic review of its 40% interest in the Bengalla mine in New South Wales, seeking expressions of interest from companies wanting to acquire it. Source: Platts-29 Mar 2018 11 Anglo American divestment of Callide to Batchfire Resources was supported by Singapore based Avra Commodities The Callide Coal Mine had been on the market since 2012 and as a domestic supplier to Callide Power Station had failed to attract a buyer. Batchfire Resources' acquisition of the Callide Coal mine was based on a plan to commence export production to the South East Asian power market. Avra Commodities represents the new face of private equity investing in the coal industry. Avra was established in Singapore in 2011, founded on investment and merchant trading of energy coal from Indonesia. The Company was established to serve a global Client base demanding energy, commodities, shipping and capital solutions. AVRA Commodities took both an equity stake in Batchfire Resources and was granted the right to market or off-take the export coal produced from the Callide Coal mine. For AVRA, as a specialist thermal coal trader in South East Asia, the investment allowed it to secure further coal supply for its customers in South East Asia (at a time when traditional Indonesian coal used by the end customers is in decline). 12 Glencore divestment of Tahmoor Mine enabled GFG Alliance to become Australia s only fully integrated steel producer GFG Alliance has acquired Glencore s Tahmoor metallurgical coal mine in NSW for an undisclosed sum. Tahmoor produces around 1.60-1.80Mtpa of saleable mid-vol coking coal for export through Port Kembla Coal Terminal and to the domestic market, including GFG Alliance s Liberty OneSteel Whyalla Steelworks in South Australia. Sanjeev Gupta, GFG Alliance executive chairman said: Through this purchase we secure and de-risk an important feed for the Whyalla Steelworks. This, together with our iron ore mines in South Australia, now makes GFG the only fully integrated Australian steel producer.

13 Caledon Coal entering Voluntary Administration provided opportunity for Bounty Mining to become coal producer China state owned Caledon Coal went into voluntary administration with debts of about $4billion following closure of Cook Colliery with large inflow of water into underground longwall. Private junior mining company Bounty Mining acquired the Cook mine from administrators PPB Advisory for $31.5m. Bounty will also pay Glencore, the original owner of the Mining Lease $10m, in deferred payments, for assets related to Cook Colliery. This includes the lease, rail loop and 3.5Mtpa capacity wash plant. Glencore sold the sub-lease containing the mine in 2006 to Caledon. Bounty Mining plans to recommence production at Cook Colliery early in 2018. Source: Australian Coal Report 15 November 2017 Bounty Mining has railed first coal from Cook mine after operations at the shuttered underground mine resumed in January this year. Underground mining resumed with one continuous miner. By the end of May 2018 we hope to be close to breakeven with four machines underground, Bounty executive chairman, Gary Cochrane. US trader Xcoal has been brought in as a strategic investor with a 10% stake, in addition to a 275 kt offtake agreement to be set against the HC 64 index. Source: Australian Coal Report 11 April 2018 14 BHP Billiton Demerger formed South 32 Illawarra Metallurgical Coal NSW South32 was formed by BHP Billiton demerger and as Illawarra Metallurgical Coal operates three underground mines Appin, Dendrobium and Wongawilli 15 Divestment by Gujarat NRE of Wollongong Coal to Jindal Steel and Power Limited retains the operations in Indian Ownership Wollongong Coal Limited is an Australian mining business which owns and operates Russell Vale Colliery and Wongawilli Colliery in the Southern Coalfields Region of New South Wales. Jindal Steel and Power Limited (JSPL) has recently acquired a majority controlling stake and management control of Wollongong Coal from Gujarat NRE Coking Coal Ltd. JSPL, listed on the Indian Stock Exchange, is an international steel and power company with operating steel capacity of about 7 Mtpa and power generation capacity of about 2500 MW. The majority of Wollongong Coal s production is sold to JSPL. Russell Vale Colliery originally known as South Bulli, is one of the oldest operating coal mines in Australia, its origins dating back to 1887 and comprises three coal seams, the Bulli, Balgownie and Wongawilli seams. Coal is currently extracted from the Wongawilli and Bulli seams. Extraction from the Balgownie coal seam is no longer conducted. Mining extraction methods adopted are continuous mining and longwall extraction In 1916 the Wongawilli Colliery, in the Southern Coalfields of New South Wales, was opened and developed by G & C Hoskins Limited in order to supply coke to industry in Lithgow. The mine was consolidated with the Kemira and Nebo mines to become the Elouera Colliery, officially opened in February 1993. In 2007 BHP Billiton sold Elouera to Indian company Gujarat NRE, who continued operations, renaming it the NRE Wongawilli Colliery. Now owned by Wollongong Coal Limited, it was renamed WCL Wongawilli Colliery in February 2014. Mining is carried out in the Wongawilli and Tongarra coal seams.