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1 30 December, 2015 Dear Shareholder, I am pleased to invite you to attend a General Meeting of Kazakhstan Potash Corporation Limited ACN (KPC or Company) to be held at am (Melbourne time) on 3 February, The General Meeting will be held at Norton Rose Fulbright Australia, Level 15, RACV Tower, 485 Bourke Street, Melbourne, Victoria Please find enclosed a Notice of Meeting, Explanatory Statement and Proxy Form for the General Meeting. The Notice of Meeting (including the Exp lanatory Statement) sets out the items of business for the General Meeting. Please take the time to carefully read the whole document. Satimola Project On 16 November 2015, your Directors announced to ASX that the Company had entered into a new Sale and Purchase Agreement to acquire a 100% interest in the Satimola potash and borate project in Kazakhstan (Satimola Project) through the acquisition of all of the shares on issue in Satimola Limited (Satimola), a company established in the British Virgin Islands. The new Sale and Purchase Agreement only became effective once it was signed by vendors of the Satimola Project holding more than 90% of Satimola s issued share capital. On 10 December, 2015, your Directors announced to ASX that this threshold had now been achieved and the new Sale and Purchase Agreement has taken effect. Your Directors were pleased to have been able to reach agreement with the vendors of the Satimola Project. The successful negotiations with the vendors of the Satimola Project was achieved with the assistance of Goldquest Services Inc. ( Goldquest). As Shareholders have been informed in the past, the proposed acquisition of the Satimola Project was introduced to KPC by Goldquest and Goldquest has, to date played, and continues to play, an important role in securing the Satimola Project for the benefit of KPC and its Shareholders. As announced on ASX on 16 November 2015, the Company entered into a revised Consulting Services Contract (Goldquest Services Contract) with Goldquest pursuant to which Goldquest has agreed to continue to provide certain consulting services to KPC in respect of the Company s acquisition of the Satimola Project, including negotiation with shareholders of Satimola, provision of advice in respect of all necessary Kazakhstan approvals to complete KPC s acquisition and provision of advice to obtain all necessary variations and extensions in respect of the subsoil use rights, the subject of the Satimola Project. The Goldquest Services Contract supersedes the earlier Consulting Services Contracts between Goldquest and KPC announced to ASX on 8 May 2013 and, separately, 18 September In exchange for those consultancy services, the Company has agreed to issue 100 million ordinary shares to Goldquest.

2 The Goldquest Services Contract recognises the assistance of City Winner Holdings Limited (CWH), a company controlled by me, in securing the proposed acquisition of the Satimola Project, including the provision of a loan facility to Satimola to enable Satimola to pay certain creditors and fund working capital requirements. Relevantly, Goldquest has agreed to share a proportion of its consulting fees under the Goldquest Services Contract, which are payable by the Company through the issue of new ordinary shares, with CWH in recognition of CWH s vital assistance. The above arrangement between Goldquest and CWH and the issue of the ordinary shares was approved by Shareholders at a general meeting of Shareholders of the Company held on 7 January, However, that approval lapsed as the shares were not issued within the period approved by Shareholders. On 16 November 2015, your Directors also announced to ASX that through my efforts the Company had secured access to a financing facility with China Minsheng Banking Corp., Ltd (Hong Kong Branch) (CMBC) to fund the Company s acquisition of the Satimola Project and to provide additional working capital for the Satimola Project. The financing facility was obtained through China Asia Recourses Co. Ltd (CAR Ltd), a company controlled by me. CAR Ltd is the borrower under the financing facility and I have agreed to personally guarantee repayment of the financing facility. This personal commitment by me to facilitate the proposed acquisition of the Satimola Project demonstrates my commitment to the success of the Company and its operations. The securing of these funds in the current lending environment would not have been possible without my direct involvement and personal pledge. General Meeting At the General Meeting of the Company, Shareholders will be asked to consider certain approvals required in connection with the Company s proposed acquisition of the Satimola Project including the issue of new fully paid ordinary shares to Goldquest, CWH and CAR Fund. The requirement for Shareholder approval was foreshadowed in our announcement to ASX on 16 November, An overview of the Satimola Project, the advantages and disadvantages of the proposed acquisition of the Satimola Project and the associated risks were outlined in the Explanatory Statement which accompanied the Notice of General Meeting dated 28 November, In addition, your Directors are also seeking continued flexibility from Shareholders to be able to issue up to 200 million equity securities in the Company to help fund mine development activities at the Company s Zhilyanskoye deposit in Kazakhstan, exploration and drilling at the Company s Chelkar deposit in Kazakhstan, development activities at the Satimola Project (once completion of the Company s proposed acquisition of the Satimola Project occurs) and for other general working capital requirements of the Company. To help you understand what the Notice of Meeting contains, below is a brief outline of the items of business that are proposed for the General Meeting: 1. Approval of issue of ordinary shares in the Company to Goldquest Australian takeover approval. 2. Approval of issue of ordinary shares in the Company to Goldquest and CWH Related party transaction approval. 3. Approval of giving of financial benefits including the issue of 100 million ordinary shares in the Company to CAR Fund and the grant of the CMBC Security Arrangements. Page 2

3 4. Approval of issue of up to 200 million equity securities in the Company. Independent Expert In relation to the first 3 items of business outlined above, your Directors engaged DMR Corporate to prepare an independent expert s report in respect of those items of business. DMR Corporate has concluded that the proposed transaction outlined in those 3 items of business is not fair but is reasonable when considered in the context of the interests of the non-associated Shareholders. A copy of that report accompanies the Explanatory Statement as Annexure A. Non-associated Shareholders are those Shareholders who are not precluded from voting on those items of business. If you would like to vote on the items of business outlined in the enclosed Notice of Meeting, you may attend the General Meeting in person or appoint a proxy to vote on your behalf at the General Meeting. If appointing a proxy, the enclosed Proxy Form should be completed and returned to the Company (see Proxy Form for details) as soon as possible and, in any event, no later than am (Melbourne time) on 1 February, The Board encourages all Shareholders to direct their proxy how to vote on each item of business. If you have any queries in relation to the General Meeting, please contact the company secretary on +61 (0) Yours sincerely, Madam Freada Cheung Chairperson Kazakhstan Potash Corporation Limited Page 3

4 Kazakhstan Potash Corporation Limited NOTICE OF GENERAL MEETING Notice is hereby given that a General Meeting of the Shareholders of Kazakhstan Potash Corporation Limited ACN will be held at Norton Rose Fulbright Australia, Level 15, 485 Bourke Street, Melbourne, Victoria 3000, on 3 February, 2016 at am (Melbourne time). The enclosed Explanatory Statement has been prepared to provide Shareholders with an explanation of the business and the Resolutions to be proposed and considered at the Meeting. The Explanatory Statement including the report of the Independent Expert should be read in conjunction with this Notice of Meeting. All documents should be read in their entirety. If you are in any doubt about what to do, you should consult your legal, financial or other professional adviser. Business Resolution 1: Approval of issue of Shares to Goldquest Australian takeover approval To consider and, if thought fit, to pass the following resolution as an ordinary resolution of the Company: That, subject to Shareholders passing Resolutions 2 and 3, for the purposes of item 7 of section 611 of the Corporations Act and all other purposes, Shareholders approve the issue of 75,000,000 Shares to Goldquest Services Inc. and any acquisition in relation to those Shares, as detailed in the Explanatory Statement accompanying this Notice of Meeting. Voting Exclusion Statement: In accordance with the Corporations Act, the Company will disregard any votes cast on Resolution 1 by Goldquest and any of its associates. Madam Cheung, CWH and CAR Group will also not vote on Resolution 1. Resolution 2: Approval of issue of Shares to Goldquest and CWH Related Party Transaction Approval To consider and, if thought fit, to pass the following resolution as an ordinary resolution of the Company: That, subject to Shareholders passing Resolutions 1 and 3, for the purposes of section 208 of the Corporations Act 2001, ASX Listing Rule and all other purposes, Shareholders approve the issue of 75,000,000 Shares to Goldquest Services Inc. and 25,000,000 Shares to City Winner Holdings Limited, an entity controlled by Madam Cheung, the Managing Director and Chairperson of the Company, as detailed in the Explanatory Statement accompanying this Notice of Meeting. Voting Exclusion Statement: In accordance with the ASX Listing Rules, the Company will disregard any votes cast on Resolution 2 by Goldquest, CWH and any associate of those entities (including Madam Cheung and CAR Group). However, the Company need not disregard a vote on Resolution 2 if: it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or Page 1

5 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. In accordance with the Corporations Act, the Company will disregard any votes cast (in any capacity) on Resolution 2 by or on behalf of Goldquest, CWH and any associate of those entities. However, the Company need not disregard a vote on Resolution 2 if it is cast by a person as proxy appointed in writing that specifies how the proxy is to vote on Resolution 2 and it is not cast on behalf of Goldquest, CWH or any associate of those entities. Resolution 3: Approval of financial benefits including issue of Shares and grant of CMBC Security Arrangements. To consider and, if thought fit, to pass the following resolution as an ordinary resolution of the Company: That, subject to passing Resolutions 1 and 2, for the purposes of section 208 of the Corporations Act, ASX Listing Rules 10.1 and and all other purposes, Shareholders approve the giving of financial benefits (including the issue of 100,000,000 Shares to China-Asia Resources Fund, an entity controlled by Madam Cheung, the Managing Director and Chairperson of the Company and the granting and performance of the CMBC Security Arrangements), as detailed in the Explanatory Statement accompanying this Notice of Meeting. Voting Exclusion Statement: In accordance with the ASX Listing Rules, the Company will disregard any votes cast on Resolution 3 by CAR and CMBC and any associate of those entities (including Goldquest, Madam Cheung, CWH and CAR Group). However, the Company need not disregard a vote on Resolution 3 if: it is cast by a person as 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. In accordance with the Corporations Act, the Company will disregard any votes cast (in any capacity) on Resolution 3 by or on behalf of CAR Fund and CMBC or any associate of those entities. However, the Company need not disregard a vote on Resolution 3 if it is cast by a person as proxy appointed in writing that specifies how the proxy is to vote on Resolution 3 and it is not cast on behalf of CAR Fund or CMBC or an associate of those entities. Independent Expert s Report: Shareholders should carefully consider the report of DMR Corporate contained as Annexure A to the Explanatory Statement. DMR Corporate opines on the fairness and reasonableness of the proposed transaction, the subject of Resolutions 1, 2 and 3, in the context of the interests of the KPC nonassociated Shareholders. DMR Corporate has concluded that the proposed transaction is not fair but is reasonable when considered in the context of the KPC non-associated Shareholders. Resolution 4: Approval of issue of up to 200 million Equity Securities in the Company To consider and, if thought fit, to pass the following resolution as an ordinary resolution of the Company: That, for the purposes of ASX Listing Rule 7.1 and all other purposes, Shareholders approve the issue of up to 200 million Equity Securities, as detailed in the Explanatory Statement accompanying this Notice of Meeting. Voting Exclusion Statement: In accordance with the ASX Listing Rules, the Company will disregard any votes cast on Resolution 4 by any person who may participate in the proposed issue or who might obtain a benefit (except a benefit solely in the capacity as a holder of ordinary securities, if Resolution 4 is passed) and any of their associates. Page 2

6 However, under the ASX Listing Rules, the Company need not disregard a vote on Resolution 4 if: it is cast by a person as 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. Other Business To consider any other business that may be lawfully brought forward. Notes Regarding Proxies and Voting Voting and determination of voting entitlement For the purpose of Regulation of the Corporations Regulations 2001 (Cth), the Company has determined, for the purpose of voting entitlements at the Meeting, that Shares in KPC are taken to be held by those Shareholders registered at 7:00 p.m. (Melbourne time) on 1 February, Accordingly, only those persons will be entitled to attend and vote at the Meeting. Unless a poll is demanded in advance of voting on a Resolution, voting on each Resolution will initially be by way of a show of hands. On a show of hands, each Shareholder present in person or by attorney or by proxy or, in the case of a body corporate, by a representative, will have one vote. On a poll, every Shareholder present in person or by attorney or by proxy or, in the case of a body corporate, by a representative, will have one vote for each Share held by him, her or it. Appointing a Proxy A Shareholder entitled to attend and vote at the Meeting can appoint a proxy to attend and vote at the Meeting on their behalf. A proxy need not be a Shareholder. Where a Shareholder is entitled to cast 2 or more votes, the Shareholder may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. If a Shareholder appoints 2 proxies and the appointment does not specify the proportion or number of the Shareholder s votes each proxy may exercise, each proxy may exercise half of the votes (disregarding fractions). For an appointment of a proxy to be effective, an instrument of appointment of a proxy (and any power of attorney or other authority under which it is signed or a certified copy of that power or authority) must be received by the Company, by hand delivery, postage or facsimile using the details set out below, by not less than 48 hours prior to the Meeting. That is, by am (Melbourne time) on 1 February, Address: The Company Secretary Kazakhstan Potash Corporation Limited Level 27, 101 Collins Street Melbourne, Victoria, 3000 Facsimile: +61 (0) A proxy form accompanies this Notice of Meeting. If you require a second proxy form, please contact the company secretary on +61 (0) Page 3

7 Corporate Shareholders Corporate Shareholders wishing to appoint a representative to attend the Meeting on their behalf must provide that person with a properly executed letter confirming that they are authorised to act as the company s representative. The authorisation may be effective either for this Meeting only or for all meetings of KPC. How undirected proxies held by the Chairperson of the Meeting will be voted Subject to the Corporations Act, the Chairperson of the Meeting will vote all undirected proxies in favour of each Resolution. KPC encourages all Shareholders who submit proxies to direct their proxy how to vote on the Resolution concerned. Glossary A Glossary of terms used in this Notice of Meeting and Explanatory Statement is contained in the Explanatory Statement. Terms defined in the Glossary also apply to the accompanying proxy form, unless the context requires otherwise. Mr Marco Marcou Company Secretary On behalf of the Board of Directors Kazakhstan Potash Corporation Limited 30 December, 2015 Page 4

8 EXPLANATORY STATEMENT This Explanatory Statement has been prepared and is being provided to Shareholders of Kazakhstan Potash Corporation Limited (KPC or Company) in connection with the business to be considered at the General Meeting of Shareholders to be held at Norton Rose Fulbright Australia, Level 15, 485 Bourke Street, Melbourne, Victoria 3000, on 3 February, 2016 at 11:00 am (Melbourne time). The purpose of this Explanatory Statement is to provide Shareholders with an explanation of the business and the Resolutions to be proposed and considered at the Meeting. This Explanatory Statement including the report of the Independent Expert forms part of the accompanying Notice of Meeting and should be read in conjunction with it. Your Directors recommend that Shareholders carefully read this Explanatory Statement and accompanying Notice of Meeting in full before making any decision in relation to the Resolutions. If Shareholders are in any doubt about what to do, they should consult their legal, financial or other professional adviser. Resolution 1: Approval of issue of Shares to Goldquest - Australian Takeover Approval 1. Background As announced to ASX on 16 November 2015, KPC has entered into a new Consulting Services Contract (Goldquest Services Contract) with Goldquest Services Inc. (Goldquest) under which Goldquest has agreed to continue to provide certain consulting services to KPC in respect of its acquisition of the Satimola Project. The acquisition of the Satimola Project was introduced to KPC by Goldquest and Goldquest was instrumental in securing the Satimola Project for the benefit of KPC and its Shareholders. The Goldquest Services Contract supersedes the earlier Consulting Services Contracts between Goldquest and KPC announced to ASX on 8 May 2013 and, separately, 18 September The services to be provided by Goldquest under the Goldquest Services Contract include: o o o negotiation with shareholders of Satimola; provision of advice in respect of all necessary Kazakhstan approvals to complete KPC s proposed acquisition of the Satimola Project; and provision of advice to obtain all necessary variations and extensions in respect of the subsoil use rights, the subject of the Satimola Project. In consideration for providing the services contemplated above, KPC agreed to issue 100,000,000 Shares to Goldquest (Goldquest Consideration Shares). The Goldquest Services Contract recognises the assistance of City Winner Holdings Limited (CWH), a company controlled by Madam Cheung, the Managing Director and Chairperson of KPC, in securing the proposed acquisition of the Satimola Project, including the provision by CWH of a loan facility to Satimola to enable Satimola to repay certain creditors and fund working capital requirements pending completion of the acquisition. Relevantly, Goldquest has agreed to direct KPC to issue 25,000,000 of the Goldquest Page 5

9 Consideration Shares, which would have otherwise have been issued to Goldquest in the form of consulting fees under the Goldquest Services Contract, to CWH. At a general meeting of the Shareholders of the Company held on 7 January, 2015, Shareholders approved the issue of 75 million Shares to Goldquest and 25 million Shares to CWH (Original Shares) as contemplated under the Consulting Services Contract between Goldquest and KPC announced to ASX on 18 September 2014 (2014 Goldquest Services Contract). Under the terms of a waiver granted by ASX, the Original Shares were required to be issued by 7 July, The issue of the Original Shares was, however, subject to KPC completing the acquisition of the Satimola Project. The Company had not finalised negotiations with the vendors of the Satimola Project by 7 July, Accordingly, KPC and Goldquest agreed to enter into the revised Consulting Services Contract to supersede (but on substantially the same terms as) the 2014 Goldquest Services Contract. 2. Proposed issue of Goldquest Shares and CWH Shares Subject to Shareholders approving Resolutions 1, 2 and 3 and the successful completion of the acquisition of the Satimola Project by KPC, KPC as agreed under the terms of the Goldquest Services Contract to issue the Goldquest Consideration Shares as follows: (1) 75,000,000 Shares to Goldquest (Goldquest Shares); and (2) 25,000,000 Shares to CWH (CWH Shares). As outlined above, this is the same number of Shares which Shareholders approved to issue to Goldquest and CWH at a general meeting of the Shareholders of the Company held on 7 January, Chapter 6 of the Corporations Act - Australian takeovers laws Prohibition on acquiring an interest in more than 20% of KPC shares Section 606 of the Corporations Act provides that a person must not acquire a relevant interest in issued voting shares of a listed entity such as KPC where, as a result of that acquisition, that person s or someone else s voting power in the entity increases: (1) from 20% or below to more than 20%; or (2) from a starting point that is above 20% and below 90%. KPC currently has 635,642,804 Shares on issue. Goldquest currently holds 110,000,000 Shares in KPC (Existing Goldquest Shares) or approximately 17.31% of the issued capital of KPC. The Existing Goldquest Shares were acquired by Goldquest in its capacity as one of the sellers of the Zhilyanskoe and Chelkar potash projects. The issue of those Shares to Goldquest was approved at a general meeting of the Shareholders of the Company held on 27 June, In the absence of a relevant exception, the issue of the Goldquest Shares will give rise to a breach by Goldquest of the prohibition in section 606 of the Corporations Act (outlined above). Page 6

10 Relevant exceptions to section 606 Shareholder approved acquisitions Section 611 of the Corporations Act sets out a number of exceptions to the prohibition in section 606. Relevantly, item 7 of section 611 provides that an acquisition approved previously by an ordinary resolution passed at a general meeting of the company (in which the acquisition is made) is exempt from the prohibition in section 606 (outlined above) provided that: (1) no votes are cast in favour of the resolution by the person proposing to make the acquisition and their associates or persons from whom the acquisition is to made and their associates; and (2) the members of the company were given all information known to the person proposing to make the acquisition or their associates, or known to the company, that was material to the decision on how to vote on the resolution. 4. Resolution 1 Resolution 1 requests Shareholders to approve, for the purposes of item 7 of section 611 of the Corporations Act and all other purposes, the issue of the Goldquest Shares to Goldquest. Resolution 1 is proposed as an ordinary resolution and will be passed if more than 50% of the votes cast by Shareholders entitled to vote are in favour of that Resolution. Goldquest and, should they hold any Shares in KPC, its associates are not entitled to vote on Resolution 1. Madam Cheung, CWH and the CAR Group will also not vote any Shares they hold in KPC on Resolution 1. If Resolution 1 is approved, the acquisition of the Goldquest Shares by Goldquest will not involve a breach of section 606 of the Corporations Act. 5. Information required for Shareholder approval Item 7(b) of section 611 In accordance with item 7(b) of section 611 of the Corporations Act, the following information is provided for Shareholders: (1) The Goldquest Shares will be issued to Goldquest. Goldquest is a company controlled by Mr V Chumashkaev, a resident of Russia. Mr Chumashkaev is the managing director of Eurasian Finance Limited (a company based in London) which is financing the construction of a new railway in Mongolia. Prior to this role, Mr Chumashkaev was managing director of Eurasian Resources SARL, a Guinea based bauxite exploration company. (2) Goldquest currently holds 110,000,000 Shares in KPC or approximately 17.31% of the issued capital of KPC. Goldquest and, except for Madam Cheung, CAR Group and CWH, Goldquest s associates do not currently hold any other securities in KPC. Page 7

11 The Existing Goldquest Shares held by Goldquest are subject to the escrow requirements set out in Chapter 9 of the ASX Listing Rules for a compulsory escrow period expiring on 7 April, Chapter 9 of the ASX Listing Rules provide that, during the compulsory escrow period, the holders and controllers of the Existing Goldquest Shares are restricted from: (a) (b) disposing of those Shares; creating any security interest in those Shares; (c) (d) doing any act or omission if the act or omission would have effect of transferring effective ownership or control of those Shares; and participating in a return of capital made by KPC. (3) Following the issue of the Goldquest Shares contemplated by Resolution 1 and the other Shares contemplated by Resolutions 2 and 3, Goldquest s voting power in KPC will increase to a maximum of approximately 20.66%. If the 120,000,000 Shares held on behalf of Celaric Continental Limited (Celaric) are disregarded, Goldquest will effectively be entitled to exercise approximately 23.85% of votes eligible to be cast at any general meeting of Shareholders of KPC. (4) The issue of those Shares to Celaric or its escrow agent was approved by Shareholders at a general meeting of the Shareholders of the Company held on 27 June, 2012 in connection with KPC s acquisition of the Zhilyanskoe and Chelkar potash projects in Kazakhstan. While the escrow agent holds those Shares on behalf of Celaric, it is not permitted to vote them at general meetings of the Company. (5) This maximum voting power of Goldquest described above is calculated on the basis that the only Shares on issue immediately following the issue of the Goldquest Shares are 895,642,804 Shares comprising the aggregate number of the Shares on issue at the date of the Notice of Meeting (635,642,804), the proposed issue of Shares to Hillot Limited (60,000,000) (the issue of those Shares was approved by Shareholders at a general meeting of the Shareholders of the Company held on 29 October 2015), the Goldquest Consideration Shares (100,000,000) and the CAR Fund Shares (100,000,000). However, if additional Shares are on issue at the relevant time, the relative voting power of Goldquest will be reduced accordingly. (6) Further information with respect to Shareholdings in KPC and percentage interests after completion of the acquisition of the Satimola Project is contained in Table 2 of the report of the Independent Expert in Annexure A to this Explanatory Statement. Shareholders are encouraged to read that report in its entirety. Is the proposal fair and reasonable? In accordance with ASIC Regulatory Guide 74: Acquisitions approved by members (RG 74), KPC commissioned the Independent Expert to prepare a report as to whether the proposed transaction outlined in Resolutions 1, 2 and 3 including proposed issue of the Goldquest Shares is fair and reasonable to non-associated Shareholders of the Company. Page 8

12 The Independent Expert has assessed that proposed transaction and has concluded that it is not fair but is reasonable when considered in context of the interests of the nonassociated Shareholders of the Company. A copy of the report of the Independent Expert is attached to this Explanatory Statement as Annexure A. A copy of that report is also available on the Company s website at Shareholders are encouraged to read that report in its entirety. Additional Information In accordance with paragraph of RG 74, the following information is provided to Shareholders to assist them in determining how to vote on Resolution 1: (1) The Goldquest Shares will be issued in consideration for the provision by Goldquest of consulting services to KPC in respect of its proposed acquisition of the Satimola Project. (2) The Goldquest Shares will be issued to Goldquest within 15 working days of the successful acquisition of the Satimola Project. (3) Goldquest has confirmed to KPC that its current intention is to become and remain an equity investor in KPC and to support the current Board and management of KPC. (4) Goldquest has also confirmed to KPC that it expects KPC to continue its business substantially in its current form and it does not have any current specific intentions to: make any major changes to the business of KPC or to redeploy any of its fixed assets; inject any capital into KPC; change the future employment of any employees of KPC ; or transfer assets to or acquire assets from KPC. 6. Relevant ASX Listing Rules and Requirements ASX Listing Rule 7.1 limits the number of securities that a listed company may issue or agree to issue without shareholder approval in any 12 month period to 15% of its issued ordinary shares, unless an exception applies. The number of Goldquest Shares to be issued to Goldquest will exceed that 15% limit. Exception 16 in Listing Rule 7.2 provides that Listing Rule 7.1 does not apply to an issue of securities approved for the purposes of item 7 of section 611 of the Corporations Act. Accordingly, Shareholder approval under the ASX Listing Rule 7.1 is not required for the issue of the Goldquest Shares as the issue of those Shares is being approved for the purposes of item 7 of section 611 of the Corporations Act. Page 9

13 7. What will happen if Resolution 1 is not approved? If Resolution 1 is not approved by Shareholders, the acquisition of the Satimola Project may not proceed and Goldquest will not become entitled to its fee or the Goldquest Shares. The Board is of the view that the consulting services provided by Goldquest is critical to the successful completion of the acquisition of the Satimola Project. Resolution 1 is conditional on, and subject to, Shareholders passing Resolutions 2 and 3 at the Meeting. If either Resolution 1, 2 or 3 is not passed by Shareholders at the Meeting, KPC may not be able to complete the acquisition of the Satimola Project as it may not be able to obtain the requisite approvals or funding or KPC may be required to pay an amount in cash to Goldquest equivalent to the market value of the Goldquest Consideration Shares. Goldquest is only entitled to its fee if KPC completes the acquisition of the Satimola Project under the new Sale and Purchase Agreement. 8. Material information The Board believes that the Notice of Meeting and this Explanatory Statement contain all information known to Goldquest or its associates or known to KPC that is material to a decision of Shareholders on how to vote on Resolution 1. Shareholders are encouraged to read those documents in their entirety. 9. Board s recommendation For the reasons set out in this Explanatory Statement including the same reasons identified by the Independent Expert in section 10 of its report contained as Annexure A to this Explanatory Statement in its conclusion as to the reasonableness of the proposed transaction, the Board (with Madam Cheung and Mr Xiaokang Lyu abstaining) unanimously recommends that Shareholders vote in favour of Resolution 1. Resolution 2 Approval of Issue of Shares to Goldquest and CWH Related Party transaction approval 1. Proposed issue of Goldquest Consideration Shares Subject to Shareholders approving Resolutions 1 and 3, Resolution 2 requests Shareholders to approve the issue of the Goldquest Shares and the CWH Shares to Goldquest and CWH respectively. Shareholder approval for the issue of the Goldquest Shares and the CWH Shares is sought for the purposes of: (1) ASX Listing Rule 10.11, which governs the issue of securities to related parties ; and (2) Chapter 2E of the Corporations Act, which governs the giving of financial benefits to related parties. Resolution 2 is proposed as an ordinary resolution and will be passed if more than 50% of the votes cast by Shareholders entitled to vote are in favour of that Resolution. Page 10

14 2. ASX Listing Rule ASX Listing Rule provides that, subject to certain exceptions, a listed company must not issue or agree to issue securities to any of the following persons without the approval of holders of ordinary securities: (1) A related party. (2) A person who relationship with the listed company or a related part is, in ASX s opinion, such that approval should be obtained. CWH is a related party of KPC as it is an entity controlled by Madam Cheung, the Managing Director and Chairperson of the Company. Goldquest is also likely to be classified as a related party of KPC for the purposes of the Corporations Act as a result of its direction to the Company to issue 25,000,000 of the Goldquest Consideration Shares to CWH. Relevantly, section 228(7) of the Corporations Act provides that an entity [Goldquest] is a related party of a public company [KPC] if the entity [Goldquest] acts in concert with a related party [CWH] of the public company [KPC] on the understanding that the related party [CWH] will receive a financial benefit [25,000,000 CWH Shares] if the public company [KPC] gives the entity [Goldquest] a financial benefit [100,000,000 Goldquest Consideration Shares]. 3. Information required for Shareholder approval Under ASX Listing Rule 10.13, the Company is required to provide the following information in relation to Resolution 2: (1) The Goldquest Shares and the CWH Shares will be issued to Goldquest and CWH respectively. (2) The maximum number of securities that will be issued is 100,000,000 Shares. (3) KPC will issue the Goldquest Shares and the CWH Shares to Goldquest and CWH, within 15 working days of the successful completion of the acquisition of the Satimola Project and, in any event, no later than 1 month (or such later date as ASX may permit) after the date of the Meeting. The Company may apply to ASX for a waiver from the requirement under ASX Listing Rule to issue the Goldquest Shares and the CWH Shares within 1 month after the date on which Shareholders approve the issue of the Goldquest Shares and the CWH Shares to enable the Company sufficient time to complete the acquisition of the Satimola Project. The Company may seek ASX s approval for a period of up to 6 months after the date on which Shareholders approve the issue of the Goldquest Shares and the CWH Shares to issue those shares. If granted, the Company expects any such waiver would be on terms similar to those outlined in the Explanatory Statement which accompanied the Notice of General Meeting of the Shareholders of the Company dated 28 November, Alternatively the Company may simply request the ASX to permit the issue of the Shares in question later than the 1 month period. If the Company makes such an application to ASX, there is no guarantee that ASX will grant it. Page 11

15 (4) Approval is sought under Listing Rule for the issue of the CWH Shares as Madam Cheung, the Managing Director and Chairperson of the Company, controls CWH. Approval is sought under Listing Rule for the issue of the Goldquest Shares as Goldquest is likely to be considered a related party of KPC under section 228(7) of the Corporations Act. (5) The Goldquest Shares and CWH Shares will be issued as fully paid ordinary shares in the capital of KPC. The Goldquest Shares and CWH Shares will, once issued, rank equally with all other Shares on issue in KPC. (6) No funds will be received by the Company on connection with the issue of the Goldquest Shares and CWH Shares. The Goldquest Shares and CWH Shares are being issued in consideration for the provision of services by under the Goldquest Services Contract. 4. Chapter 2E of the Corporations Act Chapter 2E of the Corporations Act prohibits the Company from giving a financial benefit to a related party of the Company unless either: (1) the giving of the financial benefit falls within one of the nominated exceptions to the provisions; or (2) shareholder approval is obtained for the giving of the financial benefit. As noted above, CWH is, and Goldquest is likely to be, a related party of the Company for the purposes of Chapter 2E of the Corporations Act. The proposed issue of the Goldquest Shares and CWH Shares contemplated by Resolution 2 constitutes the giving of a financial benefit to a related party of the Company under Chapter 2E of the Corporations Act. While the Directors of the Company are of the view that the proposed issue of the Goldquest Shares and the CWH Shares contemplated under Resolution 2 falls under one of the exceptions to the provisions in Chapter 2E (being, the exception contained in section 210 of the Corporations Act which provides that shareholder approval is not required if the financial benefit is on terms that would be reasonable in the circumstances if the public company and the related party were dealing at arm s-length or are less favorable to the related party than those terms), the Board considers that it is prudent to seek Shareholder approval for the issue of the Goldquest Shares and the CWH Shares under Chapter 2E of the Corporations Act. In any event, Shareholder approval of the proposed issue of the Goldquest Shares and the CWH Shares to Goldquest and CWH respectively is required under ASX Listing Rule (outlined above). Apart from certain specified information, section 219 of the Corporations Act requires the explanatory statement lodged with ASIC to contain all information that is known to KPC or to any of its Directors and reasonably required by Shareholders in order to decide whether or not it is in the Company s interests to pass Resolution 2. The Directors believe the Notice of Meeting and this Explanatory Statement contain all such information required by that section. Page 12

16 For the purposes of section 208 in Chapter 2E of the Corporations Act and all other purposes, the following information is provided for Shareholders: (1) The related party to whom the proposed resolution would permit the financial benefit to be given If Resolution 2 is passed, it will permit the giving of a financial benefit to Goldquest and CWH. (2) The nature of financial benefits The proposed financial benefit to be given to Goldquest under Resolution 2 is 75,000,000 Shares. As noted above, these Goldquest Shares are proposed to be allotted to Goldquest for services provided to the Company under the Goldquest Services Contract. The proposed financial benefit to be given to CWH under Resolution 2 is 25,000,000 Shares. As noted above, these CWH Shares are proposed to be allotted to CWH for its vital assistance in securing the proposed acquisition of the Satimola Project, including the provision by CWH of a loan facility to Satimola to enable Satimola to repay certain creditors and fund working capital requirements. (3) Value of financial benefits KPC engaged the Independent Expert to report on the value of the financial benefit being provided to Goldquest and CWH in the form of the Goldquest Shares and the CWH Shares respectively. The Independent Expert has assessed the value of the financial benefits to be obtained by Goldquest and CWH at $11,250,000 and $2,750,000 respectively. A copy of that Independent Expert s report is contained as Annexure A to this Explanatory Statement. Shareholders are encouraged to read that report in its entirety. (4) Existing relevant interest At the date of this Notice of Meeting, Goldquest and CWH have the following relevant interests in the securities of the Company: Shares Options Convertible Notes Goldquest 110,000,000 Nil Nil CWH 32,695,190 72,970,000 23,525,000 Goldquest and CWH currently hold approximately % and 5.14% respectively of the issued capital of KPC. If Resolutions 1 and 2 are passed and the Goldquest Shares and CWH Shares are issued, the voting power of Goldquest and CWH will increase to approximately % and % of the issued capital of KPC. This increase is calculated on the basis that the only Shares on issue at the time of the issue of the Goldquest Shares and CWH Shares are 895,642,804 Shares comprising the aggregate number of Shares on issue at the date of this Notice of Meeting (635,642,804), the Page 13

17 proposed issue of Shares to Hillot Limited (60,000,000), the Goldquest Consideration Shares (100,000,000) and the CAR Fund Shares (100,000,000). The convertible notes (which have a face value of $23,525,000) and 72,970,000 Options are held by the CAR Group and CWH. The CAR Group and CWH are entities controlled by Madam Cheung, the Managing Director and Chairperson of the Company. Apart from Madam Cheung, no other Director has an interest in the outcome of Resolution 2 (other than interests shared in common with other holders of securities in KPC). (5) Dilution The issue of the Goldquest Consideration Shares will increase the number of Shares on issue in KPC. The existing equity interests of Shareholders in KPC will accordingly be diluted. The Company s proposed acquisition of the Satimola Project and the conduct of its operations in Kazakhstan will require significant additional funding (both debt and equity) and the equity interests of Shareholders in KPC are likely be further diluted in the future. If the issue of the Goldquest Consideration Shares (100,000,000) and the CAR Fund Shares (100,000,000) is approved by Shareholders and are subsequently issued by the Company, a summary of the effect of that issue on KPC is outlined in Table 2 of the report of the Independent Expert contained as Annexure A to this Explanatory Statement. 5. ASX Listing Rule 7.1 Subject to a number of exceptions, ASX Listing Rule 7.1 limits the number of securities that a listed company may issue or agree to issue without shareholder approval in any 12 month period to 15% of its ordinary issued shares. As under Resolution 2 approval of Shareholders is being given under ASX Listing Rule 10.11, Exception 14 in Listing Rule 7.2 applies, so that approval under Listing Rule 7.1 is not required for the issue of the Goldquest Shares and the CWH Shares. As mentioned above, the issue of the Goldquest Shares is also exempted from ASX Listing Rule 7.1 by virtue of Exception 16 in Listing Rule What will happen if Resolution 2 is not approved? If Resolution 2 is not approved by Shareholders, the acquisition of the Satimola Project may not proceed, Goldquest will not become entitled to the Goldquest Shares and CWH will not become entitled to the CWH Shares. 7. Board s recommendation For the reasons set out in this Explanatory Statement including the same reasons identified by the Independent Expert in section 10 of its report contained as Annexure A to this Explanatory Statement in its conclusion as to the reasonableness of the proposed Page 14

18 transaction, the Board (with Madam Cheung and Mr Xiaokang Lyu abstaining) unanimously recommends that Shareholders vote in favour of Resolution 2. Resolution 3: Approval of giving of financial benefits 1. Background As announced to ASX on 16 November 2015, KPC has secured access to a financing facility with China Minsheng Banking Corp., Ltd (Hong Kong Branch) (CMBC) to fund the Company s acquisition of the Satimola Project and to provide additional working capital to Satbor. The financing facility was obtained through the efforts of Madam Cheung. China Asia Recourses Co. Ltd (CAR Ltd), a company controlled by Madam Cheung, the Managing Director and Chairperson of the Company, is a special purpose vehicle acting as the borrower under the financing facility made available by CMBC. In addition, Madam Cheung has agreed to personally guarantee repayment of the financing facility. CMBC is an independent Chinese bank listed on the Hong Kong Stock Exchange. Information about CMBC can be obtained from its website at 2. Structure of CMBC financing facility The CMBC financing facility was secured and arranged by Madam Cheung through CAR Ltd. She also personally guarantees together with another director of the Company repayment of the CMBC financing facility. Without the personal involvement of Madam Cheung including the giving of her personal guarantee, this financing facility would not have been made available to KPC. The financing facility is structured as follows: (1) CAR Ltd is the borrower under the financing facility. Only 2 of the available facilities under the financing facility will be utilised by CAR Ltd. (2) Under the financing facility, CAR Ltd may draw down: (a) (b) up to USD 70 million to fund a loan for the acquisition of the Satimola Project (KPC Loan) and certain costs associated with that acquisition; and up to USD 15 million to fund a working capital loan to Satbor (Opco Working Capital Loan). Satbor is a limited liability partnership established in Kazakhstan and, as mentioned above, wholly-owned by Satimola. (3) The overall limit of the CMBC financing facility is USD 75 million and is repayable within 12 months of first draw down. (4) The funds drawn down to fund the Satimola acquisition (i.e. the KPC Loan) and certain transaction costs will be on-lent to KPC Fertiliser International Limited (HoldCo), a wholly-owned subsidiary of KPC established in Hong Kong and then made available to KPC Fortis Fertiliser Limited (Acquirer), another wholly-owned subsidiary of KPC established in Hong Kong in the form of debt or equity. The Acquirer is the purchaser of the issued shares in Satimola. The obligations of the Acquirer under the new Sale and Purchase Agreement with the vendors of the Satimola Project are guaranteed by KPC. (5) Accordingly, funds drawn-down by CAR Ltd under the financing facility in connection with the Satimola acquisition will either be on-lent to HoldCo and then Page 15

19 made available to Acquirer (i.e. KPC Loan) to fund the Satimola acquisition or onlent to Satbor (i.e. the Opco Working Capital Loan) to fund working capital. (6) Interest and other costs payable by CAR Ltd in connection with the KPC Loan and Opco Working Capital Loan will be passed through and effectively borne by KPC or its subsidiary entities. No additional margin will be made by CAR Ltd on the KPC Loan or the Opco Working Capital Loan. (7) The financing facility made available by CMBC to CAR Ltd is secured as follows: (a) (b) (c) (d) (e) (f) (g) (h) a corporate guarantee by KPC in favour of CMBC; a personal guarantee by Madam Cheung and Mr Xiaokang Lyu, also a director of KPC in favour of CMBC. The obligations of those 2 personal guarantors may also be guaranteed under the corporate guarantee referred to above; a debenture charge by CAR Ltd in favour of CMBC over all its assets and undertaking including assignment by way of security of CAR Ltd s rights under the security referred to in paragraph (8) below and KPC Loan and Opco Working Capital Loan; an equitable mortgage by Century Leader Enterprises Inc, the immediate parent entity of CAR Ltd, in favour of CMBC over all its shares in CAR Ltd; share mortgage by KPC in favour of CMBC over all its shares in HoldCo; a share mortgage by HoldCo in favour of CMBC over all its shares in the Acquirer; an equitable mortgage by the Acquirer in favour of CMBC over all its shares in Satimola; a participation interests pledge by Satimola in favour of CMBC over all its interests in Satbor; and (i) certain charges over CAR Ltd s interest reserve bank account established for the purposes of the Financing Facility with CMBC. (8) In addition to the security in paragraph (7) above, the Opco Working Capital Loan is secured by a mortgage of Satbor s subsoil use rights relating to the Satimola potash deposit in favour of CAR Ltd which under paragraph (7)(c) above is assigned by way of security to CMBC. (9) The securities and other documents referred to in paragraphs (7) and (8) above are referred to as the CMBC Security Arrangements in the Notice of Meeting and this Explanatory Statement. Those securities and other documents are generally on terms which are usual in financing transactions of this kind. The Company has agreed to pay (or reimburse) all costs and expenses of Madam Cheung and CAR Ltd relating to the negotiation, preparation and execution of the CMBC financing facility and associated documents including the CMBC Security Arrangements. 3. Proposed issue of Shares to CAR Fund In recognition of Madam Cheung s invaluable assistance in securing financing for KPC to fund its acquisition of the Satimola Project and to provide additional working capital to Page 16

20 Satbor, as announced to ASX on 16 November, 2015, KPC has agreed to issue 100,000,000 Shares (CAR Fund Shares) to China-Asia Resources Fund (Car Fund), subject to the approval of Shareholders. CAR Fund is a company controlled by Madam Cheung, the Managing Director and Chairperson of the Company. 4. Resolution 3 Resolution 3 requests Shareholders to approve giving of the financial benefits including the issue of the CAR Fund Shares to CAR Fund. Shareholder approval is sought for the purposes of: (1) ASX Listing Rule 10.11, which governs the issue of securities to related parties ; (2) ASX Listing Rule 10.1 which governs the acquisition of a substantial asset from, or the disposal of a substantial asset to, related parties ; and (3) Chapter 2E of the Corporations Act, which governs the giving of financial benefits to related parties. Resolution 3 is proposed as an ordinary resolution and will be passed if more than 50% of the votes cast by Shareholders entitled to vote are in favour of that Resolution. 5. ASX Listing Rule As noted above, Resolution 3 requests Shareholders to approve, for the purposes of ASX Listing Rule 10.11, the issue of 100,000,000 Shares to Car Fund. ASX Listing Rule provides that, subject to certain exceptions, a listed company must not issue or agree to issue securities to any of the following persons without the approval of holders of ordinary securities: (1) A related party. (2) A person who relationship with the listed company or a related part is, in ASX s opinion, such that approval should be obtained CAR Fund is a related party of KPC as it is an entity controlled by Madam Cheung, the Managing Director and Chairperson of KPC. 6. Information required for Shareholder approval Under ASX Listing Rule 10.13, the Company is required to provide the following information in relation to Resolution 3: (1) The CAR Fund Shares will be issued to CAR Fund. (2) The maximum number of securities that will be issued is 100,000,000 Shares. (3) KPC will issue 100,000,000 Shares to CAR Fund within 10 days of first draw down under the CMBC financing facility (expected to be the same date that the acquisition of the Satimola Project completes) but, in any event, no later than 1 month (or such later date as ASX may permit) after the date of the Meeting. However, as explained earlier in this Explanatory Statement in relation to the issue Page 17

21 of the Shares contemplated by Resolution 2, KPC may apply for an ASX waiver or approval to extend that time for the issue of the CAR Fund Shares to up to 6 months of the date of the General Meeting. There can be no guarantee that such an application will be successful, if made. (4) Approval is sought under Listing Rule for the issue of the CAR Fund Shares as Madam Cheung, the Managing Director and Chairperson of KPC, controls CAR Fund. (3) The CAR Fund Shares will be issued as fully paid ordinary shares in the capital of KPC. The CAR Fund Shares will, once issued, rank equally with all other Shares on issue in KPC. (4) No funds will be received by the Company on connection with the issue of the CAR Fund Shares. The CAR Fund Shares are being issued in consideration for the vital assistance provided by Madam Cheung in securing financing for KPC to fund its acquisition of the Satimola Project. 7. ASX Listing Rule 10.1 ASX Listing Rule 10.1 provides that, subject to certain exceptions, a listed company must ensure that neither it nor any of its child entities acquires a substantial asset from or disposes of a substantial asset to a related party of the listed entity and certain other persons. An asset is substantial if its value, or the value of the consideration of the asset is, or in ASX s opinion is, 5% or more of the equity interests of a listed entity as set out in its financial statements last given to ASX. The CMBC Security Arrangements if enforced on a default under the financing facility and associated documents could involve the disposal by KPC or a subsidiary of the Satimola Project (or an entity which controls that Project) (being in each case, a substantial asset) to CAR Ltd or CMBC. In accordance with ASX Listing Rule 10.10, KPC commissioned the Independent Expert to prepare a report as to whether the transaction outlined above is fair and reasonable to Shareholders whose votes are not to be disregarded (i.e. the Company s non-associated Shareholders). The Independent Expert has assessed the proposed transaction outlined in Resolutions 1, 2 and 3 including the proposed grant of the CMBC Security Arrangements and has concluded that it is not fair but is reasonable when considered in the context of the interests of the non-associated Shareholders. A copy of that Independent Expert s report is contained as Annexure A to this Explanatory Statement. Shareholders are encouraged to read that report in its entirety. It must be noted that the securing of the CMBC financing facility to enable the purchase of the Satimola Project in the current lending environment would not have been possible without the direct involvement of Madam Cheung and her personal pledge. 8. Chapter 2E of the Corporations Act As noted above, Chapter 2E of the Corporations Act prohibits the Company from giving a financial benefit to a related party of the Company unless either: Page 18

22 (1) the giving of the financial benefit falls within one of the nominated exceptions to the provisions; or (2) shareholder approval is obtained for the giving of the financial benefit. For the purposes of Chapter 2E of the Corporations Act, each of CAR Fund and CAR Ltd is a related party of KPC as it is controlled by Madam Cheung, the Managing Director and Chairperson of KPC. The proposed issue of the CAR Fund Shares contemplated by Resolution 3 constitutes the giving of a financial benefit to a related party of KPC under Chapter 2E of the Corporations Act. For the purposes of Chapter 2E of the Corporations Act, CMBC may also be classified as a related party of KPC as a result of the financing arrangements described above. Relevantly, Section 228(7) of the Corporations Act provides that an entity [CMBC] is a related party of a public company [KPC] if the entity [CMBC] acts in concert with a related party [CAR Ltd] on the understanding that the related party [CAR Ltd] will receive a financial benefit if the public company [KPC] gives the entity [CMBC] a financial benefit. The proposed granting of the CMBC Security Arrangements to CMBC and CAR Ltd and the other elements of the financing facility outlined above including the payment or reimbursement of certain associated costs and expenses constitutes the giving of a financial benefit to a related party under Chapter 2E of the Corporations Act. For the purposes of section 208 in Chapter 2E of the Corporations Act and all other purposes, the following information is provided for Shareholders: (1) The related party to whom the proposed resolution would permit the financial benefit to be given If Resolution 3 is passed, it will permit the giving of financial benefits to Madam Cheung, CAR Fund, CAR Ltd and CMBC. (2) The nature of financial benefits The proposed financial benefits to be given under Resolution 3 are: (a) the issue of 100,000,000 Shares to CAR Fund; (b) the granting of the CMBC Security Arrangements to CMBC and CAR Ltd (and performance of them by KPC and its subsidiaries); and (c) the financing facility and its associated transactions including payment or reimbursement of certain costs and expenses outlined above in relation to Resolution 3. (3) Value of CAR Fund Shares KPC engaged the Independent Expert to provide a report on the value of the financial benefit being provided to CAR Fund in the form of the 100,000,000 Shares. The Independent Expert has assessed the value of the financial benefit to be received by CAR Fund at $11,000,000. A copy of that Independent Expert s report is contained as Page 19

23 Annexure A to this Explanatory Statement. Shareholders are encouraged to read that report in its entirety. (4) Existing relevant interest At the date of this Notice of Meeting, neither CAR Fund, CAR Ltd nor CMBC has a relevant interest in any Shares of the Company. However, CAR Ltd and CAR Fund are entities controlled by Madam Cheung, the Managing Director and Chairperson of the Company. The interests of Madam Cheung and her associated entities in the securities of the Company are outlined earlier in this Explanatory Statement in relation to Resolution 2. (5) Dilution The issue of the CAR Fund Shares will increase the number of Shares on issue in KPC. The existing equity interests of Shareholders in KPC will accordingly be diluted. The Company s proposed acquisition of the Satimola Project and the conduct of its operations in Kazakhstan will require significant additional funding (both debt and equity) and the equity interests of Shareholders in KPC are likely to be further diluted in the future. If the issue of the CAR Fund Shares (100,000,000) and the Shares contemplated by Resolutions 1 and 2 is approved by Shareholders and subsequently issued by the Company, a summary of the effect of that issue on KPC is outlined in Table 2 of the report of the Independent Expert contained as Annexure A to this Explanatory Statement. 9. ASX Listing Rule 7.1 Subject to a number of exceptions, ASX Listing Rule 7.1 limits the number of securities that a listed company may issue or agree to issue without shareholder approval in any 12 month period to 15% of its ordinary issued shares. As under Resolution 3 approval of Shareholders is being given under ASX Listing Rule 10.11, Exception 14 in Listing Rule 7.2 applies, so that approval under Listing Rule 7.1 is not required for the issue of the CAR Fund Shares. 10. What will happen if Resolution 3 is not approved? If Resolution 3 is not approved by Shareholders, the acquisition of the Satimola Project will be jeopardised as the Company may have to renegotiate the terms of the financing facility including the CMBC Security Arrangements with CMBC and CAR Ltd and obtain a waiver from ASX Listing Rule The personal guarantee of Madam Cheung is a critical element of the CMBC Security Arrangements and without it the financing facility may not proceed and KPC will not have the funds to complete the acquisition of the Satimola Project. Page 20

24 11. Board s recommendation For the reasons set out in this Explanatory Statement including the same reasons identified by the Independent Expert in section 10 of its report contained as Annexure A to this Explanatory Statement in its conclusion as to the reasonableness of the proposed transaction, the Board (with Madam Cheung and Mr Xiaokang Lyu abstaining) unanimously recommends that Shareholders vote in favour of Resolution 3. Resolution 4: Approval of issue of 200 million Equity Securities in the Company 1. Background The Directors are seeking Shareholder approval for the issue of up to 200 million Equity Securities in the Company. The Board plans to use the flexibility granted by Shareholders to issue such securities to fund mine development activities at the Company s Zhilyanskoye deposit in Kazakhstan, exploration and drilling at the Company s Chelkar deposit in Kazakhstan, development activities at the Satimola Project (once completion of the Company s acquisition of the Satimola Project occurs) and for other general working capital requirements of the Company. Relevantly, the Board is currently in negotiations with a number of persons who have the capacity to assist KPC in its objective of developing its potash projects in Kazakhstan. To that end, the Board would like to have the flexibility to, if appropriate, issue securities as part of those negotiations. Resolution 4 is in identical terms to the resolution to approve the issue of up to 200 million Equity Securities approved by Shareholders at the annual general meeting of the Company held on 29 May, Resolution 4 Resolution 4 requests Shareholders to approve the issue of up to 200 million Equity Securities for the purposes of ASX Listing Rule 7.1. Resolution 4 is proposed as an ordinary resolution and will be passed if more than 50% of the votes cast by Shareholders entitled to vote are in favour of that Resolution. 3. ASX Listing Rule 7.1 Subject to a number of exceptions, ASX Listing Rule 7.1 limits the number of securities that a listed company such as KPC may issue or agree to issue without shareholder approval in any 12 month period to 15% of its issued ordinary shares. For the purposes of Resolution 4, an Equity Security will be either a Share, an Option exercisable by the holder (or otherwise by the terms of issue) to acquire a Share or Shares, or a convertible note which is convertible by the holder (or otherwise by their terms of issue) into a Share or Shares. The issue of the 200 million Equity Securities will result in the Company exceeding the 15% limit in ASX Listing Rule 7.1. Accordingly, Shareholder approval of that proposed issue is required under that Listing Rule. Page 21

25 4. Information required for Shareholder approval In accordance with ASX Listing Rule 7.3, the following information is provided for Shareholders: (1) The maximum number of securities that will be issued with Shareholder approval under Resolution 4 will be 200 million Equity Securities. The Equity Securities issued will either be Shares, Options or convertible notes or a combination of any one or more of those securities provided that the total number of Shares issued including those issued on exercise of any Options issued or on conversion of any convertible notes issued will not at the time of issue of the Equity Securities exceed 200 million in total. In other words, KPC may issue up to 200 million Shares, Options to acquire up to 200 million Shares or convertible notes which are convertible into up to 200 million Shares (or a combination of Shares, Options and convertible notes), provided that the aggregate number of Shares issued by KPC, together with the aggregate number of Shares issued on exercise of any Options issued by KPC and on conversion of any convertible notes issued by KPC, will not exceed 200 million Shares (assuming the capital of KPC is not reorganised in the meantime). For example, KPC may elect to issue 50 million Shares, 10 million Options to acquire 10 million Shares and convertible notes convertible into 140 million Shares (making a total of 200 million Equity Securities). (2) The Equity Securities will be issued progressively as soon as reasonably practicable after the Meeting but, in any event, no later than 3 months (or such later date as ASX may permit) after the date of the Meeting. (3) The Shares will be issued at an issue price of not less than $0.20. The Options will be issued with an aggregate issue price and exercise price of not less than $0.20 and will have an exercise period of not less than 1 year and no more than 5 years. Options may be issued in conjunction with a subscription for Shares or convertible notes but the aggregate issue price and exercise price of those Options will be not less than $0.20. The convertible notes will be issued with a conversion price for each underlying Share of not less than $0.20. Any convertible notes issued will have a term of at least 3 years from the date of issue. Subject to the above, the issue price of the Shares, the issue price (if any) and exercise price and exercise period of the Options, the conversion price of the underlying Shares of the convertible notes, the term of the convertible notes and any applicable interest rate will be determined by the Board at the time of issue of the Shares, Options or convertible notes (as applicable). However, in relation to the convertible notes, the interest rate will not exceed a commercial rate of interest as determined by the Board applicable to convertible notes of the kind which may be issued under Resolution 4. The terms of issue of the convertible notes will, as determined by the Board, also contain terms relating to capital reorganisations and reconstructions and other usual terms applicable to an issue of convertible notes and to ensure compliance with the ASX Listing Rules. Page 22

26 Subject to the above particularly in relation to the issue and exercise price and exercise period, the terms and conditions of the Options will otherwise be similar to the terms and conditions applicable to the Options issued to your Directors (with the approval of Shareholders) in January 2015, a summary of which was included in Annexure B to the Explanatory Statement accompanying the Notice of General Meeting dated 28 November, 2014 for the Company s general meeting held on 7 January (4) The Equity Securities will be issued to sophisticated or professional investors or other persons who do not need disclosure under the Corporations Act as nominated by the Board. Such investors or other persons will not be Directors or other related parties of KPC or any of their respective associates. It will also not include persons who voted on Resolution 4 or any of their associates. (5) The Shares issued (including on exercise of an Option or conversion of a convertible note) will be fully paid ordinary shares and will rank equally with the other Shares on issue in the Company. (6) The Company intends to use any funds raised on the issue of up to 200 million Equity Securities to fund mine development activities at the Company s Zhilyanskoye deposit in Kazakhstan, exploration and drilling at the Company s Chelkar deposit in Kazakhstan, development activities at the Satimola Project (once completion of the Company s acquisition of the Satimola Project occurs) and for other general working capital requirements of the Company. 5. Board s recommendation For the reasons set out in this Explanatory Statement, the Board unanimously recommends that Shareholders vote in favour of Resolution 4. Page 23

27 GLOSSARY In the Notice of Meeting, this Explanatory Statement and accompanying proxy form and Chairperson s letter, the following terms have the following meanings, unless the context requires otherwise: Acquirer means KPC Fortis Fertiliser Limited, a company established in Hong Kong and a wholly-owned subsidiary of the Company. ASX means ASX Limited ACN , or the market operated by it (as the context requires). ASX Listing Rules or Listing Rules means the listing rules of ASX (as amended or waived from time to time). Board means the board of directors of the Company. CAR Fund means China-Asia Resources Fund, an entity established in the Cayman Islands. CAR Group means the CAR Fund, the CAR Fund Corporation, an entity established in the British Virgin Islands, or CAR Ltd (as applicable). CAR Fund Shares means 100,000,000 Shares, being the Shares referred to in Resolution 3. CAR Ltd means China Asia Resources Co. Ltd, an entity established in the British Virgin Islands. CMBC means China Minsheng Banking Corp., Ltd (Hong Kong Branch). Company or KPC means Kazakhstan Potash Corporation Limited ACN (formerly Fortis Mining Limited). Corporations Act means Corporations Act 2001 (Cth). Director means a current director of the Company. CWH means City Winner Holdings Limited, a company established in the British Virgin Islands. Equity Securities has the meaning given in the ASX Listing Rules and includes a share, an option over an issued or unissued security, a right to a share or option, a convertible security and any security that ASX decides to classify as an Equity Security. Explanatory Statement means the explanatory statement which accompanies, and is incorporated as part of, the Notice of Meeting and includes any document annexed to it or incorporated by reference. Goldquest means Goldquest Services Inc, a company established in the British Virgin Islands. Holdco means KPC Fertiliser International Limited, a company established in Hong Kong and a wholly-owned subsidiary of the Company. Independent Expert or DMR Corporate means DMR Corporate Pty Ltd ACN Kazakhstan means the Republic of Kazakhstan. Page 24

28 Meeting or General Meeting means the General Meeting of the Shareholders of the Company to be held on 3 February, 2016 at am (Melbourne time) convened by way of the Notice of Meeting. Notice of Meeting means the Notice of General Meeting of the Shareholders of the Company convening the Meeting. Option means an option to acquire a Share in the Company. Resolution means a resolution referred to in the Notice of Meeting. Satbor means Satbor LLP, a limited liability partnership established in Kazakhstan and whollyowned by Satimola. Satimola means Satimola Limited, a company established in the British Virgin Islands. Satimola Project means the Satimola potash and borate project in Kazakhstan. Share means a fully paid ordinary share in the capital of the Company. Shareholder means a person or entity entered in the Company s register of members from time to time as the holder of Shares. Words importing the singular include the plural and vice versa. A reference to gender is a reference to all genders. A reference to a person includes a reference to a body corporate and any other entity. All references to time is to Melbourne time. A reference to a document includes a reference to that document as amended or varied from time to time. Information in this Explanatory Statement about CMBC, CWH and CAR Group has been obtained from CMBC, CWH and CAR Group respectively, their respective advisers or publicly available information. Except as required by law, KPC does not give any warranty or make any representation as to the accuracy or completeness of that information. Page 25

29 Annexure A: Independent Expert s Report Page 26

30 DMR CORPORATE 24 December 2015 The Directors Kazakhstan Potash Corporation Limited Level 27, 101 Collins Street Melbourne VIC 3000 Dear Sirs, Re: Independent Expert s Report 1. Introduction The directors of Kazakhstan Potash Corporation Limited ( KPC or the Company ) are, amongst other things, seeking shareholder approval for the issue of shares to Goldquest Services Inc. ( Goldquest ) and City Winner Holdings Limited ( CWH ) in respect of services rendered by both of these companies in respect of the acquisition of Satimola Limited ( Satimola ), together with a commission payable (100,000,000 KPC fully paid ordinary shares) to China-Asia Resources Fund ( CAR Fund ) for arranging, guaranteeing and securing a US$75m financing facility from China Minsheng Bank Corp. Ltd (Hong Kong Branch)( CMBC ) on behalf of KPC. Both CWH and CAR Fund are controlled by Madam Cheung, the Managing Director and Chairperson of KPC. The acquisition of Satimola (the entity that owns, through its wholly owned subsidiary, Satbor LLP ( Satbor ) the Satimola potash and borate deposits in the Republic of Kazakhstan)( Satimola Project ) has been slowly progressing since this transaction was first announced on 8 May The acquisition agreement has been revised on several occasions, however on 19 March 2015 the ASX was advised that the then current acquisition agreement had been officially terminated. On 16 November 2015, KPC announced that it had signed a new Sale and Purchase Agreement, to acquire a 100% shareholding in Satimola. The new purchase price of US$70 million consists of a first payment of US$55 million in cash and two promissory note payments of US$7.5 million each. The first promissory note payment will be paid upon the first utilisation of construction finance for the Satimola Project and the second after the date of the first shipment of an order for potash from the Satimola Project. In addition, KPC will repay US$10 million on Satimola s behalf to its creditors. As part of the agreement, KPC has extended the existing loan facility to Satimola (US$3.25 million has already been advanced) by an additional US$750,000 for working capital and satisfaction of creditor liabilities. To date, the total loan funds already advanced by KPC to Satimola amount to US$18.25 million. The directors have requested DMR Corporate Pty Ltd ( DMR Corporate ) to prepare an independent expert's report in respect Resolutions 1, 2 and 3 referred to below. DMR Corporate Pty Ltd ACN AFSL No Melbourne Level 12, 440 Collins Street Melbourne VIC 3000 Australia In association with PKF p (03) (03) PKF International Limited administers a network of legally independent firms which carry on separate businesses under the PKF Name. PKF International Limited is not responsible for the acts or omissions of individual member firms of the network. For office locations visit

31 2. The Proposed Transaction 2.1 Outline of the Proposed Transaction At the forthcoming General Meeting KPC shareholders are being asked to approve a number of resolutions. The Resolutions deal with the following: Resolution 1 Approval of issue of Shares to Goldquest Australian takeover approval That, subject to Shareholders passing Resolutions 2 and 3, for the purposes of item 7 of section 611 of the Corporations Act and all other purposes, Shareholders approve the issue of 75,000,000 Shares to Goldquest Services Inc. and any acquisition in relation to those Shares, as detailed in the Explanatory Statement. KPC engaged Goldquest to provide certain consulting services in respect of the acquisition of Satimola, including the negotiation with shareholders of Satimola and providing advice to obtain the necessary approval so as to complete the transfer of the beneficial interest of Satbor to KPC and to obtain extension of agreements with the government of Kazakhstan in relation to the subsoil use rights of the Satimola deposits. In exchange for these services, KPC has agreed to issue 100 million fully paid shares to Goldquest. These shares are to be issued within 15 working days following the completion of the acquisition of the Satimola Project. Goldquest has irrevocably agreed that 25 million of the 100 million shares due to Goldquest be issued to CWH. Goldquest is doing this for all the work done by Madam Cheung in assisting Goldquest in keeping the Satimola transaction progressing since late In addition to that work, CWH also provided an interest-free and unsecured loan to Satimola of US$10 million in January 2014 to assist Satimola in the payment of its creditors and to fund Satimola s working capital requirements. The provision of the loan further assisted Satimola in meeting its ongoing liabilities as and when they have fallen due and continuing as a going concern, which was essential in facilitating the continuing negotiation between KPC and Satimola. The issue of the 100 million securities under the consulting service contract between KPC and Goldquest is subject to shareholders approval. KPC s shareholders had previously approved the issue of those securities at a general meeting of the Company held on 7 January 2015 but that approval lapsed in July Resolution 2 Approval of issue of Shares to Goldquest and CWH Related party transaction approval That, subject to Shareholders passing resolutions 1 and 3, for the purposes of section 208 of the Corporations Act, ASX Listing Rule and all other purposes, Shareholders approve the issue of 75,000,000 Shares to Goldquest Services Inc. and 25,000,000 Shares to City Winner Holdings Limited, an entity controlled by Madam Cheung, the Managing Director and Chairperson of the Company, as detailed in the Explanatory Statement. Goldquest is currently KPC s third largest shareholder and CWH is a company controlled by Madam Cheung and as such both Goldquest and CWH are deemed to be related parties of KPC. The issue of 75 million shares to Goldquest (Resolution 1 above) and 25 million shares to CWH is permitted by Section 208 of the Corporations Act 2001 (the Act ) provided that the transaction is also approved by the Non-Associated Shareholders. For the purposes of this report, Non- Associated Shareholders are those Shareholders who are not precluded from voting on Resolution 1, 2 or 3. Resolution 3 Approval of giving of financial benefits including the issue of 100,000,000 shares to CAR Fund and the grant of the CMBC security arrangements Related party transaction That, subject to Shareholders passing Resolutions 1 and 2, for the purposes of section 208 of the Corporations Act, ASX Listing Rules 10.1 and and all other purposes, Shareholders approve the giving of financial benefits (including the issue of 100,000,000 Shares to China- Asia Resources Fund, an entity controlled by Madam Cheung, the Managing Director and Chairperson of the Company and the granting and performance of the CMBC Security Arrangements), as detailed in the Explanatory Statement. 2

32 CAR Fund has secured a US$75 million financing facility from CMBC to finance the acquisition of Satimola and to provide additional working capital to Satbor in connection with that acquisition. Drawdowns under the financing facility are subject to the satisfaction of a number of conditions precedent including the provision by Madam Cheung and KPC of a guarantee and other security refer to Appendix A. KPC is confident that all conditions precedent can be satisfied to permit drawdowns under the facility. In acknowledgment for the securing, as well as guaranteeing the financing for the acquisition of Satimola, KPC has entered into an agreement with CAR Fund to issue 100 million fully paid KPC ordinary shares for its services in respect of the funding facility. Resolution 4 Approval of issue of up to 200 million KPC equity securities ASX Listing Rule 7.1 Resolutions 1, 2 and 3 are inter-dependent, that is Shareholders must approve all 3 Resolutions or the funding package and the Satimola acquisition will not be capable of completion without substantial renegotiation of the underlying contracts as they currently stand. For this reason, we refer to Resolutions 1, 2 and 3 as the Proposed Transaction throughout the remainder of this report. For avoidance of doubt, this report does not deal with Resolution 4 referred to above. Whilst the shares to be issued pursuant to Resolutions 1, 2 and 3 will only be issued if KPC successfully concludes the acquisition of Satimola, KPC is not seeking approval to acquire Satimola as the consideration for the acquisition of Satimola is in cash and the purchase price has been negotiated on an arm s-length basis between unrelated parties, namely the directors of KPC and the shareholders of Satimola. Resolution 3 needs to be approved to raise the necessary cash to fund the acquisition of Satimola and to provide the requisite security for the CMBC financing facility. 2.2 Impact of the Proposed Transaction The table below sets out the number of shares currently held by the Non-Associated Shareholders of KPC and their voting interests as at 3 December 2015: Contractual Table 1 Shares on Issue Voting Number % Entitlements Before the Proposed Transaction Note 1 Shares held by Goldquest 110,000, % 21.33% Shares in which Madam Cheung has an interest 32,695, % 6.34% Non-Associated Shareholders: Celaric shares 120,000, % - Shares held by Hillot 135,660, % 26.31% Other Non-Associated Shareholders 237,287, % 46.02% Total 635,642, % % Source: DMR Corporate Note 1 On 5 March 2014 KPC issued 120,000,000 shares to Sly & Russell Legal Nominees Pty Ltd, as escrow agent for Celaric. These shares (the Celaric Shares ) were issued as consideration for the acquisition of the Chelkar Project. The shares will only be released from voluntary escrow upon confirmation that the potash resources at the Chelkar Project are not less than 1 billion tonnes, otherwise the number of shares released will be reduced proportionately. Any shares not released from escrow will be cancelled for nil consideration. The escrow agent is contractually not permitted to vote these shares at a general meeting of the Company. Note 2 KPC also has $30 million of convertible notes on issue to China-Asia Resources Fund, an entity controlled by Madam Cheung and others including directors of KPC. As each note is convertible 3

33 into 1 share in KPC at $1.00 per share, we consider that it is unlikely that these notes will be converted into shares in the next 2 years and for this reason we have not considered the dilution impact that may result from the conversion of these notes. As the Celaric Shares are currently non-voting and may be cancelled for no consideration, we have excluded these shares in considering the impact of the Proposed Transaction. Set out in Table 2 below is the impact of the Proposed Transaction on the voting power of KPC: Table 2 3/12/15 Hillot Resolutions Resolution Projected Shares on Contractual Number Subscription 1 and 2 3 New Issue Voting Agreement Capital Entitlements Note 1 % % Total shares on issue 635,642,804 60,000, ,000, ,000, ,642,804 Shares held by: Goldquest 110,000,000 75,000, ,000, % 23.85% Madam Cheung and associates 32,695,190 25,000, ,000, ,695, % 20.33% Celaric 120,000, ,000, % - Hillot 135,660,576 60,000, ,660, % 25.23% Other Shareholders 237,287, ,287, % 30.59% Source: DMR Corporate Note 1 Assumes that Hillot complies with the subscription agreement dated 5 May 2015, as amended, pursuant to subsequent variation agreements by 31 December As can be seen from Tables 1 and 2, if KPC s shareholders approve the Proposed Transaction the following will occur: (a) Goldquest may increase its interests in KPC from 17.31% to 20.66% and its contracted voting entitlements will change from 21.33% to 23.85%; and (b) Madam Cheung and her associates may increase their interests in KPC from 5.14% to 17.61% and their contracted voting entitlements will change from 6.34% to 20.33%. It should be noted that the total of 100 million shares to be issued to Goldquest and CWH (Resolutions 1 and 2) will only be issued if KPC is successful in completing the acquisition of Satimola. KPC has agreed to acquire Satimola for US$70 million consisting of a first payment of US$55 million in cash and two promissory note payments of US$7.5 million each. The Hillot placement and the US$75 million financing facility (Resolution 3) represent the funding required to complete this acquisition. 2.3 Evaluation of the Proposed Transaction 635,642,804 60,000, ,000, ,000, ,642, % % The directors of KPC have requested DMR Corporate to prepare an independent expert s report in accordance with ASIC Regulatory Guides ( RG ) 111 Content of expert reports in respect of the Proposed Transaction. A copy of this report will accompany the Notice of Meeting and the Explanatory Statement to be sent by KPC to its shareholders. RG 111 requires the Independent Expert to advise shareholders whether the Proposed Transaction is fair and reasonable, when considered in the context of the interests of the Non- Associated Shareholders. 4

34 3. Summary Opinions 3.1 In our opinion, the Proposed Transaction set out in Section 2 is not fair however it is reasonable when considered in the context of the interests of the KPC Non-Associated Shareholders. Our principal reasons for reaching the above opinion are: Assessment of Fairness In Section 7.9 we assessed the value of each KPC share before the Proposed Transaction to be in a range of $0.17 to $0.20 per share on a control basis. In Section we concluded that the value of each KPC share after the Proposed Transaction is in a range of $0.09 to $0.13 on a minority basis. As the minority value of the shares held by the Non-Associated Shareholders after the Proposed Transaction (in a range of $0.09 to $0.13) is less than the control value of their shares before the Proposed Transaction (in a range of $0.17 to $0.20), we have concluded that the Proposed Transaction is not fair. Shareholders should note that in reaching the above conclusion: (a) (b) We have not ascribed any value to the services performed and to be performed by Goldquest and CWH (negotiation with shareholders of Satimola and providing advice to get necessary approval so as to complete the transfer of the beneficial interest of Satbor to KPC and to obtain extension of agreements with the government of Kazakhstan in relation to the subsoil use rights of the Satimola deposits). Whilst the management of KPC believes that without the services of Goldquest and CWH it could not achieve the successful acquisition of Satimola, we are not in a position to place a commercial value on Goldquest s and CWH s services. We have not ascribed any value to the services performed in relation to the US$75 million funding facility to be performed by CAR Fund and Madam Cheung (negotiation with CMBC, the guaranteeing and securing the financing facility). Whilst the management of KPC believes that without the personal contacts and the collateral services provided, a loan of US$75 million could not have been negotiated in the current financial markets, we are not in a position to place a commercial value on CAR Fund s and Madam Cheung s services. Assessment of Reasonableness In Section 10 we have analysed a number of other factors that shareholders need to be aware of and we concluded that the Proposed Transaction is reasonable. Our principal reasons for this conclusion are: i) KPC has negotiated to acquire Satimola at a reduced arms-length price, which will give KPC the ownership of a major potash resource at a relatively low cost per tonne ($0.137) of contained resource, in comparison to its peer competitors; ii) iii) approval of the Proposed Transaction will enable KPC to acquire Satimola and to progress the raising of the necessary cash resources to complete the works program at Satimola and its other potash tenements over the next 12 months; and unless shareholders approve the Proposed Transaction, KPC will not be able to complete the acquisition of Satimola on the present terms. Overall Conclusion After considering the information available to us in respect of the Proposed Transaction, we consider that the Proposed Transaction is not fair but is reasonable when considered in the context of the interests of the KPC Non-Associated Shareholders. 5

35 3.2 Conclusion Related Party Financial Benefits In Section 12 we assessed the value of the financial benefits to be received by related parties as: (a) The issuance of 75,000,000 KPC shares to Goldquest as part of Resolutions 1 and 2 is a control transaction so we have valued the benefit at $0.15 per shares, which equates to a financial benefit of $11,250,000; (b) (c) The issuance of 25,000,000 KPC shares to CWH as part of Resolution 2 is not a control transaction so we have valued the benefit at $0.11 per share, which equates to a financial benefit of $2,750,000; and The issuance of 100,000,000 KPC shares to CAR Fund as part of Resolution 3 is not a control transaction so we have valued the benefit at $0.11 per share, which equates to a financial benefit of $11,000, Structure of this Report This remainder of this report is divided into the following sections and appendices: Section Page 5 Purpose of the Report 6 6 KPC - Key Information 10 7 Valuation of KPC Before the Proposed Transaction 17 8 Valuation of KPC After the Proposed Transaction 24 9 Assessment as to Fairness Other Considerations Conclusion as to Fairness and Reasonableness Related Party Financial Benefits Financial Services Guide 30 Appendix A Summary of CMBC Funding Facility 32 B Sources of Information 33 C Declarations, Qualifications and Consents Purpose of the Report This report has been prepared to meet the following regulatory requirements: Corporations Act Section 611 Section 606 of the Corporations Act 2001 ( Act ) contains a general prohibition on the acquisition of shares in a listed company if, as a result of the acquisition, any person increases his or her voting power in the company from 20% or below to more than 20% or from a starting point that is above 20% and below 90%. Section 611 of the Act contains an exception to the Section 606 prohibition. For an acquisition of shares to fall within the exception, the acquisition must be approved in advance by a resolution passed at a general meeting of the company in which shares will be acquired. KPC is seeking shareholder approval to issue 75 million fully paid shares to Goldquest (Resolution 1). Goldquest currently holds 110 million shares in KPC, representing 17.31% of KPC s voting power and approval of the Proposed Transaction will result in Goldquest holding 185 million KPC shares, representing up to 20.66% of KPC s voting power or 23.85% if the Celaric shares are disregarded from the total voting shares. 6

36 ASIC Regulatory Guides This report has been prepared in accordance with the ASIC Regulatory Guides and more particularly: RG 111 Content of Expert Reports ( RG111 ) RG An issue of shares by a company otherwise prohibited under s606 may be approved under item 7 of s611 and the effect on the company s shareholding is comparable to a takeover bid. Examples of such issues approved under item 7 of s611 that are comparable to takeover bids under Ch 6 include: (a) a company issues securities to the vendor of another entity or to the vendor of a business and, as a consequence, the vendor acquires over 20% of the company incorporating the merged businesses. The vendor could have achieved the same or a similar outcome by launching a scrip takeover for the company; and (b) a company issues securities in exchange for cash and, as a consequence, the allottee acquires over 20% of the company. The allottee could have achieved the same or a similar outcome by using a cash-rich entity to make a scrip takeover bid for the company. RG RG There may be circumstances in which the allottee will acquire 20% or more of the voting power of the securities in the company following the allotment or increase an existing holding of 20% or more, but does not obtain a practical measure of control or increase its practical control over that company. If the expert believes that the allottee has not obtained or increased its control over the company as a practical matter, then the expert could take this outcome into account in assessing whether the issue price is reasonable if it has assessed the issue price as being not fair applying the test in RG It has long been accepted in Australian mergers and acquisitions practice that the words fair and reasonable in s640 established two distinct criteria for an expert analysing a control transaction: (a) is the offer fair ; and (b) is it reasonable? That is, fair and reasonable is not regarded as a compound phrase. RG Under this convention, an offer is fair if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer 1. This comparison should be made: (a) (b) assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm s length; and assuming 100% ownership of the target and irrespective of whether the consideration is scrip or cash. The expert should not consider the percentage holding of the bidder or its associates in the target when making this comparison. For example, in valuing securities in the target entity, it is inappropriate to apply a discount on the basis that the shares being acquired represent a minority or portfolio parcel of shares. RG An offer is reasonable if it is fair. It might also be reasonable if, despite being not fair, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer. RG 111 requires that the Proposed Transaction be assessed as if it was a takeover of KPC. In assessing a takeover bid, RG 111 states that the expert should consider whether the proposed transaction is both fair and reasonable. 1 In an ASIC Corporate Finance Liaison presentation in May 2013, ASIC has expressed the view that transactions pursuant to item 7 of Section 611 should be assessed by comparing the fair market value of the company s shares pre-transaction on a control basis, with the fair market value of the company s shares post-transaction on a minority basis. 7

37 ASX - Listing Rules 10.1 and 10.2 Listing Rules 10.1 and 10.2 require a company to obtain shareholder approval at a general meeting when the sale or acquisition of an asset, which has a value in excess of 5% of the shareholders funds as set out in the latest financial statements given to the ASX under the listing rules, is to be made to or from: (i) (ii) (iii) (iv) (v) a related party; a subsidiary; a substantial shareholder who is entitled to at least 10% of the voting securities, or a person who was a substantial shareholder entitled to at least 10% of the voting securities at any time in the 6 months before the transaction; an associate of a person referred to in paragraphs (i), (ii) and (iii) above; or a person whose relationship to the entity or a person referred to above is such that, in the ASX s opinion, the transaction should be approved by security holders. The security to be given under the CMBC financing facility includes, among other securities, an equitable mortgage to CMBC over all of KPC s shares in Satimola. Satimola is being acquired for a cost value of approximately $110.6 million and as the net assets of KPC as at 30 June 2015 were only $71.5 million this is greater than the 5% limit referred to in the above Listing Rule. The CMBC security, if enforced could involve the disposal by KPC, or a subsidiary, of the shares in Satimola, to CMBC or the sub-soil use rights held by Satbor to CAR Fund. For this reason the directors are seeking shareholder approval in accordance with ASX Chapter 10. ASX Listing Rule Listing Rule states that an entity must not issue or agree to issue equity securities to any any of the following persons without the approval of holders of ordinary securities: (a) (b) A related party; A person whose relationship with the entity or a related party is, in ASX s opinion, such that approval should be obtained. CWH and CAR Fund (both entities controlled by Madam Cheung, the Managing director and Chairperson of KPC) are deemed to be related parties of KPC and as Goldquest presently holds a 17.31% of KPC s voting power, the ASX may consider that any further issue of shares to Goldquest should be approved by sub-section (b) above. Goldquest may also be deemed to be a related party of KPC as a result of its direction to KPC to issue 25 million of the Goldquest consideration shares to CWH. For these reasons the directors are putting all three resolutions to the Non-Associated Shareholders for approval. General The terms fair and reasonable are not defined in the Act, however guidance as to the meaning of these terms is provided by ASIC in RG 111. For the purpose of this report, we have defined them as follows: Fairness - the Proposed Transaction is fair if the minority value of a KPC share after the Proposed Transaction is equal to or greater than the control value of a KPC share before the Proposed Transaction. 8

38 Reasonableness - the Proposed Transaction is reasonable if it is fair. It may also be reasonable if, despite not being fair but after considering other significant factors, shareholders should vote in favour of the Proposed Transaction in the absence of a superior proposal being received. What is fair and reasonable for the Non-Associated Shareholders should be judged in all the circumstances of the proposal. The methodology that we have used to form an opinion as to whether the Proposed Transaction is fair and reasonable, is summarised as: (i) In determining whether the Proposed Transaction is fair, we have: assessed the value of the KPC shares before the Proposed Transaction on a control basis; assessed the value of the KPC shares after the Proposed Transaction on a minority basis; and compared the assessed value of the KPC shares on a control basis before the Proposed Transaction with the assessed value of the KPC shares on a minority basis after completion of the Proposed Transaction. (ii) (iii) In determining whether the Proposed Transaction is reasonable, we have considered other significant factors shareholders should review before deciding whether to approve or reject the Proposed Transaction. In determining whether the Proposed Transaction is fair and reasonable to the KPC Non-Associated Shareholders, we have considered and concluded upon the results of (i) and (ii) above. Corporations Act 2001 Chapter 2E Section 208 of the Act states that a public company must obtain approval from the company s members if it gives a financial benefit to a related party unless the benefit falls within the scope of an exception to the Act as set out in Section 210 to 216 of the Act. Section 210 of the Act states that member approval is not needed to give a financial benefit on terms that: (a) would be reasonable in the circumstances if the public company or entity and the related party were dealing at arm s length; or (b) are less favourable to the related party than the terms referred to in paragraph (a) above. Section 211 of the Act states that member approval is not needed to give a financial benefit if: (a) the benefit is remuneration to a related party as an officer or employee; (b) to give the remuneration would be reasonable. Section 228 of the Act defines related parties as: (a) directors of the public company; (b) directors (if any) of an entity that controls the public company; (c) if the public company is controlled by an entity that is not a body corporate each of the persons making up the controlling entity; (d) spouses and de facto spouses of the persons referred to in paragraphs (a) to (c) above. 9

39 The ASIC media release issued on 10 August 2004 has expressed the view that the financial benefit must be adequately valued. ASIC has gone on to state: An adequate valuation requires the basis of the valuation and the principal assumptions behind the valuation to be disclosed, and in some circumstances it may be necessary to provide a valuation by an independent expert. The directors of KPC have requested DMR Corporate to independently assess the value of the financial benefits receivable by Goldquest, CWH and CAR Fund and in our opinion these benefits are comprised of: (a) (b) (c) The issuance of the 75,000,000 KPC shares to Goldquest as part of the Proposed Transaction (Resolutions 1 and 2); and The issuance of the 25,000,000 KPC shares to CWH as part of the Proposed Transaction (Resolutions 1 and 2); and The issuance of the 100,000,000 KPC shares to CAR Fund an entity controlled by Madam Cheung (Resolution 3) for negotiating, guaranteeing and securing the US$75 million financing facility with CMBC. 6. KPC Key Information 6.1 Background KPC was incorporated on 3 May 2010 and on 18 December 2010 it was listed on the ASX. The Company s primary objective was the acquisition, exploration and development of mining assets in Australia with a focus on gold and base metals, including nickel and copper. Following the incorporation of the Company, it acquired interests in 5 mining tenements within the Norseman Wiluna area of Western Australia. In February 2011 KPC announced that it had entered into a strategic partnership with Hong Kong investment company Grand Concord Investments Limited and through this relationship KPC was introduced to two large potash mining opportunities in Kazakhstan. On 11 November 2011 KPC shares were suspended from trading as shareholders had voted to change the nature and scale of the Company s activities as part of the proposed acquisition of the Zhilyanskoye and Chelkar potash projects in Kazakhstan. At a general meeting held on 27 June 2012 the KPC shareholders approved the issue of 165 million shares to the vendors of the Zhilyanskoye potash resource project and 120 million shares to the vendors of the Chelkar potash resource project. The vendors of both projects were only entitled to have the shares issued and released to them upon confirmation that each project contains no less than 1 billion tonnes of potash resources in accordance with JORC standard, with the number of shares to be scaled back in proportion to the confirmed resources. The completion of the transactions was subject to KPC shares being relisted on the ASX. In order to achieve a relisting of the shares, the ASX required that KPC meet the requirements of Chapters 1 and 2 of the ASX Listing Rules, which in turn meant that KPC had to issue a prospectus. A prospectus was issue by KPC on 28 January 2014 and the prospectus closed on 14 February The Zhilyanskoye potash resource project has now achieved the hurdle of 1 billion tonnes of potash resources and following the closure of the prospectus and the associated capital raising KPC completed the acquisition of the Zhilyanskoye potash resource project on 10 March 2014 and on 8 April 2014 its shares were relisted on the ASX. 10

40 Whilst a potash resource meeting the JORC standard has not yet been established at the Chelkar potash resource project, KPC has also completed the acquisition of this project and issued 120 million shares to the vendor, however these shares are held by an escrow agent in escrow and will not be released until a JORC resource has been established at the Chelkar potash resource project. During the 2014 calendar year KPC sold its remaining Australian tenements and its activities are currently solely focused on its potash projects located in Kazakhstan. The current corporate structure of KPC is as follows, with the proposed Satimola acquisition highlighted with a grey background: Kazakhstan Potash Corporation Limited Australia - ASX:KPC 100% 100% 100% Fortis Mining (Hong Kong) Limited KPC Investment Limited (Hong Kong) 100% 100% KPC Fertilizer International Limited (Hong Kong) 100% 100% 100% 100% Sino Beverley Limited (BVI) Fortis Potash Resources Ltd (Hong Kong) Fortis Mining (Shanghai) Limited (People's Republic of China) Worldwide Capital Limited (BVI) KPC Fortis Investment Limited (Hong Kong) KPC Fortis Fertilizer Limited (Hong Kong) 100% 100% 100% 100% Satimola Limited (BVI) Kazakhstan Potash Corporation Limited (Hong Kong) Ji'an Resources Investment Limited (Hong Kong) 100% Fortis Mining (Beijing) Limited (People's Republic of China) Satimola Hong Kong Limited (BVI) 100% 100% Satimola Finance Limited (Isle of Man) 100% Wiot S.A. (Panama) Satbor LLP (Kazakhstan) 100% SPK Sary-Ark (Kazakhstan) Aktobe Tuz LLP (Kazakhstan) 5% 95% Batys Kali (Kazakhstan) 6.2 Potash Potash is a naturally occurring mineral, which is used in agriculture to provide potassium to plants. Potassium is an essential nutrient for healthy plant growth and must be added to soils which have naturally low potash content or where extensive farming has depleted the soil of potash and the crops are at risk of potassium deficiency. The chemical element potassium ( K ) in potash strengthens plant stalks and roots, adds flavour, colour and texture to crops and helps fight disease. Potash has also been found to help the efficient uptake of other fertilisers, nitrogen and phosphate, when used in conjunction with them. Approximately 95% of potash production is consumed as a fertiliser in agriculture. The remainder is consumed as feed (potash promotes animal growth and boosts milk production) and in industrial products. Potash salt is the raw material for potash fertiliser production. World demand for potash fertilisers has grown continuously in direct relation to the global population growth and the emergence of developing economies and markets such as China. Geographic distribution of mineable potash deposits is limited and two thirds of global supply is produced by three countries: Canada, Russia and Belarus. Nearly all countries in the world consume potash with the USA, China, Brazil and India being the largest consumers, none of which is a major producer of potash. 11

41 During the last seven years world demand for potash fertilizers increased by 24.8% as many developing countries increased their consumption of potassium chloride to satisfy the food requirements of growing populations. China is the largest consumer of potash fertiliser, accounting for approximately 20% of global use. With limited domestic production, China is expected to import the majority of its domestic requirements over the long term. 6.3 Zhilyanskoye Potash Resource Project KPC s Zhilyanskoye potash resource project is located in Western Kazakhstan and covers an area of 88 sq. km. The Zhilyanskoye deposit has the following JORC (2012) compliant potash resource, consisting of both polyhalite and sylvinite mineralisation: Table 3 Sylvinite Polyhalite Cut-off > 10% K 2O Cut-off > 5% K 2O Mt Mt Av. K 2O% tonnes Av. K 2O% tonnes Indicated Inferred Total Share Capital At the date of this report KPC has 635,642,804 fully paid ordinary shares on issue. The major shareholders of KPC fully paid shares on 4 December 2015 were as follows: Table 4 Number of % of Voting Power Shareholder - 3 December 2015 Shares Theoretical Contractual Sly & Russell Legal Nominees Pty Ltd 120,000, % 0.00% Hillot Ltd 135,660, % 27.65% Goldquest Services Inc 110,000, % 22.42% Mainstar Investments Ltd 40,000, % 8.15% Charming Merit Holdings Inc 30,000, % 6.11% City Winner Holdings Limited 21,645, % 4.41% Wise Concept Enterprises Inc 18,787, % 3.83% Citicorp Nominees Pty Limited 17,598, % 3.59% Glory Success Enterprise Inc 15,000, % 3.06% United Delight Holdings Ltd 15,000, % 3.06% Pacific Castle International Limited 10,000, % 2.04% Smartime Investments Limited 10,000, % 2.04% Tian Zhi International Investment Limited 10,000, % 2.04% 553,692, % 88.39% 12

42 KPC also has 246,000,000 options on issue. Details of the options are: Table 5 Number of Exercise Expiry date Options Price 31/12/15 5,000,000 $ /05/16 12,600,000 $ /06/16 17,000,000 $ /10/16 6,000,000 $ /10/16 7,000,000 $ /10/16 9,400,000 $ /11/16 60,000,000 $0.30 2/04/17 32,000,000 $ /04/17 18,000,000 $ /10/17 45,000,000 $0.10 7/01/18 17,000,000 $1.00 7/01/18 17,000,000 $ ,000,000 In addition to the shares and options referred to above, KPC has 30 million convertible notes on issue, each of which may be converted into 1 share at any time up to 25 November If the notes are converted, the note holders are entitled to receive 2 share options for each converted note. Should all of the notes be converted, KPC would issue an additional 30 million shares and 60 million options. 6.5 Operating Performance KPC s consolidated statements of profit or loss and other comprehensive income for the sixmonths ended 30 June 2014 and for the six-month period ended 30 June 2015 are as follows 2 : 2 KPC has changed its accounting year from 30 June to 31 December, effective 31 December

43 Table 6 6 months 6 months ended ended Consolidated Statement of Profit and Loss and other 30-Jun Jun-15 Comprehensive Income Restated Reviewed $ $ Revenue From Continuing Operations Finance Revenue 287, ,357 Employee expenses (3,706,110) (3,626,522) Depreciation and amortisation (119,693) (124,087) Consulting fees (34,118,768) (3,190,364) Legal and other professional fees (422,730) (510,235) Exploration and evaluation (214,918) (146,017) Marketing and promotion expense (288,742) (15,520) Regulatory listing fees (188,482) (45,220) Occupancy expenses (945,082) (1,115,180) Telecommunication (13,538) (13,596) Travel expense (248,547) (212,285) Finance costs (1,469,804) (1,973,817) Loss on disposal of plant and equipment (1,861) (263) Loss on disposal of exploration and evaluation assets (114,162) - Other expenses (218,144) (128,767) Impairment of receivables - (3,255,208) Foreign exchange gain/(loss) (1,421,562) (182,165) (Loss) before income tax from continuing operations (43,204,352) (14,367,889) Income tax benefit - - (Loss) after income tax expense for the period (43,204,352) (14,367,889) Other comprehensive income/(loss) (5,268,165) 1,146,290 Total comprehensive loss for the period (48,472,517) (13,221,599) Less: attributable to non-controlling interests 26,205 67,792 Owners of the company (48,446,312) (13,153,807) 6.6 Cash Flow Statements Source: KPC s Interim Report - 30 June KPC s cash flow statements for the six-months ended 30 June 2014 and for the six-month period ended 30 June 2015 as follows 3 : 3 KPC has changed its accounting year from 30 June to 31 December, effective 31 December

44 Table 7 6 months 6 months ended ended Consolidated Statement of Cash Flows 30-Jun Jun-15 Audited Reviewed $ $ Cash flows from operating activities Interest received 38, Payments to suppliers and employees (7,205,727) (4,924,490) Interest paid - - Net cash used in operating activities (7,167,511) (4,924,401) Cash flows from investing activities Purchase of subsidiaries net of cash acquired 158,472 - Purchase of plant and equipment (19,768) (7,253) Payments for tenements and exploration expenditure (407,187) (465,667) Proceeds from disposal of tenements 85,838 - Loans to other parties (201,341) (3,255,208) Net cash used in investing activities (383,986) (3,728,128) Cash flows from financing activities Proceeds from issue of shares 8,262,526 9,014,808 Proceeds from exercise of options 40,000 - Proceeds for shares to be issued in the future - 6,000,000 Proceeds from borrowings - 3,854,768 Repayment of borrowings - (7,953,805) Net cash provided by financing activities 8,302,526 10,915,771 Net increase in cash held 751,029 2,263,242 Cash at beginning of financial period 10,835,012 1,820,927 Effects of exchange rate changes on cash (540,392) 122,315 Cash at end of financial period 11,045,649 4,206,484 Source: KPC s Interim Report 30 June

45 6.7 Statements of Financial Position KPC s statements of financial position as at 1 January 2014, 31 December 2014 and 30 June 2015 are as follows 4 : Table 8 Restated Consolidated Statement of Financial Position 31-Dec Jun-15 1-Jan-14 Reviewed Reviewed $ $ $ Current assets Cash and cash equivalents 10,835,012 1,820,927 4,206,484 Other assets 867,145 1,225,355 1,315,195 Total current assets 11,702,157 3,046,282 5,521,679 Non-current assets Non-current financial assets 58,251, , ,628 Intangible assets - 32,112 28,419 Property, plant and equipment 412, , ,781 Exploration and evaluation expenditure 200, ,720, ,115,923 Total non-current assets 58,864, ,353, ,690,751 Total assets 70,566, ,400, ,212,430 Current liabilities Accrued expenses and other payables 1,854,596 2,906,378 7,781,338 Financial liabilities - 3,827,189 - Total current liabilities 1,854,596 6,733,567 7,781,338 Non-current liabilities Deferred tax liability 112,500 17,208,393 17,208,393 Non-current financial liabilities 12,561,441 15,701,801 17,539,056 Non-current provisions - 242, ,073 Total non-current liabilities 12,673,941 33,153,117 35,001,522 Total liabilities 14,528,537 39,886,684 42,782,860 Net assets 56,037,809 70,513,455 71,429,570 Equity Issued capital 85,256, ,284, ,631,933 Reserves 29,194,097 29,965,470 31,062,260 Accumulated losses (58,412,986) (114,347,562) (127,807,659) Non-controlling interests - (389,172) (456,964) Total equity 56,037,809 70,513,455 71,429,570 Source: KPC s Interim Report 30 June KPC has changed its accounting year from 30 June to 31 December, effective 31 December

46 7. Valuation of KPC Before the Proposed Transaction 7.1 Value Definition DMR Corporate s valuation of KPC has been made on the basis of fair market value, defined as the price that could be realized in an open market over a reasonable period of time given the current market conditions and currently available information, assuming that potential buyers have full information, in a transaction between a willing but not anxious seller and a willing but not anxious buyer acting at arm s length. 7.2 Valuation Methodologies In selecting appropriate valuation methodologies, we considered the applicability of a range of generally accepted valuation methodologies. These included: share price history; net present value of future cash flows; asset based methods; capitalisation of future maintainable earnings; and comparable market transactions. Each of the above methodologies is described and where possible applied in the balance of this Section Share Price History The share price history valuation methodology values a company based on the past trading in its shares. We normally analyse the share prices up to a date immediately prior to the date when a takeover, merger or other significant transaction is announced to remove any price speculation or price escalations that may have occurred subsequent to the announcement of the proposed transaction Set out in Table 9 below is our analysis of the trading in KPC shares between 1 December 2014 through to 7 December 2015: Table 9 TerraCom Share Prices Month High Low Average Volume Value $ $ $ $ 2014 December ,797, , January ,112, ,385 February ,037, ,693 March ,578 90,340 April ,492 93,193 May ,768 65,025 June ,593 31,058 July ,007 46,343 August ,070, ,837 September ,869 3,768 October ,904 25,398 November ,100 30,941 December ,117 94,175 7,876,073 1,476,363 The above information is also presented graphically below: 17

47 $ No. 800, , , , , , , , Dec Dec Dec Jan Jan Feb-15 1-Mar Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Sep Sep Oct Oct Nov Nov-15 - Close Volume Table 9 shows that the total number of shares traded since 1 December 2014 was 7,876,073. This is a period of approximately twelve months and as the number of shares traded represents 1.4% of KPC s issued non-escrowed shares, we consider that trading in the KPC shares is illiquid As can be seen from the above graph the share price has trended lower over the last 7 months and then from 30 November to 7 December 2015 the price slowly increased from $0.097 to $0.15 on small volumes, however there have been no sales between 7 December and 16 December We have also examined in more detail the trading in KPC s shares since the date immediately prior to the Hillot share subscription agreement was announced on 6 May This analysis is set out below: Table 10 Period Shares Traded VWAP Share Price Number Value Low High $ $ $ $ 6 May 2015 to 7 December ,236, , Days to 7/12/15 1,789, , Days to 7/12/15 1,388, , Days to 7/12/15 1,286, , Days to 7/12/15 1,088, , Source: DMR Corporate After considering the results of the above analysis, we have concluded that the KPC shares have a market value of approximately $0.115 per share Share Placements On 5 May 2015 KPC announced that it had entered into a share subscription agreement with Hillot Limited ( Hillot ), a wholly owned subsidiary of Burwill Holdings Limited ( Burwill ), a company listed on the Stock Exchange of Hong Kong to place 100 million KPC ordinary shares at $0.20 per share to raise $20 million in total. Hillot subsequently agreed to subscribe $6 million for a further 30 million shares at $0.20 per share. 18

48 On 16 October 2015 a placement of 30 million shares at $0.09 was made to raise $2.7 million. Over the last 6 months a total of 32.5 million shares have been issued to satisfy debts owing to employees and consultants at prices ranging from $0.048 to $0.159 per share with the average placement price being $0.14 per share. On 30 November 2015 KPC announced that Madam Cheung the Managing Director and Chairperson of KPC had been appointed as an executive Director to the Board of directors of Burwill Holdings Limited, a company listed on the Hong Kong stock exchange and the parent company of Hillot Conclusion Based on the above information we are of the opinion that the KPC shares have a value in a range of $0.11 to $0.14 per share on a minority basis Control Premium The above value is a minority value. As a result of the Proposed Transaction, Goldquest may increase its effective voting power up to 20.66% and this could provide it with effective control. A control premium represents the difference between the price that would have to be paid for a share to which a controlling interest attaches and the price at which a share which does not carry with it control of the company could be acquired. The actual control premium paid is transaction specific and depends on a range of factors, such as the level of synergies available to the purchaser, the level of competition for the assets and the strategic importance of the assets. To determine the premium applicable to a controlling interest we have referred to the RSM Bird Cameron Control Premium Study 2013, summarised below: Table 11 Control Premium 20 days Pre Announcement Average Median Analysis by: Criteria All transactions 35.30% 29.00% Metal & Mining 35.47% 31.70% Consideration type Cash 37.10% 30.00% Toehold prior to announcement >20% 38.32% 30.56% Size < $50M to <100M 37.80% 30.60% After reviewing the above information we have concluded that a control premium in a range of 30% to 35% should be applied to the minority share price. Using the selected range of control premiums, the value of KPC shares on a control basis can be estimated as follows: Table 12 Low High Minority Value $0.11 $0.14 Control Premium 30.0% 35.0% Control Value $0.143 $ After considering the results of the above analysis, we have concluded that the KPC shares have a market value in a range of $0.143 to $0.189 per share (mid point $0.166) on a control basis say $0.14 to $0.19 with a mid point of $

49 7.4 Net Present Value of Future Cash Flows An analysis of the net present value of the projected cash flows of a business (or discounted cash flow technique) is based on the premise that the value of the business is the net present value of its future cash flows. This methodology requires an analysis of future cash flows, the capital structure, the costs of capital and an assessment of the residual value of the business remaining at the end of the forecast period. As KPC does not have an operating business generating cash flows, we consider that the capitalisation of future cash flows is not an appropriate methodology to use to value KPC. We have reached the above conclusion as the Zhilyanskoye potash resource project contains only indicated and inferred potash resources and to date only a pre-feasibility style technical report has been completed. This means that there is insufficient certainty as to the likely extent and timing of any future cash flows to complete a valuation using this methodology. 7.5 Asset Based Methods These methodologies are based on the realisable value of a company s identifiable net assets. Asset based valuation methodologies include: (a) Net Assets The net asset valuation methodology involves deriving the value of a company or business by reference to the value of its assets. This methodology is likely to be appropriate for a business whose value derives mainly from the underlying value of its assets rather than its earnings, such as property holding companies and investment businesses. The net assets on a going concern basis methodology does not take account of realisation costs. (b) Orderly Realisation of Assets The orderly realisation of assets method estimates the fair market value by determining the amount that would be distributed to shareholders, after payment of all liabilities including realisation costs. (c) Liquidation of Assets Net Assets The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes that the assets are sold in a short time frame. The total net assets of KPC as at 30 June 2015, per the reviewed consolidated accounts, were $71,429,570 (Table 8). These values have been determined for financial reporting purposes using Australian Accounting Standards, Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Act as applicable and the values therefore may not reflect the market values of the individual assets. We bring to the attention of all shareholders that the historical financial statements as at 30 June 2014 and 31 December 2014 have been restated as a prior period restatement pursuant to the Company s recent discussions with ASIC in relation to the fair value assessment adopted by the Company in relation to the acquisition accounting principles for the purchase of the Batys Kali assets (i.e. Zhilyanskoye) Refer to Appendix B. KPC had 562,342,804 shares on issue at 30 June These shares on issue include 120,000,000 shares held in escrow in relation to the Chelkar project. Pending the determination of a JORC resource at the Chelkar project, these shares have been issued at nil value. Excluding these shares, KPC had 442,342,804 shares on issue at 30 June 2015 and based on that number of shares, the net asset backing per share is $0.161 ($71,429,570 /442,342,804). Based on the net asset valuation methodology we have valued the KPC shares at $0.16 per share. 20

50 7.5.3 Orderly Realisation of Net Assets / Liquidation of Assets KPC has completed the acquisition of the Zhilyanskoye and Chelkar projects. As at 30 June 2015 KPC had approximately $4 million in cash and, pursuant to the Share Subscription Agreement with Hillot, expects to raise a further $20,000,000, prior to 31 December As at 7 December 2015 KPC has received $8 million of these placements, it is holding a deposit of $6 million and the remaining $6 million should be received by 31 December In these circumstances we have not adopted the orderly realisation of net assets or the liquidation of assets methodology as these methodologies may understate the in-use values of these assets. 7.6 Capitalisation of Future Maintainable Earnings This methodology involves capitalising the estimated future maintainable earnings of a business at a multiple which reflects the risks of the business and its ability to earn future profits. There are different definitions of earnings to which a multiple can be applied. A traditional method is to use net profit after tax Price Earnings or PE. Other common methods are the use of Earnings Before Interest and Tax (EBIT) or Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). We have concluded that the capitalisation of future maintainable earnings methodology cannot be applied in valuing KPC and its shares as it has no operating activities generating earnings. 7.7 Comparable Market Transactions Theoretically this is a sound valuation methodology as it is based on tangible evidence of other similar transactions (this is the methodology generally adopted in valuing real estate). Whilst this methodology cannot be used to directly value KPC shares, the methodology can be used to assess the value of mineral assets. The value of the mineral assets can then be incorporated into the balance sheet of the company to derive a value of its net assets and therefore its value per share. On 25 November 2014 we issued an Independent Expert s Report in respect of an earlier KPC transaction. This report was released to the ASX on 1 December 2014 as an attachment to a notice of General Meeting. In preparing this earlier report, we appointed Ravensgate International Pty Ltd Pty Ltd ATF Ravensgate Unit Trust ( Ravensgate ) to independently conduct a technical review and to prepare a valuation of the mineral assets held by KPC. Ravensgate s report dated 21 November 2014 was an attachment to our report dated 25 November In December 2015 we requested Ravensgate to review their earlier valuation taking into account KPC ASX announcements since the date of the earlier report and changes in potash prices and movements in exchange rates. Based on the Ravensgate update completed on 9 December 2015, the valuation of the Zhilyanskoye project is as follows: 21

51 Table 13 Summary of Project Technical Valuation in Respective Ownership terms Project Mineral Ownership Valuation Dec-15 Asset Low Preferred High $ $ $ Zhilyanskoye Mineral Resource Pre Development Project 95% Zhilyanskoye Advanced Exploration Total Advanced Exploration 95% % Sum of the Parts Valuation In this Section we have assessed the value of KPC shares based on the 30 June 2015 book values referred to in Section 7.5.2, adjusted for the assessed value of the Zhilyanskoye project and the funds raised by KPC since 30 June Whilst KPC has 635,642,804 fully paid ordinary shares on issue at the date of this report, this includes 120 million shares issued in respect of Chelkar that are in escrow pending the establishment of a JORC resource. As these shares are currently non-voting and may be cancelled for no consideration, we have excluded these shares in considering the impact of the Proposed Transaction on the Non-Associated Shareholders. Excluding the Celaric Shares there are 515,642,804 shares on issue. In addition to these shares there has been placements made for a further 70,000,000 million shares between 1 July 2015 and 3 December 2015 and this brings the total shares on issue to 585,642,804 for the purposes of our calculations in Table 14 below. As we have excluded the Celaric Shares, we have also not included any value for the Chelkar project in the following analysis. In Table 14 below we have specifically eliminated the book value of the Exploration and evaluation expenditure and inserted our assessment of the value of the Zhilyanskoye project so that we can determine a net asset backing of KPC on the basis that the Chelkar project does not proceed. 22

52 Table Jun-15 Notes Pro Forma KPC - Net Assets Reviewed Low Preferred High $ $ $ $ Current assets Cash and cash equivalents 4,206, ,906,484 14,906,484 14,906,484 Other assets 1,315,195 1,315,195 1,315,195 1,315,195 Hillot - Placement monies receivable 6,000,000 6,000,000 6,000,000 Total current assets 5,521,679 22,221,679 22,221,679 22,221,679 Non-current assets Non-current financial assets 366, , , ,628 Intangible assets 28, Property, plant and equipment 179, , , ,781 Exploration and evaluation expenditure 108,115, ,950, ,950, ,940,000 Total non-current assets 108,690, ,496, ,496, ,486,409 Total assets 114,212, ,718, ,718, ,708,088 Current liabilities Accrued expenses and other payables 7,781, ,781,338 1,781,338 1,781,338 Total current liabilities 7,781,338 1,781,338 1,781,338 1,781,338 Non-current liabilities Deferred tax liability 17,208, ,175,208 22,775,208 27,373,208 Non-current financial liabilities 17,539,056 17,539,056 17,539,056 17,539,056 Non-current other liabilities 254, , , ,073 Total non-current liabilities 35,001,522 35,968,337 40,568,337 45,166,337 Total liabilities 42,782,860 37,749,675 42,349,675 46,947,675 Net assets 71,429, ,968, ,368, ,760,413 Shares currently on issue excluding the Celaric Shares 515,642,804 Remainder of Hillot placement 60,000, ,642,804 $ 0.17 $ 0.20 $ 0.23 Notes on Pro-forma: Note 1 Ravensgate reviewed their previous report on 9 December 2015 and given changes in the potash prices and the exchange rates, they consider the updated market value of the Zhilyanskoye project to be in a range of $ million to $ million with a preferred value of $ million. These values have been used in the above Table. Note 2 The deferred tax liability at 30 June 2015 relates to an increase in the value of the Zhilyanskoye project recorded on consolidation of the subsidiary that holds the project, estimated using a tax rate of 20%. We have similarly adjusted the deferred tax liability for the additional liability relating to the revaluation of the Zhilyanskoye project as per Note 1. Note 3 The cash holding has been increased by $10.7 million to reflect the placement of 70 million shares between 30 June 2015 and 7 December The cash holding has also been increased by $6 million and the Accrued expenses and other payables has been reduced by $6 million (representing the $6 million Hillot deposit paid prior to 30 June 2015) in respect of the outstanding balance (60,000,000 $0.20) of the Hillot subscription agreement that is required to be paid prior to 31 December Note 4 It should be noted that the net assets do not reflect any other transactions entered into by KPC since 30 June 2015, as such the net assets do not account for operating and exploration costs incurred by KPC between 1 July 2015 and the date of this report. As can be seen from Table 14, we have assessed the value of KPC shares using the sum of the parts methodology to be in a range of $0.17 to $0.23 per share, with a preferred value of $0.20 per share. 23

53 7.9 Conclusion The applicable valuation methodologies that we have considered are summarised as: Table 15 Valuation Methodology Section Valuer per share Low Mid High $ $ $ Share price history Sum of the parts After considering the above results from both valuation methodologies, we concluded that KPC shares should be valued in a range of $0.17 to $0.20 per share on a control basis. 8. Valuation of KPC After the Proposed Transaction 8.1 The definition of value and the valuation methodologies considered are the same as stated in Section 7. The issue of KPC shares pursuant to Resolutions 1 and 2 is based on the premise that Satimola is wholly owned by KPC and this will only occur if KPC can pay the US$55 million in cash on the settlement date and issue promissory notes totaling US$15 million for the remaining balance. To obtain the necessary funding the Non-Associated Shareholders will also have to approve Resolution 3 as without the CMBC US$75 million facility being completed, KPC will not have the resources to acquire Satimola. 8.2 Satimola Key Information Satimola is a holding company incorporated in British Virgin Islands. The group structure of Satimola and its subsidiaries is as follows: Satimola Limited 100% 100% 100% Satimola Hong Kong Satbor LLP Satimola Limited Finance Limited Satbor is a limited liability partnership registered under the laws of the Republic of Kazakhstan. Satbor holds the rights to the Satimola potash and borate deposits located in Western Kazakhstan. As such, by acquiring Satimola, KPC will acquire a 100% interest in this deposit. Satimola Hong Kong Limited is a Hong Kong registered company. We are advised that it is currently dormant. Satimola Finance Limited is registered in the Isle of Man and is used as a finance intermediary. The Satimola Deposit The Satimola deposit is located within the geological formation known as the Satimola Dome, in the Bazarsholan rural district of the Akzhaik region, West Kazakhstan Oblast. The Satimola Dome lies approximately 40 km east of the Ural River, 65 km from the railhead at Inderborskiy, and some 200 km north of the Caspian Sea. 24

54 The Satimola deposit has the following JORC compliant potash resource: Table 16 Cut-off > 15% K2O Billion Av. K2O% tonnes Cut-off > 10% K2O Billion Av. K2O% tonnes Indicated Inferred Total In addition to potash, the Satimola deposit contains Boron ( B ). Boron and its compounds are used in space, military and nuclear technologies, in the production of special types of glass, optoelectronics and in textile manufacturing. Through the development of the Satimola deposit, Kazakhstan has the potential to become one of the three major competitors in the world boron market. The majority of the products will be exported. The Satimola deposit has the following JORC compliant boron resource: Table 17 Cut-off > 4% B 2O 3 Cut-off > 6% B 2O 3 Grade B 2O 3 Billion tonnes Grade B 2O 3 Billion tonnes Indicated 9.49% % 0.14 Inferred 5.62% % 0.14 Total 6.95% % 0.28 Satimola holds contract No for subsoil use rights as of April 2004 to explore and produce boron and potash. In an addendum dated December 2009 the contract term was extended to 27 years including 7 years of exploration and 20 years of production. Since this addendum was processed Satimola has proven up the JORC resources set out above. 8.3 Valuation of KPC After Approval of the Proposed Transaction The approval of the Proposed Transaction will only result in the issue of shares to Goldquest and CWH, if KPC is able to complete the acquisition of Satimola. As such, in assessing the value of KPC after the Proposed Transaction we have assumed that KPC will acquire Satimola and therefore its major asset being the Satimola Project We understand that the Satimola acquisition was originally negotiated on an arms length basis at a price of US$150 plus a US$15 million facility to fund working capital as well as project development expenditure including road construction and other infrastructure work for the preparation of future mine development, to ensure availability of financing to the Satimola Project during transition The latest November 2015 Sale and Purchase Agreement is for a total consideration of US$70 million with a first payment of US$55 million in cash and 2 promissory notes of US$7.5 million each. In addition to the consideration, KPC will pay US$10 million to Satimola s creditors at the date of settlement The following pro forma balance sheet after the Proposed Transaction and the related funding transactions has been prepared on the following basis: 25

55 Table Jun-15 CMBC Satimola Pro Forma Pro Forma Funding Acquisition After KPC - Net Assets Preferred Notes Facility Price Satimola Table 14 Resolution 3 Acquisition $ $ $ $ Current assets Cash and cash equivalents 14,906, ,748,790 (89,915,618) 28,739,656 Other assets 1,315,195 1,315,195 Hillot - Placement monies receivable 6,000, ,000,000 Total current assets 22,221, ,748,790 (89,915,618) 36,054,851 Non-current assets Non-current financial assets 366, ,628 Intangible assets - - Property, plant and equipment 179, ,781 Exploration and evaluation expenditure 135,950, ,665, ,615,376 Total non-current assets 136,496, ,665, ,161,785 Total assets 158,718, ,748,790 20,749, ,216,636 Current liabilities Accrued expenses and other payables 1,781,338 1,781,338 Borrowings 4 103,748,790 20,749, ,498,548 Total current liabilities 1,781, ,748,790 20,749, ,279,886 Non-current liabilities Deferred tax liability 22,775,208 22,775,208 Non-current financial liabilities 17,539,056 17,539,056 Non-current other liabilities 254, ,073 Total non-current liabilities 40,568, ,568,337 Total liabilities 42,349, ,748,790 20,749, ,848,223 Net assets 116,368, ,368,413 Shares on issue or to be issued excluding the Celaric Shares 575,642, ,000, ,000, ,642,804 Value per share $0.15 Note 1 The CMBC financing facility of US$75 million is for 1 year only so the liability has been included in Current Liabilities. Note 2 The final Hillot placement monies of $6 million are due to be paid prior to 31 December 2015 and we have classified these monies as amounts receivable in the above Table. Note 3 The investment in Satimola has been included as part of the Exploration and Evaluation Expenditure based on a US$1:A$ exchange rate and the sum is comprised of the following components: Cash payment US$55 million A$76,082,446 Promissory notes US$15 million A$20,749,758 Settlement of Satimola s creditors US$10 million A$13,833,172 A$110,665,376 Note 4 The borrowings comprise the loan from CMBC of US$75 million A$103,748,790. Note 5 The CMBC financing facility involves the issue of 100 million KPC shares to CAR Fund; the Satimola acquisition involves the issue of 75 million KPC shares to Goldquest and 25 million KPC shares to CWH and all of these shares have been brought to account in determining the total issued shares in the above Table to determine the value of each KPC share after completion of the Proposed Transaction. 26

56 8.3.5 Based on Table 18 above, the KPC shares after the completion of the Proposed Transaction, the completion of the Hillot subscription agreement, the completion of the CMBC funding package and the issue of KPC shares pursuant to Resolutions 1, 2 and 3, the KPC shares on the Preferred Valuation figure for the Exploration and Evaluation expenditure are valued at $0.15 per share on a control basis. Using this same methodology the Low value equates to $0.13 per share and the High value equates to $0.17 per share on a control basis As the Non-Associated Shareholders will hold minority interests in KPC after the Proposed Transaction, the value of their interest should be assessed as follows: Table 19 After the Proposed Transaction Source Low Mid High Control Values per share $0.13 $0.15 $0.17 Less: Inverse of a control premium 25.93% 24.53% 23.08% Minority Values per share $0.09 $0.11 $0.13 Source: DMR Corporate Based on the above, we have determined that the Non-Associated Shareholders interests are valued in a range of $0.09 to $0.13 per share on a minority basis after the Proposed Transaction. 9. Assessment as to Fairness In Section 7.9 we assessed the value of each KPC share before the Proposed Transaction to be in a range of $0.17 to $0.20 on a control basis. In Section we concluded that each KPC share after the Proposed Transaction is valued in a range of $0.09 to $0.13 on a minority basis. As the minority value of the shares held by the Non-Associated Shareholders after the Proposed Transaction (in a range of $0.09 to $0.13) is less than the control value of their shares before the Proposed Transaction (in a range of $0.17 to $0.20), we have concluded that the Proposed Transaction is not fair. Shareholders should note that in reaching the above conclusion: (a) (b) We have not ascribed any value to the services performed and to be performed by Goldquest and CWH (negotiation with shareholders of Satimola and providing advice to get necessary approval so as to complete the transfer of the beneficial interest of Satbor to KPC and to obtain extension of agreements with the government of Kazakhstan in relation to the subsoil use rights of the Satimola deposits). Whilst the management of KPC believes that without the services of Goldquest and CWH it could not achieve the successful acquisition of Satimola, we are not in a position to place a commercial value on Goldquest s and CWH s services. We have not ascribed any value to the services performed in relation to the US$75 million funding facility to be performed by CAR Fund and Madam Cheung (negotiation with CMBC, the guaranteeing and securing the financing facility). Whilst the management of KPC believes that without the personal contacts and the collateral services provided, a loan of US$75 million could not have been negotiated in the current financial markets, we are not in a position to place a commercial value on CAR Fund s and Madam Cheung s services. 27

57 10. Other Considerations Prior to deciding whether to approve or reject the Proposed Transaction the KPC shareholders should also consider the following factors: The acquisition of Satimola will result in KPC having two substantial potash projects as well as an advanced exploration project (Chelkar), all of which are located in Kazakhstan. This provides KPC with an opportunity to become a major potash producer of significant international scale. These 3 potash deposits in Kazakhstan will provide KPC with the potential for large scale production and long term supply to China and other world markets. This will have medium to long term benefits for KPC and its shareholders. We consider that the fee payable to Goldquest/CWH of 100,000,000 KPC shares (Resolutions 1 and 2)(approximately $14 million) is high in comparison with the purchase price, however without these services KPC will not be able to acquire the vast resources of the Satimola Project. The Ravensgate Technical Project Review and Valuation Report issued on 21 November 2014 (Copy attached to ASX announcement on 1/12/2014) summarises other Comparable Potash Market Transactions as follows: Table 20 Contained Implied Project KCI Tonnes Value/KCI (Mt) Tonne (A$) Danakil Poptash Project, Ethiopia Satimola Potash Project, Kazakhstan Zhilyanskoye Potash Project, Kazakhstan Mengo Potash Project, Congo Burr Potash Project, Canada Dallol Potash Project, Ethiopia Potasio Rio Colorado Potash Project, Argentina Lake Jansen Potash Project, Canada Source: Ravensgate As can be seen from the above table the Satimola Project has by far the largest KCl tonnes of JORC resources and its implied cost per KCl tonne is one of the lowest. As the new Satimola acquisition costs (approximately A$110.6 million Section 8.3 Note 2 above) the cost per tonne is still very competitive with the above peer group costs. We have computed the Implied Value/KCI Tonne based on the new acquisition cost of $110.6 million as $0.14. Our assessment of fairness also ignores the 120 million shares issued to Celaric in respect of Chelkar as these are currently held in escrow and are non-voting. KPC announced on 31 July 2014 that exploration drilling at Chelkar continued during the June quarter and that KPC has engaged a competent person to travel to site and prepare a competent person s sign-off. On the assumption that all of the shares currently held in escrow are issued to Celaric and become voting shares, Goldquest s voting entitlement would be reduced from 23.85% to 20.66%. Should shareholders not approve the Proposed Transaction then KPC will either be forced to abandon its plans to complete the acquisition of Satimola or it will need to renegotiate the Consulting Services Agreement for Goldquest/CWH to accept cash instead of shares. If the latter alternative was adopted, KPC would need to raise the required cash through the issue of shares and we consider that a share issue in these circumstances would require a significant discount to the current share price. 28

58 If the Proposed Transaction is not approved then shareholders should be aware that the $18.25 million of loan funds that have already been advanced to Satimola may not be recovered. We have been advised that the first advances totalling approximately US$14.25 million will be converted into shares in Satimola (in this case KPC would be a locked in minority shareholder) and the remaining US$4 million would become repayable, however Satimola does not presently have the monies to repay this loan. If Resolution 3 is not approved then the Satimola acquisition could only be completed if the acquisition agreement completion date was extended and if another financier was prepared to lend KPC US$75 million. We consider that this is highly unlikely given the current stage of development of KPC s potash projects and the high level of further capital commitments that will be required to bring one project into production. Any delay in approving the Proposed Transaction or in delivering an acceptable level of remuneration to Goldquest/CWH and CAR Fund may jeopardise the ability of KPC to complete the acquisition of Satimola. The acquisition of Satimola may divert management s attention from the development of the Zhilyanskoye and Chelkar potash projects. The Proposed Transaction will severly dilute the Non-Associated shareholder interests from 77.55% to 61.74% - Tables 1 and 2 above. These holdings are likely to be further diluted as additional capital is raised to fund additional drilling programs, commission pre-feasibility and bankable feasibility studies and finally to commence production. Having considered the above advantages and disadvantages of the Proposed Transaction, we consider the Proposed Transaction is reasonable. Our principal reasons for this conclusion are: i) KPC has negotiated to acquire Satimola at a reduced price on an arms length basis, which will give KPC the ownership of a major potash resource at a relatively low cost per tonne ($0.14) of contained resource; ii) iii) iv) unless shareholders approve the Proposed Transaction, KPC will not be able to complete the acquisition of Satimola and fund it within the specified time lines; approval of the Proposed Transaction will enable KPC to complete the Satimola acquisition and then raise additional capital to fund drilling, evaluation and the development of the 3 potash projects; and if the Proposed Transaction is not approved then shareholders should be aware that it may be extremely difficult to recover the US$18.25 million of loan funds that have already been advanced to Satimola. 11. Conclusion as to Fairness and Reasonableness After reviewing the results of our assessment of the fairness of the Proposed Transaction set out in Section 9 and after considering the other considerations set out in Section 10, we consider that the Proposed Transaction is not fair but is reasonable. 12. Related Party Financial Benefits 12.1 Madam Cheung is presently the Managing Director and Chairperson of KPC and for the purposes of Chapter 2E, she is therefore deemed to be a related party to KPC. Madam Cheung controls CWH and CAR Fund so these entities are deemed to be related parties to KPC. Goldquest may also be deemed to be a related party of KPC as a result of its direction to KPC to issue 25 million of the Goldquest consideration shares to CWH. 29

59 We have valued the financial benefits paid to the various parties using the mid point of the share prices in Table 19 above which have been determined after the Proposed Transaction Based on the above, we consider that the financial benefits are valued at: 12.3 (a) The issuance of 75,000,000 KPC shares to Goldquest as part of Resolutions 1 and 2 is a control transaction so we have valued the benefit at $0.15 per share, which equates to a financial benefit of $11,250,000; (b) (c) The issuance of 25,000,000 KPC shares to CWH as part of Resolution 2 is not a control transaction so we have valued the benefit at $0.11 per share, which equates to a financial benefit of $2,750,000; and The issuance of 100,000,000 KPC shares to CAR Fund as Resolution 3 is not a control transaction so we have valued the benefit at $0.11 per share, which equates to a financial benefit of $11,000, Financial Services Guide 13.1 Financial Services Guide This Financial Services Guide provides information to assist retail and wholesale investors in making a decision as to their use of the general financial product advice included in the above report DMR Corporate DMR Corporate holds Australian Financial Services Licence No , authorizing it to provide general financial product advice in respect of securities to retail and wholesale investors Financial Services Offered by DMR Corporate DMR Corporate prepares reports commissioned by a company or other entity ( Entity ). The reports prepared by DMR Corporate are provided by the Entity to its members. All reports prepared by DMR Corporate include a description of the circumstances of the engagement and of DMR Corporate s independence of the Entity commissioning the report and other parties to the transactions. DMR Corporate does not accept instructions from retail investors. DMR Corporate provides no financial services directly to retail investors and receives no remuneration from retail investors for financial services. DMR Corporate does not provide any personal retail financial product advice directly to retail investors nor does it provide market-related advice to retail investors General Financial Product Advice In the reports, DMR Corporate provides general financial product advice. This advice does not take into account the personal objectives, financial situation or needs of individual retail investors. Investors should consider the appropriateness of a report having regard to their own objectives, financial situation and needs before acting on the advice in a report. Where the advice relates to the acquisition or possible acquisition of a financial product, an investor should also obtain a product disclosure statement relating to the financial product and consider that statement before making any decision about whether to acquire the financial product Independence At the date of this report, none of DMR Corporate, Derek M Ryan nor Mr Paul Lom has any interest in the outcome of the Proposed Transaction, nor any relationship with CMBC, KPC, Satimola, Goldquest, CWH or their associates. 30

60 Drafts of this report were provided to and discussed with the directors of KPC and its advisers. Certain changes were made to factual statements in this report as a result of the reviews of the draft reports. There were no alterations to the methodology, valuations or conclusions that have been formed by DMR Corporate. DMR Corporate and its related entities do not have any shareholdings in or other relationships with KPC, Satimola, CAR Fund, CWH or Goldquest that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposed Transaction. DMR Corporate had no part in the formulation of the Proposed Transaction. Its only role has been the preparation of this report. DMR Corporate considers itself to be independent in terms of Regulatory Guide 112 issued by ASIC on 30 March Remuneration DMR Corporate is entitled to receive a fee of approximately $30,000 for the preparation of this report. With the exception of the above, DMR Corporate will not receive any other benefits, whether directly or indirectly, for or in connection with the making of this report Complaints Process As the holder of an Australian Financial Services Licence, DMR Corporate is required to have suitable compensation arrangements in place. In order to satisfy this requirement DMR Corporate holds a professional indemnity insurance policy that is compliant with the requirements of Section 912B of the Act. DMR Corporate is also required to have a system for handling complaints from persons to whom DMR Corporate provides financial services. All complaints must be in writing and sent to DMR Corporate at the above address. DMR Corporate will make every effort to resolve a complaint within 30 days of receiving the complaint. If the complaint has not been satisfactorily dealt with, the complaint can be referred to the Financial Ombudsman Service Limited GPO Box 3, Melbourne Vic Yours faithfully, DMR Corporate Pty Ltd Paul Lom Director Derek Ryan Director 31

61 Facility Summary of CMBC Funding Facility Appendix A The CMBC Facility was negotiated by Madam Cheung through CAR Fund. CAR Fund is acting as the borrower under the financing facility and Madam Cheung has agreed to personally guarantee repayment of the financing facility. The financing facility is as follows: (1) CAR Fund is the borrower under the financing facility. (2) Under the financing facility, CAR Fund may draw down: up to USD 70 million to fund the acquisition of the Satimola Project (KPC Loan) and certain costs associated with that acquisition; and up to USD 15 million to fund a working capital loan to Satbor (Opco Working Capital Loan). Satbor is a limited liability partnership established in Kazakhstan and, as mentioned above, wholly-owned by Satimola; and the limit of the financing facility is USD 75 million and is repayable within 12 months of first draw down. (3) The funds drawn down will be loaned to KPC, or one of its wholly owned subsidiaries, to fund the Satimola acquisition and certain transaction costs. KPC will have to guarantee and secure the loan funds it receives. (4) Accordingly, funds drawn-down by CAR Fund under the financing facility in connection with the Satimola acquisition will either be on-lent to KPC to fund the Satimola acquisition or on-lent to Satbor to fund working capital. (5) Interest and other costs payable by CAR Fund in connection with the KPC Loan and Opco Working Capital Loan will be passed through and effectively borne by KPC or its subsidiary entities. No additional margin will be made by CAR Fund on the KPC Loan or the Opco Working Capital Loan. Security: The financing facility made available by CMBC to CAR Fund is secured as follows: 1. a corporate guarantee by KPC in favour of CMBC; 2. a personal guarantee by Madam Cheung and Mr Xiaokang Lyu, also a director of KPC in favour of CMBC. The obligations of those 2 personal guarantees may also be guaranteed under the corporate guarantee referred to above; 3. a debenture charge by CAR Fund in favour of CMBC over all its assets and undertaking including assignment by way of security of CAR Fund s rights under the security referred to in paragraph 8 below and the KPC Loan and Opco Working Capital Loan; 4. an equitable mortgage by Century Leader Enterprises Inc, the immediate parent entity of CAR Fund, in favour of CMBC over all its shares in CAR Fund; 5. share or equitable mortgages by KPC and its subsidiaries in favour of CMBC over all its shares in its subsidiaries holding the Satimola shares; 6. a participation interests pledge by Satimola in favour of CMBC over all its interests in Satbor; 7. certain charges over CAR Fund s interest reserve bank account established for the purposes of the Financing Facility with CMBC; 8. In addition to the security in paragraphs 1 to 7 above, the Opco Working Capital Loan is secured by a mortgage of Satbor s subsoil use rights relating to the Satimola potash deposit in favour of CAR Fund which under paragraph 3 above is assigned by way of security to CMBC; and 9. The securities and other documents referred to in the above paragraphs (1) and (8) above are referred to as the CMBC Security Arrangements in the Notice of Meeting and the Explanatory Statement. Those securities and other documents are generally on terms which are usual in financing transactions of this kind. 32

62 Appendix B Kazakhstan Potash Corporation Limited Sources of Information The following sources of information have been utilised and relied upon in the course of preparing this report. Draft Chairperson s letter, Notice of General Meeting and the Explanatory Statement which this report accompanies Reviewed financial statements of KPC for the 6 months period ended 30 June 2015 Audited Annual accounts for the 12 month period ended 31 December 2014 KPC s announcements to the ASX since 1 January 2015 Execution version of the Sale and Purchase Agreement between KPC and Satimola s shareholders Consulting Services Contract between KPC and Goldquest KPC s share register as at 30 November 2015 Ravensgate Technical Project Review Update dated 9 December 2015 Discussions with Mr. Marco Marcou (KPC Executive Director) and the KPC lawyers. 33

63 Appendix B Declarations, Qualifications and Consents 1. Declarations This report has been prepared at the request of the directors of KPC pursuant to Section 611 and Chapter 2E of the Act and ASX Listing Rules 10.1 and to accompany the notice of meeting of shareholders to approve the Proposed Transaction. It is not intended that this report should serve any purpose other than as an expression of our opinion as to whether or not the Proposed Transaction is fair and reasonable. This report has also been prepared in accordance with RG 111 Content of Expert s Reports and RG 112 Independence of Experts together with the Accounting Professional and Ethical Standards Board professional standard APES 225 Valuation Services. The procedures that we performed and the enquiries that we made in the course of the preparation of this report do not include verification work nor constitute an audit in accordance with Australian Auditing Standards. Ravensgate is to be paid a fee of approximately $600 plus GST for the preparation of its specialist technical update report dated 9 December Ravensgate has consented to the inclusion of statements made by it, or based on statements made by it, or statements or information extracted or derived from its update report. 2. Qualifications Mr Derek M Ryan and Mr Paul Lom, directors of DMR Corporate, prepared this report. They have been responsible for the preparation of many expert reports and are involved in the provision of advice in respect of valuations, takeovers and capital reconstructions and reporting on all aspects thereof. Mr Ryan has had over 40 years experience in the accounting profession and he is a Fellow of the Institute of Chartered Accountants in Australia and an Accredited Business Valuation Specialist. He has been responsible for the preparation of many expert reports and is involved in the provision of advice in respect of valuations, takeovers and capital reconstructions and reporting on all aspects thereof. Mr Lom is a Fellow of the Institute of Chartered Accountants in Australia and an Accredited Business Valuation Specialist with more than 35 years experience in the accounting profession. He was a partner of KPMG and Touche Ross between 1989 and 1996, specialising in audit. He has extensive experience in business acquisitions, business valuations and privatisations in Australia and Europe. 3. Consent DMR Corporate consents to the inclusion of this report in the form and context in which it is included in the Explanatory Statement 34

64 Kazakhstan Potash Corporation Limited PROXY FORM FOR 2016 GENERAL MEETING I/We of am/are a member(s) of Kazakhstan Potash Corporation Limited ACN and I/we appoint as my/our proxy: of or, if no person is named above or is absent, the Chairperson of the General Meeting of the Company, as my/our proxy to vote for me/us on my/our behalf at the General Meeting of the Company to be held at the offices of Norton Rose Fulbright Australia, Level 15, RACV Tower, 485 Bourke Street, Melbourne, Victoria on 3 February, 2016 at am (Melbourne time) and at any adjournment of that Meeting. Important Notes: If you appoint a proxy, we encourage you to direct your proxy how to vote on each Resolution. The Chairperson of the General Meeting intends to vote all undirected proxies in favour of each Resolution, unless otherwise required by law. Note: If appointing a second proxy please state the number of Shares or the percentage of voting rights applicable to this Proxy Form. Number of shares OR % I/We direct my/our proxy to vote in respect of the Resolutions to be considered as indicated with an "X" below, and to vote or abstain in respect of any procedural resolution as my/our proxy thinks fit. Resolution 1 Resolution 2 Resolution 3 Approval of issue of Shares to Goldquest Australian takeover approval Approval of issue of Shares to Goldquest and CWH Related party transaction approval Approval of giving of financial benefits For Against Abstain* Resolution 4 Approval of issue of up to 200 million Equity Securities If no direction is given above, I/we authorise my/our proxy to vote or abstain as my/our proxy thinks fit in respect of the Resolution to be considered by the General Meeting and any adjournment of the Meeting (subject to the restrictions set out above or otherwise imposed by law). Page 1

65 *If you mark the Abstain box for a particular Resolution, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll. Individual or Shareholder 1 Shareholder 2 Shareholder 3 Sole Director and Sole Company Secretary Date: Director Director/Company Secretary This form should be signed by the Shareholder. If a joint holding, any of the joint Shareholders may sign. If signed by the Shareholder s attorney, the power of attorney must have been previously lodged with the Company or a certified copy attached to this Proxy Form. If executed by a company, the Proxy Form must be executed in accordance with the Company s constitution and the Corporations Act Page 2

66 Appointment of proxy PROXY INSTRUCTIONS A member entitled to attend and vote at the Meeting can appoint a proxy to attend and vote at the Meeting on their behalf. A proxy need not be a Shareholder. Where a member is entitled to cast 2 or more votes, the member may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. If a member appoints 2 proxies and the appointment does not specify the proportion or number of the member s votes each proxy may exercise, each proxy may exercise half of the votes (disregarding fractions). For an appointment of a proxy to be effective, an instrument of appointment of a proxy (and any power of attorney or other authority under which it is signed or a certified copy of that power or authority) must be received by the Company, by hand delivery, postage or facsimile using the details set out below, not less than 48 hours prior to the Meeting. That is, by am (Melbourne time) on 1 February, Address: The Company Secretary Kazakhstan Potash Corporation Limited Level 27, 101 Collins Street Melbourne VIC 3000 Facsimile: +61 (0) If you require a second Proxy Form, please contact the Company on +61 (0) Signature(s) You must sign this form in the spaces provided as follows: Individual Holding: The Shareholder must sign in the box. Joint Holding: If Shares are held in joint names, any of the joint Shareholders may sign in the box. Attorney: If you are signing this form as an Attorney, the Power of Attorney must have already been lodged with the Company or, alternatively, a certified copy of it must accompany this Proxy Form. Companies: Only duly authorised officer(s) can sign this form on behalf of a company. Please sign in the boxes provided which state the office held by the signatory, i.e. Director and Director, or Company Secretary and Director, or sole Director and sole Company Secretary