THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or what action you should take you should consult a person authorised under the Financial Services and Markets Act 2000, as amended ( FSMA ) who specialises in advising on the acquisition of shares and other securities. This document, which is an AIM admission document drawn up in accordance with the AIM Rules for Companies published by the London Stock Exchange plc, has been issued in connection with the application for Re-Admission. This document does not constitute a prospectus for the purposes of the Prospectus Rules published by the Financial Services Authority ( FSA ) (as amended) and has not been prepared in accordance with the Prospectus Rules, and has not been approved by or filed with the FSA. There is no requirement for this document to be approved by the Australian Securities and Investments Commission or any other governmental or regulatory authority in Australia. This document is not a prospectus under Chapter 6D of the Corporations Act 2001 (Cth) ( Australian Corporations Act ). The Directors, whose names appear on page 4 of this document, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and contains no omission likely to affect its import. In connection with this document and the Second Round Placing, no person is authorised to give any information or make any representations other than as contained in this document and, if given or made, such information or representation must not be relied upon as having been so authorised. The delivery of this document or any subscriptions or purchases made hereunder and at any time subsequent to the date of this document shall not, under any circumstances, create an impression that there has been no change in the affairs of the Company since the date of this document. Application will be made, conditional upon Resolutions 3 and 4 in the Notice of AGM being passed, for the entire issued share capital of the Company to be re-admitted to trading on AIM. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the official list of the FSA ( Official List ). A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to have a nominated adviser. The nominated adviser is required to make a declaration to London Stock Exchange plc on re-admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The rules of AIM are less demanding than those of the Official List and furthermore the London Stock Exchange plc has not itself examined or approved this document. It is emphasised that no application will be made for admission of the Ordinary Shares to the Official List. The whole of this document should be read in full. The attention of prospective investors is drawn, in particular, to the section headed Risk Factors which is set out in Part 2 of this document. All statements regarding the Company s business should be viewed in light of these factors. Creat Resources Holdings Limited (Incorporated in Australia with registered number ACN 089 093 943) www.creatresources.com Re-Admission to trading on AIM Proposed acquisition of approximately 15.39% interest in Galaxy Resources Limited, Placing of up to 283,333,333 Placing Shares at 6 pence per share Nominated Adviser Grant Thornton Corporate Finance Broker Westhouse Securities Limited The Placing Shares will, following allotment and conditional upon Resolutions 3 and 4 in the Notice of AGM being passed, rank pari passu in all respects with the Existing Ordinary Shares including the right to receive all dividends and other distributions hereinafter declared made or paid on the Ordinary Shares. The contents of this document are not to be construed as legal, financial, or tax advice. Each prospective investor should consult his, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice. Prospective investors must inform themselves as to: (a) the legal requirements within their own countries for the purchase, holding, transfer or other disposal of Ordinary Shares; (b) any foreign exchange restriction applicable to the purchase, holding or transfer or other disposal of Ordinary Shares which they might encounter; and (c) the income and other tax consequences which may apply in their own countries as a result of the purchase, holding or transfer or other disposal of Ordinary Shares. Prospective investors must rely upon their own representatives, including their own legal advisers and accountants, as to legal, tax, investment or any other related matters concerning the Company and an investment therein. Statements made in this document are based on the Company s understanding of law and practice currently in force in England and Wales and Australia and may be subject to change. All holders of Ordinary Shares are entitled to the benefit of, and are bound by and are deemed to have notice of, the provisions of the Articles of the Company. The distribution of this document outside the UK may be restricted by law. No action has been taken by the Company, the holders of the Existing Ordinary Shares, Grant Thornton Corporate Finance or Westhouse Securities Limited that would permit a public offer of Ordinary Shares or possession or distribution of this document where action for those purposes is required. Persons outside the UK who come into possession of this document should inform themselves about and observe any restrictions on the placing of Ordinary Shares and/or the distribution of this document in their particular jurisdiction. Failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdiction. This document does not constitute, and may not be used for the purposes of, an offer for, or the solicitation of any offer to subscribe for or buy any Ordinary Shares to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation in such jurisdiction. In particular this document should not be distributed, published, reproduced or otherwise made available in whole or in part (directly or indirectly) in or into the United States of America, Canada, Australia, Japan or South Africa or any other country outside the United Kingdom where such distribution may lead to a breach of any law or regulatory requirements save pursuant to an exemption from the registration or prospectus or other regulatory requirements of any such jurisdiction. Accordingly, subject to certain exceptions, the Ordinary Shares may not be offered or sold directly or indirectly in or into the United States of America, Canada, Australia, Japan or South Africa or to or for the account or benefit of any national, resident or citizen of the United States of America,
Canada, Australia, Japan or South Africa. The Ordinary Shares have not been and will not be registered under the United States Securities Act of 1933 (as amended) or under the securities legislation of any state of the United States of America, Canada, Japan or South Africa and they may not be offered or sold except pursuant to an available exemption from, or in a transaction not subject to the registration requirements of the US Securities Act and applicable US state securities laws. The offer in this document is not being made, directly or indirectly, to any person in Australia other than to persons to whom it is lawful for the offer of Placing Shares to be made without disclosure under one or more of the exemptions set out in section 708 of the Australian Corporations Act ( Exempt Person ). This document or any other material in connection with the offer or sale, or invitation for subscription or purchase, of Placing Shares may not be circulated or distributed, nor may Placing Shares be offered or sold, or made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Australia other than an Exempt Person. Neither Grant Thornton Corporate Finance nor Westhouse Securities Limited has approved this document for the purposes of FSMA. This document is only for distribution in the United Kingdom to: (i) investment professionals within the meaning of paragraph (5) of Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529), as amended (the Order ); or (ii) high net worth companies, unincorporated associations or other bodies falling within the meaning of paragraph (2)(a) to (d) of Article 49 of the Order; or, (iii) persons to whom it may otherwise lawfully be distributed (all such persons together being referred to as relevant persons ). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only in the United Kingdom to relevant persons, and will be engaged in only with such persons. By receiving this document and not returning it immediately, you are deemed to represent and warrant to the Company, Grant Thornton Corporate Finance and Westhouse Securities Limited that you fall within the categories of persons described above. Outside the United Kingdom, this document is only being sent to persons reasonably believed by the Company to be investment professionals or to persons to whom it is otherwise lawful to distribute it to. This document is being supplied to you solely for your information and may not be reproduced, further distributed or published in whole or in part by any other person. Persons outside the United Kingdom into whose possession this document comes are required by the Company, Grant Thornton Corporate Finance and Westhouse Securities Limited to inform themselves about and to observe any restrictions as to the offer or sale of Ordinary Shares and the distribution of this document under the laws and regulations of any territory in connection with any application for Ordinary Shares, including obtaining any requisite governmental or other consent and observing any other formality prescribed in such territory. No action has been taken or will be taken in any jurisdiction by the Company, Grant Thornton Corporate Finance or Westhouse Securities Limited that would permit a public offering of the Ordinary Shares in any jurisdiction where action for that purpose is required, nor has any such action been taken with respect to the possession or distribution of this document other than in any jurisdiction where actions for that purpose are required. As the Placing Shares will be offered to fewer than 100 persons (other than qualified investors within the meaning of Section 86(7) of FSMA) per member state of the European Economic Area, the Second Round Placing will be an exempt offer of securities to the public for the purposes of Section 86 of FSMA. Accordingly, this document is not a prospectus and does not require the approval of the FSA or any other relevant authority in any other member state of the European Economic Area ( EEA ). Any person making or intending to make any offer within the EEA of Ordinary Shares which are the subject of the Second Round Placing contemplated in this document should only do so in circumstances in which no obligation arises for the Company, Grant Thornton Corporate Finance or Westhouse Securities Limited to produce a prospectus for such offer. None of the Company, Grant Thornton Corporate Finance or Westhouse Securities Limited has authorised, nor do they authorise the making of any offer of Ordinary Shares through any financial intermediary, other than offers made by a financial intermediary with the consent of Westhouse Securities Limited and other than offers made by Westhouse Securities Limited which constitute the final placement of Ordinary Shares in this document. Certain risks to the Company of which the Directors are currently aware are specifically described in Part 2 of this document entitled Risk Factors. If one or more of these risks or uncertainties arises, or if underlying assumptions prove incorrect, the Company s actual results may vary materially from those expected, estimated or projected. Given these uncertainties, potential prospective investors should not place over-reliance on forward-looking statements and are advised to read, in particular, Part 2 of this document for a more complete discussion of the factors that could affect the Company s future performance and the industry in which the Company operates. Other than in compliance with the Company s obligations under the AIM Rules for Companies, the Company undertakes no obligation to update forward-looking statements or risk factors other than as required by applicable law, whether as a result of new information, future events or otherwise. Grant Thornton Corporate Finance, a division of Grant Thornton UK LLP, which is authorised and regulated in the UK by the FSA is acting as the Company s nominated adviser and Westhouse Securities Limited is acting as broker in connection with the Further Galaxy Subscription, the Second Round Placing and Re-Admission. The responsibilities of Grant Thornton Corporate Finance as the Company s nominated adviser under the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not owed to the Company or to any Director, or to any other person in respect of his, her or their decision to acquire or subscribe for Ordinary Shares in reliance on any part of this document. No liability whatsoever is accepted by Grant Thornton Corporate Finance or Westhouse Securities Limited for the accuracy of any information or opinions contained in this document or for the omission of any material information from this document for which the Company and the Directors are solely responsible. Grant Thornton Corporate Finance and Westhouse Securities Limited will not be offering advice and will not otherwise be responsible for providing customer protections to any person other than the Company in relation to the contents of this document. Copies of this document will be available free of charge during normal business hours on any weekday (except Saturdays and public holidays) at the offices of Norton Rose LLP, 3 More London Riverside, London SE1 2AQ from the date of this document and shall remain available for a period of one month from Re-Admission. This document includes statements that are, or may be deemed to be, forward-looking statements. These statements relate to, among other things, analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to the Company s future prospects, developments and business strategies. These forward-looking statements are identified by their use of forward-looking terminology such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will or the negative of those variations, or comparable expressions, including reference to assumptions, or by discussions of strategy, plans, aims, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. These statements are contained in a number of places throughout this document and include statements concerning projections of the Company s future results, operating profits and earnings, financial condition, liquidity, prospects growth strategies and the industry in which the Company operates, are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company s actual results of operations, financial condition and liquidity, and the development of the business sector in which the Company operates, may differ materially from those suggested by the forward-looking statements contained in this document. In addition, even if the Company s results of operations, financial condition and liquidity, and the development of the business sector in which the Company operates, are consistent with the forward-looking statements contained in this document, those results or development may not be indicative of results or developments in subsequent periods. 2
CONTENTS Page DIRECTORS AND ADVISERS 4 DEFINITIONS 5 GLOSSARY OF TECHNICAL TERMS 11 SECOND ROUND PLACING AND RE-ADMISSION STATISTICS 13 EXPECTED TIMETABLE OF PRINCIPAL EVENTS 13 EXCHANGE RATE 13 PART 1: LETTER FROM THE CHAIRMAN 1. Introduction 14 2. Background to and reasons for the Further Galaxy Subscription 14 3. Details of the Galaxy Subscription and the Nomination Letter 15 4. Funding of the Further Galaxy Subscription 15 5. Galaxy Project Finance Facility 16 6. Principal terms of the Further Galaxy Subscription 17 7. Details of the Placings 18 8. Completion of the Galaxy Subscription and the Second Round Placing 19 9. Details of the Company 19 10. Details of Galaxy Resources Limited 21 11. Details of Creat Group 22 12. Existing Directors and Senior Management 23 13. Current trading, future prospects and significant trends 24 14. Re-Admission to AIM and dealings in Ordinary Shares 24 15. Dividend policy 24 16. Lock-in and Orderly Market Arrangements 24 17. Corporate governance 25 18. CREST 26 19. The Takeover Code 26 20. Taxation 26 21. Further information 27 22. Notice of AGM 27 23. Recommendation 27 PART 2: RISK FACTORS 28 PART 3: FINANCIAL INFORMATION 39 PART 4: EXPERTS REPORTS 40 1. Anderson & Schwab Report 43 2. Creat Resources Summary Report 99 3. Galaxy Summary Report 137 4. Extract from Coffey Mining Valuation Report 185 PART 5: ADDITIONAL INFORMATION 191 3
DIRECTORS AND ADVISERS Directors: all of: Company Secretary Dr Yuewen Zheng (Chairman and Non-executive Director) Mr Xiaojian Ren (Managing Director and Acting Chief Executive Officer) Mr Tad Mackay Ballantyne (Deputy Chairman and Non-executive Director) Mr Stephen Michael Powell (Non-executive Director) Mr Phillip Bradley Simpson (Non-executive Director) Registered Office Level 2 116 Bathurst Street Hobart Tasmania 7000 Australia Telephone number: +61 3 6216 2700 Ms Yasmine Healy Nominated Adviser Grant Thornton Corporate Finance 30 Finsbury Square London EC2P 2YU United Kingdom UK Solicitors to the Company Norton Rose LLP 3 More London Riverside London SE1 2AQ United Kingdom PRC lawyers to the Company Han Yi Law Office Suite 4103, II Grand Gateway Hongqiao Road Shanghai 200030 China Auditors and Reporting Accountants to the Company Deloitte Touche Tohmatsu Level 9, ANZ Centre 22 Elizabeth Street Hobart, Tasmania 7000 Australia Independent Mining Expert Coffey Mining Pty Ltd 1162 Hay Street West Perth, WA 6005 Australia Registrar Computershare Investor Services Pty Limited (Australia) 452 Johnston Street Abbotsford Victoria 3067 Australia Broker Westhouse Securities Limited One Angel Court London EC2R 7HJ United Kingdom Australian Solicitors to the Company Corrs Chambers Westgarth Woodside Plaza 240 St George s Terrace Perth, WA 6000 Australia Solicitors to the Nominated Adviser and Broker Bingham McCutchen LLP Suites 4903-4904 One Exchange Square 8 Connaught Place Central, Hong Kong Independent Expert to the Company Deloitte Corporate Finance Pty Limited Woodside Plaza Level 4 240 St Georges Terrace Perth, WA 6000 Australia Financial Public Relations First City PR 8th Floor 131 Finsbury Pavement London EC2A 1NT United Kingdom Depositary Computershare Investor Services plc PO Box 82 The Pavillions Bridgwater Road Bristol BS99 7NH United Kingdom 4
DEFINITIONS The following definitions apply throughout this document, unless the context applies otherwise: ACN Act or Corporations Act Admission AGM or Meeting of Shareholders AIM AIM Rules for Companies AIM Rules for Nominated Advisers Anderson & Schwab Report Australian dollar, A$ or $ ASIC ASX Board or Directors Borrowers Coffey Mining Australian Company Number the Corporations Act 2001 (Cth) (as amended), an act of the Commonwealth of Australia the admission of Ordinary Shares to trading on AIM on 6 March 2007 the meeting of Shareholders to be held in the Wellington Room at the Mercure Hobart Hotel, 156 Bathurst Street, Hobart, Tasmania 7000, Australia at 9.00am (local time) on 29 March 2010 AIM, the market of that name operated by the London Stock Exchange the rules for companies whose securities are traded on AIM, published by the London Stock Exchange (as amended) from time to time the rules of the London Stock Exchange which set out the eligibility, on-going obligations and certain disciplinary matters in relation to nominated advisers published by the London Stock Exchange (as amended) from time to time the report entitled Competent Person s Report and Independent Technical Valuation of the Mineral Assets of Zeehan Zinc Limited in Western Tasmania, Australia prepared by Anderson & Schwab Australia Limited dated 29 January 2007 and included in the Company s admission document dated 27 February 2007, contained in part 4 of this document the legal currency of the Commonwealth of Australia Australian Securities & Investments Commission, the regulatory body responsible for, among other things, administration and enforcement of the Corporations Act the Australian Securities Exchange, the market operated by ASX Limited together, the directors of the Company whose names are set out on page 5 of this document Galaxy Lithium Australia Limited (a wholly owned subsidiary of Galaxy) and Galaxy Lithium International Limited (an indirect subsidiary of Galaxy) Coffey Mining Pty Ltd, acting as independent mining expert to the Company or as independent mining expert to the Independent Expert, as the context requires Coffey Mining Valuation Report the independent technical valuation report dated 18 January 2010 prepared by Coffey Mining for the Independent Expert and included in its entirety as an annexure to the Notice of AGM Combined Code Company or Group the Principles of Good Governance and Code of Best Practice published in June 2006 by the Financial Reporting Council Creat Resources Holdings Limited (formerly known as Zeehan Zinc Limited), incorporated and registered in Tasmania, Australia with ACN 089 093 943, and, where the context requires, its subsidiaries 5
Computershare Constitution Convertible Loan Note Convertible Loan Subscriber Cornerstone Placing Cornerstone Subscribers Creat Group Creat Resources Summary Report CREST Computershare Investor Services Plc the constitution of the Company adopted on 6 October 2006 and amended on 23 November 2007, 14 November 2008 and 31 July 2009 the loan note which may be issued by the Company to the Convertible Loan Subscriber and which is convertible into Ordinary Shares in certain circumstances, such loan note issue being made only if necessary in order to fund any shortfall in the amount raised by way of the Second Round Placing Create Group (HK) Limited, a company incorporated in Hong Kong with number 0517100 the placing of 114,000,000 Ordinary Shares to the Cornerstone Subscribers at a price of 0.05 per Ordinary Share on 14 December 2009 the three investors that subscribed for 114,000,000 Ordinary Shares pursuant to the Cornerstone Placing Creat Group Co. Ltd., a private investment company incorporated and in Nanchang City, Jiangxi Province, the PRC whose registered office is at 125, East Beijing Road, Nanchang City, Jiangxi, the PRC the summary report dated 19 January 2010 based on publicly available information and prepared by Coffey Mining on certain licences and agreements being all the material assets of the Company, contained in part 4 of this document the electronic, paperless transfer and settlement mechanism to facilitate the transfer of title to shares in uncertificated form, operated by Euroclear UK & Ireland CREST Regulations the Uncertificated Securities Regulations 2001 (as amended) including (i) any enactment or subordinate legislation which amends or supersedes those regulations and (ii) any applicable rules made under those regulations or any such enactment or subordinate legislation for the time being in force Depositary DI or Depositary Interest DTR DTAE Enlarged Share Capital Computershare acting in its capacity as depositary pursuant to the terms of the Depositary Agreement a depositary interest issued by the Depositary each representing one ordinary share in uncertificated form the Disclosure and Transparency Rules issued by the FSA Department of Tourism, Arts and Environment (of Tasmania) (the Environment division which was part of the Department of Primary Industry, Water and Environment prior to 5 April 2006) the Existing Ordinary Shares and the Placing Shares Equity Put Option the conditional put option granted by Creat Group to the Cornerstone Subscribers pursuant to which the Cornerstone Subscribers are entitled to sell the Ordinary Shares acquired under the Cornerstone Placing to Creat Group in certain circumstances Euroclear UK & Ireland Existing Ordinary Shares Euroclear UK & Ireland (formerly known as CRESTCo Limited) the 567,276,674 Ordinary Shares in issue at the date of this document 6
Exploration Licence or EL or Licence Facility Put Option Financier FSA FSMA Further Galaxy Subscription Further Galaxy Shares an exploration licence granted under the MRD Act, which provides the holder with the ability to undertake exploration of minerals in Tasmania the put option agreement appended to the Nomination Letter which it is proposed be entered into between the Company and the New Lending Banks, the Security Trustee and the Agent as described in paragraph 5 of Part 1 of this document the New Lending Banks, any substitute lender, the Security Trustee and the Agent the Financial Services Authority of the United Kingdom the Financial Services and Markets Act 2000, of the United Kingdom (as amended) the subscription by the Company for the Further Galaxy Shares such number of ordinary shares in Galaxy to be subscribed for by the Company which is equal to the lower of (a) the number which, together with the Initial Galaxy Shares, represents 19.99 per cent. of Galaxy s enlarged issued share capital on the date of the Further Galaxy Subscription and (b) 31,000,000 shares Galaxy Galaxy Resources Limited, incorporated and registered in Australia with ACN 11 071 976 442 and, where the context requires, its subsidiaries Galaxy Group Galaxy Shares Galaxy Subscription Agreement Galaxy and its subsidiaries, from time to time the Initial Galaxy Shares and the Further Galaxy Shares the agreement entered into between Galaxy and Creat Group on 21 August 2009 relating to the subscription by Creat Group or its nominee for the Galaxy Shares Galaxy Subscription the Initial Galaxy Subscription and the Further Galaxy Subscription Galaxy Summary Report Grant Thornton Corporate Finance or Nominated Adviser GST Independent Directors Independent Expert Independent Expert s Report the summary report dated 20 January 2010 based on publicly available information and prepared by Coffey Mining on certain licences and agreements being all the material assets of Galaxy, contained in part 4 of this Document the corporate finance division of Grant Thornton UK LLP which is authorised by the FSA to carry on investment business, acting as nominated adviser to the Company a goods and services tax levied pursuant to the GST Act, being A New Tax System (Goods and Services Tax) Act 1999 (Cth) of Australia (as amended) collectively, Tad Ballantyne, Stephen Powell and Phillip Simpson Deloitte Corporate Finance Pty Limited, acting as independent expert to the Company for the preparation of the Independent Expert s Report the report dated 5 February 2010 prepared by the Independent Expert to consider the Equity Put Option and issues under s.611 item 7 of the Act, such report which is included in its entirety as an annexure to the Notice of AGM Initial Galaxy Shares the 6,818,182 shares in Galaxy purchased by the Company on 15 December 2009 Initial Galaxy Subscription the subscription by the Company for the Initial Galaxy Shares 7
Jiangsu Project the proposed lithium carbonate plant to be operated by Galaxy and to be located in the Yangtze River International Chemical Industrial Park of the Zhangjiagang Free Trade Zone in the province of Jiangsu, PRC JORC the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (2004) Latest Practicable Date 8 February 2010 London Stock Exchange Long Stop Date 23 April 2010 Mining Lease or ML MRD Act Mt Cattlin Project MRT London Stock Exchange plc mining lease granted pursuant to the MRD Act. An ML provides the holder with the right to mine for minerals (as defined by the lease) Mineral Resources Development Act 1995 (Tas) (as amended), the Tasmanian law under which the mining industry in the State of Tasmania is controlled and regulated the Mt Cattlin lithium tantalum exploration and mining project owned by Galaxy and located approximately 2km north of the town of Ravensthorpe in Western Australia Mineral Resources Tasmania, a division of the Department of Infrastructure, Energy and Resources (of the state government of Tasmania) Nomination Letter the letter agreement dated 10 February 2010 between the Company, Creat Group and Galaxy confirming the nomination of the Company under the Galaxy Subscription Agreement to subscribe for the Initial Galaxy Shares on 15 December 2009 and pursuant to which the Company is conditionally entitled to subscribe for the Further Galaxy Shares Notice of AGM New Lending Banks New Lending Banks Facility New Lending Banks Facility Agreement Obligors the notice of annual general meeting and explanatory statement of the Company dated 10 February 2010 together, China Development Bank Corporation and RZB Austria Finance (Hong Kong) Limited the facility provided to the Borrowers by the New Lending Banks pursuant to the New Lending Banks Facility Agreement the draft facility agreement appended to the Nomination Letter which it is proposed will be entered into between, inter alia Galaxy, the Borrowers and the New Lending Banks, as described in paragraph 5 of Part 1 of this document the Borrowers, Galaxy, each security provider, Galaxy Lithium (Jiangsu) Co. Ltd and any other person who is or agrees to become an obligor under the New Lending Banks Facility Agreement Oceania Tasmania Oceania Tasmania Pty Ltd., incorporated and registered in Australia with ACN 009 524 047, a wholly owned subsidiary of the Company Official List Ordinary Shares the Official List of the FSA ordinary shares of no par value in the capital of the Company 8
Original Debt Facility Agreement Permit Placing Agreement Placing Price Placing Shares PRC or China Proceeds of the Placing Prospectus Rules the agreement entered into between Creat Group and Galaxy Lithium Australia Limited on 3 September 2009, as described in paragraph 5 of part 1 of this document a permit issued by the local council (West Coast Council), after consideration of planning and environmental issues, allowing a company to develop and mine a specified quantity of ore the conditional agreement dated 10 February 2010 between the Company, the Directors, Creat Group, the Convertible Loan Subscriber, Westhouse and Grant Thornton Corporate Finance in relation to the Second Round Placing, a summary of the terms of which are set out in paragraph 10.3 of part 5 of this document 0.06 per Placing Share up to 283,333,333 new Ordinary Shares which are the subject of the Second Round Placing the People s Republic of China the gross proceeds of the Second Round Placing the FSA rules which set out the form, content and approval requirements for prospectuses QCA Guidelines the corporate governance guidelines for AIM companies published by the Quoted Company Alliance Re-Admission Resolutions Retention Licence Second Round Placing Security Trustee or Agent Shareholders Share Option Plan Share Mortgage Sterling or Takeovers Panel United Kingdom or UK US or USA the admission of the Enlarged Share Capital to trading on AIM and such admission becoming effective in accordance with the AIM Rules for Companies the resolutions of the Company to be proposed at the AGM a retention licence granted pursuant to the MRD Act, which allows the discoverer of a resource which is not yet economic or otherwise possible to develop now, to retain its interest pending a change in the circumstances the further fundraising of up to 17 million to be undertaken by the Company to institutional and other investors Bank of China Limited, Sydney branch the holders of Ordinary Shares the 2006 Share Option Plan Rules established by the Company, further details of which are set out in paragraph 4 of Part 5 of this document the equitable mortgage of shares appended to the Nomination Letter which is proposed will be granted by the Company in favour of the Security Trustee as described in paragraph 5 of Part 1 of this document the legal currency of the UK the Australian body established by the Australian Securities and Investment Commissions Act 2001 (Cth) with powers defined in the Corporations Act in relation to takeover bids affecting Australian companies the United Kingdom of Great Britain and Northern Ireland the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia 9
US Dollar or US$ Westhouse or Broker ZZ Administration ZZ Exploration the legal currency of the USA Westhouse Securities Limited, acting as broker to the Company Zeehan Zinc Administration Pty Ltd., incorporated and registered in Australia with ACN 123 112 372, a wholly-owned subsidiary of the Company ZZ Exploration Pty Ltd., incorporated and registered in Australia with ACN 092 488 214, a wholly-owned subsidiary of the Company 10
care and maintenance concentrate grade GLOSSARY OF TECHNICAL TERMS mining operations are temporarily shut down and related facilities are placed on standby mode at reduced costs mineral in which the valuable mineral fraction has been separated from the gangue (waste) or worthless material thereby upgrading the product the relative quantity or percentage of mineral or metal content gravity short term for the gravitational method of geophysical prospecting, which measures irregularities or variations in gravity attraction produced by differences in the densities of rock formations, locally and/or regionally gravity plant plant designed to separate and concentrate economically important minerals from non-economic minerals using gravity and crushing circuits Indicated Mineral Resource that part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence as defined by JORC Mineral Reserve proves the technical feasibility and economic viability of a Mineral Resource when all relevant modifying factors have been considered Mineralisation a concentration of valuable or potentially valuable minerals within a rock body Mineral Resource Measured Mineral Resource pre-concentrate Probable Ore Reserves Reserves an identified in-situ mineral occurrence from which valuable or useful minerals may be recovered is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence, where sampling from outcrops, trenches, pits, workings and drill holes are spaced closely enough to confirm geological grade and continuity mineral in which the valuable mineral fraction has not been fully separated from the gangue (waste) or worthless material but a product that has undergone preliminary upgrading the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource, including diluting materials and allowances for losses which may occur when the material is mined. Assessment studies such as metallurgical, economic, marketing, legal, environmental, social and governmental factors demonstrate at the time of reporting that extraction could be reasonably justified the economically mineable part of a Measured and/or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves under JORC 11
Resources t tenement tpa a concentration of material of intrinsic economic interest where there are reasonable prospects for eventual economic extraction. Mineral resources are subdivided in order of increasing geological confidence as Inferred, Indicated and Measured under JORC tonnes an exploration licence or a mining lease granted or deemed to have been granted under the MRD Act (including pending applications for same) tonnes per annum 12
SECOND ROUND PLACING AND RE-ADMISSION STATISTICS Placing Price 0.06 Number of Existing Ordinary Shares in issue 567,276,674 Maximum number of Placing Shares 283,333,333 Maximum number of Ordinary Shares on Re-Admission 850,610,007 Percentage of the Enlarged Share Capital represented by the Placing Shares (assuming the maximum number of Placing Shares are issued) 33.31 per cent. Maximum gross proceeds receivable by the Company pursuant to the Second Round Placing 17,000,000 Estimated maximum net proceeds of the Second Round Placing receivable by the Company pursuant to the Second Round Placing 15,118,600 EXPECTED TIMETABLE OF PRINCIPAL EVENTS Publication of this document 10 February 2010 Latest time and date for receipt of Forms of Proxy Annual General Meeting Re-Admission to trading on AIM effective and commencement of dealings in the Enlarged Share Capital 9.00am (EDST) on 27 March 2010 9.00am (EDST) on 29 March 2010 30 March 2010 CREST stock accounts credited (as applicable) on or about 30 March 2010 Definitive share certificates despatched (as applicable) Week commencing 5 April 2010 EXCHANGE RATE For the purposes of this document, the following exchange rate between A$ and Sterling should be assumed unless a specific rate is specified: 1.00 to A$1.8044 13
PART 1 LETTER FROM THE CHAIRMAN Creat Resources Holdings Limited (Incorporated and registered in Australia with registered number ACN 089 093 943) Directors: Dr Yuewen Zheng (Chairman and Non-executive Director) Mr Xiaojian Ren (Managing Director and Acting Chief Executive Officer) Mr Tad Mackay Ballantyne (Deputy Chairman and Non-executive Director) Mr Stephen Michael Powell (Non-executive Director) Mr Phillip Bradley Simpson (Non-executive Director) Dear Shareholder, Registered Office: Level 2 116 Bathurst Street Hobart Tasmania 7000 Australia 10 February 2010 Proposed acquisition of an interest in Galaxy Resources Limited, Placing of up to 283,333,333 Placing Shares at 6 pence per share and Re-Admission to trading on AIM 1. Introduction I am delighted to provide you with more information about the proposed Galaxy Subscription, which was announced on 10 December 2009. As further announced on 16 December 2009, the Company has acquired the Initial Galaxy Shares and now proposes to acquire the Further Galaxy Shares in order to complete the Galaxy Subscription. 2. Background to and reasons for the Further Galaxy Subscription On 21 August 2009, Creat Group, the controlling shareholder of the Company, entered into the Galaxy Subscription Agreement pursuant to which it agreed to subscribe for the Galaxy Shares and to provide a project finance facility to the Galaxy Group. Following completion of the Galaxy Subscription, the Galaxy Shares will represent up to approximately 19.99 per cent. of the issued share capital of Galaxy, an ASX listed Australian mining and materials company focusing on lithium and tantalum exploration and production. On 17 November 2009, the Company announced that Creat Group intended to nominate the Company as the subscriber under the Galaxy Subscription Agreement. The Company took the decision to proceed with the Galaxy Subscription in two separate stages. On 9 December 2009, the Company announced that it intended to use some of the proceeds of the Cornerstone Placing to subscribe for the Initial Galaxy Shares. The funds required to purchase the Initial Galaxy Shares were raised on 14 December 2009 when the Company entered into the Cornerstone Placing pursuant to which it raised gross proceeds of 5.7 million. Part of the funds raised under the Cornerstone Placing (equivalent to approximately A$6 million) were used to finance the purchase of the Initial Galaxy Shares by the Company at a price of A$0.88 per Galaxy Share. The remainder of the funds raised under the Cornerstone Placing will be utilised by the Company for working capital purposes, to fund the Company s operations and/or acquire additional business assets or businesses. The Company now wishes to complete the Galaxy Subscription by subscribing for the Further Galaxy Shares. The Initial Galaxy Subscription and the proposed Further Galaxy Subscription form part of the Company s revised strategy, as announced on 18 July 2009, of exploring acquisitions or other transactions that would result in the expansion of its mining operations within and outside Australia, and the diversification of its resources. The announcement of the revised strategy followed the completion on 29 December 2008 of a subscription for further Ordinary Shares in the Company by Creat Group, whereby Creat Group increased its holding in the Company from 6.2 per cent. to approximately 70 per cent. Creat Group has a current holding of 55.93 per cent. of the issued share capital of the Company through its nominees and wholly owned subsidiaries, Marvel Link Group Limited and Kingwealth Finance Limited. 14
3. Details of the Galaxy Subscription and the Nomination Letter The Galaxy Subscription Agreement gave Creat Group the right to subscribe for the Galaxy Shares and the obligation to provide (or to nominate another Creat entity or reputable commercial bank to provide) a project finance facility to Galaxy in the sum of A$130 million for the purpose of developing both the Mt Cattlin Project and the Jiangsu Project. Creat Group entered into the Original Debt Facility Agreement on 3 September 2009 which set out the further terms on which Creat Group would provide the project finance facility contemplated in the Galaxy Subscription Agreement. On 10 February 2010, the Company, Creat Group and Galaxy entered into the Nomination Letter pursuant to which it was acknowledged that, as permitted by the Galaxy Subscription Agreement, Creat Group had nominated the Company to subscribe for the Initial Galaxy Shares and that conditional upon the approval of the Company s Shareholders, the Company has been nominated to subscribe for the Further Galaxy Shares at the same subscription price of A$0.88. The number of Further Galaxy Shares shall be equal to the lower of (a) the number which, together with the Initial Galaxy Shares, represents 19.99 per cent. of Galaxy s enlarged share capital immediately following such issuance; and (b) 31,000,000 shares. Accordingly, the maximum amount payable in respect of the Further Galaxy Shares shall be A$27,280,000 (equivalent to approximately 15,118,600). The Nomination Letter provides that the Company will be entitled to exercise all of the rights given by Galaxy to Creat Group under the Galaxy Subscription Agreement, specifically, a right to appoint a director to the board of Galaxy and the Company will have certain anti-dilution rights. On 8 January 2010, the Company exercised its right to appoint a director to the board of Galaxy and Dr Yuewen Zheng was appointed as a non-executive director and Mr Xiaojian Ren was appointed as his alternate. The Nomination Letter also makes a number of other amendments to the Galaxy Subscription Agreement. Further details of the terms of the Nomination Letter are set out in paragraph 10.1 of part 5 of this document. The Nomination Letter does not transfer to the Company the obligation to provide the project finance facility to Galaxy. Due to the size of the Further Galaxy Subscription (when aggregated with the Initial Galaxy Subscription) in comparison to the Company, the Further Galaxy Subscription constitutes a reverse takeover for the purposes of the AIM Rules for Companies. Accordingly, the Further Galaxy Subscription will require the approval of the Company s Shareholders and the production of this admission document. Following the approval of the Further Galaxy Subscription, the Company will seek Re-Admission. The Directors believe the Company will be well placed to continue its revised strategy to make further acquisitions or conduct other transactions to expand the Company s operations and work alongside Creat Group to support Galaxy as it develops the Mt Cattlin Project and the Jiangsu Project. 4. Funding of the Further Galaxy Subscription To fund the Further Galaxy Subscription, the Company intends to raise through the Second Round Placing up to 15,118,600 (approximately A$27,280,000) net of commissions and other transaction expenses. The maximum gross proceeds of the Second Round Placing will be approximately 17,000,000. Further details of the Second Round Placing are set out below. The Second Round Placing has not been underwritten and therefore there is no certainty that all or any of the funds necessary for the Further Galaxy Subscription will be raised. The Company has agreed with Creat Group that, in the event that the gross funds raised in the Second Round Placing are less than 17,000,000 (equivalent to approximately A$30,674,800), Creat Group shall procure that the Convertible Loan Subscriber shall advance to the Company an amount equal to such shortfall under the terms of an agreed form Convertible Loan Note. The Convertible Loan Note will have a coupon of 10 per cent. per annum and a maturity date twelve months after Shareholders approve the Further Galaxy Subscription. The Company must repay the Convertible Loan Note (together with accrued interest) in full on the maturity date. The Convertible Loan Note may be converted at any time at the option of the noteholder into Ordinary Shares at a conversion price of 0.06 per Ordinary Share. Under the requirements of the Act, and given Creat Group s current shareholding in the Company, the approval of the Company s shareholders would be needed for the Convertible Loan Subscriber to convert the Convertible Loan Note. The terms of the Convertible Loan Note entitle the Convertible Loan Subscriber to assign it to a third party in whole or part provided that the assignee enters into an orderly marketing arrangement in a form similar to that described in paragraph 10.3.2 of part 5 of this document and (a) the Company has provided its prior written consent; or (b), inter alia, (i) the assignee is not a related party to the 15
Company; (ii) upon conversion, that the assignee s relevant interests in the Company s Ordinary Shares will not exceed 19.99 per cent.; and (iii) notification of the assignment or subsequent conversion is not required by relevant legislation. Upon assignment, the assignee is obliged to immediately serve a notice on the Company requiring it to convert the Convertible Loan Note into Ordinary Shares. Pursuant to the Placing Agreement, if the Second Round Placing is not fully subscribed, Creat Group may itself procure third party investors to subscribe for Ordinary Shares at the Placing Price and/or agree with third party investors that the Convertible Loan Note shall be assigned to them immediately following its issue prior to Re-Admission (with the effect that the Convertible Loan Note would be converted into Ordinary Shares as described above). Creat Group intends to explore opportunities to procure such third party investors between the date of this document and the date of the AGM. Should it be proposed that any potential investor identified by Creat Group in accordance with the above will hold 10 per cent. or more of the Company s issued share capital, the identity of such investor will be announced by no later than 7 clear days immediately prior to the AGM. In the event that no funds are raised pursuant to the Second Round Placing and no third party investors are procured by Creat Group then the Convertible Loan Subscriber may (if the Convertible Loan Note is converted) acquire all shares issued pursuant to the terms of the Convertible Loan Note, which would (provided that any necessary regulatory requirements have been complied with) increase Creat Group s shareholding in the Company s enlarged share capital (together with its subsidiaries) to approximately 70.61 per cent. 5. Galaxy Project Finance Facility The Galaxy Subscription Agreement provided that funds had to be available for drawdown under the project finance facility before the Galaxy Shares would be issued. The Nomination Letter has amended the Galaxy Subscription Agreement to provide that the issue of the Further Galaxy Shares may take place without such project finance facility funds being available for drawdown. The terms of the project finance facility were confirmed by the Original Debt Facility Agreement. The Galaxy Subscription Agreement and the Original Debt Facility Agreement permit Creat Group to nominate a reputable commercial bank prior to drawdown (with the approval of Galaxy) to provide the project finance facility. Galaxy and Creat Group are currently at an advanced stage of discussions with the New Lending Banks regarding the entry into a New Lending Banks Facility Agreement whereby the New Lending Banks will (if definitive agreements are entered into) provide a project finance facility in an amount of US$105 million to the Borrowers, in place of Creat Group s obligation to provide the A$130 million project finance facility under the Original Debt Facility Agreement. Unless and until the New Lending Banks Facility Agreement is entered into, the obligation to provide the project finance facility remains with Creat Group. However, Galaxy and Creat Group have agreed in the Nomination Letter that Creat Group is not obliged to make available the facility provided that the New Lending Banks Facility Agreement is signed on or prior to the Long Stop Date on substantially the terms of the draft agreement appended to the Nomination Letter. The New Lending Banks have indicated that they will not be in a position to sign the New Lending Banks Facility Agreement until after Re-Admission. As part of the New Lending Banks Facility Agreement, the New Lending Banks have indicated that they will require that the Company enter into the Share Mortgage and the Facility Put Option, further details of which are set out below. One of the conditions upon which Creat Group was prepared to nominate the Company to subscribe for the Further Galaxy Shares was that the Company agreed to enter into the Share Mortgage and the Facility Put Option, in order to assist Creat Group to procure that the New Lending Banks enter into the New Lending Banks Facility Agreement and that Galaxy enters into the Nomination Letter. Under the Nomination Letter, the Company has agreed that provided the New Lending Banks Facility Agreement is entered into in substantially the form appended thereto on or prior to the Long Stop Date (or such earlier date as Creat Group, the Company and Galaxy may agree) and provided Re-Admission has occurred, the Company will enter into the Share Mortgage and the Facility Put Option with the New Lending Banks. Under the terms of the Share Mortgage, the Company will, if the Share Mortgage is executed, agree to grant security at all times, up to a maximum aggregate of 19.9 per cent. of its shares in Galaxy in favour of the Security Trustee to secure the obligations of the Obligors under the New Lending Banks Facility Agreement and the obligations of the Company under the Facility Put Option. The amount secured by the Share Mortgage is limited to the proceeds realised from the sale of the shares pledged in favour of the Security Trustee. In the case of an event of default under the New Lending Banks Facility 16
Agreement which is not the fault of the Company, the New Lending Banks are only able to enforce the Share Mortgage once all other security granted pursuant to the New Lending Banks Facility, which is not granted by the Company, has been enforced. The Facility Put Option will, if executed, entitle the New Lending Banks to require the Company to purchase from the New Lending Banks the debt outstanding under the New Lending Banks Facility Agreement at the time the option is exercised. The purchase price for the debt outstanding under the New Lending Banks Facility Agreement will be an amount equal to the principal, accrued interest and fees outstanding under the New Lending Banks Facility Agreement at that time. In exercising this option, the New Lending Banks would also transfer their rights under the New Lending Banks Facility Agreement to the Company. The Facility Put Option is only exercisable by the New Lending Banks during the period from four years from initial drawdown until 10 December 2016. The Facility Put Option provides that all dividends and distributions which may be paid or declared by Galaxy to the Company prior to completion of the Facility Put Option are immediately lent back to Galaxy by way of shareholder loan. As with the Share Mortgage, recourse under the Facility Put Option (should the Company refuse to purchase the amount outstanding under the New Lending Banks Facility Agreement when the Facility Put Option is exercised) will be limited to the value of the shares pledged in favour of the Security Trustee. Shareholders should refer to part 2 of this document which details risk factors in respect of the Facility Put Option, the Share Mortgage and the New Lending Banks Facility Agreement. 6. Principal terms of the Further Galaxy Subscription The Further Galaxy Subscription is conditional upon, among other things: (a) Galaxy obtaining shareholder approval by no later than 28 February 2010 (which has been obtained on 10 February 2010); (b) no material adverse change occurring prior to the Further Galaxy Subscription; (c) Galaxy not, prior to the issue and allotment of the Further Galaxy Shares, issuing or agreeing to issue any Galaxy Shares other than to the Company, or to the holders of outstanding options over shares in Galaxy in respect of the exercise of such options; and (d) the warranties in the Galaxy Subscription Agreement being true and correct in all material respects on the date of the Further Galaxy Subscription. The nomination by Creat Group of the Company as the subscriber for the Further Galaxy Shares under the Galaxy Subscription Agreement is conditional upon: (a) approval having been given by the Shareholders (i) under Rule 14 of the AIM Rules for Companies in respect of the reverse takeover of the Company in relation to the subscription for the Further Galaxy Shares (when aggregated with the subscription of the Initial Galaxy Shares) and (ii) under section 136(2) of the Corporations Act to amend Article 17.2 of the Constitution as set out in the Notice of AGM; (b) the entry into on or about the date of this document of the Placing Agreement; and the conditions to the Placing Agreement being satisfied or waived (save for any condition as to the Nomination Letter becoming unconditional and not having been terminated, any condition as to the unconditional allotment of the Further Galaxy Shares and any condition relating to Re-Admission) and the Placing Agreement not having been terminated in accordance with its terms; (c) all Galaxy shareholder approvals which are required in order for the Further Galaxy Shares to be issued to the Company having been obtained (which has been obtained on 10 February 2010); and (d) an amount not less than the total subscription amount (in Australian dollars) for the Further Galaxy Shares (not including any amounts committed by investors through the Placing) having been deposited in an escrow account prior to the AGM. The conditions to the Further Galaxy Subscription and the nomination may be waived at the discretion of the Company. Pursuant to the Nomination Letter, Creat Group has agreed that the Company will have the benefit of all of its rights held under the Galaxy Subscription Agreement, including the following rights: 17
(a) the right to require Galaxy to use its best endeavours to appoint Creat Group s nominee to the board of directors of Galaxy and, amongst other things, for Galaxy to recommend the election of such nominee as a director of Galaxy at the next general meeting of Galaxy shareholders (the Company exercised this right and on 8 January 2010 when Dr Yuewen Zheng was appointed to the board of directors of Galaxy); (b) certain anti-dilution rights to participate in any further issue of shares by Galaxy until 21 August 2010; and (c) the benefit of certain warranties and representations given by Galaxy. Furthermore, the Company has agreed that following completion of the Further Galaxy Subscription, it will not increase its voting power in Galaxy other than in limited circumstances, including pursuant to the exercise of the anti-dilution rights given to the Company, in connection with a takeover bid of Galaxy or in accordance with the Act. In accordance with the AIM Rules for Companies, the entry by the Company into the Nomination Letter and the issuance of the Convertible Loan Note by the Company to the Convertible Loan Subscriber are each a Rule 13 Related Party Transaction. The Independent Directors, having consulted with the Nominated Adviser, consider that the terms of the Nomination Letter and Convertible Loan Note are fair and reasonable insofar as the Company s shareholders are concerned. 7. Details of the Placings Cornerstone Placing On 14 December 2009, the Company placed 114,000,000 Ordinary Shares with the Cornerstone Subscribers under the Cornerstone Placing raising 5.7 million (before expenses). Creat Group, the Company s majority shareholder, has granted to each of the Cornerstone Subscribers an Equity Put Option under which the Cornerstone Subscribers are permitted to require Creat Group to purchase all of the Ordinary Shares they subscribed for in the Cornerstone Placing. The Equity Put Option is exercisable only on the date falling twelve months after completion of the Cornerstone Placing and only if the market price of the Ordinary Shares on that date is less than 0.06. The Equity Put Option is also conditional upon regulatory and legal approvals including member approval of the Company under section 611 item 7 of the Act as its exercise will result in Creat Group increasing its shareholding in the Company. The Company commissioned the Independent Expert to consider the advantages and disadvantages of the Equity Put Option for Australian regulatory purposes and the Independent Expert s conclusions are set out in its report dated 5 February 2010, which is included in its entirety in the Notice of AGM. A copy of the Notice of AGM can be found at www.creatresources.com. Further details of the Cornerstone Placing are set out in paragraph 10.2 of part 5 of this document. A resolution will be proposed at the AGM in order to approve any acquisitions of a relevant interest in the Company s voting shares pursuant to the Equity Put Option. The Nomination Letter and the transactions contemplated thereunder are not conditional upon obtaining shareholder approval for the Equity Put Option. Second Round Placing Following the publication of this document and prior to the AGM on 29 March 2010, a further fundraising of up to approximately 17,000,000 (approximately A$30,674,800) will be undertaken by the Company to institutional and other investors. The Second Round Placing will seek to raise the funds required to satisfy the purchase price of the Further Galaxy Shares. Pursuant to the Placing Agreement, Westhouse, the Company s broker, has agreed to use its reasonable endeavours to place up to 283,333,333 Ordinary Shares with investors at the Placing Price. A commission of 5 per cent. of the amount raised pursuant to the Second Round Placing in respect of investors introduced by Westhouse shall be paid to Westhouse and will be funded from the proceeds of the Second Round Placing. Under the terms of the Placing Agreement the completion of the Second Round Placing is conditional upon, inter alia, the Shareholders having approved the Further Galaxy Subscription, the Company becoming unconditionally entitled under the Nomination Letter to subscribe for the Further Galaxy Shares, such shares having been allotted and issued to the Company, the Nomination Letter not having been terminated, the Company s funding for the Further Galaxy Subscription (other than the funds raised from investors through Westhouse under the Second Round Placing) being held in escrow in accordance with the Nomination Letter and Re-Admission becoming effective. The long stop date for such conditions to be fulfilled or waived in accordance with the Placing Agreement is 23 April 2010. 18
The Ordinary Shares to be issued at the Placing Price pursuant to the Second Round Placing will represent up to approximately 33.31 per cent. of the Company s issued Ordinary Shares (assuming the maximum number of Placing Shares are issued). The Placing Shares will be issued credited as fully paid and will, on issue, rank pari passu in all respects with Existing Ordinary Shares. In the event that no funds are raised pursuant to the Second Round Placing and no third party investors are procured by Creat Group then the Convertible Loan Subscriber may (if the Convertible Loan Note is converted), acquire all shares issued pursuant to the terms of the Convertible Loan Note, which would (provided that any necessary regulatory requirements have been complied with) increase Creat Group s shareholding in the Company (together with its subsidiaries) to approximately 70.61 per cent. Further details of the Placing Agreement are set out in paragraph 10.3 of part 5 of this document. 8. Completion of the Galaxy Subscription and the Second Round Placing Creat Group will procure that an amount sufficient to fund the subscription of the Further Galaxy Shares (less any amounts (net of placing commissions) where Westhouse has received commitments from third party investors in respect of the Second Round Placing) will be paid into an escrow account to be established with an escrow agent in Australia prior to the AGM. Promptly following the AGM, and subject to fulfilment or waiver of the conditions precedent set out in the Nomination Letter, the Further Galaxy Shares will be unconditionally issued against release of the subscription funds. Galaxy has agreed that the amounts committed by third party investors in respect of the Second Round Placing may be paid to it within three Business Days of the date of the AGM. In order to facilitate its Re-Admission, on the day of the AGM, the Company will have its Ordinary Shares suspended from trading on AIM. Re-Admission is then expected to occur on 30 March 2010, the business day after the AGM. Settlement under the Second Round Placing (subject to the Placing Agreement becoming unconditional and not having been terminated) will take place upon Re-Admission. 9. Details of the Company The Company (formerly known as Zeehan Zinc Limited), was initially incorporated as a mining, exploration and development company seeking to mine and process certain zinc, lead and silver deposits in Western Tasmania, Australia. The Ordinary Shares were admitted to trading on AIM on 6 March 2007 and the directors of the Company at the time intended to turn the Company into a leading producer in Australia of mined zinc, lead and silver by extracting these minerals through the establishment of (primarily) open pit mining operations to produce metal concentrates. At the time of the Company s initial admission to trading on AIM, the mining consultancy company, Anderson & Schwab Australia Limited, prepared an independent competent person s report on the mineral assets of the Company. The Anderson & Schwab Report is reproduced in its entirety in part 4 of this document. It should be noted that the Anderson & Schwab Report has not been updated for the purposes of its inclusion in this document. In particular, no reliance should be placed by potential investors or Shareholders on the conclusions of the mineral asset valuations contained at pages 74 to 86 of the report as these valuations were only valid as of the date of that report. For the purposes of the Independent Expert s Report, the Independent Expert commissioned Coffey Mining to provide it with an independent technical valuation report on the Company s mineral assets. An extract of the Coffey Mining Valuation Report dated 18 January 2010 with the report s principal conclusions is included in part 4 of this document. The conclusions are subject to the scope, assumptions and limitations of the full Coffey Mining Valuation Report, a copy of which can be found at www.creatresources.com. During the period from the initial admission of the Company to trading on AIM to mid-2008, the Company commenced mining and production of pre-concentrate ore, built and commissioned a gravity plant and flotation plant and engaged in an exploration drilling program to prove up additional resources. The Company brought its mine at Comstock into initial production at the beginning of 2007 after an intensive construction period. Mining operations were carried out between February and June 2008 by mining contractor Hoare Brothers at Main Lode (South Pit) and Allison s Lode and the Company sold a trial amount of 500 tonnes of ore to Zinifex Australia Limited (Zinifex) in June 2008. The processing plant at Comstock went through extensive and costly commissioning, testing and adaptation from October 2007 through to June 2008 to produce product(s) consistent with potential customers specifications. The plant was in a continuous state of commission, adaptation and 19
re-commission throughout this construction period. As a result, commissioning and operating costs were high and the reliability proved below expectation. Ores crushed for batch testing and sampling were not truly representative of steady state production to a set product specification. Given the level of costs incurred on the processing plant, the Board considered it not economically viable to continue with mining and processing until a tailored plan could be implemented. Operations at Comstock were suspended in June 2008 and on 24 September 2008, the Company announced that it had ceased drilling on its Comstock and Oceana properties with the Company deciding to tailor its exploration plan to focus primarily on the discovery of nickel, and to concentrate on exploration rather than mining. The Company s gravity and processing plant was subsequently shut down and the processing plant and associated facilities located at Comstock were sold in July 2009. During this period the Board was considering the best strategic direction for the Company to exploit its existing Comstock and Oceana sites. In addition to the resource enhancement and exploration plans, the Board began to focus on steering the Company towards diversification of resources and expansion, both within Australia and internationally. The Board approved initial groundwork needed to begin exploration for nickel, and additional resource enhancement work at its Oceana and Comstock properties, and on its Exploration Licenses. The Board also started investigating strategic acquisitions with a view to expansion and commenced discussions with parties in Australia and internationally in relation to mutually beneficial corporate transactions. Through two of its wholly-owned subsidiaries, the Company holds two Mining Leases (currently being progressed as Retention Licence applications), four Exploration Licences and a Retention Licence which together cover a mineralised area of approximately 100 km 2 near the township of Zeehan in Western Tasmania. Overview of the Company s tenements A summary of the status of the Company s current leases and licences is set out below. Further information on the Company s mineral assets can be found in the Anderson & Schwab Report and in the Creat Resources Summary Report, both in part 4 of this document. For the purpose of Re-Admission, the Company has commissioned Coffey Mining to prepare an independent summary report on the Company s mineral assets, based on publicly available information to summarise the period from the date of the Company s initial admission to trading on AIM until the date of the report. The Creat Resources Summary Report is reproduced in its entirety in Part 4 of this document. Comstock Operations at Comstock have been suspended since July 2008. A retention licence has been applied for over the ML 5M/2007 lease area. The MRT, the government regulatory authority, entered this application into the register on 30 April 2009 as RL4/2009 and is currently processing the application. The likelihood of restarting mining at Comstock is low as there is no environmental approval, production is limited to a 1,000t limit and if the retention licence RL4/2009 is granted, mining will require application and an approval process to be initiated. If a retention licence is granted, the immediate focus will be on exploration and Ni explorations in particular. Oceana There has been no recent development activity. The Oceana DPEMP has been put on hold in line with the Board s current focus, and falling metal prices in 2008/09. A retention licence was applied for over the ML 2M/2005 lease area. The MRT entered this application on the register as RL3/2009 and is currently processing the application. Mariposa There has been no recent development activity. Retention Licence RL1/2008 was granted in February 2009, with the term of the licence extending until 1st February 2011. 20
Exploration Exploration licences EL20/2002 and EL30/2002 were renewed in January 2009 by the MRT with the terms of the licences extending until 31 January 2010. Applications for renewal of EL20/2002 and EL20/2003 were submitted to MRT in December 2009. The current status of these licences is Pending Renewal. The Company completed a High Resolution Airborne Electromagnetic and Magnetic ( EM ) Survey over the entirety of its licences in Western Tasmania, Australia. The completion of this program signified the first step in the major exploration program being undertaken by the Company during 2009/ 10. The aim of the survey was to detect responses in the EM data that could be targeted for nickel and base metal mineralisation. Exploration during 2009 was centred upon the Tenth Legion/Kynance prospects within Exploration Licences EL18/2003 and EL30/2002 in order to investigate what was regarded as the most encouraging EM anomalies resulting from the recent SkyTEM survey. Three exploration grids were established over distinct WNW-trending stratigraphic conductors and one grid over a North-trending EM conductor. The exploration grids comprised 300 metre lines extending 150 metres either side of the intersect of the conductor, and were spaced 100 metres apart. 301 soil samples were collected and then analysed for multiple elements using the Company s Thermo Niton hand-held XRF unit. Soil nickel values on one grid to a maximum of 2819 parts per million were recorded. In response to these results it was decided that a soil geochemistry in-fill and extension program on these grids in early 2010 was warranted. It is intended that any coincident geochemical and airborne EM anomalies produced from the above work will be further examined through the use of ground geophysics, with the aim of generating targets for drilling in late 2010. EL21/2004 Acquisition Following the encouraging SkyTEM survey results, the Company acquired Exploration Licence 21/2004 and its related exploration/mining information known as the Dundas Nickel Project from (Stellar Resources Limited, an ASX listed company), and its subsidiary. The tenement is subject to a two per cent. net smelter royalty on transfer. The licence is situated adjacent to the Company s existing Exploration Licence 20/2002 in Western Tasmania, and includes known tin mineralisation at the historic Razorback and Grand Prize Tin mines. A significant amount of exploration has already been undertaken by the predecessor and has produced promising results. Current Strategy On 31 July 2009, the Shareholders passed a resolution for the Company to proceed with a strategy of acquisitions or other transactions that would result in expansion of its mining operations within and outside Australia and resource diversification (including gold, nickel, and a continued focus on lead, zinc and silver) in order to spread the risk of commodity fluctuations and take advantage of the deals on offer. Whilst the Company has historically pursued a strategy of exploration and mining with a view to processing and selling commercial quantities of zinc, lead and silver within its leases on the West Coast of Tasmania, the Company now seeks to adopt a dual focus of continuing its exploration activities at the same time as expanding its mining operations and resource interests. The Directors consider there are a variety of attractive transactions in the market given the global financial climate has left many companies under financial distress and looking to divest. The Directors consider it to be advantageous to the Company to continue to proceed with acquisitions or other transactions that would result in further expansion. Creat Group has indicated its continued financial and human resources support in executing the strategy. It is anticipated that the subscription of the Initial Galaxy Shares and the Further Galaxy Shares will together form the first such transaction to be executed in line with this revised strategic focus. 10. Details of Galaxy Resources Limited Galaxy is an emerging mining and materials company focusing on lithium and tantalum production. The company is based in Perth, Australia and is listed on the ASX. Galaxy plans to become one of the world s leading producers of lithium. 21
On 24 December 2009, Galaxy was granted Mining Lease M74/244 for a period of 21 years. This lease covers its Mt Cattlin tenements, including the Mt Cattlin Spodumene Project and replaces a number of previous mining leases and prospecting licence applications. Galaxy now holds tenure over the whole of the Mt Cattlin ore body, and potential extensions. The licence also covers all required site infrastructure, including the processing plant, tailings dam and waste dump. Galaxy plans to carry out further work on the tenement to follow up on known pegmatite mineral occurrences with the aim of expanding the Mt Cattlin resource base. As at the date of this document, Galaxy has 151,153,358 ordinary shares of no par value in issue. Galaxy has granted share options over a total of 21,750,000 shares which are outstanding at the date of this document. In the event that no options are exercised before completion of the Further Galaxy Subscription, the number of Further Galaxy Shares to be acquired by the Company shall be 29,040,370. On 12 January 2009, Galaxy announced that it had completed a definitive feasibility study which concluded that the Mt Cattlin Project would be commercially viable based on a processing rate of one million tonnes per annum over a 15 year mine life. Galaxy has commenced the development of the mine and the construction of the mineral processing plant with first concentrate production scheduled for the third quarter of 2010. Galaxy has also completed a pre feasibility study into the downstream production of value added lithium (Li 2 CO 3 ). Galaxy plans to establish a 17,000 tpa lithium carbonate plant in Jiangsu Province, PRC due to lower associated capital and operating costs. A definitive feasibility study for the lithium carbonate plant was completed in October 2009 and Galaxy announced that the final definitive feasibility study capital cost estimation of A$55m is in line with Galaxy s previous estimate of A$50m. On 25 August 2009, Galaxy announced that it had secured project financing and equity financing for its lithium project from Creat Group, as described in further detail above. On 7 October 2009, Galaxy announced the completion of an institutional capital raising of A$65 million at A$1.28 per share as part of the funding process for the Mt Cattlin Project and the Jiangsu Project. On 11 December 2009, Galaxy announced that it had entered into a contract with Hatch Consulting Shanghai in relation to engineering services and the procurement and management of the construction of the Jiangsu Project. On 15 December 2009, Galaxy announced that it had signed a project investment contract with the Zhangjiagang Free Trade Zone Administrative Committee which provides for land use to operate the Jiangsu Project for a term of fifty years. On 7 January 2010, Galaxy announced that it had received the safety and energy saving approvals required for the Jiangsu Project which were granted by the Suzhou Municipal Administration of Work Safety. The Directors understand that Galaxy intends to operate the Jiangsu Project through a wholly owned foreign enterprise to be established in China ( WFOE ). At present, Galaxy has reserved a name for the WFOE with the State Administration for Industry and Commerce but the WFOE itself has not yet been incorporated. A number of permits and approvals will also be required from local authorities relating to various matters including the use of the land, the local environment, tax registration and social insurance before the Jiangsu Project can become operational. According to Galaxy s announcement dated 22 October 2009, the Jiangsu Project is scheduled to become operational in fourth quarter of 2010. For the purpose of Re-Admission, the Company has commissioned Coffey Mining to prepare an independent summary report on Galaxy s mineral assets based on publicly available information. The Galaxy Summary Report is reproduced in its entirety in part 4 of this document. As Galaxy is listed on the ASX, its public announcements can be found on its website at www.galaxyresources.com.au. 11. Details of Creat Group Creat Group, which is the controlling shareholder of the Company, is a Chinese investment firm whose business covers manufacturing, healthcare, mining, finance, and real estate. The company was founded in 1982 and has its headquarters in Beijing with subsidiaries in Shanghai, Henan, Shangdong, Shaanxi, Jiangsu, Liaoning, Hong Kong and the USA. In recent years Creat Group has begun to focus on its investments in mineral resources and currently holds interests in various mines in China. Creat Group is also exploring further mineral investment opportunities in China, South Africa, Asia and Australia. 22
The directors of Creat Group include Dr Yuewen Zheng and Mr Xiaojian Ren who are also currently directors of the Company. As at the date of this document, Dr Yuewen Zheng holds a 52 per cent. shareholding in Creat Group and Mr Xiaojian Ren holds a 12 per cent. shareholding in Creat Group. 12. Existing Directors and Senior Management The board of the Company currently comprises Dr Yuewen Zheng, Mr Xiaojian Ren, Mr Tad Mackay Ballantyne, Mr Stephen Michael Powell and Mr Phillip Bradley Simpson, whose biographies are set out below. Dr Yuewen Zheng, Chairman and Non-executive Director, aged 46 Dr Zheng is the co-founder of Creat Group and has worked in several major Chinese governmental organisations including the Ministry of Railway and the State Bureau of Seismology. He is Vice President of the All-China General Chamber of Industry and Commerce, Vice President of the China Non-Governmental Science & Technology Entrepreneurs Association. Dr Zheng has a PhD in finance and a Bachelors degree in finance and economics. Mr Xiaojian Ren, Managing Director & Acting Chief Executive Officer, aged 48 Mr Ren is the co-founder, director and CEO of Creat Group. Mr Ren has more than ten years experience in banking. He worked for the Agricultural Bank of China, Sweden Savings Bank, and Germany s DG Bank (H.K.). Mr Ren also has experience in enterprise management in the areas of manufacturing, real estate and nonferrous metal mining. Led by Mr Ren, the Creat Group is responsible for the performance of Pinggao Electric (listed on the Shanghai Stock Exchange), the largest high-voltage switchgear manufacturer in China; Shanghai RAAS a leader in the blood product sector in Asia, and Andre (listed on the Growth Enterprise Market of Hong Kong), the number one apple juice concentrate supplier in the world. Mr Ren holds a Bachelor of Finance degree and an MBA from Latrobe University in Australia. Mr Tad Mackay Ballantyne, Deputy Chairman & Non-Executive Director, aged 52 Mr Ballantyne has a track record of successfully doing business in China and the United States. During the past twenty years Mr Ballantyne has been in the business of acquiring and operating troubled companies or assets being divested by public or private companies. He is currently a director to a number of public companies listed on the NASDAQ or OTC Bulletin Board. Mr Ballantyne holds a Bachelor of Science degree in business management from the University of Wisconsin. Mr Stephen Michael Powell, Non-Executive Director, aged 56 Mr Powell is a past managing director of the Hartz Group, one of Tasmania s largest manufacturers of fruit juices and mineral waters. The commercial operation in Prince of Wales Bay, Glenorchy is best known for its Hartz Mineral Waters. He took over management in 1980, and expanded operations into Australian export markets. The group has won numerous industry awards, including New Exporter of the Year. He is also associated with other companies involved in the development of commercial, rural and marina projects in Tasmania. Mr Phillip Bradley Simpson, Non-executive Director, aged 58 Mr Simpson is a marine consultant and has been self employed by his own companies and businesses since 1978. He has consulted to major Australian Banks as part of the general business of his marine brokerage. He has acted in a consultancy role for many self managed superannuation funds for valuation purposes. Mr Simpson is a member of good standing of the Australian Institute of Company Directors and a founding member of the Tasmanian Abalone Council. Mr Simpson brings with him expertise in the fields of corporate finance and logistics and will also act as an integral liaison between the local landowners in Australia and the Company. Senior Management The Company s senior management comprise Mr Derek Sun, Mr Shu Zhan and Ms Yasmine Healy, whose brief biographies are set out below. 23
Mr Derek Sun, Chief Financial Officer Mr Derek Sun holds a B.S. degree in Bioengineering and Technical Economics from Huazhon University of Science and Technology and an MBA in Finance and Accounting (Magna Cum Laude) from the University of Southern Europe, Monaco Business School and the Graduate School of Finance. He has served over the last fifteen years as project manager, financial and accounting analyst, senior financial analyst, associated director of finance, finance director, director, vice president finance and vice president with various companies including JP Morgan Securities Co. Ltd, Peak Pacific Investment Company Ltd (a subsidiary of Alliant Energy), CT Holdings Group Co, Ltd, Abra Mining Limited, AP Energy Investments Limited and Creat Group Mining Investments Limited. Mr Shu Zhan, Managing Geologist Mr Shu Zhan holds a B.S. degree in Geology from Central-South University in China and a Masters of Applied Science in Mining Geology from the University of Queensland Australia. He is a member of the Australasian Institute of Mining and Metallurgy and has served over the last twenty five years as consultant, senior geologist, JV general manager and petroleum exploration geologist with various companies including CNOOC, Placer Dome Inc, Kingsgate Consolidated Ltd, Western Areas NL, AfriOre Ltd, Minco Mining and NGM Resources Ltd. Ms Yasmine Healy, General Counsel and Company Secretary Ms Healy has a Master of Comparative Laws in commercial law and a Graduate Diploma in Applied Corporate Governance. Prior to joining the Company she worked as general counsel and company secretary in the natural resources industry and in private practice. In addition to her work as a commercial lawyer, Ms Healy has hands-on business experience that complements her legal expertise. She has experience across various jurisdictions in corporate law, mergers and acquisitions, asset protection, dispute resolution, corporate governance, commercial law generally and dealing with the Australian government. Ms Healy is a registered Chartered Secretary and an Associate of Chartered Secretaries Association of Australia. 13. Current trading, future prospects and significant trends The Directors believe that there is real potential for the value of the Company to be enhanced as a result of the Further Galaxy Subscription and they are currently reviewing further potential acquisition opportunities which may progress the Company s strategy and which they intend to pursue although there is no guarantee that any negotiations will lead to the completion of any transaction. Save as disclosed in this document, there have been no significant trends concerning the development of the business of the Company. 14. Re-Admission to AIM and dealings in Ordinary Shares Application will be made for the Enlarged Share Capital to be re-admitted to trading on AIM in accordance with the AIM Rules for Companies. In order to facilitate its Re-Admission, on the day of the AGM, the Company will have its Ordinary Shares suspended from trading on AIM. It is expected that Re-Admission will become effective and dealings in the Ordinary Shares will commence on 30 March 2010. 15. Dividend policy The nature of the Company s business means that it is unlikely that the Directors will recommend a dividend in the first few years following Re-Admission. The Directors believe the Company should seek to generate capital growth for its Shareholders but may recommend distributions at some future date, depending upon the generation of sustainable profits, when it becomes commercially prudent to do so. 16. Lock-in and Orderly Market Arrangements The Company has entered into a lock-in and orderly marketing agreement with Creat Group, Grant Thornton UK LLP and Westhouse dated 10 February 2010 pursuant to which Creat Group has agreed not to dispose of its holdings of Ordinary Shares in the Company until the date falling 12 months from the date of Re-Admission ( Lock-In Period ). Furthermore, any disposal of Ordinary Shares made by Creat Group in the 12 months following the end of the Lock-In Period shall be effected solely through Westhouse and shall, subject to certain exceptions, be in such manner as Westhouse shall require to ensure the maintenance of an orderly market. 24
The Company has entered into an orderly market agreement with each of the Cornerstone Subscribers, Grant Thornton UK LLP and Westhouse, pursuant to which each of the Cornerstone Subscribers has agreed not to dispose of the Ordinary Shares they subscribed for under the Cornerstone Placing other than through Westhouse until 15 December 2010. The orderly marketing agreement shall not apply if the Cornerstone Subscribers dispose of the shares to Creat Group in accordance with the Equity Put Option. The Convertible Loan Subscriber has also agreed to enter into an orderly marketing agreement in respect of the Convertible Loan Note on substantially the same terms as those signed by the Cornerstone Subscribers as described above. In addition, any assignee of the Convertible Loan Note will also be obliged to enter into orderly marketing arrangements on the same terms. 17. Corporate governance The Directors recognise the importance of sound corporate governance and intend that the Company will comply with the main provisions of the Combined Code and the QCA Guidelines insofar as they are appropriate given the Company s size and stage of development. The Board is responsible for formulating, reviewing and approving the Company s strategy, budgets and corporate actions. Following Re-Admission, the Directors intend to hold board meetings quarterly and at other times as and when required. The Company has also implemented procedures to evaluate any potential related party transactions, which must be approved by a committee of directors independent from potential transactions of this nature. The Company has established properly constituted committees of the Board with formally delegated duties and responsibilities. The committees are: audit and risk, remuneration and nomination; environment and community impact; and technical and safety. Audit and Risk Committee The audit committee has primary responsibility for monitoring the quality of internal controls and ensuring the financial performance of the Company is properly measured and reported on. It will receive and review reports from the Company s management and auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Company. The members of the audit committee are Mr Tad Ballantyne and Mr Phillip Simpson. Remuneration and Nomination Committee The remuneration and nomination committee will review the performance of the Executive Directors and make recommendations to the Board on matters relating to their remuneration and terms of service. The committee will also make recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive plan in operation from time to time. The committee will meet as and when necessary. In exercising this role, the Directors shall have regard to the recommendations put forward in the QCA Guidelines. The members of the remuneration committee are Mr Xiaojian Ren and Mr Tad Ballantyne. Environmental and Community Impact Committee The environmental and community impact committee meets at least annually and monitors environmental, social and community issues and impacts of the Company s operations in Zeehan and the environs. Reviews are undertaken on the effectiveness of management s policies and practices relating to the interaction between the Company s activities and the local community and the way in which these activties contribute to the social and economic development: policies and practices followed in dealings with the local community in relation to land, people and resources; maintaining and improving community health; and the impact and associated risks of the Company s activities on the natural marine, atmospheric and terrestrial environment, together with monitoring compliance with the applicable regulatory regime. The committee s focus is on the quality, effectiveness and transparency of the management processes. It also reviews specific issues of significance from time to time. The members of the environmental committee are Mr Stephen Powell and Mr Xiaojian Ren. 25
Technical and Safety Committee The technical and safety committee meets at least quarterly and monitors occupational health and safety standards, policies and issues; technical issues associated with the Company s exploration, mining and processing activities, with reference to the standards set by the Company and standards and norms of the industry; and the continuing status of major critical capital projects approved by the Board. The members of the technical and safety committee are Mr Stephen Powell and Mr Xiaojian Ren. Share Dealing Code The Company has adopted and will continue to operate a share dealing code governing the share dealings of the Directors and applicable employees during close periods, in accordance with Rule 21 of the AIM Rules for Companies. AIM Compliance policy The Company intends to adopt an AIM compliance policy prior to Re-Admission to ensure that the Company has in place sufficient procedures to enable it to comply with the AIM Rules for Companies. 18. CREST Shares of non-uk companies cannot be held and transferred directly into the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person s CREST account to another without the need to use share certificates or written instruments of transfer. Shareholders who wish to hold and transfer Ordinary Shares in uncertificated form may do so pursuant to a Depositary Interest arrangement which has already been established by the Company. Depositary Interests facilitate the trading and settlement of shares in non-uk companies into CREST. The Ordinary Shares will not themselves be admitted to CREST. Instead the Depositary issues Depositary Interests in respect of the Ordinary Shares. The Depositary Interests are independent securities constituted under English law that may be held and transferred through the CREST system. Depositary Interests have the same security code (ISIN) as the underlying Ordinary Shares. The Depositary Interests are created and issued pursuant to a deed poll with the Depositary, which will govern the relationship between the Depositary and the holders of the Depositary Interests. Ordinary Shares represented by Depositary Interests are held on bare trust for the holders of the Depositary Interests. Each Depositary Interest will be treated as one Ordinary Share for the purposes of determining eligibility for dividends, issues of bonus stock and voting entitlements. In respect of dividends, the Company will put the Depositary in funds for the payment and the Depositary will transfer the money to the holders of the Depositary Interests. In respect of any bonus stock, the Company will allot any bonus stock to the Depositary who will issue such bonus stock to the holder of the Depositary Interest (or as such holder may have directed) in registered form. In respect of voting, the Depositary will cast votes in respect of the Ordinary Shares as directed by the holders of the Depositary Interests which the relevant Ordinary Shares represent. The Ordinary Shares have been admitted to CREST and accordingly, it is anticipated that settlement of transactions in the Ordinary Shares following Re-Admission may take place within the CREST system if relevant Shareholders so wish. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates will be able to do so. Further information regarding the depositary arrangement and the holding of Ordinary Shares in the form of Depositary Interests is available from the Depositary, Computershare Investor Services PLC. The Depositary may be contacted at The Pavilions, Bridgwater Road, Bristol BS99 6ZY, telephone +44 (0) 870 702 0000. 19. The Takeover Code As the Company is incorporated in Tasmania, Australia the UK City Code on Takeovers and Mergers (the City Code ) does not apply to the Company. Accordingly, the Company will not be subject to takeover regulations in the UK. Investors should be aware that the protections afforded to shareholders by the City Code which are designed to regulate the way in which takeovers are conducted will not be available. It is therefore possible that an offeror may gain control of the Company in circumstances where the non-selling shareholders do not receive, or are not given the opportunity to receive, the benefit of any control premium paid to the selling shareholder(s). 26
Details of the Australian takeover regime applicable to the Company are set out in paragraph 9 (Mandatory Offers and Compulsory Acquisition of Shares) of part 5 of this document. 20. Taxation General information regarding UK and Australian taxation in relation to Re-Admission and the Placing is set out in paragraph 15 of part 5 of this document. These statements are intended only as a general guide to current UK and Australian tax law. The statements are not intended to be, nor should they be considered to be, tax advice to any particular Shareholder or prospective investor. If you are in any doubt as to your tax position, you should consult your own independent financial adviser immediately. 21. Further information Your attention is drawn to the Risk Factors set out in part 2, to the Anderson & Schwab Report, the Creat Resources Summary Report, the Galaxy Summary Report, and the extract from the Coffey Mining Valuation Report, all of which are set out in part 4 (Experts Report), and to the information contained in part 3 (Financial Information) and part 5 (Additional Information) of this document. 22. Notice of AGM The Notice of AGM is contained in a separate document published on the date of this document and which will be posted to shareholders in the same mailing. The Notice of AGM sets out the resolutions to be sought at the AGM, and includes in its entirety an independent expert s report from the Independent Expert in respect of the Equity Put Option and the Coffey Mining Valuation Report. A copy of the Notice of AGM can be found at www.creatresources.com. 23. Recommendation The Directors, including the Independent Directors, recommend that Shareholders vote in favour of the Resolutions to be proposed at the Meeting of Shareholders as those Directors and Independent Directors (who are also Shareholders) intend to do in respect of their own personal beneficial holdings of Ordinary Shares which amount, in aggregate, to 10,360,000 Ordinary Shares representing 1.83 per cent. of the Existing Ordinary Shares (excluding the Ordinary Shares held by Creat Group). In addition, Creat Group (in which Dr Yuewen Zheng and Mr Xiaojian Ren hold an aggregate shareholding of 64 per cent.) which holds Ordinary Shares representing 55.93 per cent. of the voting rights in the Company has informed the Company that it intends to vote in favour of each of the Resolutions at the Meeting of Shareholders on which it is entitled to vote. Yours sincerely, Dr Yuewen Zheng Chairman and Non-executive Director 27
PART 2 RISK FACTORS An investment in the Ordinary Shares is highly speculative and involves a high degree of risk as the Company s principal business is one of mineral acquisitions, exploration and operations and may not be suitable for all recipients of this document. Investors are therefore strongly recommended to consult an independent investment adviser, who specialises in advising on investments of this nature before making their decision to invest. The Directors consider the following risks and other factors to be most significant for potential investors, but the risks listed do not necessarily comprise all those associated with an investment in the Ordinary Shares and the risks listed below are not set out in any particular order of priority. Potential investors should carefully consider the risks described below before making a decision to invest in the Ordinary Shares. If any of the following risks actually occur, the Company s business, financial condition, results or future operations could be materially adversely affected. In such a case, the price of the Ordinary Shares could decline and investors may lose all or part of their investment. The Directors of the Company can provide no assurance that this document includes all of the risks that may be relevant to an investment in the Galaxy Shares, since Galaxy is an independently managed business engaged in exploration for different mineral resources to that being explored for by the Company. Investors in the Company are therefore advised to exercise caution in respect of all statements in this document regarding Galaxy, which may be subject to additional risks which may or may not have been publicly disclosed by Galaxy or been made otherwise available to the Company. Investors should, in addition to considering these risk factors, apprise themselves of the risks relating to an investment in Galaxy itself. At the time of the Company s initial admission to trading on AIM, the mining consultancy company, Anderson & Schwab Australia Limited, prepared an independent competent person s report on the mineral assets of the Company. The Anderson & Schwab Report is reproduced in its entirety in part 4 of this document. It should be noted that the Anderson & Schwab Report has not been updated for the purposes of its inclusion in this document. In particular, no reliance should be placed by potential investors or Shareholders on the conclusions of the mineral asset valuations contained at pages 74 to 86 of the report as these valuations were only valid as of the date of that report. For the purposes of the Independent Expert s Report, the Independent Expert commissioned Coffey Mining to provide it with an independent technical valuation report on the Company s mineral assets. An extract of the Coffey Mining Valuation Report dated 18 January 2010 with the report s principal conclusions is included in part 4 of this document. The conclusions are subject to the scope, assumptions and limitations of the full Coffey Mining Valuation Report, a copy of which can be found at www.creatresources.com. Specific risk factors affecting the Company Estimates of mineral resources An updated competent person s report has not been commissioned for the purposes of the Further Galaxy Subscription. Accordingly, the mineral resource estimates provided in this document should be viewed in that light. The figures provided are estimates only and no assurance can be given that any proven or probable reserves will be discovered or that any particular level of recovery of minerals will in fact be realised or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. Certain valuation methodologies were applied in the Anderson & Schwab Report, which were deemed most appropriate by Anderson & Schwab Australia Limited at that time, to determine the potential value of the Company s mining assets. However, a number of different valuation methodologies were potentially available to value such assets and the application of any of these alternative methods may have yielded different results, including a lower valuation than contained in the Anderson & Schwab Report. Mineral exploration is speculative in nature and there can be no assurance that any mineralisation discovered will result in an increase in the Company s proven and probable reserves. The estimated resources described in this document should not be interpreted as assurances of commercial viability or potential profitability of any future operations. 28
Reserve and resource estimates The Company s reported mineral reserves and resources are only estimates. No assurance can be given that the estimated mineral reserves and resources will be recovered or that they will be recovered at the rates estimated. Mineral reserve and resource estimates are based on limited sampling, and, consequently, are uncertain because the samples may not be representative. Mineral reserve and resource estimates may require revision (either up or down) based on actual production experience. Any future reserve and/or resource figures will be estimates and there can be no assurance that the minerals are present, will be recovered or that it can be brought into profitable production. Furthermore, a decline in the market price for natural resources that the Company may discover could render reserves containing relatively lower grades of these resources uneconomic to recover and may ultimately result in a restatement of reserves. Project development risks The Company plans to continue to expand its mineral resources. This will be achieved through mineral exploration on the Company s exploration licence holdings. There can be no assurance that these aims will be achieved in accordance with the Company s current plans or completed on time or to budget. The possibility remains that the described resources, or exploration activities may not be completed or continued on economic terms, if at all. The exploration for metallic minerals and mineral properties are enterprises with high risk, including the risk of fluctuating prices for nickel, tin, tungsten and other minerals being sought, the risks of not encountering adequate resources despite expending large sums of money, and the risk that test results may not be accurate, notwithstanding appropriate precautions. Exploration, mining and other licences The Company s exploration and mining activities are dependent upon the grant of appropriate licences, concessions, tenements, leases, permits and regulatory consents ( Authorisations ) which may be granted for a defined period of time, or may not be granted or may be withdrawn or made subject to limitations. There can be no assurance that such Authorisations will be renewed following expiry or granted (as the case may be) or as to the terms of such grants or renewals. Any conditions imposed on an Authorisation will impact the way in which, and the extent to which, the holder can exploit a resource. There is also no guarantee that the issue of a reconnaissance, prospecting or exploration licence will ensure the subsequent issue of an exploitation licence. The Company s current Authorisations comprise a retention licence, retention licence applications, and mining leases and exploration licences which are pending renewal. Full-scale mining and ore extraction operations cannot commence except under mining leases. Although the Company has lodged tenement applications and renewal applications with the Tasmanian Department of Infrastructure, Energy and Resources, those applications have not yet been granted and there is no guarantee that the Department of Infrastructure, Energy and Resources will grant those tenement applications. Comstock Mine placed on care and maintenance The Comstock mine has been on care and maintenance since July 2008 and the processing plant and associated facilities located at Comstock were sold in July 2009. The Comstock mine area is subject to an application for a retention licence by the Company, and there is no guarantee that the Tasmanian Department of Infrastructure, Energy and Resources will grant the tenement application, or any subsequent application for a mining lease which will be required before extraction operations can be commenced. Competition The exploration and mining business is competitive in all of its phases. The Company competes with numerous other companies and individuals, including competitors with greater financial, technical and other resources than the Company, in the search for and acquisition of exploration and development rights on attractive mineral properties some of which have considerably greater resources than the Company. In particular, the Company may face competition from operators in Australia or China. The Company s success will depend on its ability to select and acquire exploration and development rights on further suitable properties for exploration and development. There is no assurance that the Company will continue to be able to compete successfully with its competitors in acquiring exploration and development rights on such properties. 29
Management and strategic direction of the Company There have been significant changes to the composition of Board of Directors and the management team since January 2008, prior to the acquisition of a 63.8 per cent. interest by Creat Group in November 2008. On 18 July 2008, the Directors proposed that the strategic direction of the Company be changed. At an extraordinary general meeting of the Company on 31 July 2009, the Shareholders approved a change in strategy of the Company to focus on expansion of operations and resource diversification within the resource industry. This strategy involves the possible future acquisition by the Company of minority interests in mining companies besides Galaxy. There has been no significant track record since the change in the composition of the Board of Directors for investors to be able to determine with any degree of certainty how the new strategy will affect the financial results of the Company. It is possible that suitable acquisition opportunities may not be available to the Company to deliver the strategy and even if they are, there can be no guarantee that they will be successfully implemented or integrated in a profitable manner. Dependence on Directors and Senior Management The Company is highly dependent on the Directors and its senior management team and will rely on the consultants that it retains to manage operational and technical aspects of the development and mining of the deposits. Whilst the Board has sought to and will continue to ensure that directors, executives, senior managers, consultants and any key employees are incentivised, retention of such staff cannot be guaranteed, and the loss of their services to the Company may have a material adverse effect on the performance of the Company. There can be no assurance that the Company will be able to manage effectively the expansion of its operations or that the Company s current personnel, systems, procedures and controls will be adequate to support the Company s operations. Any failure of management to manage effectively the Company s growth and development could have a material adverse effect on the Company s business, financial condition and results of operations or financial projections. Currency risk The Company reports its financial results in Australian dollars. However, the Company could enter into sale contracts in foreign currency and incur certain operating expenses in local currency. The Company is not contemplating undertaking any currency hedging at this time. Consequently, fluctuations in exchange rates between currencies in which the Company operates may cause fluctuations in its financial results and may have an adverse effect on income and/or asset values. Raising of future equity financing by the Company The exploration, development and operation of the Company s mineral assets may be dependent upon the Company s ability to raise funds through joint ventures, equity financing or other means. Any additional equity financing may be dilutive to Shareholders. No assurance can be given that any such additional financing will be available or that, if available, it will be available on terms favourable to the Company or its Shareholders. If adequate funds are not available to satisfy either short or long-term capital requirements, the Company may be required to postpone or abandon further exploration and development of its projects. Borrowings The Company may fund its projects partially through borrowings. The extent of borrowings and their terms will depend on the Company s ability to obtain credit facilities, the lenders estimate of the stability of each project s cash flow and the debt market at any time. Furthermore, to the extent that the Company funds its projects through borrowing, it will be affected by changes in interest rates. Rising interest rates would have an adverse effect on the Company s financial performance by increasing the Company s cost of capital. Any delay or failure in obtaining suitable and adequate financing from time to time may impair the Company s ability to obtain credit facilities on reasonable terms. Project Finance Facility The New Lending Banks are in discussions to make available the New Lending Banks Facility to the Galaxy Group for the purposes of developing both the Mt Cattlin Project and the Jiangsu Project. The Company has agreed to grant the Share Mortgage in favour of the New Lending Banks and has also agreed to grant the Facility Put Option. The Share Mortgage is enforceable by the New Lending Banks in certain circumstances, including when there is an event of default by Galaxy or its subsidiary under the New Lending Banks Facility Agreement. If there is an event of default, the New Lending Banks 30
could enforce the Share Mortgage and the Company could lose its entire shareholding in Galaxy without compensation. The Company will only have the right to have one representative on the board of Galaxy and will hold less than 20 per cent. of the share capital of Galaxy, so will only have limited influence over Galaxy and will not have management control. Accordingly, it will not have the ability to prevent an event of default occurring under the New Lending Banks Facility Agreement nor therefore prevent the possibility of the Share Mortgage being enforced. The New Lending Banks are able to enforce the Facility Put Option during the period commencing four years from the date of the initial drawdown made under the New Lending Banks Facility Agreement and ending on 10 December 2016. The Company will therefore be obliged to purchase the debt, interest and fees then outstanding under the New Lending Banks Facility Agreement at the date of exercise of the Facility Put Option, regardless of its own financial situation. The Company will have no ability to control the amount outstanding under the New Lending Facility as such amount will be completely dependent on Galaxy s ability to service and repay the debt. It is possible that the Company will not have sufficient resources to enable it to do this and so it may have to raise further debt or equity financing or arrange for the refinancing of the project finance facility with a third party provider. There can be no guarantee that the required debt will be available at that time and on terms satisfactory to the Company. The Company will also have little control over whether, prior to the exercise of the Facility Put Option by the New Lending Banks, the New Lending Banks have exercised their rights under the New Lending Bank Facility in order to ensure timely payment of principal and interest by Galaxy. Financial controls and internal reporting procedures The Company is currently engaged in the exploration and acquisition of mineral assets. As such, the Company has established financial controls and internal reporting procedures appropriate for the Company s current size and stage of development. As the Company grows, it may be necessary to adopt systems and controls to meet the requirements of integrating the functions of a business engaged in the mining and commercial production of metal concentrates, including the implementation of appropriate procedures to manage the risk emanating from foreign currency and metal price fluctuations as well as establishment of an internal audit function. Any failure by management to manage effectively the implementation of these systems and controls as the Company moves to production could have an adverse effect on the Company s business and financial performance and hinder its ability to prepare reliable financial statements in the future. Influence of significant shareholder and dependence on significant shareholder Prior to Re-Admission, Creat Group owns 55.93 per cent. of the Company s issued share capital. This may be diluted through the Second Round Placing to 37.30 per cent in the event that the Second Round Placing is fully subscribed or it may effectively be increased to 70.61 per cent. should the Convertible Loan Subscriber be permitted to exercise (and does in fact exercise) its right to convert the Convertible Note into Ordinary Shares. As a result of its shareholding in the Company, Creat Group is able to exercise significant control over all matters requiring approval by Shareholders including the election of directors and approval of mergers, consolidations, sales of assets, recapitalisations and amendments to the Constitution. Creat Group may take actions with which investors do not agree, including actions that delay, defer or prevent a change of control, and could cause the price that investors are willing to pay for Ordinary Shares to decline. The Company has relied upon significant financial support from Creat Group to enable the Company to meet working capital requirements and its current liabilities. Creat Group s intention to continue to provide such financial support was confirmed in an undertaking signed by the Company and Creat Group on 1 February 2010, further details of which are provided at paragraph 10.4 of part 5 of this document. Second Round Placing and Convertible Loan Note There can be no assurance that the Second Round Placing will raise any or all of the funds required for the Further Galaxy Subscription. If the gross funds raised by the Second Round Placing are less than 17,000,000, the remaining funds will be provided by the Convertible Loan Subscriber via the Convertible Loan Note. The Convertible Loan Note has a maturity date of twelve months after the date of its issue. Unless the Convertible Loan Note is converted into Ordinary Shares, the principal and interest under the Convertible Loan Note will be payable at the maturity date and there is no assurance that the Company will have sufficient cash resources to fund such repayment without reliance on funding from Creat Group. Furthermore, the Convertible Loan Note may lead to Creat Group further consolidating its controlling position. 31
If Creat Group procures third party investors to subscribe for additional shares in the Company, or agrees with such investors to assign to them all or part of the Convertible Loan Note immediately upon issue, the Company may have one or more additional significant shareholders. The identity of any such shareholder(s) will not be known before 7 clear days before the AGM. Reports The Anderson & Schwab Report which is reproduced in its entirety in part 4 of this document, was issued on 29 January 2007 and has not be amended or updated since that date. In particular, no reliance should be placed by potential investors or Shareholders on the conclusions of the mineral asset valuations contained at pages 74 to 86 of the report as these valuations were only valid as of the date of that report. The Creat Resources Summary Report and the Galaxy Summary Report which are reproduced in their entirety in part 4 of this document, were issued by Coffey Mining based on publicly disclosed information on each of the companies and are not to be taken as an independent valuation reports on either companies mineral assets. Specific risk factors affecting Galaxy Minority investment The Company proposes to acquire a minority interest in Galaxy which will give the Company limited rights as a shareholder. Galaxy is a company listed on the ASX and as such is and will continue to be managed independently by its board of directors. The Nomination Letter confirms the right of the Company to require Galaxy to use its best endeavours to appoint Creat Group s nominee to the board of directors of Galaxy and, amongst other things, for Galaxy to recommend the election of such nominee as a director of Galaxy at the next general meeting of Galaxy shareholders (on 8 January 2010, Dr Yuewen Zheng was appointed to the board of directors of Galaxy). Even so, the Company will have very limited control over Galaxy and little influence over its formulation or implementation of its strategies. As such, the Company will be in a similar position to other minority investors in Galaxy. Galaxy is subject to the rules of the ASX and the Act which may limit (a) the voting rights which the Company can exercise in respect of its shares and, in particular, the Company will not be entitled to vote on approving certain transactions between the Company and Galaxy; (b) the information that can be provided to the Company as a shareholder; and (c) the ability of Galaxy to pay dividends. Significance of the Company s investment in Galaxy The investment in the Galaxy Shares represents approximately 67 per cent. of the current market capitalisation of the Company (assuming the maximum number of Further Galaxy Shares is issued to the Company and based on the subscription price for the Further Galaxy Shares and the market price of the Ordinary Shares of 4 pence per Ordinary Share as at 13 November 2009 (being the closing mid price prior to the suspension of the Ordinary Shares from trading on AIM) and the number of Existing Ordinary Shares). Investors in the Company should be aware that the investment by the Company in Galaxy will represent a significant proportion of the Company s assets. The share price of Galaxy may increase or decrease which may have a significant effect on the Company s valuation and share price. Due to the size of the Company s stake in Galaxy, there can be no assurance that the Company will be able to realise its investment at the share price quoted for Galaxy s shares from time to time, or at all. Jiangsu Project The proposed lithium carbonate plant in Jiangsu Province, China is a key part of Galaxy s future strategy. The project is in its very early stages and is subject to the full set of development risks for industrial and mining projects in China, including the requirements to obtain further licences and permits from the Chinese government. There can be no assurance that these risks will not adversely affect the development of the plant and Galaxy s ability to it operate efficiently. New Lending Banks Facility Agreement The New Lending Bank Facility Agreement is not yet agreed with the New Lending Banks. If the New Lending Bank Facility Agreement is not agreed by 23 April 2010, Creat Group will be required to make funds available to Galaxy on the terms of the Original Facility Agreement. Unlike the New Lending Banks, Creat Group is not an international lending bank and its creditworthiness may therefore not be as strong as the New Lending Banks. If the New Lending Bank Facility Agreement is not signed by that date, there can be no assurance that Creat Group will be able to make the funds available under the 32
Original Facility Agreement. If Galaxy is unable to secure the requisite funding for its projects, this could impact adversely on the share price of Galaxy and the value of the Company s investment in Galaxy. Exploration, mining and other licences Galaxy s exploration and mining activities are dependent upon the grant of appropriate licences, concessions, tenements, leases, permits and regulatory consents ( Authorisations ) which may be granted for a defined period of time, or may not be granted or may be withdrawn or made subject to limitations. There can be no assurance that such Authorisations will be renewed following expiry or granted (as the case may be) or as to the terms of such grants or renewals. There is also no guarantee that the issue of a reconnaissance, prospecting or exploration licence will ensure the subsequent issue of an exploitation licence. A number of Galaxy s current Authorisations are exploration licences and prospecting licences, and exploration licence and prospecting licence applications.. Full-scale mining and ore extraction operations cannot commence except under mining leases. Any conditions imposed on an Authorisation will impact the way in which, and the extent to which, the holder can exploit a resource. In addition, several of Galaxy s mining tenements are subject to registered Native Title claims and are located on Aboriginal heritage sites. The implications of these matters are discussed below under the heading Specific risk factors relating to mining in Australia. Galaxy s interest in prospecting licences P74/309 and P74/310 and exploration licence E74/401 (the Traka Tenements ) was obtained under a Tenement Sale Agreement made with Traka Resources Ltd ( Traka ). The tenement transfer is subject to Ministerial consent from the Western Australian Department of Mines and Petroleum, which is not guaranteed. Until such consent is obtained, Galaxy s interest in the Traka Tenement is contractual only. Galaxy lodged an absolute caveat (preventing all dealings with the tenement without caveat s removal) on 4 November 2009, caveating Traka s shareholding of the tenement. Galaxy s interest in prospecting licences P74/307 and P74/308 and exploration licence E74/400 (the Vistarise Tenements ), was obtained under a Tenement Sale Agreement made with Vistarise Ltd ( Vistarise ). Vistarise had been de-registered as a company prior to the Tenement Sale Agreement. Therefore Vistarise did not have capacity to enter into the Tenement Sale Agreement, nor did it hold the title to the Vistarise Tenements as these had vested in the Australian Securities and Investment Commission under section 601AD(2) of the Australian Corporations Act when Vistarise was de-registered. There is a high risk that Galaxy will not obtain title to these tenements. Galaxy lodged an absolute caveat (preventing all dealings with the tenement without the caveat s removal) on 4 November 2009, caveating Vistarise s shareholding of the tenenment. General mining risk factors Exploration and mining risks The business of exploration for and identification of minerals is speculative and involves a high degree of risk. The mineral deposits of any projects owned or acquired may not contain economically recoverable volumes of minerals, base metals, precious metals or hydrocarbons of sufficient quality or quantity. Even if there are economically recoverable deposits, delays in the construction and commissioning of mining projects or other technical difficulties may make the deposits difficult or uneconomic to exploit. Possible disruption to mining The exploration and development of any project may be disrupted, damaged or delayed by a variety of risks and hazards which are beyond the control of the mining company. These include (without limitation) geological, geotechnical and seismic factors, environmental hazards, technical failures, adverse weather conditions, explosions, fire, equipment failure, acts of God and changes in government regulations. These hazards may result in potential delays, incurring liabilities, loss of life, injury, environmental damage, damage to or destruction of property and regulatory investigations. The mining company may also be liable for the mining activities of previous miners. 33
Insurance No assurance can be given that a mining company or the operator of an exploration project will be able to obtain insurance coverage at reasonable rates (or at all), or that any coverage it obtains will be adequate and available to cover any such claims. The mining company may elect not to become insured because of high premium costs or may incur a liability to third parties (in excess of any insurance cover) arising from pollution or other damage or injury. Exploration, development, mining and processing risks The business of mineral exploration, project development and mining by its nature contains elements of significant risk. Ultimate and continuous success of these activities is dependent on many factors such as: limitations on activities due to seasonal weather patterns and cyclone activity; the discovery and/or acquisition of economically recoverable ore reserves; successful conclusions to bankable feasibility studies; the consistency and reliability of ore grades; the cost of development and access to adequate capital for project development; design and construction of efficient mining and processing facilities within capital expenditure budgets; unanticipated operational and technical difficulties encountered in geophysical surveys, drillings and production activities; mechanical failure of operating plant and equipment; adverse weather conditions, industrial and environmental accidents, acts of terrorism or political or civil unrest and other force majeure events; industrial action, disputation or disruptions; commodity prices; actual mineralisation securing and maintaining title to tenements and compliance with the terms of those tenements; obtaining consents and approvals necessary for the conduct of exploration and mining; prevention or restriction of access by reason of political unrest, outbreak of hostilities, and inability to obtain consents or approvals; unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment; and access to competent operational management and prudent financial administration, including the availability and reliability of appropriately skilled and experienced employees, contractors and consultants. Environmental liability Mining is an industry which has become subject to increasing legislative regulation including but not limited to environmental responsibility and liability. The potential for liability is an ever present risk. The use and disposal of chemicals in the mining industry is under constant legislative scrutiny and regulation. The introduction of new laws and regulations or changes to underlying policy may adversely impact on the operations of the Company. For further information on the Company s compliance record with environmental regulations, potential investors should read, in particular, paragraph 12 of part 5 of this document. Renewal of mining leases and exploration licences Any mining leases, exploration licences and prospecting licences in which a mining company has an interest will require renewal or conversion from time to time. If for any reason a licence is not renewed then the mining company may be denied the opportunity to develop the deposits covered by the mining leases, exploration licences and prospecting licences. 34
Requirements to mine the tenements Any failure by a mining company to comply with any of the terms and conditions and regulatory requirements associated with its mining leases, exploration licences and prospecting licences could result in sanctions and/or penalties being levied on the mining company, and/or could result in the revocation of the mining leases, exploration licences and prospecting licence, which could have a material adverse effect on a mining company s business prospects, asset value and financial condition. Geology of tenements The delineation of geological conditions and the definition of mineral resources and ore reserves is a complex process requiring specialist input and a high degree of interpretation of the results obtained from exploration programs. There remains a risk that when mining commences, geological and ground conditions could be different to those projected. In these circumstances there is a risk that ongoing operations could be adversely affected. Volatility of prices Historically, commodity prices have fluctuated and are affected by numerous uncontrollable factors, including global demand and supply, international economic trends, currency exchange fluctuations, expectations for inflation, speculative activity, consumption patterns and global or regional political events. The aggregate effect of these factors is impossible to predict. Fluctuations in commodity prices, over the long term, may adversely impact the returns of a mining company s investments and may affect the economic viability or profitability of individual projects of the Company or Galaxy. Government policies Changes to existing and possible future legislation, regulations and actions, including those regarding land access, environment, taxation and royalties could cause additional expense, capital expenditures, restrictions and delays in the activities of a mining company, the extent of which cannot be predicted. Specific risk factors relating to mining in Australia Land ownership in Australia The Native Title Act 1993 (Cth) recognises and protects certain rights and interests in Australia of Aboriginal and Torres Strait Islander people in land and waters, according to their traditional laws and customs. There is significant uncertainty associated with native title in Australia and this may impact on the operations and future plans of mining companies operating in Australia. Native title can be extinguished by valid grants of land or waters to people other than the native title holders or by valid use of land or waters. It can also be extinguished if the indigenous group has lost their connection with the relevant land or waters. Native title is not extinguished by the grant of mining tenements, as they are not considered to be grants of exclusive possession to the land covered by the tenements. A validly granted mining tenement prevails over native title to the extent of any inconsistency for the duration of the tenement title. For tenements to be validly granted (or renewed) after 23 December 1996, the right to negotiate regime established by the Native Title Act must be followed. It is important to note that the existence of a native title claim is not an indication that native title in fact exists to the land covered by the claim, as this is a matter ultimately determined by the Federal Court of Australia. If a native title claim is successful, the ability of the mining company to operate the mine or exploit the mineral resources may be significantly adversely affected if agreement with the native title holders is delayed, or arbitration is required in order to implement an arrangement to enable the mining activities to proceed. Mining companies operating in Australia must also comply with Aboriginal heritage legislation requirements which require heritage survey work to be undertaken ahead of the commencement of mining operations. Certain restrictions may apply in respect of conducting mining operations on private (freehold) land, townsites and reserved land (such as national parks, nature reserves or other reserved lands). Consent from the land owner, reserved land owner, or the Minister responsible for the management of the townsites or reserved land may be required to conduct mining operations on such lands. The majority of the Company s Authorisations, and a number of Galaxy s Authorisations, relate to reserved land or 35
partially or wholly private land, which will necessitate engagement with those third parties, and a number of Galaxy s Authorisations lie within the boundaries of the Ravensthorpe townsite, which will require ministerial consent before any work can be carried out on those sites. All mining tenement holders must pay a royalty to the Tasmanian State Government, where the mining tenement is producing ore and the mineral rights are vested in the State. The royalty is compensation paid to the State Government for extraction of a non-renewable resource that the State owns. In certain limited circumstances, where a mining tenement is located on private land and the land owner also owns the mineral rights, a royalty is payable to the land owner when ore is extracted from the land. Royalties to the State Government and private land owners are independent of, and must be paid in addition to, any other payments such as Native Title payments or mining tenement rents or expenditure. The maximum royalty payable to the State Government is 5 per cent. of net sales. Market perception Market perception of mining and exploration companies may change which could impact on the value of investors holdings and impact on the ability of the Company to raise further funds by issue of further shares in the Company. General risk factors General business risk The activities of the Company are subject to the usual commercial risks and factors as competition and economic conditions may generally affect the Company s ability to generate income or achieve its objectives. Personal circumstances A prospective investor should consider with care whether an investment in the Company is suitable for him in light of his personal circumstances and the financial resources available to him. An investment in the Company is only suitable for investors capable of evaluating the risks and merits of such investment and who have sufficient resources to bear any loss which may result from the investment. Prospective investors should therefore consult an independent financial adviser before investing. Nature of investment Investment in the Company should not be regarded as short-term in nature. There can be no guarantee that any appreciation in the value of the Company s assets will occur or that the objectives of the Company will be achieved. Investors may not get back the full amount initially invested. The prices of shares and the income derived from them can go down as well as up. Past performance is not necessarily a guide to the future. There is also the possibility that the market value of an asset of the Company may not reflect the true underlying value of the Company. Economic conditions Both domestic and world economic conditions may affect the performance of the Company. Factors such as the level of industrial production, inflation, currency fluctuations, interest rates, tax laws, supply and demand, political and diplomatic events and trends and industrial disruption and other factors may substantially and adversely impact on operations of the Company and the Company s prospects. Changes in the general economic climate, including in particular the mining and resource sector, may adversely affect the financial performance of the Company. Factors which may contribute to that general economic climate include, growth of countries where assets are located or where commodities of the assets are sold, the level of government intervention in their respective economies (e.g. interest rates) and the perceived political and economic stability of the state in which the investment operates or where the commodities of the assets are sold. The price for the Ordinary Shares may be volatile and influenced by many factors, some of which are beyond the control of the Company. For example, the performance of the overall share market, other Shareholders buying or selling large numbers of Ordinary Shares, changes in legislation or regulations and general economic conditions. 36
Litigation risk Legal proceedings may arise from time to time in the course of the Company s business. The Company cannot preclude the possibility that litigation may be brought against it or foresee potential costs. Such litigation may have an adverse effect on the Company. Climate change The Australian Federal Government has proposed the implementation of an emissions trading scheme ( ETS ) in Australia, to be called the carbon pollution reduction scheme ( CPRS ). In December 2008, the Federal Government released the CPRS White Paper which set out the intended framework for the design of the proposed CPRS. On 10 March 2009, the Federal Government released draft legislation for the proposed CPRS in the form of the Carbon Pollution Reduction Scheme Bill 2009 (Cth). The bill and nine ancillary legislative instruments were introduced into federal parliament on 14 May 2009. A further bill forming part of the legislative package was introduced into federal parliament on 28 May 2009. In addition, draft CPRS regulations were released for public comment on 19 June 2009. Whilst the legislative package was passed in the House of Representatives, it was rejected by the Senate on 13 August 2009. In November 2009, the Federal Government put the CPRS bill before federal parliament again, however on 2 December 2009 the CPRS bill was rejected a second time. While the Federal Government has not formerly indicated the form of any revised proposed CPRS, the past proposal and introduction by the Federal Government of the CPRS could indicate the Government s preparedness to implement some form of carbon pollution reduction scheme which, if implemented, may have a significant adverse effect on mining companies returns from their mining investments and may affect the economic viability or profitability of mining companies individual projects. Taxation risk Statements in this document concerning the taxation of the Company and its investors are based upon current tax law and practice which is subject to change. Any change in the Company s tax status or the tax applicable to holding Ordinary Shares or in taxation legislation or its interpretation, could affect the value of the investments held by the Company, the Company s ability to provide returns to Shareholders and/or alter the post-tax returns to Shareholders. The City Code on Takeovers and Mergers The Company is not considered to be resident in the UK for the purposes of the City Code. Accordingly, the protections afforded by the City Code to regulate the way in which takeovers are conducted in the UK will not be available. It is therefore possible that an offeror may gain control of the Company in circumstances where the non-selling Shareholders do not receive, or are not given the opportunity to receive, the benefit of any control premium paid to the selling Shareholder(s). However, the Company is subject to the Australian takeover provisions contained in the Act. Those provisions regulate the conduct of takeovers in Australia, further details of which are set out in paragraph 9 of part 5 of this document. Liquidity of the Ordinary Shares and AIM generally AIM is a market designed primarily for emerging or smaller companies and the rules of the AIM market are less demanding than those of the Official List. An investment in the Ordinary Shares of the Company is highly speculative and subject to a high degree of risk. An investment in the Ordinary Shares may be difficult to realise and the price at which the Ordinary Shares will be traded and the price at which investors may realise their investment will be influenced by a large number of factors, some specific to the Company and its operations and some, which may affect quoted companies generally. Admission to AIM should not be taken as implying that there will be a liquid market for the Ordinary Shares particularly as, on Re-Admission, the Company will have a limited number of shareholders. The market for shares in smaller public companies, such as the Company, is less liquid than for larger public companies. Any liquidity of the Ordinary Shares may have an adverse effect on the market price of the Ordinary Shares. Any substantial disposals of Ordinary Shares, or the perception that these sales could occur, may make it more difficult for the Company to sell equity securities in the future at a time and price that is deemed appropriate. 37
Forward looking statements This document contains forward looking statements, including, without limitation, statements containing the words believe, anticipated, expected and similar expressions. Such forward looking statements involve unknown risk, uncertainties and other factors which may cause the actual results, financial condition, performance or achievement of the Company, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this Part 2 of this document. Given these uncertainties, prospective investors are cautioned not to place any undue reliance on such forward looking statements. To the extent lawfully permitted, the Company disclaims any obligations to update any such forward looking statements in this document to reflect future events or developments. 38
PART 3 FINANCIAL INFORMATION A. HISTORICAL FINANCIAL INFORMATION OF CREAT RESOURCES HOLDINGS LIMITED The Company s audited annual report and accounts for the three financial years ended 30 June 2009 can be viewed on the Company s website at www.creatresources.com. B. HISTORICAL FINANCIAL INFORMATION OF GALAXY RESOURCES LIMITED Galaxy s audited annual report and accounts for the three financial years ended 30 June 2009 and the results for the quarters ending on 30 September 2009 and 31 December 2009 can be viewed on Galaxy s website at www.galaxyresources.com.au. 39
PART 4 EXPERTS REPORTS 1. Anderson & Schwab Report Set out below is the full text of a competent person s report prepared by Anderson & Schwab Australia Limited as included in the Company s admission document at the time of its initial admission to trading on AIM. Please note that the page numbers referred to in the table of contents to the Anderson & Schwab Report do not refer to the page numbers of this document. Potential Investors should note that the Anderson & Schwab Report has not been updated for the purposes of its inclusion in this document. The Anderson & Schwab Report was prepared in February 2007 in connection with the Company s initial admission to trading on AIM. Potential Investors should note that Zeehan Zinc Limited is the former name of the Company. No reliance should be placed by potential investors on the conclusions of the mineral asset valuations contained at pages 74 to 86 of the report as these valuations were only valid as of the date of the report. An extract from an independent valuation report dated 18 January 2010 by Coffey Mining can be found on pages 185 to 190 of this part 4. Anderson & Schwab Australia Limited Management Consultants MELBOURNE NEW YORK DENVER Level 4 161 Collins Street Melbourne Victoria 3000 Australia TEL: +61 3 9288 6930 FAX: +61 3 9897 1036 A.B.N. 67 075 112 533 27 February 2007 The Directors Zeehan Zinc Limited Level 1/199 Macquarie Street Hobart Tasmania 7000 Australia Libertas Capital Corporate Finance Limited 16 Berkeley Street London W1J 8DZ United Kingdom Dear Sirs, Re: Competent Person s Report and Independent Technical Valuation of the Mineral Assets of Zeehan Zinc Limited in Western Tasmania, Australia ( Zeehan Zinc or the Company ) Anderson & Schwab Australia Limited ( A&S ) (part of Anderson & Schwab, Inc.) is acting as the Company s competent person ( Competent Person ) and has prepared an independent Competent Person s Report ( CPR ) on the mineral assets of Zeehan Zinc at the request of Zeehan Zinc and its nominated adviser Libertas Capital Corporate Finance Limited ( Libertas Capital ) in connection with the proposed placing of new shares and the admission of the Company s entire share capital to trading on the AIM market of the London Stock Exchange plc ( AIM ) ( Admission ). We acknowledge that this CPR will be included in the document prepared by the Company in accordance with the AIM Rules in connection with the Admission ( Admission Document ). The CPR has been compiled in accordance with and satisfies the AIM Guidance Note for Mining, Oil and Gas Companies dated March 2006 ( AIM Guidance Note ). In accordance with your instructions to us and the requirements of the AIM Guidance Note and as further described in Appendix I of the CPR, we confirm that we: 1. are professionally qualified and a member in good standing of a self regulatory organisation of engineers and/or geoscientists; 2. have at least five years relevant experience in the estimation, assessment and evaluation of the mineral assets; 3. are independent of the Company, its directors, senior management and advisers; 40
4. will be remunerated by way of a time-based fee and not by way of a fee that is linked to the Admission or value of the Company; 5. are not a sole practitioner; 6. have the relevant and appropriate qualifications, experience and technical knowledge to appraise professionally and independently the assets, being all assets, licences, joint ventures or other arrangements owned by the Company or proposed to be exploited or utilised by it ( Assets ) and liabilities, being all liabilities, royalty payments, contractual agreements and minimum funding requirements relating to the Company s work programme and Assets ( Liabilities ); and, 7. consider that the scope of the CPR is appropriate, given the Company s Assets and Liabilities and includes and discloses all information to be included therein and was prepared to a standard expected in accordance with the AIM Guidance Note. Standard applied In compiling this report all resources have been classified to JORC (2004) standards by Competent Persons. JORC (2004) is a standard recognised under the AIM Guidance Note. In providing our valuations, A&S has followed the Australasian Institute of Mining and Metallurgy ( The AusIMM ) Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports The Valmin Code, 2005 ( Valmin ), in undertaking our assessments of the tenements. No material change We confirm that there has been no material change of circumstances or available information since the date of the CPR and we are not aware of any significant matters arising from our evaluation that are not covered by the CPR which might be of a material nature with respect to the proposed Admission. Extraction of information Further, we confirm that we have reviewed information contained elsewhere in the Admission Document which relates to information contained in the CPR and confirm that the information presented therein has been extracted directly from our CPR in a manner which is not misleading, is accurate and provides a balanced and complete view which is not inconsistent with the CPR. Our CPR is entitled Competent Person s Report and Independent Technical Valuation of the Mineral Assets of Zeehan Zinc Limited in Western Tasmania, Australia dated 29 January 2007 and is contained in Part III of the Admission Document, dated 27 February 2007. Reliance on source data The content of the CPR and our estimates of reserves, resources and values contained therein are based on exploration and drill hole data, and other geological data provided to us by Zeehan Zinc and their consultants. Zeehan Zinc has confirmed that it has provided all data which is relevant to this CPR and available at the time of its preparation. We have accepted, without independent verification, the accuracy and completeness of this data. Such data is however internally consistent with previous data supplied over a period of several years during which Simon Tear, a geologist and Competent Person under JORC (2004), has been reviewing it. As part of our work we did undertake site visits to all of the Company s exploration and development assets as we considered such inspections would provide us with a greater understanding of the physical positioning of each property relative to other properties and enable us to review the crushing and processing plant that was under construction. All interpretations and conclusions presented herein are opinions based on inferences from geological, geophysical, engineering or other data. The report represents A&S best professional judgement and should not be considered a guarantee of results. Our liability is limited solely to Zeehan Zinc. Consent We hereby consent, and have not revoked such consent, to the issue by the Company of its Admission Document, the inclusion of the CPR in the Admission Document in its entirety and the inclusion in the Admission Document of the references to our report and to our name in the form and context in which they appear in the Admission Document. 41
The CPR relates specifically and solely to the subject assets and is conditional upon various assumptions that are described herein. The CPR, of which this letter forms part, must be read in its entirety. This report was provided for the sole use of Zeehan Zinc and Libertas Capital. Except with permission from A&S, this report may not be reproduced or redistributed, in whole or in part, to any other person or published, in whole or in part, for any purpose without express written consent of A&S. Yours faithfully, Anderson & Schwab Australia Limited Ian D. Buckingham, FRMIT, BAppSc, MBA, MPESA, MAAPG Managing Director Simon Tear, BSc(Hons), PGEO, MAusIMM, EurGeol, IOM 3 Consultant 42
Competent Person s Report and Independent Technical Valuation of the Mineral Assets of Zeehan Zinc Limited in Western Tasmania, Australia Prepared for Zeehan Zinc Limited Level 1 / 199 Macquarie Street Hobart Tasmania 7000 Australia and Libertas Capital Corporate Finance Limited 16 Berkeley Street London W1J 8DZ United Kingdom by Anderson & Schwab Australia Limited Level 4 161 Collins Street Melbourne Victoria 3000 Australia This report has been prepared at the request of Zeehan Zinc Limited ( Zeehan Zinc or the Company ). The purpose of this report is to provide a Competent Person s Report ( CPR ) to Zeehan Zinc for inclusion within the Alternative Investment Market ( AIM ) Admission Document, to assist it in providing an analysis and review of the Company s mineral assets and development plans thereof in Western Tasmania. The report, prepared by Anderson & Schwab Australia Limited ( A&S ), has determined forecast values for the minerals assets of the Company. These valuations are based on information supplied by management, directors and staff of, and consultants to, Zeehan Zinc; consultants reports based on investigations into various assets belonging to Zeehan Zinc; publicly available information and reviews of data collected, collated and assessed by staff and consultants to the Company. These valuations are subject to forward looking assumptions and expectations regarding volumes, prices, and costs, and as such could change markedly in the future from the expectation contained within this CPR. This report may accompany commentary provided by Zeehan Zinc on their opinions but the report must be provided in its entirety. The report has been completed in accordance with the terms and conditions described herein and set forth in our agreement with Zeehan Zinc. 29 January 2007 43
EXECUTIVE SUMMARY This report provides an independent technical assessment and financial valuation of the mineral and exploration assets of Zeehan Zinc for the purposes of Zeehan Zinc listing its ordinary shares on the Alternative Investment Market ( AIM ) of the London Stock Exchange. Personnel involved in the preparation and writing of this report have been involved in a wide range of natural resources projects throughout the world, involving the disciplines of geological evaluation, minerals processing, marketing and financial evaluation. Details of the consultants qualifications can be found in Appendix I of this report. Within the scope of this CPR, A&S was requested to provide assessments of the mineral assets of Zeehan Zinc and of the likely market value of these mineral assets. The mineral assets of Zeehan Zinc are located on the West Coast of Tasmania, Australia. The Company s total Resources are estimated at 6.89Mt at 4.4% zinc, 3.5% lead and 34 g/t silver. This mining area is particularly prospective for base metals mining, with exploitation of the general area having taken place over the last 125 years. The area s geology has a predisposition to form large deposits of economically extractable metals that include tin, zinc, lead, gold, silver, nickel and copper. Project Status Zeehan Zinc currently holds tenure over three Exploration Licences, five Mining Leases, and one Mining Lease application. The Company has identified three main projects on its tenements at Comstock, Oceana and Mariposa and has constructed an initial open cut pit at the Allison s Lode, within the Comstock Site. Zeehan Zinc is completing the installation of a 400,000tpa operating capacity crushing/gravity/flotation plant and is planning to increase this capacity to 800,000tpa. The Company has also installed a 22 kv electricity transmission line and transformer to the Comstock Site, and generally readied the Comstock Site for mining operations. Near term operations will require Zeehan Zinc to complete the gravity/crushing plant, construct an operational tailings dam, and construct an 800,000 tpa equivalent lead, zinc and silver flotation circuit. Capital costs associated with these works are anticipated over a total mine life at A$25.7 million as estimated by the Company (see Table 19). Ongoing exploration and appraisal drilling programmes across the Company s already delineated Resources and further exploration of its licences is expected to continue the Company s conversion of resources into a working mine inventory. Zeehan Zinc is proposing to mine its Reserves and Resources and process this output to a metal-in-concentrate product which will be sold into the domestic and/or international market place. Valuation Within this report A&S has attempted to apply a financial valuation to the future value of these operations through the analysis of Zeehan Zinc s financial forecasts, together with a review of the potential market value of the Company s exploration acreage. A&S has considered two operating scenarios in calculating a value for the Company s assets. Scenario 1 involves the production of 400,000tpa of ore and Scenario 2 involves the production of 800,000tpa of ore material. A&S preferred market value of the Company s assets has been derived using an average ore production schedule of 400,000tpa (Scenario 1) in its calculations on a pre-corporate tax basis. Zeehan Zinc s mineral and exploration assets are valued accordingly: Valuation of Mineral Assets Valuation Mining Leases: Comstock Site (Allison s Lode, Balstrup Fault, and Main Lode including West Lode), Oceana Deposit and Mariposa Deposit (1). Valuation Method Scenario 1 (400,000tpa) Scenario 2 (800,000tpa) NPV of future cash flows $149.2 million $231.3 million Exploration Licences: EL 20/2002, Multiple of Exploration $23.6 million $23.6 million EL 30/2002, EL 18/2003. Expenditure Total $172.8 million $254.9 million NOTE: (1) Mariposa Deposit is currently the subject of a Mining Lease application ML 4M/2006. 44
TABLE OF CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION 8 1.1 Background 8 1.2 Basis of Opinion 10 2 ZEEHAN ZINC ASSETS 12 2.1 Introduction 12 2.2 Tenements 12 2.3 Geology and Mineralisation of the Tenements 13 2.3.1 Comstock District 14 2.3.1.1 Geology/Mineralisation 14 2.3.1.2 Historical 15 2.3.2 Zeehan Mineral Field 15 2.3.2.1 Geology/Mineralisation 15 2.3.2.2 Historical 16 2.4 Historical Status of Tenure 16 2.4.1 Mining Leases 16 2.4.2 Exploration Licences 17 2.4.3 Mining Lease Applications 17 2.5 Reserves and Resource Estimates 17 2.5.1 Methodologies 19 2.5.2 Allison s Lode 19 2.5.2.1 Allison s Lode Resource Assessment 23 2.5.3 The Main Lode Deposit 24 2.5.3.1 Main Lode Resource Assessment 24 2.5.4 Balstrup Fault Deposit 25 2.5.4.1 Balstrup Fault Mineralisation Resource Assessment 25 2.5.5 Oceana Deposit 25 2.5.5.1 Oceana Deposit Resource Assessment 25 2.5.6 Mariposa Deposit 27 2.5.6.1 Mariposa Deposit Resource Assessment 27 2.5.7 Total Resources 29 2.6 Mining Operations 29 2.7 Milling and Flotation 31 2.8 Exploration 33 2.8.1 Exploration Acreage 33 2.8.2 Future Exploration Activities 33 3 VALUATION 35 3.1 Valuation Summary 35 3.2 Introduction 35 3.3 Valuation Methods 36 3.4 Limitation of Assumptions 37 3.4.1 Timing 37 3.4.2 Commodity Prices 37 3.4.3 Foreign Exchange Rates 37 3.4.4 Capital Expenditure 37 3.4.5 Operating Costs 38 3.4.6 Milling Operating Costs 39 3.4.7 Royalties 39 3.4.8 Conversion Factors 39 3.4.9 Mining Programme 40 3.4.10 Offtake Agreements 40 3.4.11 Environmental Management and Site Rehabilitation 40 3.4.12 Risks 40 3.5 Valuation Assumptions for Development Assets 42 3.6 Valuation of Development Assets 43 45
3.7 Valuation of Exploration Assets 43 3.7.1 Introduction 43 3.7.2 Valuation 43 3.8 Sensitivity Analysis 44 3.8.1 Discussion 45 3.8.1.1 Exchange Rate 45 3.8.1.2 Commodity Prices 46 3.8.1.3 Operating Costs (Total) 46 3.8.1.4 Mining Costs 46 3.8.1.5 Milling Costs 46 3.8.1.6 Discount Rate 47 4 DIRECTOR S INTERESTS 48 4.1 Director s Interests 48 APPENDIX I QUALIFICATIONS 49 APPENDIX II REFERENCES 52 APPENDIX III GLOSSARY OF TERMS 55 46
1. INTRODUCTION 1.1 Background Zeehan Zinc commissioned A&S to prepare a Competent Person s Report ( CPR ) in relation to the admission of the ordinary shares of Zeehan Zinc to AIM. The assets of Zeehan Zinc include delineated mineral Resources of zinc, lead, and silver within its tenements located in the western region of Tasmania, Australia. Zeehan Zinc also holds tenure over exploration acreage parallel, adjacent, and in close proximity to these discovered resources. The Resources can be attributable to the exploration efforts of Zeehan Zinc and to earlier exploration and development by other prospectors and companies. The Company s intention is to produce lead, zinc and silver concentrates from its mineral tenements and to sell these products on the domestic and international market. The Company has held most of these tenements for a considerable time and has reached a stage where it has been able to apply a Joint Ore Research Committee classifcation (JORC (2004)) to them. On the basis of these Resources the Company is seeking a listing on AIM. A&S has formed the opinion that Zeehan Zinc has successfully amassed a sufficient inventory of mineable mineral resources to warrant the start up of mining operations. The Company s priority development project, the Comstock Site, includes all of the delineated ore bodies that lie within four of the Company s Mining Leases: ML123M/1947, ML43M/1985, ML19M/1995 and ML9M/2002 and includes the central processing facility that is currently under construction. The collective name given to all of these assets held by Zeehan Zinc has been termed the Comstock Site, which in turn is located within the Comstock District of Western Tasmania. The deposits contained within the Comstock Site include the Allison s Lode, the Main Lode and the Balstrup Fault Mineralisation and any future extensions to these deposits that occur within these tenements. The following developments have taken place at the Comstock Site: A 400,000 tpa crushing and minerals processing plant has been constructed. An open pit has been developed ready to extract the 98,881 tonne reserve delineated within the Allison s Lode Trial Pit and its stockpile. A five kilometre 22kv power transmission line and transformer have been constructed to supply power to the Comstock Site operations. The diversion of the Trial Harbour Road around Allison s Lode 98,881 tonne reserve. A Planning Permit ( Permit ) (P8/2001) has been issued to allow the mining of 200,000 tonnes of ore per annum at the Comstock Site and the Company has applied to increase the allowable mining rate to 400,000 tpa. Future activities, which include the completion of a gravity plant at the Comstock Site, construction of a compatable tailings dam, installation of an appropriate flotation circuit, together with commencement of mining activities is expected to be sufficient for Zeehan Zinc to start on the long term extraction of value from its assets. The Company holds Exploration Licences covering the Zeehan Mineral Field, which is an area of old mine workings around the township of Zeehan proximal to the Comstock District (Figure 2). The Company s Exploration Licence EL20/2002, includes a large portion of the Zeehan Mineral Field and contains Mining Lease ML2M/2005 (Oceana) and application ML4M/2006 (Mariposa). The Oceana Mining Lease (ML2M/2005) contains the old Oceana Mine which was an underground lead mine, that was operational in the late 1950 s. Immediately to the north of this old mine is the current Oceana deposit as identified in this report. The Oceana and Mariposa deposits both have resources classified to JORC (2004) standards. Additional exploration potential exists associated with the many old mines within the Zeehan Mineral Field. Table 1 is a summary of the Reserves and Resources contained within the Mining Leases controlled by the Company. These Reserves and Resource numbers are classified to JORC (2004) Standards and as such represent levels of certainty as to the mineral grades and tonnages. It is from these Reserves and Resources that a significant component of the value of the Company s mineral assets has been calculated. The Reserves and Resources contained within the Mining Leases total some 6.89 million tonnes with 6.8 million tonnes contained within the Resources category. The Company is actively working to up-grade these resources to higher categories and it will look to achieve this through more detailed drilling. The Allison s Lode has a Reserve classification of 99,000 tonnes which represents a high level of confidence that the ore will be produced within the mining and economic design parameters. 47
The Company s lead, zinc and silver assets are situated within close proximity to one another which should allow the Company to selectively mine each resource in turn and utilise the proposed central processing plant. Zeehan Zinc has a current Permit (P8/2001) to produce ore from the Comstock Site at a rate of 200,000 tpa. The Company has applied to the Department of Tourism, Arts and Environment to alter the Conditions of this Permit to allow it to increase production from the Comstock Site to a rate of 400,000 tpa. The Company anticipates approval to be imminent and has developed one of its concentrate production scenarios (Scenario 1) for financial valuation purposes on this 400,000tpa basis. The Company has advised A&S that it has designed its processing facilities for an annual production rate of 800,000tpa. A&S has been informed that a notice of intent has been submitted to the relevant authorities to mine at this 800,000tpa level, and it is a stated aim of the Company to generate production to this level. A hypothetical production profile has been developed by Zeehan Zinc to accommodate an 800,000 tpa output. This profile has addressed several issues that will need to be overcome to achieve the desired level of production. This 800,000tpa production profile has been labelled Scenario 2 and A&S has also provided a valuation for the Company s mineral assets using this production level. In order for mining to commence, Zeehan Zinc will first be required to complete the gravity mill which is near completion at the Comstock Site and to construct a tailings dam. The Company anticipates that the gravity plant will be ready for operation by the second quarter 2007, and the construction of the tailings dam is unlikely to be completed until March 2007, as a consequence commissioning during the second quarter of 2007 is anticipated. A flotation circuit will also need to be constructed and installed ahead of the startup of the production of lead and zinc concentrates. Work on the flotation circuit is expected to be accelerated promptly following the listing of the Company on the AIM, with commissioning and startup of concentrate production currently planned during 2007. Prior to the completion of the flotation circuit, Zeehan Zinc plans to commence mining of the Allison s Lode and to stockpile this output after treatment through the gravity mill. This will allow Zeehan Zinc to fully utilise the capacity of the flotation circuit upon its completion. The Company has planned to use mining contractors for all of its mining operations. Equipment will most likely involve excavators, graders, rollers, loaders, and trucks. It is not envisaged that drilling and blasting will be required. The Oceana deposit will be mined in a somewhat different manner as the mineralisation is contained within massive clays which are very soft to mine. The Company is evaluating the continuous use of a grader to mine the ore which would then need to be loaded in to the Oceana primary treatment circuit before being trucked to the Comstock central processing facilities. There are three liabilities facing the ongoing development of the Company s assets. Firstly, the Company has an obligation to provide the Government of Tasmania ( Government ) with a bond of A$2,500,000 to renew three of the Mining Leases pertaining to the Comstock Site. This bond is payable so as to assure the Government that the Company will maintain safe and environmentally approved mining and exploration activities. This bond, or part of this bond, may be forfeited if it can be shown that during the life of the mining operation the Company has not fulfilled its commitments on these matters. If the Company does meet its obligations to the Government then this bond will be returned to the Company on its exit from these assets. The bond is payable prior to the commencent of mining operations. Secondly, the Company has a royalty agreement with Zinifex Australia Limited ( Zinifex ) for the payment to Zinifex of 5% of the net smelter return on any ore sold from Mining Lease ML 123M/1947. Thirdly, a 2% State Royalty applies to the mine gate value of all of the Company s production which is charged by the Government of Tasmania on the basis of production figures supplied by the Company. 1.2 Basis of Opinion In compiling this CPR, A&S has relied on information contained within geological reports, Company documents, reports of consultants to the Company and discussions with directors and staff. All sources of information used to compile this CPR are listed in Appendix II (References). A&S has taken all reasonable care that the information contained herein has been discussed and documented, where possible, and therefore the information contained within this report is to the best of our knowledge in accordance with the facts made available by Zeehan Zinc and its consultants and advisers to A&S. Simon Tear, a geologist and consultant with independent resource consultants, Hellman & Schofield, and contracted to A&S, provided the resource assessment of the mineral assets of Zeehan Zinc. Mr. Tear has visited these tenements on many occasions during the past ten years and has gained a strong working knowledge of their geology. Other A&S consultants, although not directly engaged on the production of 48
the CPR, visited the properties on several occasions between March 2005 through May 2006. On 1 November 2005, Andrew Habets, an A&S consultant, visited the Comstock Site in the company of David Tanner, a former director and Paul Heath, Senior Project Geologist, of the Company, to review operations and to view the geology of the exposed ore bodies. On completing the field visit, meetings were held with Company management and directors to review and collect data and information relating to the Company s projects. A continuous dialogue between Zeehan Zinc management and A&S has been maintained since this time. A second site visit was made on 20 March 2006, by Alister Short, an A&S consultant, to further review updated information on the mining tenements and to discuss the potential start up of mining operations in light of the Company securing sufficient funding. The site was further visited by Simon Tear in April 2006 to review exploration and development drilling programmes. Ian Buckingham has previously visited the properties and has spent time working in the general vicinity of Zeehan Zinc s assets. All resources have been classified to JORC (2004) standards by Competent Persons. JORC (2004) is a standard recognised under the AIM Guidelines for Mining and Oil and Gas Companies (March 2006). In providing our valuations, A&S has followed the Australasian Institute of Mining and Metallurgy ( the AusIMM ), Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports The Valmin Code, 2005 ( Valmin ), in undertaking our assessments of the tenements. We reviewed several commonly used valuation methods for mineral assets and adopted those that we believed appropriate for the assets of the Company. A summary of these is provided in the Valuation section of this report. We selected two methods as being the most appropriate. In the first instance we reviewed the financial model provided by Zeehan Zinc and adopted it to provide a valuation of the Company s development projects using the Net Present Value of Discounted Future Cash Flows method. For the Company s exploration properties, where no resource had been identified, we used the Multiple of Exploration Expenditures method to estimate the realisable (market) value of the Company s properties. The method values a property based on the historic exploration expenditures, plus committed and approved future exploration expenditure. An exploration effectiveness multiplier is applied as a measure of the usefulness of the expenditure. Where practicable, we endeavoured to identify that the input data provided in the various reference materials were valid, appropriate or calculated according to established principles. Where we could not satisfy ourselves as to the veracity of the numbers we used our knowledge derived from similar industry operations to ensure that the information that we used was reasonable and valid. Where A&S has used data provided by Zeehan Zinc management or other consultants, we have credited the sources of our information. 49
Table 1: Summary of Ore Reserves and Resources ZEEHAN ZINC LIMITED SUMMARY OF ORE RESERVES AND RESOURCES BY STATUS Category Gross and Net Attributable (100% Ownership) Contained Metal Tonnes (millions) Grade % Grade % Grade g/t Contained metal Tonnes (millions) Zinc Lead Silver Contained metal Operator Zinc Lead Silver (Mt) (Mt) (Mt) (Mt) (Mt) Ore/Mineral Reserves per asset Probable Reserve Allison s 1 0.099 5.7 1.7 42 0.0077 0.099 0.0056 0.00168 0.0004 0.0077 Zeehan Zinc Limited Reserves Sub-total 0.099 5.7 1.7 42 0.0077 0.099 0.0056 0.00168 0.0004 0.0077 Zeehan Zinc Limited Mineral Resources per asset Measured Main Lode (including West Lode) 2 0.005 4.1 3.2 40 0.0004 0.005 0.00021 0.00016 0.00002 0.0004 Zeehan Zinc Limited Indicated Oceana 4 0.666 2.3 5.2 30 0.0519 0.666 0.0153 0.0346 0.002 0.0519 Zeehan Zinc Limited Inferred Allison s 3 0.0026 2.3 0.7 17 0.0001 0.0026 0.00006 0.00002 0.000004 0.0001 Zeehan Zinc Limited Main Lode (including West Lode) 2 0.0127 4.3 1.7 24 0.0008 0.0127 0.00055 0.00022 0.00003 0.0008 Zeehan Zinc Limited Balstrup 2 4.6 5.7 3.3 35 0.4301 4.6 0.2622 0.1518 0.0161 0.4301 Zeehan Zinc Limited Oceana 4 0.938 1.2 2.6 16 0.0371 0.938 0.01126 0.0244 0.0015 0.0371 Zeehan Zinc Limited Mariposa 5 0.574 1.9 5.1 60 0.0436 0.574 0.011 0.0293 0.0035 0.0436 Zeehan Zinc Limited Resources Sub-total 6.798 4.4 3.5 34 0.5641 6.798 0.299 0.238 0.023 0.5641 Resources and Reserves Total 6.897 4.4 3.5 34 0.5718 6.897 0.304 0.241 0.0235 0.5718 Zeehan Zinc Limited References: Ore/Mineral reserves Probable: 1 Allison s Lode Reserve Statement, Minserve January 2006 (includes Measured and Indicated resources) Mineral resources, Measured, Indicated and Inferred: 2 Zeehan Zinc Limited Resources Estimation and Classification Update, Cotlco Pty Ltd, September 2005 3 JORC Resource Statement for the Allison s Lode November 2005, SMG Consultants Pty Ltd Prepared by: Simon Tear 4/46 Edward St., Brisbane, QLD 4000, Australia 4 Oceana Pit: Resource Review, Zeehan West Tasmania, February 2006, SMG Consultants Pty Ltd 5 Block Model Report for the Mariposa Deposit, January 2006, SMG Consultants Pty Ltd 50
2. ZEEHAN ZINC ASSETS 2.1 Introduction Zeehan Zinc holds three Exploration Licences, five Mining Leases and has applied for one Mining Lease near the township of Zeehan, Western Tasmania, Australia (Figure 1). Figure 1: Regional Location Map The area around Zeehan consists of a large number (>100) of old mine workings that have been allocated into different mineral fields. In the 1880 s Zeehan was the hub of a significant mining boom, however, by the beginning of the 1900 s most of the mining had ceased. Zeehan Zinc did not hold any exploration licences or mining leases at this time. Zeehan Zinc holds its mineral assets through its wholly owned subsidiaries Oceania Tasmania Pty Ltd ( OT ) and ZZ Exploration Pty Ltd ( ZZE ). Zeehan Zinc has undertaken substantial work on its tenements and has delineated three main lead/zinc/ silver projects. These are referred to in this report as the Comstock Site and the Oceana and Mariposa Sites. 51
2.2 Tenements OT holds four Mining Leases (ML) and ZZE holds one ML and three Exploration Licences (EL). ZZE has also made application for an additional Mining Lease within Exploration Licences EL20/2002. Table 2 sets out the Company s Mining Leases, Exploration Licences and Mining Lease Application. Primarily, ML123M/47, ML43M/1985, ML19M/1995, ML9M/2002, EL30/2002, EL18/2003 lie within the Comstock District with EL20/2002, ML2M/2005 and application ML4/2006 laying within the Zeehan Field (Figure 2). A Mining Lease application ML5M/2005, contained within Exploration Licence EL30/ 2002, was refused by the MRT on the 27 th November 2006 with the MRT requiring further work to be carried out under the umbrella of the Exploration Licence EL30/2002 before a Mining Lease can be granted. This work is planned to commence in January 2007, and on its completionthe Company will re-apply for a Mining Lease over this area (Refer to Table 16). Table 2: Zeehan Zinc Australian Mining Tenements Asset Name Holder Interest Status Exploration Licences EL20/2002 Oceana Mariposa Tenement Expiry Date Licence Area Comments ZZE 100% Exploration 31 Jan 08 71 sq. km. Total expenditures of $875,000 Years 1 and 2 (1) have been met EL30/2002 ZZE 100% Exploration 31 Jan 08 8 sq. km. Total expenditures of $505,000 Years 1 and 2 have been met EL18/2003 ZZE 100% Exploration 10 Feb 10 14 sq. km. Total expenditure of $10,500 Years 1 and 2 have been met Mining Leases ML123M/1947 OT 100% Development 31 Mar 09 (2),(3) 145 ha (Comstock District) Balstrup Allisons Main Lode ML43M/1985 OT 100% Development 1 Oct 07 80 ha (Comstock District) Balstrup ML19M/1995 OT 100% Development 31 Mar 09 (3) 11 ha (Comstock District) Balstrup ML9M/2002 OT 100% Development 31 Mar 09 (3) 11 ha (Comstock District) Tailings purposes (Comstock District) ML2M/2005 Oceana ZZE 100% Development 4 Sept 08 48 ha (Zeehan Field) Contained within EL20/2002 Application for Mining Leases ML4M/2006 Mariposa ZZE 100% Application 98 ha (Zeehan Field) Application within EL20/2002 NOTES: (1) Minimum expenditure commitment was reduced to $750,000 for the first two year period, after a smaller area than that applied for was granted. (2) First granted to Electrolytic Zinc Company of Australasia Ltd [EZ] in 1947 and acquired by Oceania Tasmania Pty Ltd in 1988. (3) Zeehan Zinc applied for renewal for a further 10 year period on 29 September 2005, within the 30-day grace period for renewal applications for existing tenements.the Minister for Economic Development and Resources, Tasmania (26 May 2006) has offered to renew these leases until at least 31 March 2009, upon the payment of a bond of $2,500,000. 52
2.3 Geology and Mineralisation of the Tenements The geology of the West Coast of Tasmania comprises a complicated series of faulted and folded rocks of Late Pre-Cambrian to Ordovician-aged sediments and volcanics intruded by Late Devonian-aged granites. There have been many structural overprints culminating in the Tabberabberan Orogeny during Devonian times. Within this region there is a major Cambrian-aged volcanic belt, the Mt Read Volcanics, which hosts a number of significant base metal mines e.g. Rosebery, Mt Lyell and Hellyer, see Figure 1. In the past, the area around Zeehan has been divided into mineral fields by government geologists. Definition of these fields is included in Blissett (1962) with the Comstock District and the Zeehan Mineral Field being relevant to ZZE s tenements (see Figure 2). Figure 2: Tenement Map 2.3.1 Comstock District 2.3.1.1 Geology/Mineralisation The Comstock District tenements, located 5km west of Zeehan (see Figure 3 for aerial photographs over part of the Comstock District and Comstock Site), are situated within Late Pre-Cambrian and Early Palaeozoic sediments of the Oonah and Crimson Creek Formations. The sediments of the Oonah Formation are dominated by carbonate lithologies whereas the sediments of the Crimson Creek Formation are dominated by argillaceous and arenaceous lithologies, with minor carbonate intercalations. The Oonah Formation sediments have been subjected to intense deformation, manifest as tight folding with associated development of thrust faulting. The Crimson Creek Formation sediments appear less deformed with more open folding. Devonian age granitoids (principally the Heemskirk Granite) have intruded the Oonah and Crimson Creek Formations and are considered to be the source of the base-metal and tin mineralisation that is widespread throughout the Zeehan area. Stocks of Heemskirk Granite are interpreted at shallow depth beneath Queen Hill and the Comstock District and these have either provided the source for mineralisation or a heat source to remobilise and focus pre-existing mineralisation. 53
Three styles of mineralisation are present in the Comstock District. The most prominent style, and that mined historically in the Comstock District, is a fault-controlled, vein-style of lode with zinc-lead-silver mineralisation, hosted by carbonate lithologies.the two other styles of base metal mineralisation that occur in the tenements, but have not been the subject of significant historical mining, are a sphalerite-rich pyrite replacement style and a sulphide-magnetite-serpentinite skarn style. The former is similar in style to the Renison Bell Tin Mine, which was the largest underground tin mine in the Southern Hemisphere and is located 16km to the North East, whilst the latter mostly occurs inside the metamorphic aureole of the Heemskirk Granite 2km to the west of the Comstock leases. The Comstock District mineralisation initially comprised a number of old lode workings dating back to the 1880 s. The field was noted for its lodes to be more zinc-rich relative to lead than for other nearby fields. Figure 3: Comstock Distric and Comstock Site 2.3.1.2 Historical Knight (1997) states that the Zeehan area, of which the Comstock District is a part, had two major past periods of mining activity. The first, from discovery of the field in 1882, ended after the outbreak of World War I in 1914, whilst the second period occurred as a minor resurgence of activity between 1947 and 1960. This resulted in ore production of some 194,816 tonnes of lead and 26,585,000 ounces of silver. Reports record a historic mineral production (metal) from the Comstock Site as 2,640 tonnes of zinc, 3,676 tonnes of lead and 165,000 ounces of silver. Knight (1997) also records that in 1989, 7,334 tonnes of high-grade base-metal ore (Table 3) was shipped to the Rosebery Mill, owned and operated by Pasminco (now Zinifex), from the South Comstock Mine. The average head grade of this shipped tonnage was 14.8% zinc and 3.6% lead and 62 g/t silver. 54
In addition, Sundew Holdings Pty Ltd ( Sundew ) delivered in 1997, a total of 1,240 tonnes of lode material with an average grade of 14.5% zinc, 2.4% lead and 45 g/t silver to the Rosebery Mill, from the Allison s Mine (within 123M/1947). Sundew secured a sub-lease agreement from OT in 1997 for mining and exploitation rights for the first 70 metres below surface within ML 43M/1985 and the majority of ML123M/1947. This sub-lease agreement has since reverted back to OT. Table 3 Past mining at the Comstock Site Deposit Tonnes Lead % Zinc % South Comstock 7,334 3.6 14.8 Allison s Lode 500 2.3 19 Allison s Lode 740 2.5 11.8 Total 8,574 3.4 14.8 Renison Goldfields Consolidated Exploration Pty Ltd ( RGC ) conducted exploration over the Comstock District between 1990 and 1995. RGC s exploration included geological mapping, ground magnetic surveys, soil sampling and diamond drilling. A total of 16 holes were drilled, mostly aimed at carbonate replacement style mineralisation associated with the footwall of the Balstrup Fault. An inferred resource estimate was generated by RGC over a one kilometre strike length to a depth of 480 metres, from a depth of 80 metres below surface. This estimate was generated prior to the implementation of the JORC Code. RGC estimated an inferred tonnage of mineralisation of around 6 million tonnes with an average grade (using intercepts at or above 1% zinc), to be 5.5% zinc, 3.3% lead and 40 grams per tonne silver. RGC (and Knight (1997)) indicated potential exists for a smaller, higher-grade deposit if narrower intersections are selected and the Swansea Mining Company Pty Ltd estimated 2.9 million tonnes of the RGC-defined mineralisation contains an average grade of 8.6% zinc, 4.6% lead and 59 g/t silver. Western Metals Limited ( WML ), then operator of the Hellyer Mine, situated approximately 90 kilometres to the north, conducted some exploration under a joint venture option agreement, negotiated in 1999. WML s objective was to delineate additional resources of ore for the Hellyer Plant. A total of just less than 2,000 metres in four diamond core holes was completed and a deep-penetration surface electro-magnetic ( EM ) survey was undertaken. No additional resource was identified. 2.3.2 Zeehan Field 2.3.2.1 Geology/Mineralisation This is an area containing over 40 old workings around the township of Zeehan. Host rocks for the workings are from a variety of ages and types as are the styles of base metal mineralisation. One sub-set of the area is lead/zinc replacement-style mineralisation associated with the Ordovician-aged Gordon Limestone. The known limestone-hosted deposits in the Zeehan area e.g., Oceana and Mariposa, have had analogies made to the Irish style of carbonate lead/zinc orebodies suggesting that they could form large, relatively continuous bodies of mineralisation. The Gordon Limestone has been deformed by later tectonic events to such an extent that the units are steeply dipping. The Oceana and Mariposa deposits have resources to JORC (2004) Standards and currently have a granted Mining Lease for the Oceana Deposit and a standing Mining Lease application over the Mariposa Deposit within the areas contained by the Company s Exploration Licences 20/2002. 2.3.2.2 Historical The Zeehan Mineral Field contains several known deposits of zinc, lead and silver. Between 1887 and 1913 approximately 42 mines produced 190,000 tonnes of lead, 71 tonnes of zinc and 27 million ounces (840 tonnes) of silver from pits and shallow underground workings (Blissett 1962). Underground mines were usually shallow due to the inefficiency of water pumps at the time. The Oceana Silver Mining Company was formed in 1892 with a shaft sunk into the Oceana Deposit and two drives completed. Operations produced 1,016 tonnes of ore until the shaft collapsed in 1899, with only sporadic mining continuing until 1925. Renewed exploration and mining began in 1954 at the Oceana Mine under a Broken Hill North and Broken Hill South (Australian mining companies) joint venture named Zeehan Mines Pty. Ltd. This continued until 1960 when the mine failed to cope with water inflow rates. Documented evidence of reserves at that time are found in Jack (1960), see Table 4. 55
Table 4: Ore extracted from the Oceana Mine (McGilvray 2002) Period Ore Recovered Grade Metal Produced (tones) Lead (%) Silver (g/t) Lead (tonne) Silver (oz Tr) 1887-1899 1,016 39 445 396 14,537 1906-1925 569 47 525 271 9,645 1954-1960 130,236 11 128 14,473 537,725 Total 131,821 11.5 132 15,140 561,907 In the late 1970 s and early 1980 s AMOCO undertook an extensive exploration programme around the the old Oceana Mine which included diamond drilling of 14 holes (in part in joint venture with Electrolytic Zinc the forerunner of Pasminco, now Zinifex Australia Limited). This work identified a resource north of the the old mine, referred to in this report as the Oceana Deposit. Immediate previous licence holders reviewed the data with an option to open pit the resource but declined to proceed due to prevailing low metals prices. 2.4 Historical Status of Tenure 2.4.1 Mining Leases Zeehan Zinc is in the process of renewing three of its Mining Leases (ML123M/1947, ML19M/1995, ML9M/2002) (Figure 2). The Company has received a letter of offer from the Minister for Mines (Tasmania, Australia) dated 26 May 2006 allowing the Company to retain tenure over ML123M/1947, ML19M/1995 and ML9M/2002, and continue its mining activities. The letter of offer includes an increase in the bond payable from the existing $250,000 to $2,500,000. This bond is to be placed with Mineral Resources Tasmania ( MRT ). On lodgement of the bond, the Leases will be renewed until 31 March 2009 and may be further extended beyond March 2009, as a result of successful exploration and development drilling and up-grading the Companies JORC (2004) classification. Mining Lease ML43M/1985, was initially granted from October 1986 for a period of 21 years and does not require renewal until October 2007. Zeehan Zinc will apply for a renewal of this lease at least one month prior to this date as required by legislation. At the end of March 2006, environmental consultants Scientists Engineers Managers & Facilitators Pty Ltd ( SEMF ) completed an Environmental Management Plan Review ( EMPR ) of the Comstock Site for Zeehan Zinc. The review illustrates that the Company s operations have undergone several improvements in environmental performance during the period from 2003 to 2005 and accordingly Zeehan Zinc has complied with the relevant environmental permits and has made commitments to future improvements and mine management to secure a best practice operation. Zeehan Zinc s Mining Lease(s) currently carry a condition to operate at a rate of 200,000 tpa and the Company has applied to the Department of Tourism, Arts and Environement to have this increased to allow a throughput rate of 400,000 tpa. The Company anticipates approval to be forthcoming and that its forecasts of mining output (400,000 tpa) and ensuing expectations for concentrate production can be realised. The Company has designed its processing facilities for an annual production rate of 800,000tpa. While no application has been made for this level with the relevant authorities nevertheless it is a stated aim of the Company to generate production to these levels. A&S has provided valuations for the Company s mineral assets at both the 400,000tpa and 800,00tpa production scenarios. There are three liabilities attached to the Company s mineral assets. Firstly, the Company has an obligation to provide the Government of Tasmania with a bond of A$2,500,000 to cover the Comstock Site. This bond is payable prior to the commencement of mining so as to assure the Government that the Company will maintain safe and environmentally approved mining and exploration activities over leases ML123M/1947, ML19M/1995, ML9M/2002. This bond, or part of this bond, may be forfeited if it can be shown that during the life of the mining operation that the Company has not fulfilled its commitments on these matters. If the Company does meet its obligations to the Government then this bond will be returned to the Company on its exit from these assets. Secondly, the Company has a royalty agreement with Zinifex Limited ( Zinifex ) for the payment to Zinifex of 5% of the net smelter return on any ore sold from Mining Lease ML 123M/1947. Thirdly, a 2% State Royalty applies to the mine gate value of all of the Company s production which is charged by the Government of Tasmania on the basis of production figures supplied by the Company. 56
Application ML2M/2005 has now been granted (4 September 2006) to ZZE to secure the Oceana Deposit, which is contained within EL 20/2002. The Mining Lease has been granted for an initial term of two years and Zeehan Zinc has provided a $22,000 environmental bond to MRT. 2.4.2 Exploration Licences ZZE currently has met all environemental and expenditure commitments for Exploration Licences EL20/2002, EL30/2002 and EL18/2003. Refer to Table 2 for summary of exploration tenure. 2.4.3 Mining Lease Applications Application ML4M/2006 has been made to secure the Mariposa deposit, also contained within EL 20/ 2002. The Company has informed A&S that the application has been received by MRT and an offer has been made to grant a Retention Lease over the deposit for a period of 2 years to allow the Company to fully detail its mining plans, prior to the granting of an appropriate Mining Lease. Zeehan Zinc has confirmed to A&S that it will write to the Director of Mines, indicating they wish to proceed with an application for a Mining Lease. Application ML5M/2005 was made to secure the area of extentions of the Balstrup Fault Mineralisation. ML5M/2005, which is contained within Exploration Licence EL30/2002, was refused by the MRT on the 27th November 2006 with the MRT requiring further work to be carried out under the umbrella of the Company s current Exploration Licence EL30/2002 before a Mining Lease can be granted. This work is planned to commence late January 2007 and be completed during the course of 2007 after which the Company will re-apply for a new Mining Lease over the area of interest. (Refer to Table 16). 57
2.5 Reserve and Resource Estimates A summary of the Reserve and Resource Estimates is provided in Table 5 below. Table 5: Summary of Ore Reserves and Resources ZEEHAN ZINC LIMITED SUMMARY OF ORE RESERVES AND RESOURCES BY STATUS Category Gross and Net Attributable (100% Ownership) Tonnes (millions) Grade % Grade % Grade Contained g/t metal Contained Metal Tonnes Contained (millions) Zinc Lead Silver Metal Operator Zinc Lead Silver (Mt) (Mt) (Mt) (Mt) (Mt) Ore/Mineral Reserves per asset Probable Reserve Allison s 1 0.099 5.7 1.7 42 0.0077 0.099 0.0056 0.00168 0.0004 0.0077 Zeehan Zinc Limited Reserves Sub-total 0.099 5.7 1.7 42 0.0077 0.099 0.0056 0.00168 0.0004 0.0077 Zeehan Zinc Limited Mineral Resources per asset Measured Main Lode (including West Lode) 2 0.005 4.1 3.2 40 0.0004 0.005 0.00021 0.00016 0.00002 0.0004 Zeehan Zinc Limited Indicated Oceana 4 0.666 2.3 5.2 30 0.0519 0.666 0.0153 0.0346 0.002 0.0519 Zeehan Zinc Limited Inferred Allison s 3 0.0026 2.3 0.7 17 0.0001 0.0026 0.00006 0.00002 0.000004 0.0001 Zeehan Zinc Limited Main Lode (including West Lode) 2 0.0127 4.3 1.7 24 0.0008 0.0127 0.00055 0.00022 0.00003 0.0008 Zeehan Zinc Limited Balstrup 2 4.6 5.7 3.3 35 0.4301 4.6 0.2622 0.1518 0.0161 0.4301 Zeehan Zinc Limited Oceana 4 0.938 1.2 2.6 16 0.0371 0.938 0.01126 0.0244 0.0015 0.0371 Zeehan Zinc Limited Mariposa 5 0.574 1.9 5.1 60 0.0436 0.574 0.011 0.0293 0.0035 0.0436 Zeehan Zinc Limited Resources Sub-total 6.798 4.4 3.5 34 0.5641 6.798 0.299 0.238 0.023 0.5641 Resources and Reserves Total 6.897 4.4 3.5 34 0.5718 6.897 0.304 0.241 0.0235 0.5718 Zeehan Zinc Limited References: Ore/Mineral reserves Probable: 1 Allison s Lode Reserve Statement, Minserve January 2006 (includes Measured and Indicated resources) Mineral resources, Measured, Indicated and Inferred: 2 Zeehan Zinc Limited Resources Estimation and Classification Update, Cotlco Pty Ltd, September 2005 3 JORC Resource Statement for the Allison s Lode November 2005, SMG Consultants Pty Ltd Prepared by: Simon Tear 4/46 Edward St., Brisbane, QLD 4000, Australia 4 Oceana Pit: Resource Review, Zeehan West Tasmania, February 2006, SMG Consultants Pty Ltd 5 Block Model Report for the Mariposa Deposit, January 2006, SMG Consultants Pty Ltd 2.5.1 Methodologies Assay data used in the resource estimation is a mixture of diamond drilling, channel sampling, costean rock chip sampling and aircore drilling. The recent aircore drilling at Comstock appears to have been particularly successful with very good drillhole recoveries. Zeehan Zinc, with supervision by SMG Consultants Pty Ltd ( SMGC ) collected over 80 density measurements on pieces of drillcore and boulder samples from the trial mining at Allison s Lode. Density determination utilised the Archimedes Principle method with electronic scales. Logistical limitations meant that no oven drying or wax coating of the samples was undertaken. It should be noted 58
that the core samples had been in core trays for over five years and stored at the Tasmanian Mines Department Core Store. The Company also collected nearly 200 sample measurements by the same method on 20 year old Oceana drillcore. The drill collars for all of the recent drilling by Zeehan Zinc have been surveyed by John Edwards, of Northern Surveying Services Pty Ltd, Tasmania, who is a Registered Competent Surveyor. Survey work has been on an AMG (Australian Map Grid) basis for the Comstock area and as local grids for both Mariposa and Oceana. All resource estimation work for Oceana and Mariposa conducted by SMGC has been based on the local grids. Earlier drilled holes at Oceana (1979 to 1995) have been located on the original local grid which has been re-established and re-surveyed during 2005/6. It is planned to locate and survey the historic Mariposa holes when the infill drilling programme commences. The resource estimations have been completed by Competent Persons (JORC 2004) from SMG Consultants Pty Ltd ( SMGC ) and Cotlco Pty Ltd ( Cotlco ). Generally Cotlco s work preceeded SMGC, with the latter having additional information. SMGCs resource estimates have been used in this valuation where they contained additional information only i.e. Allison s Lode, Oceana and Mariposa. The Main Lode and the Balstrup Fault Mineralisation have only had resource estimations completed by Cotlco as no further work was undertaken by the Company after Cotlco estimations were completed. 2.5.2 Allison s Lode The Allison s Lode zinc/lead/silver deposit is located 5km west of the Township of Zeehan. It lies within the Comstock District which comprises a series of zinc/lead veins in flat-lying Late Proterozoic low grade metasediments. The Allison s Lode appears to be an axial planar, sub-vertical, fissure-fill vein structure located in the anticlinal hinge of an upright and NNW striking open fold. Host lithologies comprise friable, silicified and talcose dolomites underlain by locally silicified carbonaceous phyllites, all of which belong to the Upper Oonah Formation. Geological lineations infer a possible shallow plunge direction to the north. The exposed lode comprises a N to NW sulphide vein system/structure that is over 200m long by a maximum width of 20m. The first 5m of overburden is regarded as weathered, barren material hence the host rock friability. A series of parallel, semi-continuous massive sulphide zones consist of coarse grained sphalerite, galena, and pyrite with a quartz and talc (and calcite) gangue, whilst at other times there is a stockwork of veining. Some individual sulphide veins are discontinous and poddy in nature whilst the vein system itself appears to have a silicification envelope up to several metres away from the sulphide bodies, particularly evident in the carbonaceous phyllites. Trace levels of chalcopyrite are associated as inclusions within the sphalerite. At the southern margin of the vein system a broadening of the structure is associated with the Bendall s Fault a WNW mineral-bearing structure that truncates the Allison s Lode structure and is parallel to the Balstrup Fault structure (Figures 4, 5 and 6). The geological interpretation by SMGC defined the geological units for the Allison s Lode deposit (Tear 2005b). The solid shapes and surfaces were created using Surpac mining software, which were further updated to incoporate recent drilling results. The mineralisation is a distinct zone based on geology and a combination of zinc and lead assay grades, with a notional cut-off grade of 1% zinc. Talc alteration forms on the immediate margin to and locally within the mineralised zone. Mineralisation associated with the footwall of the Bendall s Fault has not been modelled by SMGC due to there being insufficient information. The mineralisation is thought to be the Allison s Lode that was rotated by sinistral shearing along Bendall s Fault (Tear 2000a, 2000b, 2001, and 2005a). The Balstrup Fault provides a northern boundary to the Allison s Lode mineralisation (Figure 4). The dimensions and style of the fault are likely to be of a complex fault zone rather than a discrete plane. A weathered surface occurs in the northern half of the Allison s Lode resource over an area relatively untouched by recent mining and is indicated as barren from the recent reverse circulation (RC) drilling performed by Zeehan Zinc. The Inferred Resource reported for the Allison s Lode occurred at the north end of the deposit. Recent aircore drilling in this area by Zeehan Zinc (April 2006) has confirmed the existence of the lode a further 20m to the north from the original SMGC shape. Please refer to Table 5. 59
Figure 4: Allison s Lode (looking north) 60
Figure 5: Comstock Plan and Pit Outline Source: Adapted from Minserve Reserves Statement: Allisons Lode (Jan 2006) 61
Figure 6: Allison s Lode Section (5360640 N) Source: Minserve Reserves Statement: Allisons Lode (Jan 2006) 62
2.5.2.1 Allison s Lode Resource Assessment Tear (2006d) confirmed the resource estimations completed by both Cotlco and SMGC for the Allison s Lode deposit and shown in Tables 6 and 7 respectively. The geological model for the Comstock District mineralisation consists of base metal vein structures hosted in flat lying mixed carbonate and phyllite sequences of the Late Proterozoic Oonah Formation (Tear 2000a, 2000b, 2001 and 2005a). Where the vein structure cuts through the carbonate sequences there has been a substantial widening of the structural zone with significant wall rock alteration and mineralisation. The vein structure comprises a series of high-grade lenses of base metal mineralisation in conjunction with massive pyrite bodies and low grade altered carbonate rocks. Within the phyllite sequence, the lode is much narrower although often consisting of high-grade base metal sulphides. Table 6 Cotlco Resource Estimates Allison s Lode (Cottle 2005b) Classification Tonnes Lead % Zinc % Silver g/t Measured Stockpiled Ore 3,300 14.5 21.5 540 In situ Resource 4,120 3.9 12.1 67 Total Measured 7,420 8.6 16.3 277 Indicated In situ Resources 30,160 2.0 7.2 36 Inferred In situ Resources 26,150 1.9 7.0 35 Total Resources 63,730 2.7 8.2 64 (No cut-off grade was reported but a review of the intercepts used suggests >1.5% lead+zinc) Cotlco calculated the stockpiled ore from the trial mining of the Allison s Lode by using a calculated volume from a topographic survey and applying the two-thirds marbles-in-a-jar rule because of the predominantly boulder nature of the ore. Table 7 SMGC Resource Estimates Allison s Lode (Tear 2005b, c and d) Classification Volume m 3 Tonnes Lead % Zinc % Silver g/t Measured 10,297 35,252 1.50 5.71 29.1 Indicated 17,813 59,412 1.08 4.77 22.8 Inferred 1,125 3,563 0.67 2.25 17.1 Total 29,235 98,227 1.21 5.02 24.9 (Cut-off grade for the ore shape was 1% zinc and/or 1% lead) A&S has reviewed the resource estimations from both Cotlco and SMGC and noted the reasons for the different totals: SMGC created a series of geological shapes based on their geological understanding of the deposit. These were not available to Cotlco. SMGC restricted the resource to the carbonate hosted material using a base 272mRL, Cotlco extended the resource down to 264mRL. SMGC used a different estimation method, namely inverse distance squared as opposed to the polygon of influence method used by Cotlco. SMGC used a lower average density value of 3.3t/m 3 compared to Cotlco s value of 3.8t/m 3. SMGC had access to the assay data to calculate sulphide fractions of the samples in order provide a better estimate of density for each sample. This check work appears to confirm an average density of 3.3t/m 3. SMGC did not use the channel sampling assay data in the resource estimation as it was perceived as a biased dataset relative to the aircore drilling. The channel sampling was used to help define the mineralisation shape and was used as a parameter for deciding the resource classification. According to SMGC (Tear 2005c and d), inclusion of the channel sampling data in the resource database added over 2% zinc to the grade of the deposit. 63
SMGC had personnel intermittently involved with project since 1999, who had witnessed some of the early excavations and had undertaken brief mapping exercises during the trial mining. Their personnel also observed the channel sampling programme. Based on this, A&S concluded that SMGC expressed a greater geological confidence in its resource model which manifests itself as higher tonnages but with lower grades. A&S has accepted the SMGC estimations as representing a more appropriate evaluation for Allison s Lode than Cotlco s. 2.5.3 The Main Lode Deposit This was the lode in the Comstock District that had the greatest level of historical mineral production and exploration associated with it. The apparent size of the lode, possibly 800m long, meant that in the 1880 s and 1890 s it was held under several different mining leases, all with intermittent mining phases. Reports by Government geologists, Twelvetrees and Waller, describe aspects of each mine lease and detail grades and production tonnages. Reported grades included 14 feet of solid [zinc] blende, >8 feet wide lode and 30 feet wide pyrite and [zinc] blende with grab sample grades of 19% zinc (Tear 2001). Exploration work by private contractors in the 1980 s compiled data indicating that there was a significant unmined section of the lode at South Comstock. This section was mined in 1989 by OT, as an open pit, with a reported production figure of 7,334t at 3.6% lead and 14.8% zinc. Recent work by Zeehan Zinc has uncovered an additional resource that is believed to be part of the Main Lode system. This new discovery was nominally called the West Lode, but has since reverted to being called the Main Lode. Cotlco (2005b) estimated the resource for part of the Main Lode by a calculation of average volumes using the intercepts from nine drill holes, grab samples, and using a density of 3.8t/m 3. The downgrading of ore grade by Cotlco (2005b) from the previous estimate in Cotlco (2005a) was noted. This has been attributed to the additional nine drill holes being drilled after the Cotlco (2005a) report, and grade differences between the original surface sampling (pit grab samples) and drill hole intercepts. Hence, Cotlco (2005b) has classified the top 4m as Measured as defined by JORC (2004), with the remainder being classified as Inferred. 2.5.3.1 Main Lode Resource Assessment This work was completed by Cotlco in September 2005 (Cottle 2005b). Dr J Cottle was the Competent Person and the estimates were stated to have been reported according to the JORC Code (2004). Cotlco s resource estimate figure was derived using a density of 3.8t/m 3. Subsequent density measurement work by Zeehan Zinc on a variety of lithotypes and statistical analysis of the Allison s Lode aircore data indicated that a more likely density figure to be 3.3t/m 3. A&S has accepted Cotlco s estimations for this deposit and applied them in its calculation of total reserves and resources, please refer to Table 5. Table 8 below illustrates Cotlco s resources estimates for the Main Lode. Table 8 Cotlco Resource Estimates Main Lode (Cottle 2005b) Classification Tonnes Lead % Zinc % Silver g/t Measured 5,070 3.2 4.1 40 Inferred 12,710 1.7 4.3 24 Total 17,780 2.1 4.2 29 (No cut-off grade was reported but a review of the intercepts used suggests >1.5% lead+zinc) 2.5.4 Balstrup Fault Mineralisation Mineralisation in the footwall of the Balstrup Fault is estimated to be over a kilometre in strike length based on the results from 16 holes drilled by RGC in the early to mid 1990 s. Cotlco (2005a) estimated the resource for the Balstrup Fault using Polygons of Influence for weighted grade estimations from five of the RGC drill holes and indicates that part of the mineralisation extends into ZZE s EL30/2002. While it is agreed with BDR Consulting Pty Ltd (2000) that many of the other drill holes are likely to have stopped short of their expected mineral position, it would be recommended that closer-spaced and systematic drilling be completed to enable to raise the category of this resource into Indicated and Measured. 64
2.5.4.1 Balstrup Fault Mineralisation Resource Assessment This work was undertaken by Cotlco in February 2005, who reviewed and confirmed the work undertaken by RGC in the early 1990 s (Elmer 1994) and Western Metals in 2000 (Richardson 2000). Dr J Cottle, of Cotlco, was the Competent Person and the estimates were stated to have been reported according to the JORC (2004) (see Table 9). Table 9 Cotlco Resource Estimates Balstrup Fault (Cottle 2005b) Classification Tonnes Lead % Zinc % Silver g/t Inferred 4,600,000 3.3 5.7 35 Total 4,600,000 3.3 5.7 35 The geological model for the Balstrup mineralisation is akin to the nearby Renison Bell Mine (28Mt @ 1.5% tin). This comprises massive sulphide mineralisation replacing Late Proterozoic carbonate stratigraphy proximal to a major fault and in close proximity to a Devonian granite. In the Balstrup Fault case the main economic metal is zinc rather than tin due to a greater distance from the granite. The wide drillhole spacing (>300m) would indicate that the Inferred Resource figure is at the lower end of this confidence category. 2.5.5 Oceana Deposit The geology of the Oceana Deposit consists of two stratabound massive sulphide bodies of variable thickness, hosted in the steeply dipping Ordovician Gordon Limestone. The host limestone is bounded by the underlying Moina Sandstone and the overlying Crotty Quartzite. Post mineralisation faulting, the Mine Fault, cross-cuts the orebody seperating the old Oceana Mine to the south and the Oceana Deposit to the north, The Oceana Fault truncates the northern limit of the Oceana Deposit mineralisation. Mineralisation is galena-dominant,with subordinate sphalerite and localised massive pyrite (Tear 2005b). Siderite alteration characterises the mineralisation in the apparent visual absence of any sulphides. Zeehan Zinc are proposing to mine the Oceana Deposit by an open cut method. 2.5.5.1 Oceana Deposit Resource Statement Resource estimates for Oceana were completed by both SMGC and Cotlco. Mineralisation comprises two steeply dipping, bed parallel lodes hosted by sideritised carbonate-rich syn-sedimentary breccias of the Ordovician Gordon Limestone Formation. A review by SMGC of research conducted on the deposit in the last ten years concluded that an Irish-type lead/zinc carbonate hosted model is appropriate rather than an Mississippi Valley Type ( MVT ) model. This comparison with the Irish orebodies, invokes a greater confidence on the geological continuity to the mineralisation. The Cotlco resource estimation (Table 10) was based on a nominal open pit resource to 50m depth using a polygon areas of influence method in association with drilling and costean intercepts (Cottle, 2005). A notional cut off of 4m at a grade >1.5% combined lead and zinc was used to define the resource shape with the depth of the resource taken to 850mRL. A density of 2.7t/m 3 was used. Table 10 Cotlco Resource Estimates Oceana (Cottle 2005b) Classification Tonnes Lead % Zinc % Silver g/t Inferred Open Pit 208,100 7.5 1.7 57 Inferred Other 1,891,900 9.4 2.7 91 Total 2,100,000 9.2 2.6 88 (Cut-off grade based on 4m @>1.5% combined lead + zinc) The SMGC resource estimation was based on a 30% lead top cut, a 35m search radius and a density of 3.05t/m 3 (for an ID 2 estimation model) for a resource down to the 1000m Level (Table 11). 65
Table 11 SMGC Resource Estimates Oceana (Tear 2005e & 2006a) Classification Volume m 3 Tonnes Lead % Zinc % Silver g/t Indicated 217,938 665,531 5.2 2.3 29.8 Inferred 307,500 938,147 2.6 1.2 16.3 Total 525,438 1,603,678 3.7 1.7 21.9 (Cut-off grade based on 1% lead and/or 1% zinc and/or siderite alteration) The bulk of the mineralisation at this stage lies near surface within the East Lode. SMGC identified an additional Inferred Resource below the 1000mRL within the West Lode (Table 12): Table 12 -Additional SMGC Oceana Resource Estimates (Tear 2005e & 2006a) Classification Volume m 3 Tonnes Lead % Zinc % Silver g/t Inferred 24,688 76,762 6.0 1.0 51.3 Total 24,688 76,762 6.0 1.0 51.3 (Cut-off grade based on 1% lead and/or 1% zinc and/or siderite alteration) The above resource is reliant on one drillhole which SMGC considered unsuitable for adding to the resource figures for Oceana. They preferred to identify it as potential for resource and therefore it is not included in Table 5. A&S has reviewed the differences between the Cotlco and SMGC resources estimates for the Oceana Deposit and notes the following: SMGC created a series of 3-D geological shapes including one for the old workings and ones for the Oceana Mine and Oceana Faults which constrain the open pit resource. This resource was designed using assay results >1% lead and/or 1% zinc for all types of sampling and/or with siderite alteration (an indication of the mineralisation system). SMGC used a different estimation method, namely inverse distance squared as opposed to the polygon of influence method used by Cotlco. SMGC treated the average density value differently preferring a figure of 3.05t/m 3 based on density measurements of the 1980 s core compared to Cotlco s inferred value of 2.7t/m 3. Cotlco s resource estimate included material south of the Oceana Mine Fault, which was not part of the SMGC mineralisation shape due to SMGC s uncertainty over what material was actually mined out south of the fault when the Oceana Mine was operating in the late 1950 s. Additionlly, Cotlco took the resource down to the 850m Level. 66
On this basis A&S has accepted the SMGC estimation as most likely representing a more accurate resource for this deposit. SMGC has designed a preliminary open pit shape for the resource (see Figure 7) (Reid 2006a). Figure 7: Optimised open cut pit shell for the Oceana mine (Reid 2006a) 2.5.6 Mariposa Deposit The Mariposa deposit is part of a series of limestone-hosted base metal occurrences located around Zeehan which have been subjected to previous mining. The original Mariposa deposit was discovered in the 1890 s as a small trial mining exercise with a shaft and underground drives developed (Tear 2005a). In the mid 1980 s AMOCO and EZ undertook additional exploration work including diamond drilling and costeaning of the deposit. In the mid-1990 s, CRA Exploration Pty Ltd ( CRAE ) carried out an extensive aircore drilling programme coupled with some diamond drilling and other geological studies including mineralolgy (Parkinson 1994, Parkinson 1995, Tear 1996 and Tear & Russell 1997). Significant mineralisation and geochemical anomalism was discovered but follow up work was not completed (Tear 2006b). 2.5.6.1 Mariposa Deposit Resource Assessment This is a very similar type of deposit to Oceana and can be treated in a like manner. SMGC estimated the resources for a West Lode (Table 13) and a series of East Lodes (Table 14) (Tear 2006b). They expressed a significant lack of confidence in the continuity of the shallow mineralisation for the East Lode on the basis of a paucity of drilling detail. Resource estimation parameters for the West Lode included a 50m search radius, with no top cut and an average overall density of 3.15t/m 3. The resource remains in the Inferred category due to the lack of accurately surveyed drill collars and that there are no density measurements on the Mariposa drillcore. Table 13 SMGC Resource Estimates Mariposa West Lode (Tear 2006b) Classification Volume m 3 Tonnes Lead % Zinc % Silver g/t Inferred 132,973 418,865 5.51 1.25 59.3 Total 132,973 418,865 5.51 1.25 59.3 (Cut-off grade based on 1% lead and/or 1% zinc and/or siderite alteration) SMGC completed a hypothetical scoping study for an underground operation (Figure 8) on this Inferred Resource which indicated that 276,347 tonnes at 10.5% lead, 2.8% zinc and 57g/t silver could possibly be economically extracted (Reid, 2006b). 67
Cadwallader in the 1950 s produced a resource for North Broken Hill citing that the diamond drilling programme has confirmed an essentially continuous ore occurrence over a length of 460 feet. This resource amounted to two blocks, A and B, which contained 99,300 tons (presumably short tons) at 7.3% lead 1.5% zinc and 4 oz silver (assumed to be troy ounces). Resource estimation parameters for the East Lodes included a 40m search radius, with no top cut and a base density 2.7t/m 3. A considerable lack of confidence in geological continuity was expressed by SMGC. Table 14 SMGC Resource Estimates Mariposa East Lode (Tear 2006b) Classification Volume m 3 Tonnes Lead % Zinc % Silver g/t Inferred 57,360 154,872 4.13 3.82 68.4 Total 57,360 154,872 4.13 3.82 68.4 (Cut-off grade based on 1% lead and/or 1% zinc and/or siderite alteration) Figure 8: Mariposa West Lode Conceptual Underground Mine Design (Reid 2006b) 2.5.7 Total Resources Zeehan Zinc s total resource inventory is listed in Table 15. It should be noted that the tonnage and grade figures have been rounded off in order to reflect the level of accuracy with the resource estimation. 68
Table 15 Zeehan Zinc Resource Estimates (Tear 2006d) Deposit Resource Cut-off Grade Tonnes Lead % Zinc % Silver g/t Allison s Measured 1 1% zinc 35,300 1.5 5.7 29 Measured 2 N/A 3,300 14.5 21.5 540 Indicated 1 1% zinc 59,400 1.1 4.8 23 Inferred 1 1% zinc 3,600 0.7 2.3 17 Main Lode Measured 2 1.5% lead+zinc 5,000 3.2 4.1 40 Inferred 2 1.5% lead+zinc 12,700 1.7 4.3 24 Balstrup Inferred 2 Not supplied 4,600,000 3.3 5.7 35 Oceana Indicated 3 1% lead 666,000 5.2 2.3 30 Inferred 3 1% lead 938,000 2.6 1.2 16 Mariposa Inferred 4 1% lead 574,000 5.1 1.9 62 Inferred (total) 6,128,300 3.4 4.7 35 Indicated (total) 725,400 4.9 2.5 29 Measured (total) 43,600 2.7 6.7 69 Grand Total 6,897,300 3.5 4.4 34 ZZL holds 100% Equity in all deposits tabled above. NOTE: 1. SMGC Report (Tear 2005d) November 2005 2. Cotlco Report (Cottle 2005b) September 2005 3. SMGC Report (Tear 2006a) February 2006 4. SMGC Report (Tear 2006b) January 2006 All resources have been described as being reported to JORC (2004) Standards by Competent Persons as defined by JORC (2004). 2.6 Mining Operations The Zeehan Zinc lead, zinc and silver assets are situated within close proximity to one another which should allow the Company to selectively mine each resource in turn and utilise a central processing plant. Zeehan Zinc has a Permit (P8/2001) to carry processing of 200,000 tpa of ore. The Company has applied to the Director of Environmental Management to have this increased to allow a throughput rate of 400,000 tpa. The Company anticipates approval to be imminent and that its forecasts of mining output (400,000 tpa) and ensuing expectations for concentrate production can be realised, with reference to the Mining Lease Renewal Terms offered by the Minister for Economic Development and Resources, Tasmania (Letter dated 26 May 2006). According to Zeehan Zinc, it currently plans to mine the deposits in the following order, to achieve an initial annualised ore production of 400,000 tpa: 1. Allison s Lode 2. Oceana 3. Main Lode 4. Balstrup 5. Mariposa This information was provided by the Company, based on the assessed resource base and the licencing currently offered through MRT, within which the Company s expectations might likely be realised through continued exploration success. In order for mining to commence, Zeehan Zinc will first be required to complete the gravity mill which is near completion at the Comstock Site and to construct a tailings dam. The Company anticipates that the gravity plant will be ready for operation by second quarter 2007, and the construction of the tailings dam, is anticipated to be completed during March 2007, as dry weather will be required to assist the construction phase, a commissioning during the second quarter of 2007 is considered most likely. 69
In addition, a flotation circuit will need to be constructed and installed ahead of the startup of the production of lead and zinc concentrates. Work on the flotation circuit will be accelerated promptly following the listing of the Company on AIM, with commissioning and startup of concentrate production currently planned during 2007. Prior to the completion of the flotation circuit, Zeehan Zinc plans to commence mining of the Allison s Lode and to stockpile this output after treatment through the gravity mill. This will allow Zeehan Zinc to fully utilise the capacity of the flotation circuit upon its completion. Minserve (2006), with regard to the development of the Allison s Lode, and given the more discrete nature of each of the deposits commented, that the operations are well suited to the use of contract mining using local contractors based around a small sized excavator and truck operation, removing the ore and waste in 4m flitches from the top of the deposit downwards. Such an operation would be an extension of the most recent mining carried out by Zeehan Zinc in 2000/2001. Within the Allison s Lode deposit, there is a definite boundary between the mineralised ore zone and waste rock. The ore is harder and denser than the waste and dips sub-vertically. The waste is capable of being free-dug by a backhoe excavator without blasting and exploration drilling indicates that this is likely to occur for the full extent of the Allison s deposit open cut. Ripping of waste by bulldozer can be used to assist the backhoe if needed. No drilling and blasting of the area is anticipated. This will allow waste to be excavated easily up to the boundary with the ore. A selective mining approach is envisaged with a backhoe generally loading a truck on the bench below it, wherever possible, to take advantage of the greater productivity this affords the operation. Mining would generally commence at the southern end of the bench and advance to the north. The steep dip of the ore allows grade control practice to be readily transferred down to the bench below. Mineralised areas with or without talc can be mined and stockpiled seperately to allow suitable ore to by-pass the pre-concentration gravity circuit wherever this is possible. Waste mined will be trucked and used to backfill the South Comstock open cut, an average one way haul of 500m (Minserve 2006). The Oceana deposit will be mined in a somewhat different manner as the mineralisation is contained within massive clays which are very soft to mine. The Oceana open cut could utilise the continuous use of a grader to mine the ore which would then need to be loaded in to the Oceana primary treatment circuit before being trucked 10km to the Comstock central processing facilities. However, for all of the Zeehan Zinc mineral deposits contract mining operations will be employed generally using excavators, graders, rollers, loaders, and trucks. It is not envisaged that drilling and blasting will be required. 70
Figure 9: Gravity Plant under construction at Comstock Central Processing Facility 2.7 Milling and Flotation Consultant Metallurgist, Nicholas Moony (2006), has advised A&S that the Comstock gravity plant and flotation circuit has been designed to treat a wide variety of base ores as follows: Low-grade zinc ores that are near surface and talc rich (Comstock). Low-grade lead ores that contain massive clays (Oceana). High-grade zinc ores with massive sulphides (Comstock). Accordingly, with the near surface ores (as is evident within the Zeehan Zinc mineral deposits) it is mandatory to remove talc before sulphide flotation, and removing clay does improve flotation. This is done in two ways: 1) by gravity separation and 2) floating the talc before sulphide flotation. Generally, the pre-concentrates will be crushed to 80% passing 8 mm then pre-concentrated in an in-line jig circuit to remove talc and increase the zinc grade to acceptable flotation levels of around 10% zinc. It is expected that about 12% zinc will report to the in-line scavenger tailing as a loss. At this point the pre-concentrate is blended with the high grade ore which has been crushed to approximately 80% passing to 12 mm, where the ores are blended and then ground in a conventional ball mill ( 1,200 kw) cyclone circuit to about 80% passing to 106µm. The flotation feed rate will be about 46 tph (400,000 tpa) at 42% solids. The cyclone overflow is then pumped to the talc flotation circuit, and it is expected that only a Frothier will be added. The talc float (froth) is then pumped to a Kelsey jig, the Kelsey concentrate is re-ground to about 80% passing 53µm and returned to the talc circuit and the Kelsey tailing is rejected. A 2% zinc loss is expected in this stream. The circuit will have 15 minutes retention time. The talc sink is pumped to a three stage lead circuit with at least 50 minutes retention time in the rougher/scavenger circuit and there will be 30 minute retention time in the cleaners and a column may used to recover the fast floating galena. The circuit will run at an approximate ph of 8.5, and reagents added include lime for ph control, zinc sulphate for sphalerite depression, sodium metabisulphite for pyrite depression and the phospine reagent 341A as a collector. All the cleaner tails and scavenger concentrate will be reground to about 80% passing 53µm. It is expected to produce a lead concentrate assaying 65% to 70% and about 1,000 g/t silver. 71
Recovery of both metals should be about 85% of the metals in the flotation feed. It may be possible to remove a coarse high-grade gravity concentrate before flotation using jigs, however, this circuit is yet to be finalised. The lead tailings will report to the zinc circuit. This circuit will consist of an open rougher circuit designed to produce a fast floating concentrate that will report directly to the final zinc concentrate. This circuit will consist of separate conditioners, where only starvation addition of reagents are added, the circuit will have only 10 minutes retention time, it is expected that 40% of the zinc will be recovered in this circuit assaying about 54% zinc. The open rougher tail feeds a three stage zinc circuit with at least 60 minutes retention time in the rougher/scavenger circuit and there will be 20 minutes retention time in the cleaners. All the cleaner tails and scavenger concentrate will be reground to about 80% passing 45µm, and tails returned to the head of the conventional roughers. It is expected to produce a zinc concentrate assaying about 50% zinc in the closed circuit. Overall, zinc recovery should be about 92% of the metals in the flotation feed and the combined concentrate will assay about 52% zinc and 8% iron. This circuit will operate at a ph of about 11.5; reagents added will be copper sulphate to a sphalerite, and sodium ethyl xanthate as collector. Both concentrates will be filtered in Chinese drum filters, which according to Moony (2006) are excellent and cheaper than Larox. The filter cakes will contain about 8% water. Concentrates will be transported to the Burnie wharf by road, and rail if deemed practicable (see Figure 1). The concentrates will be transported in covered trucks/wagons, however, it is not deemed necessary to confine the concentrate to sealed drums at this point. At Burnie there are large established concentrate handling and sampling facilities. Tailings will be deposited in a tailings dam with a ring main disposal system. All water will be returned to the process water dam through a decant system, flocculants may be added to insure clear return water. According to Moony (2006), Oceana ore should be easy to mine because of the high clay content. It will be fed into a Sandvik primary crushing circuit in preparation for transport to the Comstock site for washing and processing through the Comstock flotation circuit. This ore will be up-graded to approximately 12% lead and 5% zinc by utilising the in-line jig pre-concentration circuit. Recovery of both lead and zinc into the pre-concentration circuit will be about 85%. The pre-concentration tails are rejected at this point. The mill will be controlled by a JK Centre PLC system and monitored by an Amdal ISA system. The mill has been designed by Zeehan Zinc to allow easy maintenance, control, cleaning and operating. Agitair flotation cells will be used with automatic level and air control. This design is used due to it being robust, handles coarse particles and works particularly well with lower density feedstock. A&S has not sought to independently verify the milling process, but, has relied on the design provided by Moony (2006). 72
Figure 10: Schematic design of Mill and Flotation Plant Source: Moony (2006) 2.8 Exploration 2.8.1 Exploration Acreage ZZE is the holder of Exploration Licence s EL20/2002, EL30/2002 and EL18/2003. The Company s exploration acreage is summarised in Table 2. EL20/2002 is located to the east of Zeehan township and contains one Mining Lease (ML2M/2005) and one Mining Lease application ML4M/2006, covering the Oceana and Mariposa deposits respectively. EL30/2002 surrounds the OT Comstock Site Mining Leases ML43M/1985, ML19M/1995, ML123M/ 1947 and ML9M/2002. Exploration Licence EL18/2003 is composed of two parts. The larger area lies to the south and is adjacent to the Comstock Site while the smaller area lies immediately west of EL30/ 2002. It is A&S understanding that all of these Exploration Licences are in good standing and represent valuable assets of the Company. Based on our observations and interpretations we believe that Zeehan Zinc has a good understanding of the different geological models relevant to the various base metal deposits in the Zeehan area. This geological understanding, combined with the perceived lack of historical drilling, offers exploration potential for the discovery of additional base metal mineralisation. It is interesting to note that recent drilling at Allison s Lode has indicated the presence of further mineralisation in this vicinity. 2.8.2 Future Exploration Activities In the information supplied by Zeehan Zinc its future exploration activities are to be predominantly focused on the continuing appraisal of several areas of mineralisation already identified. We have included below, in Table 16, the anticipated near term exploration drilling activities to be performed throughout the sites of Zeehan Zinc s exploration and development targets. The success of this drilling programme will greatly assist the Company to improve its JORC classifications and provide the potential to expand mining operations in to the future. 73
Table 16: Drilling /Assay/Assessment Programme Deposit Estimated date of drilling Metres drilled Proposed (P) or Completed (C) drill holes Proposed date for assays to be reported Proposed Completion of Metallurgy Calculation of Resources and/or Reserves Oceana Deposit March 2006 665.5 (C) 30 Oct 2006 30 Jan 2007 Feb 2007 Main Lode North (Comstock) April 2006 775.5 (C) 23 Oct 2006 20 Jan 2007 Feb 2007 Main Lode South (Comstock) April 2006 290 (C) 4 Dec 2006 20 Feb 2007 March 2007 Allison s Lode North (Comstock) May 2006 917 (C) 10 Nov 2006 10 Jan 2007 Feb 2007 Allison s Comstock Jan 2007 1200 (P) March 2007 May 2007 August 2007 Balstrup Fault (Comstock) Jan 2007 600 (P) March 2007 May 2007 June 2007 West Comstock (EL30/2002) Feb 2007 500 (P) April 2007 June 2007 July 2007 Mariposa Deposit (EL20/2002) March 2007 2000 (P) May 2007 July 2007 Aug 2007 Bendall s Fault (Comstock) March 2007 200 (P) May 2007 July 2007 Aug 2007 Sylvester Deposit (Comstock) April 2007 1000 (P) June 2007 July 2007 Aug 2007 Britannia Lode (Comstock) May 2007 1000 (P) July 2007 Aug 2007 Sept 2007 Susanite Lode (Comstock) May 2007 650 (P) July 2007 Sept 2007 Oct 2007 Central Balstrup (EL30/2002) June 2007 500 (P) Aug 2007 Sept 2007 Oct 2007 Source: Zeehan Zinc January 2007. NOTE: Resource assessments for some of the Oceana and all the Main Lode drillholes were not available during the writing of this report. 3. Valuation of Mineral Assets 3.1 Valuation Summary Table 17 provides A&S valuation estimates and the valuation method for Zeehan Zinc s mineral assets. The valuation method is discussed in detail below. As at the date of this report, we estimate the value of Zeehan Zinc s mineral assets under A&S preferred Scenario 1 (400,000tpa) to be $172.8 million on a pre-corporate tax basis and for Scenario 2 (800,000tpa) to be $254.9 million on a pre-corporate tax basis. Table 17 Valuation of Mineral Assets Valuation Mining Leases: Comstock Site (Allison s Lode, Balstrup Fault, Main Lode including West Lode) and Oceana Deposit and Mariposa Deposit 1 Valuation Method Scenario 1 Scenario 2 NPV of $149.2 million $231.3 million future cash flows Exploration Licences: EL 20/2002, EL 30/2002, EL 18/2003 Multiple of Explortion Expenditure $23.6 million $23.6 million Total $172.8 million $254.9 million NOTE: (1) Mariposa Deposit is currently the subject of a Mining Lease application. 3.2 Introduction In providing our valuations we have followed the provisions of the Valmin Code of the AusIMM in undertaking our assessments of the tenements. In general, a valuation is derived by considering a technical value, reflecting the assessed future net economic benefit of the project, which can be adjusted by way of premium or discount for given market and other conditions presently applicable to determine a fair market value. With this in mind, the application of standard valuation methodologies, while possible, may not indicate a realisable value, as the ability of a potential purchaser to utilise the asset for commercial advantage or otherwise gain from its ownership, may not be achievable. 74
In assessing the value of Zeehan Zinc s tenements we are mindful that most of the Company s resources contained within its development properties are according to JORC (2004) guidelines, classified as being Inferred Resources. At the Comstock Site, the majority of the Allison s Lode has been classified as a Probable Reserve, and the Main (West) Lode and Oceana Deposit have been partly classified as Measured and Indicated Resources respectively by Cotlco and Simon Tear. Mr. Tear, who is a Competent Person as defined by the Australasian Code for Reporting of Identified Mineral Resources and Ore Reserves (JORC (2004)), undertook an independent review of all Resources figures provided in this report. Mr. Tear sought to understand the validity of the resources data provided by Zeehan Zinc and determined the validity of these Resources classifications. As part of this process he also assessed all previous reports and analyses. Given that the resources are JORC classified, therefore signaling that there is a degree of certainty associated with them, A&S believes that it is appropriate to use this data in calculating a potential value for the development assets. We caution, however, that the valuations derived from these resources have been obtained from calculations involving, anticipated conversion ratios for generating mine inventory, and financial models that have utilised a range of assumptions that may or may not be appropriate under other economic conditions and that may vary with time inside and outside the control of Zeehan Zinc. Where practicable, we endeavoured to identify that the input data provided in the various reference materials were valid, appropriate or calculated according to established principles. Where we could not satisfy ourselves as to the veracity of the figures we took steps, as deemed appropriate, to ensure that the information that we used was valid. Where A&S has used data provided by Zeehan Zinc management or other consultants, we have credited the sources of our information. The Company s exploration properties have all been subjected to significant prospecting, exploration and small scale mining activities over many years. In recent years the Company has tended to focus its exploration activities on attempting to identify ore bodies in close proximity to pending mine developments in an effort to provide greater surety of feedstock for its milling operations. While little grass roots exploration work has been undertaken the Company does have an extensive list of potential mineral resource targets identified from earlier mining and exploration activities within these exploration properties. All references to dollars within this report are to Australian Dollars except where specifically identified. 3.3 Valuation Methods The commonly used valuation methods for mineral assets that we have considered, and/or adopted where considered appropriate, to determine the value of the mineral assets of the Company, include: The Orderly Realisation Of Assets method The Net Present Value Of Future Cash Flows method The Multiple Of Exploration Expenditure method Joint Venture Terms In Situ Values Method Comparable Transactions method The Alternative Acquirer method The Capitalisation Of Future Maintainable Earnings method Of all these methods we determined that the Net Present Value Of Future Cash Flows method was the most appropriate for valuing the Company s development assets and the Multiple of Exploration Expenditure method the most appropriate for its exploration tenements. All other methods reviewed proved unacceptable for various technical or financial reasons. The Net Present Value of Future Cash Flows or Discounted Cash Flow ( DCF ) valuation method is based on the premise that the value of a business is the net present value of its future cash flows. In the mining business, this method requires assessment of: mineral reserves, resources, and conversion factors; appropriate mining and processing methods to exploit and market those reserves; and analysis of future production, production costs, market prices, cash flows, capital requirements and capital costs for the life of the potential reserves. 75
This technique is particularly appropriate for a minerals investment with defined reserves and/or resources and is the most common approach to valuation in the minerals industry. A&S regards this methodology as being the most appropriate for valuing the development assets of Zeehan Zinc. In our calculations we have assumed that Zeehan Zinc successfully retains the rights to mine the Comstock and Oceana areas for a period greater than the current Mining Lease approvals through a continuation of successful conversion of Inferred Resources to Reserves and additions to total Resources through appraisal activities and drilling. We have used two production scenarios but maintained constant contained metals grades and pricing scenarios, based on lead, zinc and silver price assumptions determined from historic and assumed prices to produce a low and a high value range. We have used the Multiple of Exploration Expenditure method to estimate the realisable (market) value of Zeehan Zinc s exploration properties. While ordinarily this method is used to assess value for a grass-roots exploration property, A&S has not been able to identify any other methodology that is appropriate for valuing what could be described as the reasonably mature exploration properties owned by Zeehan Zinc. Accordingly, we have modified slightly the application of this method to take into consideration this maturity aspect. In this method, the total historical costs of acquiring and exploring the property up to the present point in time, plus committed and approved future exploration expenditure, is taken as the base. To this is applied an exploration effectiveness multiplier, a measure of the usefulness of the expenditure to the development of future exploration programmes and the effective equity interest. The result is adjusted by applying a prospectivity enhancement multiplier ( PEM ) representing the valuer s opinion of the Company s potential success (or otherwise) in upgrading the prospectivity of the property. This factor would normally lie in the range of 0 to 3, with zero representing a complete write-off, and a value greater than one applying where exploration had successfully upgraded the property. The selection of the appropriate enhancement factor is subjective and dependent on the valuer s experience and judgement. 3.4 Limitation of Assumptions 3.4.1 Timing There remains many timing issues relating to the startup of mining operations, including the timely receipt of statutory approvals and licence tenure, execution of offtake agreements, contracting of mining operators, staffing, world metal prices, foreign exchange rates, construction of the Comstock flotation circuit, construction of the tailings dams, and general constraints relating to equipment procurement. A&S is aware that variations to the timing of these issues may have a material impact on the potential value of the Company s assets. 3.4.2 Commodity Prices Global commodity prices, in this instant specifically lead, zinc and silver, have appreciated considerably over the past two years and in particular the last six months, as a function of increased demand and declining global production. Demand is being driven by increased consumption in China and India and supply has been falling from the historical production centres. A&S has used the following long term price expectations within our valuation and projected cashflow forecasts: Lead = US$1,275 tonne Zinc = US$2,800 tonne Silver = US$9.00 ounce We have decided to hold these values constant throughout the anticipated production profile of the Zeehan Zinc mines, together with the assumption that all other values within the financial model, and the ensuing cashflow forecasts, should be represented as nominal inputs that are not escalated nor deflated over time. Commodity prices are highly variable over time thus our nominal value approach does not attempt to speculate on the cyclical and variable nature of the global market place. 3.4.3 Foreign Exchange Rates The Company s mine and concentrate output are priced in US$ terms in conformity to global trading practice. A&S has used consensus opinion data for the application of a A$ to US$ exchange rate of 0.75:1 within the cashflow forecasts of Zeehan Zinc. Foreign exchange rates can be highly variable over time and are impacted by global variations in volatility, speculation, and market lead macro-economic valuations on a day-to-day time scale. Accordingly, we have used an input variable for foreign exchange 76
between the US$ and the A$ which is a constant value over time, in nominal terms. This foreign exchange value may vary significantly from this value, however, we have assumed the position that the market s volatility is extemely difficult to predict and that a non-spectulative approach should be taken within the Zeehan Zinc cashflow forecasts and ensuing valuation. 3.4.4 Capital Expenditure The capital expenditure expectation for the Comstock Site includes expenditure to complete the gravity mill crushing plant, construct a tailings dam and construct the flotation plant. A&S has discussed with Zeehan Zinc and its consultant Nick Moony the expenditure forecasts and we believe that the forecasts provided by the Company are realistic. A&S has reviewed the capital cost expectations of the Company of A$25.7 million, in line with the following breakdown: Deposit Comstock Oceana Mariposa Capital Cost A$12.0 million A$ 1.7 million A$12.0 million The Company s expectation of capital cost has been derived from a desire to construct a crushing, delivery, and flotation infrastructure that has a capacity of at least 800,000 tpa, or an approximate day-to-day operational capacity of approximately 100 tph. A&S has sought to verify these capital expectations through extensive discussions with the Company and its consultants so that the capacity of the installed plant could match the in-ground resources of Zeehan Zinc and provide a capacity that could be utilised through the continuation of successful development and exploration activities. 3.4.5 Operating Costs Within the financial model provided to A&S by Zeehan Zinc the operating costs associated with the mining and milling operations have been set-out as per the expectations of Zeehan Zinc. These operating costs have been gleaned from earlier trial mining at the Comstock mine site and preliminary discussions with mining contractors. Mining costs were utilised by Minserve (Jan 2006) in its assessment of the project development, and at that time the mining costs were viewed as conservative. A&S has not been able to independently verify these cost expectations. The strip ratios anticipated by Zeehan Zinc within the Comstock area are 2.5:1 and 3.5:1 for the Balstrup Fault deposit. Set out below are the anticipated operating cost expectations for the A&S preferred production of 400ktpa: A$ per tonne (ore) Comstock Fixed/Overhead 7.1 Mining Costs 14.9 Milling/Processing 12.2 Transport 31.0 Oceana Fixed/Overhead 7.1 Mining Costs 10.5 Milling/Processing 18.0 Transport 31.0 The Comstock mine site is the central processing facility for the Zeehan Zinc operations which includes several open cut mines, which although they are in close proximity, operating costs are expected to vary specifically due to the differences in the deposit by deposit mineralogy. 77
A&S understands that the mining and milling cost expectations are inclusive of these variables, however, A&S has not been able to obtain sufficient information to be able to specifically indentify these variables within the cost forecasts provided. We have assumed that operating costs for the Mariposa deposit mining will be consistent with the operating costs set-out above for the Oceana deposit, although mining costs are expected to increase to A$40 per tonne due to the underground mining required. At this point A&S has not changed these unit cost expectations when increasing the production rate to 800ktpa. 3.4.6 Milling Operating Costs The milling and flotation operations costs have been provided by Zeehan Zinc s consultant Nick Moony (2006). The milling and flotation plant has been designed and costed with a throughput capacity of up-to 800,000 tpa, or approximate equivalent of 100 tph. Milling costs are anticipated at approximately A$12.2 per tonne of ore handled at the Comstock Site deposits and A$18.0 per tonne for the Oceana and Mariposa deposits. Transport costs associated with freighting the concentrate to the port of Burnie (Figure 1) account for between 50% to 60% of the overall operating costs, and have been calculated on an ore equivalent basis of around $31.0 per tonne. This transport cost has been provided by Zeehan Zinc and A&S has not been able to independently verify its source or accuracy. 3.4.7 Royalties As stipulated by the Mineral Resources Development Act (1995), Zeehan Zinc will be required to pay the government of Tasmania State Royalty of about 2% of the mine gate value of its production. In addition, Zeehan Zinc has a royalty agreement with Zinifex which provides for a 5% royalty payable to Zinifex on net smelter return basis from the Mining Lease ML123M/1947. This area includes the Allison s Lode and Main Lode, and may include part of the Balstrup Fault deposit if it can be shown that geologically it extends into Mining Lease ML123M/1947. 3.4.8 Conversion Factors Most of the resource assets of Zeehan Zinc have been classified under the JORC (2004) as Inferred resources. Tear (2006) and SMG (2006) have provided data which illustrates the conversion ratio of Inferred resources to reserves for the Allison s Lode (Comstock) and Inferred resources to Indicated resources for the Oceana deposit. Although the table below shows that the conversion ratios achieved have been in excess of 97% for the Allison s Lode we have determined that a reasonable conversion ratio of 75% should be applied to the Inferred Resources contained within the Zeehan Zinc development assets and we have used this figure in our valuation estimations. Table 18 Resource to Reserve Conversion Factors Resource to Reserve Conversion Factors Oceana Deposit Tonnes Lead % Zinc % Silver g/t Planned mineable resource to 1070mRL 1,076,491 4.6 2.0 27.0 Resource down to pit floor at 1070mRL 1,386,991 3.8 1.7 22.5 Total resource to 1000mRL 1,603,678 3.7 1.7 21.9 In pit resource to reserve conversion % 77.6 Total resource to reserve conversion % 67.1 Allison s Lode Tonnes Lead % Zinc % Silver g/t Mining reserve 95,581 5.2 1.3 26.0 Defined resource 98,228 5.0 1.2 25.0 In pit resource to reserve conversion % 97.3 Source: SMGC (2006) 78
3.4.9 Mining Programme Zeehan Zinc has provided two different scenarios under which it could bring its mineral resources into production: Scenario 1 provides for an annualised ore mining rate of 400,000 tpa over a currently anticipated mine life of 14 years. This scenario incorporates the timing elements of the construction and commissioning of the crushing plant, tailings dam, and flotation plant. Accordingly, under this scenario once the crushing plant has been completed a reduced volume or ore will be crushed to a pre-concentrate form and stockpiled ahead of the completion of the tailings dam and the commissioning of the flotation circuits. Under this scenario a total of 4.8 million tonnes of ore will be extracted over the life of the mine. Scenario 2 has been provided to A&S with an increase in the annualised ore mining rate to 800,000 tpa, and has incorporated hypothetical assumptions that would allow the crushing plant, the tailings dam, and the milling plant to be completed sooner than the assumptions contained within Scenario 1. Under this scenario, mining operations would commence in the second quarter (calendar) of 2007 at 400,000 tpa, and will increase to 800,000 tpa by the end of the second quarter 2008. A&S has not been able to verify the feasibility of this scenario, particulary in light of the risks involved with the procurement of equipment and an overall state of readiness for operations to commence in the timeframe supplied. Within the scenario financial models allowance has been made for the dilution factors associated with losses which are incurred in the milling and processing of the mined ore. The process efficiency has been calculated by the Company s consultant Nick Mooney, with these calculations incorporated into the financial models. Table 19 illustrates the respective recovery factors assumed for pre-concentrate and concentrate production. 3.4.10 Offtake Agreements Zeehan Zinc has not entered into formal arrangements for the sale of its concentrates, however, A&S has been informed by the Company that initial discussions have been held with several potential buyers. We have been informed that Zeehan Zinc is proposing to sell its lead, zinc and silver concentrate either at the mine gate and/or deliver its product to the port of Burnie, and/or through to the refinery operations of its customers. The commercial terms of these negotiations have been allowed for within the Company s financial forecasts. 3.4.11 Environmental Management and Site Rehabilitation At the end of March 2006 environmental consultants SEMF completed an Environmental Management Plan Review of the Comstock Mine for Zeehan Zinc. The review illustrates that the Company s operations have undergone several improvements in environmental performance during the period from 2003 to 2005 and, accordingly, Zeehan Zinc has complied with the relevant environmental permits and has made commitments to future improvements and mine management to secure a best practice operation. An application was made to the Department of Primary Industries, Water and Environment on 19 April 2006 (now named the Department of Tourism, Arts and Enivronment) to increase the production of minerals processed from 200,000 to 400,000tpa. A conceptual Decommissioning and Rehabilitation Plan (DRP) for mining operations at the Comstock Mine has been developed by SEMF. The DRP provides, but is not limited to, a description of the areas that will need to be rehabilitated following mine closure, the rehabilitation principles that will be followed during mine closure, and the rehabiliation procedures that will be utilised for each orea over the Comstock Site. The Company has informed A&S that it will provide for mine rehabilitation at end of mine life through a provision for a total of $2.5 million for both production scenarios (see Table 19). This provision has been included within the cashflow forecasts. 79
3.4.12 Risks As the Company is preparing its development assets for the commencement of mining there are several risks associated with such a brownfield operation. Issues other than those outlined within the Timing section above, include the Company s ability to attract and retain a sufficient labour force. The Company is planning for a labour force of: Comstock Site: 47 employees plus 20 Contractors, Oceana Site: 12 employees plus 12 Contractors. A&S has not been supplied with information as to the progress or otherwise of the Company s negotiations with the required work force requirements and has relied soley upon verbal discussion with Company executives and staff that these issues are being addressed. Also, as a consequence of the rapidly expanding mining industry throughout Australia, equipment procurement could be impacted by the high levels of demand, particularly regarding even small issues such as replacement tyres for the contracted mining equipment. This is an operational risk that will need to be managed through the Company s relationships with the individual mining contractors. Lead times for the ordering and consequent delivery of crushing and milling equipment could also be extended, again due to the high levels of demand throughout Australia. The Company has informed A&S that some of the infrastructure required for the flotation plant is already at hand, however, control mechanisms would need to be competitively ordered. Zeehan Zinc is in the process of re-securing an on-going tenure over its Mining Leases (ML123M/1947, ML9M/2002 and ML19M/1995). A&S has been provided with legal documentation which would support the view that these tenures should be on-going, provided that Zeehan Zinc comforms with statutory and Ministerial requirements, including the payment of a $2.5 million enirvronmental bond (as discussed in section 2.4.1). Zeehan Zinc will need to manage its ongoing relationship with MRT to ensure that political risk is managed. 80
3.5 Valuation Assumptions for Development Assets The Zeehan Zinc model was provided in nominal terms. Table 19 A&S Principal valuation assumptions Factor Operations: Assumption Scenario 1 Scenario 2 Production: Life of Mine 14 years 7 years Total JORC classified Resources (million tonnes)* 6.89 6.89 Annual Production (tonnes) 400,000 800,000 Total production (tonnes) 4.8 million 4.8 million Effective mine inventory conversion factor (%) 75 75 Recovery into a pre-concentrate (zinc) 88.0% 88.0% Recovery into a pre-concentrate (lead) 84.0% 84.0% Recovery into a pre-concentrate (silver) 85.0% 85.0% Recovery into concentrate (zinc) 72.8% 72.8% Recovery into concentrate (lead) 70.8% 70.8% Recovery into concentrate (silver) 68.8% 68.8% Capital Expenditure: (A$ million) 25.7 25.7 Operating Costs: Fixed Costs (A$/Tonne) 7.08 7.08 Mining Costs (A$/Tonne) 14.9 14.9 Milling Costs (A$/Tonne) 12.2 12.2 Transport (A$/Tonne of concentrate ) 31.0 31.0 Financial: Long-term lead price (US$/t) 1,275.00 1,275.00 Long-term zinc price (US$/t) 2,800.00 2,800.00 Long-term silver price (US$/oz) 9.00 9.00 Long-term exchange rate (US$/A$) 0.75 0.75 Interest Rate (%) 8.5 8.5 Royalty State (%) 2.0 2.0 Royalty Zinifex (%) (1) 5.0 5.0 Discount Rate (%) 10.0 10.0 CPI (%) 3 3 NOTE: (1) Zinifex royalty only applies to ML123M/1947 The assumptions reviewed as inputs to the financial model included: production volumes and timing assumptions; conversion ratios for resources to mine inventory; ore metal grades; metal recovery factors; contained metals in concentrates; valuation scenarios; capital expenditure, working capital and financing assumptions; metal price assumptions; and exchange rate assumptions. A&S reviewed the data inputs to the model that involved geological resources, assumptions for mine planning, production schedules, metal recovery rates, metal concentrates, operating costs, transporation costs, metals prices and any other inputs that were regarded as being within A&S sphere of knowledge. Metal price assumptions and foreign exchange rates have been held constant through the financial model. Operating costs have not been escalated or adjusted for inflationary expectations. 81
Each of the mine production scenarios provided by Zeehan Zinc has been reviewed and the discounted cashflow value of these operating possibilities calculated. The financial model forecasts provided by Zeehan Zinc assume that the capital requirements of the development of its mineral assets will be funded by equity financing, thus, there is no provision for the impacts and/or effects of funding these capital amounts from sources other than equity capital. Accordingly, the valuations do not provide for interest payments or capital returns to project capital providers. If Zeehan Zinc were to fund its capital expenditure requirements from other sources of financing, this could affect the forecast values provided by the financial modelling. 3.6 Valuation of Development Assets The value of the development assets of Zeehan Zinc has been estimated using two production scenarios contained metals grades and pricing scenarios held constant, and lead, zinc and silver price assumptions determined from historic and assumed prices. Scenario 1 production involves an expectation that the plateau rate of production will be approximately 400,000 tpa, given the individual nature of each deposit s style of mineralisation, while the Scenario 2 production involves the production of a hypothetical maximum of 800,000 tpa equating to the maximum design capacity of the current plant. Based on our review of the input assumptions of the financial models, we have determined that the value range of the Zeehan Zinc development projects to be between $149.2 million and $231.3 million. It should be understood that at this point the Company only has permission to produce at a maximum rate of 200,000 tpa although an application has been made to increase this to 400,000 tpa. The 800,000tpa profile developed by Zeehan Zinc has addressed several issues that will need to be overcome to achieve the desired level of production. A&S regards this profile as being optimistic but not unachievable. This production profile has been labelled scenario 2 and A&S has provided a valuation for the Company s mineral assets using this production level. A&S further understands that the Company intends to apply for an increase in approved mining volumes, however, no date has been determined for this application to be lodged. Table 20 Valuation of Zeehan Zinc Development Projects Valuation Scenario 1 Scenario 2 Comstock Mine (Allison s Lode, Balstrup Fault, Main Lode including West Lode) Oceana and Mariposa Deposits $149.2 million $231.3 million 3.7 Valuation of Exploration Assets 3.7.1 Introduction In addition to its development projects the Company also holds ownership of three Exploration Licences. These are EL 20/2002, EL 30/2002 and EL 18/2003. Information regarding the geology and mineralisation recorded within these tenements is provided in Section 2.3. 3.7.2 Valuation of Exploration Assets Records of exploration expenditure for these areas have been reviewed commencing from 1980 through to July 2006. Table 21 illustrates the exploration expenditures and A&S perceived effective exploration value attaching to each. Having reviewed these exploration expenditures for this period we have determined that a total of $9.45 million worth of effective exploration expenditure has been incurred on the properties during this period. 82
Table 21 Exploration expenditures on predecessor and current exploration licences Year Description Effective Exploration Amount 1980 1990 Drilling, geophysical surveys, assaying, South Comstock mine development $1.50m 1990 1995 RGC exploration $1.60m 1996 1999 Aerial EM, gravity modelling, general admin., consultants, computer $0.50m modelling, 2000 (Oceania Tasmania P/L) general exploration (not detailed) $1.99m 2001 (Oceania Tasmania P/L) near mine exploration $1.32m 2002 OT near mine exploration $0.44m 2003 (ZZ Exploration P/L) ELs, 20/2002, 30/2002, 18/2003 $0.49m 2004 (ZZ Exploration P/L) ELs, 20/2002, 30/2002, 18/2003 $0.43m 2005 (ZZ Exploration P/L) ELs, 20/2002, 30/2002, 18/2003 $1.18m Total $9.45m Based on the geological information available on the Exploration Licences, A&S has determined that Prospectivity Enhancement Multipliers in the range 2.0 to 3.0 are realistic given that the exploration activities have shown that the area contains a considerable number of mines and workings but that to date none of these have received enough attention to warrant defining them within mining leases. However, the Company s exploration activity has most recently resulted in Zeehan Zinc applying for a Mining Lease ML4M/2006 over the Mariposa deposit contained within EL20/2002. Zeehan Zinc holds a 100% interest in all of its permits. Accordingly, a value has been placed on its exploration interests of $23.6 million. Table 22 Valuation of Exploration Permits Item High Value Effective Exploration Expenditure $9.45 million Prospectivity Enhancement Multiplier 2.5 Equity holding (%) 100% Value $23.6 million 3.8 Sensitivity Analysis We have undertaken a series of sensitivity analyses for both production scenarios. Table 23 illustrates the responses obtained by changing a number of parameters while maintaining others constant. A&S determined that the following input criteria would be reviewed: Foreign Exchange: 10% reduction in exchange rates Zinc Prices: 10% increase in zinc prices Lead Prices: 10% increase in lead prices Silver Prices: 10% increase in silver prices Operating Costs: 10% increase in general operating costs Mining Costs: 10% increase in mining costs Milling Costs: 10% increase in milling costs Throughout each of the input variable sensitivity runs the discount rate applied to the Net Present Value (NPV) of calculated future cash flows was held constant at 10% for all the individual scenarios. 83
Table 23 Sensitivities Operating Variables Operating Variable Scenario 1 Scenario 2 Value (million) Change % Value (million) Change % Exchange Rate $179.4 20% $268.9 16% Zinc Price $170.7 14% $258.9 12% Lead Price $156.7 5% $239.7 4% Silver Price $150.7 1% $233.3 1% Operating Costs (total) $134.4 10% $220.7 5% Mining Costs $145.6 2% $228.6 1% Milling Costs $140.4 6% $224.7 3% Further to the operational sensitivity analyses results, as above, Table 24 illustrates the scenario valuation (NPV) sensitivities to the application of different discount rates. These discount rates have been applied to the future annual cash flow streams produced from the Zeehan Zinc financial model, as provided to A&S. Table 24 Sensitivities Discount Rate Variable Scenario 1 Scenario 2 Discount Rate Value (million) Change % Value (million) Change % 9.0% $159.6 6% $241.6 4% 10.0% $149.2 0% $231.3 0% 11.0% $139.7 7% $221.6 4% 12.0% $131.0 12% $212.4 8% 3.8.1 Discussion Table 23 illustrates the effects on the valuation of Zeehan Zinc should operating conditions vary. 3.8.1.1 Exchange Rate The most prominent area of sensitivity for the Company s valuation comes from the pricing foundation of the Company s products (lead, zinc, and silver). These commodities are traded on a global market place which denotes pricing in US$ terms. These commodities are contracted on these US$ terms and translated at settlement to the local currency. The US$ is a pre-eminent foreign currency which forms the basis upon which other currencies can be matched and the broader range of primary and secondary commodities are traded, with general reference to broader economic trading parameters. This report does not attempt to provide a guide to the basis of relative currency value, but does note that the Australian Dollar (AUS$) has traded at an historical discount to the value of the US$, generally across a range of 0.60:1 to 0.80:1 for the most part of the last 25 years. The A&S valuation(s) has been calculated using a long term exchange rate assumption of 0.75:1. In addition to the Company s products being primarily traded in US$ terms, the Company s treatment charges are also priced in US$ terms which increases the Company s cash flow sensitivity to changes in the AUS$:US$ exchange rate. Varying the A&S assumed exchange rate assumption by + 10% precipitates a commensurate change in calculated value of + 20% for valuation Scenario 1, and + 16% for valuation Scenario 2. It could be expected that the Company will take the opportunity to reduce its sensitivity to fluctuations in the US$:AUS$ through appropriate hedging measures, which if put in place could increase the Company s operating costs into the future and have an impact on the A&S scenario valuations. 3.8.1.2 Commodity Prices As previously discussed within this CPR, A&S has not attempted to value the assets of Zeehan Zinc with the incorporation of potential fluctuations in commodity prices for lead, zinc, and/or silver. 84
Zinc With reference to Table 23, it can be seen that the Company s valuation is quite sensitive to changes in the assumed long term price of zinc. However, this sensitivity is somewhat less than the sensitivity to foreign exchange values. This level of sensitivity can be attributed to the long term price assumption of US$2,800/tonne, together with the volume of zinc in concentrate that the Company anticipates producing. Lead With reference to Table 23, it can be seen that the Company s valuation is somewhat less sensitive to changes in the assumed long term price of lead when compared to the valuation sensitivity for zinc. This is primarily a derivative of the difference in the individual commodity price assumptions used within the valuations, together with the volumetric projections for metal output. Silver Table 23 shows a very low sensitivity of the Company s valuation to changes in the assumed silver price, as the total value of silver produced is insufficient (when compared to the value of lead and zinc) and is not large enough to effect a larger valuation sensitivity. In this case, the market face value of silver and the silver in metal produced from the mining and concentration process is not sufficient to alter the A&S valuation for Scenario 1 and/or Scenario 2 for greater than + 1.0%, unless silver prices were to change markedly (above +/ 10%) from the A&S assumptions. 3.8.1.3 Operating Costs (total) Operating costs, as shown in Table 23, show an impact on valuation that is commensurate with the time period over which the mining operations are anticipated to be carried out. Under Scenario 1, a 10% increase (or decrease) in aggregate operating costs shows a 10% increase (or decrease) in valuation. This shows that the Company s valuation is susceptible to fluctuations in costs which are directly related to the time frame. In addition, this level of overall cost sensitivity should be read in conjunction with the valuation(s) sensitivity to changes in mining and milling costs. 3.8.1.4 Mining Costs Due to the layout of the mineral deposits relative to the location of the Company s central processing facility, together with the (lode) style of the mineral deposits, the Company s valuation(s) show a relatively low sensitivity to physical mining cost variations. However, A&S has not been able to evaluate the valuation(s) sensitivity to direct implications of changes in electricity charges nor fluctuations in transport fuel costs. 3.8.1.5 Milling Costs Relative to the Company s expectations of mining costs, our valuation(s) show are greater sensitivity to potential changes in milling costs. For Scenario 1, a 10% change in milling costs equates to a +/ 6% change in valuation, and for Scenario 2, a 10% change in milling costs equates to a +/ 3% change in valuation. The difference in time period of mine life between Scenario 1 and Scenario 2 is responsible for the relative difference between scenario sensitivity, however, the importance of the impact of the relative higher costs involved with the milling of ore into concentrate and then transporting this product to market can be seen. 3.8.1.6 Discount Rate Table 24, above, shows that the Company s valuation is sensitive to changes in the discount rate applied to the calculation of the Net Present Value of the forecast mining cash flows. Scenario 1 shows a higher sensitivity than Scenario 2 due primarily to the longer mine life of 14 years compared to 7 years assumed for Scenario 2. 85
4. Director s Interests 4.1 Director s Interests Oceania Tasmania Pty Ltd, which is the current holder of the Comstock Mining Leases ML43M/1985, ML19M/1995 and ML9M/2002, was acquired by Malcolm Bendall and David Bendall in 1982 through the purchase of the Minstock Group of companies. On the 30 May 2001, Zeehan Zinc purchased Oceania Tasmania Pty Ltd from Malcolm Bendall and David Bendall Family Trust for consideration of $4 million. Malcolm Bendall was a director of Zeehan Zinc, Bass Resources and ZZ Exploration (formerly Bass Boron) at the time of the acquisition of ZZ Exploration in August 2002 by Zeehan Zinc Limited. ZZ Exploration was purchased by Zeehan Zinc at this time for the consideration of A$1.00. 86
APPENDIX I QUALIFICATIONS Anderson & Schwab Anderson & Schwab, Inc. is a management and financial consulting firm that has specialised in providing its services to the minerals industry for the past forty years. Its Australian subsidiary (Anderson & Schwab Australia Limited) was established in 1997. Anderson & Schwab is structured as a virtual corporation in that it operates with a small core staff of industry experts and supplements its evaluation teams with well qualified industry professionals from its extensive global network who bring core competencies to each assignment. As such, the Company is able to provide to a client the most knowledgeable industry practitioners with expertise directly focused on the assets to be evaluated. Since its inception Anderson & Schwab has completed over four thousand assignments for a wide range of clients involved in, or ancillary to, the resources industry. Clients range from resources companies through to financial institutions, governments and industry services providers. A significant portion of the Company s business involves the provision of independent advisory services for assets acquisitions, due diligence on mineral assets valuations, sales of properties, strategic development plans for minerals commodities and providing independent evaluations of commodities markets. Amongst its many assignments Anderson & Schwab was the technical specialist to Morgan Stanley Australia Ltd when that firm provided the Specialist s opinion concerning the dual listing of RTZ-CRA in 1995. The Company reviewed all of the global operations of both companies and assessed the value of their respective exploration interests. In 1996, it was the lead consultant in advising Australian Diamond Exploration NL in response to a takeover offer by Ashton Mining Limited. A&S has provided Specialist s advice to Grant Samuel when that company provided an Independent Expert s Report to Aberfoyle Limited in relation to the takeover offer by Western Metals NL. It also provided Specialist s advice to Grant Samuel and to KPMG Corporate Finance when both of those organisations provided the Expert s Reports on the takeover offers by Rio Tinto for North Limited and Ashton Mining Limited respectively. Anderson & Schwab formed part of the project team that undertook a review of the mining, environmental, legal and economic issues associated with the Ok Tedi Mine, PNG; reviewed and valued the coal assets of PT Kideco, a 12 million tonne per annum Indonesian based coal mining and exporting company, formed part of the strategic review team that evaluated and valued the WMC Corridor Sands Project, and reviewed and valued the minerals assets and Stuart Oil Shale Project of Southern Pacific Petroleum. Ian Buckingham, Managing Director of Anderson & Schwab Australia, is the firm s lead consultant in preparation of this CPR for Zeehan Zinc. Mr Buckingham was the leader of A&S teams that worked on the Aberfoyle, North s, Ashton, WMC, Ok Tedi, PT Kideco, Corridor Sands and Southern Pacific Petroleum s valuation assignments. He has also undertaken a number of strategic development assignments on behalf of global mining groups. The A&S team for this CPR consists of Ian Buckingham, Team Leader and Valuer and Simon Tear, a technical specialist. Their credentials appear below in summary form. Ian D Buckingham Ian Buckingham, is the Managing Director of Anderson & Schwab Australia Limited, and holds an MBA from RMIT University, Bachelor of Applied Science (Applied Geology) from the Victorian Institute of Colleges and Fellowship and Associateship Diplomas in Geology. He is a Member Petroleum Exploration Society of Australia and American Association of Petroleum Geologists. He was a member of the Valmin Committee that has recently completed (2005) a review and up date of the Valmin Code for use in valuing minerals and petroleum assets. Ian Buckingham has 34 years experience in the resources and finance industries. Commencing his career as a base metals, gold and diamonds exploration geologist he moved into gas engineering and petroleum exploration and development before establishing himself as a resources analyst in stock broking and investment banking. As an analyst he analysed, evaluated and developed financial models for major mining and energy companies. Since joining Anderson & Schwab he has worked on many projects 87
where his knowledge and expertise in areas such as due diligence, valuation, commercial and technical analyses, concept and strategic development, financial modelling and general mining management have been required. Simon Tear Simon Tear is a Consulting Geologist and holds a BSc(Hons) Mining Geology (1983) from the Royal School of Mines, UK. He is a registered Professional Geologist Institute of Geologists of Ireland PGEO, Member of the Australasian Institute of Mining and Metallurgy (MAusIMM), Member of the European Federation of Geologists EFG and a Member of the Institute of Materials, Metallurgy and Mining (MIOM 3 ). Simon has twenty three years experience in the metals industry including geological evaluation and resource definition. He has had involvement in both underground and open cut mining operations. He has worked in several countries, eg Australia, Ireland, UK, Portugal, Germany, Finland, Indonesia and Iran, covering a variety of commodities and geological scenarios. His expertise includes geological interpretation, exploration management, resource evaluation, and geology consulting. He has worked for various companies including Rio Tinto, CRA, Noranda, Birla and Western Metals. He has also run his own consultancy business which included such clients as Billiton, Teck, Falconbridge, ASARCO, Goldfields and BUKA Minerals. In addition to his work with A&S, he is also a Consultant Geologist with Sydney-based consultancy Hellman & Schofield specializing in resource estimation. Some of the projects with which he has had involvement are the Mt Gordon Copper Mines, Lady Loretta Lead/Zinc, Lady Annie Copper, Avebury Nickel, Cavanacaw Gold, Irish-style Lead/Zinc, Century Lead/Zinc Exploration Programme and numerous exploration projects including platinum group elements, gold, and base metals including nickel, silica sand and diamonds. 88
APPENDIX II REFERENCES Adabi, M. H., (1999) Comparison between Comstock and Renison Mines (September 1999), Oceania Tasmania Pty. Ltd. and Bass Resources NL. Braunack, R.D., Zeehan Zinc Limited, Business Plan, (28 February, 2003), prepared by BDR Consulting Pty Limited, Brisbane. Braunack, R.D., Zeehan Zinc Limited, Business Plan,Revised Financial Data (7 October, 2005), prepared by BDR Consulting Pty Limited, Brisbane. Braunack, R.D., Zeehan Zinc Limited, Business Plan, January 2006 Update of Financial Aspects (31 January, 2006), prepared by BDR Consulting Pty Limited, Brisbane. Blisset, A.H.(1962), Geological Survey Explanatory Repor Zeehant, Tasmania Department of Mines Cadwallader, W.J., Garretty, M.D. Loh, R.P. 1951, MRT Report TCR50_01061951. Cordery, G.R. 1998. RL 8809 Oceana, Zeehan Tasmania. Project Review and Resource Potential. Unpublished. Mancala Report No. Oceana498.doc, May 1998. Cottle, J. W. (2005) Mining Licenses: 43M/85, 19M/1995, 123M/47 & 9M/2002: Exploration Licenses: 20/2002 and 30/2002 Western Tasmania Resources Estimation and Classification (February 2005), Kew: Cotlco Pty. Ltd. for Zeehan Zinc Limited. Cottle, J. W. (2005) Mining Licenses: 43M/85, 19M/1995, 123M/47 & 9M/2002: Exploration Licenses: 20/2002 and 30/2002 Western Tasmania Resources Estimation and Classification Update (September 2005), Clifton Springs: Cotlco Pty. Ltd. for Zeehan Zinc Limited. Cottle, J. W. (2005) Mining Licenses: 43M/85, 19M/1995, 123M/47 & 9M/2002: Exploration Licenses: 20/2002 and 30/2002 Western Tasmania Resources Estimation and Classification (February 2005), Kew: Cotlco Pty. Ltd. for Zeehan Zinc Limited. Cottle, J. W. (2005) Mining Licenses: 43M/85, 19M/1995, 123M/47 & 9M/2002: Exploration Licenses: 20/2002 and 30/2002 Western Tasmania Resources Estimation and Classification Update (September 2005), Clifton Springs: Cotlco Pty. Ltd. for Zeehan Zinc Limited. Cyprus Gold Australia Corporation, June 1988 Feasibility Study Retention Licence. Application, Oceana Zeehan. Report 574, Part 2, Project A-78-60 DEV349 Elmer, T., 1994, Sylvester Mining Review, Renison Goldfields Consolidated Pty Ltd for RGC Exploration Geltson, R. (2005) Appendix 8: Oceana Deposit Costean Sample Locations, SGS Lab Results, Costean Photos (January 2005), Burnie: SGS Burnie. Heath, P. (2001) Comstock Silver Lead Zinc Mine: Ore Assay Report and Drill Logs (Revised 12 th of February 2001), Tasmania: For Zeehan Zinc Pty. Ltd. Heath, P., 2003, Annual Report for Period ending Dec 2003, Zeehan Mineral Field, Zeehan Zinc Exploration March 2004 Heath, P. (2005) Summary of Mining & Exploration Operations: 1 July 2004 to 30 June 2005, Hobart: Zeehan Zinc Limited. Hyde-Page, A. and Tear, S., Allison s Lode Mining Reserve Study for Oceana Tasmania Pty Ltd (January 2006), The Minserve Group Pty Ltd. Hyde-Page, A., Allison s Lode Reserves Statement for Oceana Tasmania Pty Ltd (25 January 2006), The Minserve Group Pty Ltd. Ingham, P. (1988) Oceana Project, Tasmania Retention License Application Feasibility Study: 574 Part 2 (June 1988), Cyprus Gold Australia Corporation. Jack, R., 1960. Report on the Oceana Mine, Zeehan. Tech. Rep. Dep. Min. Tas., 5, pp.77-88. Joyce, P., Interoffice Memo March 1988, Cyprus Gold Corporation 89
Knight, J. M. (1997) Comstock Silver Lead Zinc Prospect Information Memorandum (November 1997), J.M. Knight & Associates Pty. Ltd. for Oceania Tasmania Pty Ltd and Swansea Mining Company. Knight, J. M. (1998) Comstock, (6 May 1998), Notes to Malcolm Bendall, Swansea Mining Company. London Stock Exchange (March 2006) Guidance Note for Mining, Oil and Gas Companies. O Toole D. & Thomas, S. (2002), Allison Pit Redesign Comstock Mine, Zeehan (March 2002), Coffey Geosciences Pty. Ltd. for Oceania Pty. Ltd. Parkinson, R.G., 1994, TCR94_3551 Mount Dundas EL 45/92, Tasmania, Report on Exploration for the First Year of Tenure, 16-4-93 to 15-3-94 (for CRAE). Parkinson, R.G., 1995 TCR95_3722 Mount Dundas EL 45/92, Tasmania, Report on Exploration for Year 2 of Tenure, 16-4-94 to 15-3-95 (for CRAE). RGC Exploration Limited, 1993, A summary review of the Zeehan (Sylvester) Project, May 1993, prepared on behalf of Renison Ltd Reeves, I., Saxon, M. S., 1995. Oceana RL 8809 JV annual report September 1994 1995. Pasminco Exploration: report number T95-14. Reid, S. 2006a: Oceana Open-cut Optimisation Indicated Resource. SMG Consultants Reid, S. 2006b: Mariposa Conceptual Underground Mine Study. SMG Consultants Richardson, S. (2000) Comstock (Zeehan) Project: ML123ZM/85 and ML19M/95 Final Report (January 2000) Volume 1of 2, Townsville: Western Metals Resources Limited, Townsville Exploration Office. Russell, S.A.J., & Tear, S.J., 1997; TCR97_4009 Annual Report EL 45/92 Mt Dundas (for CRAE) Stephenson, P. R., (2000) Comstock Property Zeehan Tasmania: Interim Report and Valuation (August 2000), North Sydney: Behre Dolbear Australia Pty. Limited. Tanner, D. A. (2002), Comstock Mine Gravity Treatment Plant Finance Proposal, Zeehan Zinc Limited. Tanner, D. A. (2005) Application for Mining Lease EL30/2002 (July 2005), Hobart, ZZ Exploration Pty. Ltd. Tear, S. Block Model Report for the Oceana Pit Resource, (January 2006), prepared for Zeehan Zinc Pty Ltd. Tear, S.J. 2000a: Geological Report on the Comstock Prospect, Zeehan, Western Tasmania. Benmore Exploration. Tear, S.J. 2000b: Aspects of the Mineral Lodes on the Comstock Prospect, Zeehan, West Tasmania. Benmore Exploration. Tear, S.J. 2001: Potential Estimates of Ore Tonnages for the Comstock Lodes, Zeehan, West Tasmania. Benmore Exploration. Tear, S.J. 2005a: Geological Update on the Comstock Prospect, Zeehan, West Tasmania. Benmore Exploration. Tear, S.J. 2005b: Geological Interpretation for the Allison s and Oceana Deposits, West Tasmania. SMG Consultants. Tear, S.J. 2005c: Block Model Report for the Allison s Lode, West Tasmania. SMG Consultants. Tear, S.J. 2005d: JORC Resource Statement for the Allison s Lode, West Tasmania. SMG Consultants. Tear, S.J. 2005e: Block Model Report for the Oceana Pit Resource, Zeehan, West Tasmania. SMG Consultants Tear, S.J. 2006a: Oceana Pit Resource Review, Zeehan, West Tasmania. SMG Consultants Tear, S.J. 2006b: Geological Interpretation and Block Model Report for the Mariposa Prospect, Zeehan, West Tasmania. SMG Consultants Tear, S. (2006c): Comments on Resource to Reserve Conversion Factors, West Tasmania, (28 March 2006). 90
Tear, S. (2006d): Summary of Resource Assessments for Zeehan Zinc s Base Metal Deposits, Western Tasmania, Hellman & Schofield Pty. Ltd. Unknown, (1996) Exploration by McCormick Civil Constructions Pty. Ltd. of MLs 123M/47 & 43M/85 Sublease (Zeehan District) Year ended 30 th June 1996, Exergy Pty. Ltd. Unknown, (1998) Development Proposal and Environmental Management Plan for Level 2 Activity Comstock and Sylvester Trial Harbour Road West of Zeehan Tasmania (January 1998), Sundew Holdings Pty. Ltd. Unknown, (2001) Project No.: 1665 Metallurgical Testwork on Comstock Ore for Zeehan Zinc Pty. Ltd. (June 2001), Independent Metallurgical Laboratories Pty. Ltd. Unknown, (2001) Zeehan Zinc Limited Annual Report 2001: Comstock Silver Lead Zinc Mining and Processing Project (February 2001), Hobart: Zeehan Zinc Limited. Unknown, (2001) Zeehan Zinc Limited Annual Report 2001: Appendices, Hobart: Zeehan Zinc Limited. Unknown, (2002), Zeehan Zinc Limited Finance Proposal Progress Report Processing Plant (May 2002), Hobart: Zeehan Zinc Limited. Unknown, (2002) Zeehan Zinc Limited Consolidated Financial Report for the year ended 30 th June 2002, Hobart: Zeehan Zinc Limited. Unknown, (2003) Zeehan Zinc Limited Business Plan (February 2003), Brisbane: BDR Consulting Pty. Limited. Unknown, (2003) Zeehan Zinc Limited Consolidated Financial Report for the year ended 30 th June 2003, Hobart: Zeehan Zinc Limited. Unknown, (2004) Zeehan Zinc Limited Consolidated Financial Report for the year ended 30 th June 2004, Hobart: Zeehan Zinc Limited. Unknown, (2005) Zeehan Zinc Limited Business Plan (October 2005) Update of Financial Aspects, Brisbane: BDR Consulting Pty. Limited. Western Metals Resources Ltd, 2000. Comstock (Zeehan) Project, ML 123M/47, ML 43M/85, ML 19M/ 95, Final Report, Jan 2000, Repo No TAS0038-01/00 Zeehan Zinc Limited, March 2006, Comstock Mine, Environmental Management Plan Review, prepared by SEMF, Project No. 1292.001. Zeehan Zinc Limited, Mining Lease application, MLA 2M/2005 (Oceana Deposit) MRT Zeehan Zinc Limited, Comstock Mine Permit Conditions (Permit P8/2001) Establishment of Minerals Processing Plant for Milling and Flotation of Lead and Zinc Ores, Trial Habour Road, Zeehan. Zeehan Zinc Limited, EL 18/2003, Exploration Licence MRT Zeehan Zinc Limited, EL 20/2002, Exploration Licence MRT Zeehan Zinc Limited, EL 30/2002, Exploration Licence MRT Zeehan Zinc Limited, ML 43M/85, Mining Lease (Oct 1986) MRT Zeehan Zinc Limited, ML 19M/1995, Mining Lease (Oct 2000) MRT Zeehan Zinc Limited, ML 9M/2002, Mining Lease (Oct 2003) MRT Zeehan Zinc Limited, ML 123M/1947, Mining Lease Renewal (Oct 2000) MRT Zeehan Zinc Limited, Minister s Letter of Mining Lease Renewal (26 May 2006) Zeehan Zinc Limited, Working Capital Report Financial Model July 2006 Zeehan Zinc Limited, Magistrates Court Order, Re-Instatement of Exploration Licences July 2006 Zeehan Zinc Limited, Due Diligence Report, Shields Heritage, Status of tenures, July 2006 Zeehan Zinc Limited, Directors letter to Anderson and Schwab (Aust), Asset tenure, July 2006 91
APPENDIX III GLOSSARY AND ABBREVIATIONS In this CPR a reference to a gender includes a reference to each other gender, and the following terms have the following meanings wherever the context permits: $, Dollars, A$ or cents Australian dollars or cents (as appropriate). Aircore Drilling Anomaly Anticline Assay Board Cambrian Carbonate Method of rotary drilling in which cuttings and small core samples are recovered from the face of the bit through the drill rods by compressed air. A deviation from uniformity; a local feature distinguishable in geochemical, mineralogical or geophysical measurements over a larger area; a feature considered capable of being associated with commercially valuable mineral deposits. A fold in the form of an arch. Any physical or chemical method used to measure the absolute content of an element in a material sample. The board of Directors of Zeehan Zinc Limited The earliest period of the Paleozoic era, from 530M to 460M years before present A sedimentary rock composed principally of calcium carbonate (CaCO 3 ) Company Zeehan Zinc Limited (ACN 089 093 943) Concentrate Mineral in which the valuable mineral fraction has been separated from the gangue (waste) or worthless material thereby upgrading the product. Concordant Cut-off Bearing a conformable relationship to the primary fabric of the enclosing rock The estimated lowest grade of mineralisation or ore that can be exploited profitably. Deformation Of rocks; any change in the original form of rock masses produced by tectonic forces; folding, faulting (large scale) and solid flow are common modes of deformation. Department of Mineral Resources Tasmania (MRT) Devonian Mineral Resources, Tasmania, a division of the Department of Infrastructure, Energy and Resources (of the state government of Tasmania) A period of geologic time from 416.0 M to 359.2 M years before present.. 92
Diamond drilling Dip Directors Dolomitic limestone Drill intersection Drive Exploration Licence Application (ELA) A method of drilling utilizing a diamond bit and recovering core samples of rock. The angle at which a planar geologic feature (i.e. a bed or fault) is inclined from the horizontal The directors of Zeehan Zinc Limited Descriptive of a limestone containing up to 15% magnesium carbonate An interval of a generally anomalous metal concentration defined from drill samples A horizontal tunnel used to gain access off a vertical shaft to mineralised subsurface zones Means an application for an Exploration Licence in Tasmania. Exploration Licence or EL An exploration licence granted under the MRD Act, which provides the holder with the ability to undertake exploration of minerals in Tasmania Fault Fold Galena A fracture or fracture zone along which there has been relative movement A flexure in rock strata or another planar structure Lead sulphide mineral (PbS) Geophysics The study of the earth by quantitative physical methods, examining attributes such as the earth s relative magnetism, gravity effects and electrical properties. Grade Granite Granodiorite Grid The relative quantity or percentage of mineral or metal content. A large body of igneous rock, consisting of quartz, orthoclase and mica. An intrusive igneous rock similar to granite but contains more plagioclase feldspar and biotite mica. A network of survey lines established for geological, geophysical or geochemical investigations Host rock The wall rock of a defined ore deposit or the rock unit containing that mineralisation. Inferred resource A mineral resource inferred from geoscientific evidence, drill holes, underground openings, or other sampling procedure where the lack of data is such that continuity cannot be predicted with confidence and where geoscientific data may not be known with a reasonable level of reliability 93
Licence Lithologies Lode Mineral resource Exploration licence or mining licence granted pursuant to MRD Act 1995 (Tas) Rock type A tabular or sheet-like deposit of valuable mineral between well-defined walls of country rock An identified in-situ mineral occurrence from which valuable or useful minerals may be recovered Mineralisation A concentration of valuable or potentially valuable minerals within a rock body Mining Lease MRD Act Open cut Ore Ore reserve Orebody Paleozoic Pit Pre-concentrate Properties Mining lease granted pursuant to the MRD Act. A mining licence provides the holder with the right to mine for minerals (as defined by the lease) Mineral Resources Development Act 1995 (Tas) (as amended), the Tasmanian law under which the mining industry in the State of Tasmania is controlled and regulated A mine worked at and from the surface Rock which can be mined and processed at a profit under prevailing economic conditions That part of a Measured or Indicated Mineral Resource which could be mined, inclusive of dilution, and from which valuable or useful minerals could be recovered economically under conditions realistically assumed at the time of reporting A well defined mass of ore A geologic era of time ranging from 600M to 230M years before present A surface excavation made on, or in search of mineralisation Mineral in which the valuable mineral fraction has not been fully separated from the gangue (waste) or worthless material but a product that has undergone preliminary upgrading by purely mechanical methods. The term mining property is generally inclusive, to include every mining licence, ditch, mill site, water right, profit a prendre right and the like used for mining purposes, and all other things belonging to a mine or used in the working thereof. Pyrite An iron sulphide mineral (FeS 2 ). Pyrite Iron-sulphide mineral (FeS 2 ) 94
Retention Lease Reserves Resources Reverse circulation Reverse circulation drilling (RC) Rockchip sampling Rotary air blast Sediment Shaft Shear Shear zone Sulphide Tailings Tenement A retention licence granted pursuant to the MRD Act, which allows the discoverer of a resource which is not yet economic or otherwise possible to develop now, to retain its interest pending a change in the circumstances A well-defined estimate of tonnes and grade of ore, which is believed to be economic following a detailed study of all relevant economic and technical information (under JORC (2004)) A well-defined estimate of tonnes and grade of mineralisation on which there has been no detailed economic study carried out but there are reasonable prospects for eventual economic exploitation (under JORC (2004)). Percussion drilling technique whereby the sample is returned to the surface inside the drill rods by compressed air A double tube drilling technique which uses compressed air to operate a down hole hammer and the resulting rock chip and powder sample is returned to the surface inside the drill rods. Sample contamination is reduced significantly using this technique. Obtaining a sample generally for assay, by breaking chips off a rock exposure A rotary drilling technique used to penetrate overburden and weathered bedrock whereby the sample is returned to the surface outside the drill rods by compressed air Any particulate matter that is deposited in a body of water or other liquid. Near vertical passage from the surface through which access may be gained to underground excavations Zone in which rocks have undergone deformation by lateral movement along parallel planes A zone in which crushed rock (or breccia) has been produced by the action of a shearing stress as on a fault. A mineral in which sulphur ions are bonded to other elements Material rejected from a treatment plant after the recoverable valuable minerals have been extracted. An exploration licence or a mining licence granted or deemed to have been granted under the MRD Act 1995 (including pending applications for same). Tenure The holding or possession of rights to or ownership of Crown-owned minerals for the term specified in any particular tenement. 95
Abbreviations: > greater than % per centum AC Ag AMG cm CRAE DH EL ha ID 2 kg km km 2 kv m M ML Mt Pb RAB RC tpa Zn aircore Silver Australian metric grid centimetre(s) Conzinc Rio Tinto Exploration Pty Ltd drillhole exploration licence hectare(s) inverse distance kilogram(s) kilometre(s) square kilometre(s) kilovolts metre(s) million(s) mining lease million tonnes Lead rotary air blast reverse circulation tonnes per annum Zinc 96
2. Creat Resources Summary Report Set out below is the full text of the Creat Resources Summary Report for the purposes of the admission document, Coffey Mining has prepared two summary reports on the assets of the Company and of Galaxy which are set out in paragraphs 2 and 3 of this part 4. 19 January, 2010 The Directors Creat Resources Holdings Limited Level 2 116 Bathurst Street Hobart Tasmania 7000 Australia Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU United Kingdom Dear Sirs RE: Creat Resources Holdings Ltd Independent Summary Report Zeehan Zinc Tasmanian Assets Coffey Mining Pty Limited ( Coffey Mining ) has been commissioned by Creat Resources Holdings Limited ( CRHL ) and Grant Thornton Corporate Finance, the nominated adviser to CRHL, to provide the following two independent summary reports (the Summary Reports ): 1) Independent summary report on the Tasmanian mineral properties and mines of CRHL (the CRHL Assets ) covering the period since the CRHL was admitted to trading on AIM in March 2007 to the date of the report; and 2) Independent summary report on the Western Australia mineral properties and mines of Galaxy Resources Limitted (the Galaxy Assets ) covering the period since Galaxy Resources Limited ( Galaxy ) was listed on the Australian Stock Exchange in February 2007 to the date of the report. The Summary Reports have been prepared for inclusion in the admission document of CRHL dated on or about 10lh February 2010 (the Admission Document ), relating to the acquisition by CRHL of 19.9% of the issued share capital of Galaxy (the Acquisition ) and the proposed re-admission of the entire issued share capital of CRHL to trading on AIM, a market operated by the London Stock Exchange plc. The Summary Reports are based on publicly available information in the case of Galaxy Resources Limited and both publically available and in house information in the case of CRHL. Mr Troy Lowein, a Coffey Mining representative, undertook a site visit to Tasmania to assess the CRHL Assets in October 2009. No site visit was undertaken to assess the Galaxy Assets. Final drafts of the Summary Reports were also provided to CRHL, along with a written request to identify any material errors or omissions. Coffey Mining confirms that, to the best of its knowledge, the information contained in the Summary Reports is in accordance with the available information, contains no known omission likely to affect their import and no material change has occurred from 19th January 2010 to the date hereof that would require any amendment to the Summary Reports. Coffey Mining Pty Ltd ABN 52 065 481 209 1162 Hay Street, West Perth WA 6005 Australia PO Box 1671, West Perth WA 6872 Australia T (+61) (8) 9324 8800 F (+61) (8) 9324 8877 coffey.com MINEWPER00746AA 97
The Summary Reports are complete up to and including 19th January 2010. We hereby consent, and have not withdrawn our consent, for the inclusion of the Summary Reports in the Admission Document, and to the inclusion of statements made by Coffey Mining and to references to our name in other parts of the Admission Document, in the form and context in which the Summary Reports and those statements and references appear. The Summary Reports relate specifically and solely to the subject assets and is conditional upon various assumptions that are described therein. Coffey Mining has reviewed the information contained elsewhere in the Admission Document which relates to the information contained in the Summary Reports and confirms that the information presented is accurate, balanced, and complete and is not inconsistent with the Summary Reports. Coffey Mining also confirms that, where any information contained in the Summary Reports has been sourced from a third party, such information has been accurately reproduced and, so far as they are aware and are able to ascertain from the information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Coffey Mining is a mining industry consulting firm which has been providing services and advice to the international mineral industry and financial institutions for over 50 years. The primary authors of the Summary Reports are Mr Paul Mazzoni and Mr Albert Thamm. Both are professional geologists with over 20 years of experience in the minerals industry and full time employees of Coffey Mining. Both authors are Fellows of the AusIMM. Each of the authors has the appropriate relevant qualifications, experience, competence and independence to be considered an Expert under the definitions provided in the JORC Code. Neither Coffey Mining, nor the authors of the Summary Reports have, or have had previously, any material interest in CRHL or Galaxy or the CRHL Assets or Galaxy Assets, or is earning, an interest. Our relationship with CRHL is solely one of professional association between client and independent consultant. The Summary Reports are prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of the Summary Reports. The Summary Reports were provided for the sole use of CRHL and Grant Thornton Corporate Finance, acting as nominated adviser to CRHL. Except with permission from Coffey Mining, the Summary Reports may not be reproduced or redistributed, in whole or in part, to any person or published, in whole or in part, for any purposes without the express consent of Coffey Mining. For and on behalf of Coffey Mining Pty Ltd Albert Thamm Senior Consultant Zeehan Zinc - Tasmanian Assets MINEWPER00746AA Independent Summary Report 19 January, 2010 98
ZEEHAN ZINC TASMANIAN ASSETS Independent Summary Report Prepared by Coffey Mining Pty Ltd on behalf of: Creat Resources Holdings Limited 19 January 2010 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION 1.1 Terms of Reference 1.2 Qualifications Experience and Independence 1.3 Principal Sources of Information 1.4 Reliance on Other Experts 2 ASSET BACKGROUND 2.1 Location and Background 2.2 Mineral Projects 2.3 Regulatory Background 2.4 Exploration Licence 2.4.1 Reporting 2.4.2 Approvals 2.5 Mining Lease 2.5.1 Royalties 2.5.2 Annual Rental 2.6 Retention Licence 2.7 Schedule of Tenements 2.8 Zinc Industry Australia 3 COMSTOCK PROJECT 3.1 Tenure 3.2 Geology and Mineralisation 3.2.1 Regional Geology 3.2.2 Project Geology 3.2.3 Mineralisation 3.2.4 Exploration and Mining History 3.2.5 Mineral Resources and Reserves 3.3 Operations 3.4 Exploration and Development Potential 4 OCEANA PROJECT 4.1 Tenure 4.2 Geology and Mineralisation 4.2.1 Regional Geology 4.2.2 Project Geology 4.2.3 Mineralisation 4.2.4 Exploration History 4.2.5 Mineral Resources and Reserves 4.3 Proposed Mining Operations 4.4 Mining Risk 4.5 Exploration and Development Potential 99
5 MARIPOSA PROJECT 5.1 Tenure 5.2 Geology and Mineralisation 5.3 Project Geology 5.3.1 Mineralisation 5.3.2 Exploration History 5.3.3 Mineral Resources and Reserves 5.3.4 Resource Statement 5.3.5 Resource Risk 5.3.6 Proposed Mining Operations 5.3.7 Exploration and Development Potential 6 OTHER TENEMENTS 6.1 Tenure 6.2 Geology, Mineralisation and Potential 7 REFERENCES 8 GLOSSARY LIST OF TABLES Table 1 Tenement Detail and Holdings Table 2.7_1 Schedule of Tenements Table 3.2.5_1 Summary Comstock Resource Inventory (at 1% Zn cutoff) Table 4.2.5_1 Classified Mineral Resource at 0% Pb Cutoff (after Tear, 2007) Table 4.3_1 Mineral Inventory Coffey Mining, 2007 Table 4.3_2 Mining Optimisation Break-Even Parameters Coffey Mining, 2007 Table 4.3_3 Designed Open Pit Volumes Table 5.3.4_1 Summary Mariposa Classified Inferred Resource Table 8_1 List of Abbreviations LIST OF FIGURES Figure 1.4 Comstock Mine Site, view to southeast, October, 2009 Figure 2.7_1 CRHL Tenements as at October, 2009 Figure 2.8_1 Major Mining and Mineral Processing Operations and Proposed Projects Figure 3.2.1_1 Regional Geology Figure 3.2.2_1 Comstock Project Geology Figure 3.2.3_1 Comstock Pit and Drillhole Mineralisation Figure 3.2.3_2 Cross Section Across the Comstock Deposits, View to the West Figure 3.2.3_3 Subcrop and Orientation of Principal Lodes, Comstock Project Figure 3.3_1 Plant and Processing, Comstock Pit ROM and Crusher October, 2009 Figure 3.3_2 Plant and Processing, Comstock Pit Trommel and Jig October, 2009 Figure 3.4_1 Nickel Mineralisation in Comstock Drillholes SY 009 Figure 4.2.1_1 Project Geology Oceana Project Figure 4.2.3_1 Oceana Project Figure 4.2.3_2 Project Geology and Tenements Oceana Project Figure 4.3_1 Pit and Waste Dump Design Figure 5.2_1 Mariposa Project Regional Geology Figure 5.3_1 Interpreted Outcrop Geology Figure 6.2_1 EL 21/2004 and Surrounding Geology Figure 6.2_2 EL 21/2004 and Geophysical Interpretation 100
EXECUTIVE SUMMARY This Independent Summary Report has been produced at the request of Creat Resources Holdings Limited (CRHL) and Grant Thornton. Zeehan Zinc Ltd (ZZL) initially listed on AIM on 6 March 2007 and changed its name to CRHL on 31 July 2009. On 18 August 2008 the ZZL board had announced the cessation of mining and a change of focus to exploration on its Tasmanian tenements. This report provides an independent summary of the mineral exploration and development assets in the State of Tasmania and is based on publically available information and information provided by Creat Resources Holdings Ltd. Since its AIM listing, CRHL initially focused on developing the lead zinc resources at the Comstock Project adjacent to the town of Zeehan in Tasmania. CRHL or its subsidiaries holds three issued exploration leases and one retention lease in the vicinity of Zeehan. In addition, CRHL or its subsidiaries have two mining leases in application for renewal, two retention licences in application and one exploration lease in the process of transfer. CRHL has a 5.8Mt resource inventory, reported at different cutoff grades for Zn and Pb, in the Comstock, Oceana and Mariposa project areas (Table 1). Coffey Mining has not independently validated the mineral resource inventory but has reported the estimates below that were publically made and declared as reported in accordance to the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC code). Table 1 Creat Resources Holdings Ltd Summary Resource Inventory Classification Project Lode/Deposit Tonnes Zn (%) Pb (%) Ag (g/t) Measured Comstock Allison s 14,850 5.4 1.1 21 Indicated Comstock Allison s 20,625 4.2 1.2 34.7 Oceana Oceana 610,400 1.2 5.3 49.5 Inferred Oceana Oceana 1,534,600 1.8 5.2 45.2 Mariposa Mariposa 510,400 2.1 5.0 66.8 Comstock Boss Lower 1,266,300 3.0 3.5 73.6 Comstock Boss U Sulphide 125,700 1.3 2.5 23.8 Comstock Boss Oxide 1,585,200 0.2 1.0 25.7 Comstock Watson s 28,800 3.9 1.8 21.6 Comstock Main 36,200 4.0 2.0 42.9 Comstock Main Surface 19,500 0.9 1.4 42.6 Comstock Allison s 21,200 3.9 1.3 38.9 Total 5,773,775 1.6 3.5 47.6 There are no declared reserves, nor have reserves been declared in the past to in accordance with the JORC code. Open pit mining did take place at Comstock where permitting was in place to allow total production of 100,000t of ore and processing of up to 200,000tpa. Ore was fed through a processing plant, commissioned in 2007. The plant was effectively a beneficiation plant which employed crushing and heavy media separation to produce a gravity concentrate for sale. Operations were suspended at Comstock in June 2008. The processing plant and associated facilities located at Comstock were sold in July 2009. During trial mining and processing, approximately 500t of beneficiated lead zinc ore was reportedly produced for sale to the Rosebery concentrator. Since cessation of operations at Comstock, CRHL has focussed on exploration on its surrounding tenements, directed particularly for Ni mineralisation in mafic and ultramafic host rocks. As part of this strategy, an agreement was entered into in August 2009 to purchase the 13km² Exploration License 21/2004 (Dundas Nickel Project) from Stellar Resources Limited. CRHL has completed a tenement wide seismic survey with focus on the structural interpretation of westward directed thrust complexes to assist with base metal and nickel targeting. In June 2009, CRHL announced completion of a High Resolution Airborne Electromagnetic and Magnetic Survey over its entire tenement package to target nickel and base metal mineralisation. A number of anomalies were defined and CRHL proposes to spend A$760,000 on drilling and geophysical survey work in the next financial year, ending 2010. 101
1 INTRODUCTION 1.1 Terms of Reference Coffey Mining Pty Limited ( Coffey Mining ) has been commissioned by Creat Resources Holdings Limited (CRHL) and Grant Thornton to provide an Independent Summary Report of the former Zeehan Zinc Ltd (ZZL) mineral assets in the State of Tasmania in which CRHL has a 100% interest. The required focus was on material developments between the ZZL London Alternate Investment Market (AIM) listing and the date of this report. The report is based on readily accessible publically available information and information provided by CRHL. 1.2 Qualifications Experience and Independence The qualified person who prepared this report is Mr Albert Thamm who is the sole author. Mr Thamm is a full time employee of Coffey Mining. Coffey Mining and its parent, Coffey International, has been providing consulting services for over 50 years. Coffey International Limited is an Australianbased international consulting firm specialising in the areas of mining and geotechnical engineering, hydrogeology, hydrology, tailings disposal, environmental science and social and physical infrastructure. The author of this report, Mr Albert Thamm, is a professional geologist with 22 years experience in exploration and mining geology. He is a Senior Consultant with Coffey Mining, in Perth, Western Australia. Mr Thamm is a Fellow of the Australian Institute of Mining and Metallurgy (AusIMM) and has the appropriate relevant qualifications, experience and independence to generally be considered as a Competent Person as defined in the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2004). Neither Coffey Mining, nor the Expert responsible for compiling this report, have or have had previously any material interest in CRHL or the mineral properties in which CRHL has, or is earning, or acquiring, an interest. Our relationship with CRHL is solely one of professional association between client and independent consultant. This report is prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of this report. 1.3 Principal Sources of Information The principal sources of information used to compile this report comprise public statements and reports supplied by CRHL, publically available CRHL documents and other published reports. In addition, Coffey Mining has used public reports available from Mineral Resources Tasmania which is an agency of the State Government of Tasmania. Public reports are available on-line and Coffey has utilized this facility to access relevant information. CRHL intends to re-list Zeehan Zinc which was a company listed on the AIM of the London Stock Exchange. Its public reporting and AIM announcements are available through the AIM website. The principal sources of information are listed in Section 7 of this report. At the request of CRHL, a site visit was undertaken to the Comstock and Oceana Projects by an employee of Coffey Mining, Mr Troy Lowien, on 14 October 2009. 1.4 Reliance on Other Experts Coffey Mining has not independently validated resources, nor been mandated to review the mineral resource inventory at any of these Projects. Mineral Resources at Comstock (Figure 1.4_1) were estimated by Mr. Simon Tear, who is a full time employee of Hellman & Schofield Pty Ltd. Mr Tear is a Member of the Australian Institute of Geoscientists and qualifies as Competent Persons under the meaning of the 2004 JORC Code. Mr Tear has similarly been accountable for the public reporting of Zeehan Zinc s earlier reported results. SMG Mining Consultants completed resource estimation work in 2005 and 2006 on the Oceana and Mariposa Projects. Coffey Mining has relied on the content of these reports in preparing this summary report. 102
Figure 1.4_1 Comstock Mine Site, view to southeast, October, 2009 The site visit to the CRHL assets and tenements was undertaken by Mr. Troy Lowien, an employee of Coffey Mining. Mr Lowien is Member of the Australian Institute of Mining and Metallurgy. 103
2 ASSET BACKGROUND 2.1 Location and Background CRHL (formerly known as Zeehan Zinc Ltd) is a listed on the AIM of the London Stock Exchange company with three mineral projects in Tasmania. The tenements described here are the Comstock, Oceana and Mariposa groups of projects. The Projects are centred on the town of Zeehan which originated when the Zeehan-Dundas silver-lead deposits were found in 1882. The town is at latitude 41.88 S and longitude 145.33 E at an elevation of ~172m above mean sea level. The town currently has a population of around 800 people and is well serviced by roads, power, water and most services. The primary economic activity has been mining, with the nearby Renison Bell tin and (mothballed) Avebury nickel mines. The Project areas are dominated by flat open button grass plains, rolling hills, swamps, tea-tree scrubland and dense eucalypt regrowth. The latter is particularly dense along creek beds and in other low-lying areas. The climate is moist temperate with a strong maritime influence, with easterly directed cold fronts off the Southern Ocean. The mean annual rainfall is 2400mm and temperatures range from 18 to 19 C in January to December to 4 C in June to August. The operating season is all-year-round. 2.2 Mineral Projects Since its AIM listing, CRHL had focused on developing the lead zinc resources at the Comstock Project adjacent to the town of Zeehan in Tasmania. CRHL or its subsidiaries holds three issued exploration leases and one retention lease in the vicinity of Zeehan. In addition, CRHL or its subsidiaries have two mining leases in application for renewal, two retention licences in application and one exploration lease in the process of transfer. All these tenements are in the western part of Tasmania, a base metal district with a history of over a century of production. The main commodities exploited or explored for are the ores of lead, zinc, copper and silver. Both Oceana and Mariposa are advanced projects with established Zn, Pb and Ag resources. In the recent past, the focus has been resource estimation and future direction may be a combination of resource drilling to upgrade the status of the company s resource with exploration to test extensions at depth. Details of each tenement, including land use is provided below, including details of environmental bonds for each tenement. CRHL, which is registered in Tasmania, are in the process of subscribing for 19.9% of Galaxy Resources, an ASX listed entity. The details of this commercial transaction are reported elsewhere. 2.3 Regulatory Background In Tasmania, applications for exploration licences, mining leases or retention leases occur under the Mineral Resources Development Act (MRDA) 1995. The MDRA is administered by Mineral Resources Tasmania (MRT), an agency of the Department of Infrastructure, Energy and Resources. The agency administers both the MDRA and its Regulations. In Tasmania, ownership of minerals is complex and varies from title to title. Under common law, the Crown exclusively owns gold and silver. Ownership of other minerals depends on the date of original land grant and the Act under which the land was granted. Details of each tenement are provided below, including details of environmental bonds for each tenement. In Tasmania, clearing old growth forest may be subject to agreements between the Crown and the Federal Government of Australia. Coffey Mining has not been mandated to investigate whether this may apply to one or any of these tenements and offers no comment on this, or any other environmental issue. 2.4 Exploration Licence The Exploration Licence is the principal title for mineral exploration in Tasmania. An exploration licence is issued for five years and may be extended under Section 25 of the MRDA. Exploration licence boundaries are based upon Australian Map Grid co-ordinates (one kilometre grid), geographical features (e.g. coastline), or administrative boundaries (e.g. National Park boundaries). The use of roads or rivers as boundaries is not encouraged. Annual rental rents for Exploration Licences are $19.97 for each square kilometre per year for each of the first two years and for $39.93 per square kilometre each subsequent year thereafter. The title to a licence may be transferred when accompanied by a fee of $121.00, a replacement security deposit, and environmental impact information where a change in program is anticipated. 104
2.4.1 Reporting The format of quarterly reports includes a statutory declaration of expenditure, a breakdown of expenses, and a résumé of work in progress and completed. Quarterly reports are completed as an Interim Report on Exploration for the 3 months ending 31 March, 30 June, 30 September and 31 December. Annual reports should be submitted at least 30 days before each anniversary date of the licence. 2.4.2 Approvals Exploration carried out under a licence issued under the MDRA does not require specific planning or environmental approval. All exploration programs must be approved by MRT and are conducted to environmental standards set out in the Mineral Exploration Code of Practice. Some activities on exploration licences, such as bulk sampling, are treated on a case-by-case basis and may require specific planning and environmental approval from the local government authority and Environment Tasmania, which is the government agency responsible for environmental matters. 2.5 Mining Lease A mining project requires specific State based planning and environmental approvals. Where the annual disturbance is 1000 tonnes for metallic mines, the operation is classified as a Level 1 operation and approvals are managed by local government authorities. Above that level, environmental approval is managed by Environment Tasmania and each operator is required to prepare a Development Proposal and Environmental Management Plan which outlines the manner in which the operator will meet environmental standards. Mining leases are granted subject to the holder gaining planning and environmental approvals. Mineral Resources Tasmania works closely with Environment Tasmania and local government to ensure that all necessary approvals are obtained prior to commencement of mining activities. Mining leases are granted for fixed terms (typically 5, 10 or 20 years) and normally allow for renewal. The holders of mining leases are required to rehabilitate any land disturbed by the carrying out of work on the tenement. Mining leases are not granted over private land unless the applicant has satisfied the Minister that a compensation agreement with the owner and/or occupier has been concluded. Applicants are given a maximum of 12 months to provide such agreement. Mining leases exclude any part of the surface of private land which is within 100 metres of any dwelling or other substantial building or any natural or artificial lake, dam, reservoir, water well or artificial pond without the consent of the owner and occupier. 2.5.1 Royalties Royalty is payable on all minerals recovered from a mining lease under Section 102 of the MRDA in accordance with Part 3 of the Mineral Resources Regulations 2006 (MRR). Royalty is payable in respect of any mineral recovered from Crown land, and in respect of any mineral owned by the Crown which is recovered from private land. Tasmania operates under a two-tiered system where royalty is paid as a percentage of net sales and of profit. The formula for the payment of royalty is at the rate of 1.6% of Net Sales, plus profit. A rebate of 20% is available if the mineral extracted is reduced to metal, within the state. The maximum royalty payable is 5% of net sales. Royalty becomes due within 30 days of the end of the tenement holder s financial year. 2.5.2 Annual Rental Fees are payable for each hectare or part hectare on Mining Leases. If paid on or before 30 September, these are AUD$18.28/ha (minimum of AUD$365.75) and if paid on or after 1 October, these are AUD$21.95/ha with a minimum fee of AUD$438.90. Environmental rehabilitation bonds are levied on a case by case basis, depending on land ownership, mining method, vegetation type and hydrological impact. 2.6 Retention Licence The fee on application for a retention licence mineral is AUD$798.00 per square kilometre and an ongoing additional annual fee for each square kilometre is AUD$1463.00. There is no reporting requirement other than the underlying exploration or mining lease reporting requirements need to be up to date. Retention licences are commonly awarded for variable periods of time from 2, 3 or 5 up to 10 years, depending on the circumstance on application. Retention licences can be converted in to Exploration or Mining Licence, on completion of a new due process. The quantum of bonds to be lodged for the application of RL3/2009 and RL4/2009 is not currently known. 105
2.7 Schedule of Tenements CRHL or its subsidiaries, have three awarded exploration and one retention licence (Table 2.7_1). Two mining leases and two retention licences are in application. One exploration licence is being transferred from Rubicon Min Tech Ventures Proprietary Limited. 2.8 Zinc Industry Australia Australia ranks first in the world in economic zinc resources with active large, world-class zinc-leadsilver deposits at McArthur River, Cannington and Century. Zinc ores are produced also at Rosebery and Hellyer in Tasmania; Elura in New South Wales; and Pillara, Goongewa, Scuddles and Gossan Hill in Western Australia. High-grade zinc silicate ore is mined intermittently from the small Beltana deposit in South Australia. Australia ranks 3rd behind China and Canada in terms of mine production and 2nd to Canada in exports of zinc. Australia exports zinc as refined metal to a broad range of destinations in the Asia-Pacific area extending from India to the USA, but mainly to Indonesia, Hong Kong, Chinese-Taipei and Malaysia. The major customers for zinc in ores and concentrates are Japan and South Korea, and to a lesser extent Belgium, Germany and the United Kingdom. The 2007 Australian mine production of zinc, lead and silver was 1.5Mt, 0.64Mt and 1.9kt respectively. Compared to 2006, production in 2007 increased by 152kt or 11% for zinc and by 153t or 9% for silver but was down by 27kt or 4% for lead. The increased production for zinc and silver largely reflects the completion of mine and processing capacity development projects. The majority of production was from Queensland which contributed 879kt, or 58% to national zinc production for 2007 (up 55kt on 2006) along with 460kt or 72% of lead (up 30kt), and 1.5kt or 81% of silver. Western Australia produced 182kt of zinc and 47kt lead while New South Wales produced 126kt zinc and 72kt lead, the Northern Territory, 139kt zinc and 33kt lead and Tasmania 102kt zinc and 30kt lead (Figure 2.8_1). Table 2.7_1 CRHL Tasmanian Mineral Assets Schedule of Tenements Bond Lodged Lease Location Expiry Date Interest Holder Area (AUD$) EL 18/2003 Comstock Creek* 10/02/2010 100% ZZ Exploration Pty Ltd 14km² 5,500 EL 20/2002 Zeehan* 31/01/2010 100% ZZ Exploration Pty Ltd 68km² 31,760 EL 30/2002 Zeehan* 31/01/2010 100% ZZ Exploration Pty Ltd 8km² 21,160 EL 21/2004 Dundas 25/06/2010 100% CRHL 13km² 5,500 RL1/2008 Mariposa* 1/02/2001 100% Rubicon Min Tech Ventures 3km² 5,750 Proprietary Limited RL3/2009 Oceana Application 100% CRHL 1km² RL4/2009 Comstock Application 100% CRHL 3km² 5M/2007 Oceana Renewal in progress 100% Oceana Tasmania Pty Ltd 247ha 2,500,000 2M/2005 Henty Road Renewal in progress 100% ZZ Exploration Pty Ltd 48ha 22,000 * Renewal in progress 106
Figure 2.7_1 CRHL Tenements as at October, 2009 Geology after Guo (2009). 107
Figure 2.8_1 Tasmania Major Mining and Mineral Processing Operations and Proposed Projects Source: Mineral Resources Tasmania 108
The Century zinc mine which is located approximately 250km north of Mt Isa in northwest Queensland ranks second globally in zinc production. Century produced 502kt of zinc and 38kt of lead as metalin-concentrate in 2006-07. The Cannington mine, also located in northwest Queensland, is the world s largest and lowest cost single mine producer of both silver and lead and a significant producer of zinc. Cannington produced 211kt of lead, 0.9kt of silver and 46kt zinc in 2006-07. Also in Queensland are Xstrata s Mt Isa mines which produced 227kt of zinc, 126kt of lead and 0.2kt of silver in 2007. The value of Australia s exports of zinc concentrates and refined zinc in 2007 totalled AUD$4.2 billion, 11% more than the $3.8 billion in 2006. Exports of lead totalled 620kt in 2007, down 7% on 2006. However, the value of the 2007 exports was 50% higher at AUD$2 billion compared to $1.4 billion in 2006. The value of Australia s mine production of silver was just under AUD$1 billion in 2007. In terms of production, Australia ranks second for lead and zinc after China and fourth for silver after Peru, Mexico and China. 109
3. COMSTOCK PROJECT 3.1 Tenure CRHL has one exploration lease awarded (EL 18/2003) and one mining lease 5M/2007 in the process of renewal (Figure 2.7_1). A retention licence has also been applied for (RL4/2009). The likelihood of restarting mining is low as there is no environmental approval, production is limited to a 1000t limit and if the retention licence is granted, mining will require application and an approval process to be initiated. Mining lease 5M/2007 further has a caveat registered against it by Pasminco Australia Ltd, in relation to a 5% private royalty (net smelter return) originating from its sale in 1989. 3.2 Geology and Mineralisation 3.2.1 Regional Geology The Zeehan district of Tasmania (Figure 3.2.1_1) is a complex terrain of folded and faulted Palaeozoic age sediments, volcano-sedimentary complexes and granite intrusives, with isolated windows into Precambrian basement. The region hosts significant zinc, lead and tin deposits as well as more recent discoveries of nickel in mafic and ultramafic extrusive and intrusive rocks. The Mount Read volcanic belt of Cambrian age is to the north and south east and is host to the Mt Lyell (copper), Henty (gold) and the Rosebery, Hellyer, Que River and Hercules (Zn, Pb, Cu, Ag, Au) mines. The Comstock Project, which lies close to the Trial Harbour Road, is 4km west of the town of Zeehan. 3.2.2 Project Geology The Comstock base metal mineralisation is hosted in the late Precambrian and early Palaeozoic sediments of the Oonah and Crimson Creek Formations. The former is dominated by dolomite, carbonaceous mudstones and siltstones and the latter by quartzose mudstones, siltstones and wackes. At least four deformational events are recognised (Farrell, pers. comm. 2009) with early north-south trending folds represented by dismembered isoclinal folds that are associated with intense layer parallel shear within bedded sediments. Later deformation includes north-south upright folds, reverse faulting and more bedding parallel slip within an east-west directed compression. A later compressional event swings the orientation to northeast-southwest directed compression and is possibly related to granite intrusion. The last deformation event resulted in east-west trending thrust faults. In the west, the Devonian age, Heemskirk granite intrudes the Oonah and Crimson Creek Formations. Regionally the Cambrian McIvor Hill Ultramafic Complex hosts the Avebury nickel deposit. 110
Figure 3.2.1_1 Zeehan District Geology Source, Farrell, J, Hons Thesis, University of Tasmania The area west of Zeehan (Figure 3.2.2_1) is dominated by a flat-lying interbedded sequence of dolomite and fine-grained metasedimentary units (locally graphitic) and these act as the major host to the base metal lode style mineralisation that was mined in the Zeehan area during the 1880 s and 1890 s. These rocks lie in the hanging wall of the Tenth Legion Fault. 111
Figure 3.2.2_1 Comstock Project Geology Source, Farrell, J, Hons Thesis, University of Tasmania 3.2.3 Mineralisation Three styles of lead-zinc-silver mineralisation are recognised in the district: Base metal sulphide replacement of carbonates Magnetite-serpentinite skarns at the contact of mafic and ultramafic intrusives with Crimson Creek formation carbonates; Fault controlled, north-south striking vein style mineralisation hosted by carbonate units, with siderite alteration (Figure 3.2.3_1). Figure 3.2.3_1 Comstock Pit and Drillhole Mineralisation View towards Allison s open pit from South Comstock Comstock massive Pb and Zn mineralisation and siderite breccia/alteration The Comstock Project consists of a series of lead/zinc vein-like structures mainly hosted by the Oonah Formation, which were the subject of substantial mining efforts in the late 19th century. The principal faults on the lease are the Tenth Legion, Bendall s, Balstrup and Sylvester s faults which are associated with but do not directly host the base metal lodes (Figures 3.2.3_2 and 3.2.3_3). 112
Figure 3.2.3_2 Cross Section Across the Comstock Deposits, View to the West Source, Farrell, J, Hons Thesis, University of Tasmania Figure 3.2.3_3 Subcrop and Orientation of Principal Lodes, Comstock Project Source, Farrell, J, Hons Thesis, University of Tasmania The Tenth Legion Fault is exposed in the south of the mine leases and is believed to be a thrust fault that dips about 25 to the north. It is characterised by black matrix breccias with a strong shear fabric and boudinage and at times the rock has been logged as mylonite. Alternative suggestions are that these rocks are sedimentary breccias associated with depositional subsidence. The Balstrup Fault is the dominant structural feature within the CRHL mine lease. It is a normal fault, striking WNW-ENE with a 70º dip to the north. In diamond drillcore it is recognised as a brittle structure with clay gouges and fracturing of the rock. In some instances there are black matrix breccias similar to the Tenth Legion Fault. 113
The main deposits within the CRHL mine leases are the Allison s, Watson s, Main, South Comstock, Boss and Sylvester Lodes (Sylvester is also known as Balstrup). The first three are parallel mineralised structures with up to 500m of historical strike length. The Allison s Lode appears to be an axial planar sub-vertical fissure-fill structure located in the anticlinal hinge of an upright, north to north-northwest striking open fold (Tear, 2008). Immediate host lithologies comprise silicified, talc-rich dolomites underlain by silicified pyritic and carbonaceous siltstones. At outcrop over the Boss lodes there are substantial exposures of haematitic gossan over relatively large areas. In the light of the flat-lying nature of the stratigraphy these are believed to stratiform gossans oxidised from massive sulphide bodies within the carbonate units. The exposed lode at Allison s is a vein system/structural zone up to 200m long with maximum width of 20m. A series of parallel, semi-continuous sulphide zones consist of coarse grained sphalerite, galena and pyrite with a quartz (+calcite) gangue. The individual sulphide veins are discontinuous and poddy in nature and there are lower grade sulphide dissemination/veinlet zones interstitial to the massive sulphide pods. The most significant recent discovery at Comstock is at the Boss Prospect (Figure 3.2.3_3) beneath the outcropping gossans, 100m southeast of the Allison s Lode. Mineralisation at Boss is considered to be stratabound semi-massive to veined sulphide replacement style with sphalerite, galena and pyrite. The Boss Lower mineralisation is hosted a dolomitic horizon, immediately below a fine-grained marker over an area of 400m long by 200 wide, at an average depth of 70m below surface. 3.2.4 Exploration and Mining History The Comstock area has had a long history of mining and exploration activity that dates back to the 1880 s. Old workings aimed at extracting lead/silver-rich fissure fill veins litter the Comstock area and comprise small scale shafts and levels completed by previous miners, some of which date back to the 19th century. At Allison s Lode there are old workings in the central parts of the open pit which appear to have been worked underground to15m depth. The ore thickness ranges from 0.5m and 4.3m. Nearby mining at South Comstock and Sylvester in the late 1980 s resulted in small open pits being developed and a reported quantity of 70,000t of material was extracted with 7000t of ore trucked to Rosebery for processing at an estimated grade of 14.8% Zn and 3.6% Pb (Hancock & Stephenson 2000). In 1996 trial costeaning and sampling produced a bulk sample from Allison s. This was reported as 500t at 19% Zn (zinc) and 2.3% Pb (lead) that was trucked to the nearby Rosebery Zinc Mine. A second shipment contained 740t at 11.8% Zn and 2.5% Pb (Hancock & Stephenson, 2000). From April, 2007 CRHL completed 7425m of aircore drilling in 24 drillholes and 171m of diamond drilling in one drillhole. The focus of this development work was the Allison s and Boss Lodes. The Comstock resource database comprises 20,908m in 151 drillholes and 11 costeans. 3.2.5 Mineral Resources and Reserves The Comstock Project resource statement (Table 3.2.5_1) reflects Measured and Indicated categories at the Allison s lode, with the bulk of the remaining resource being the Boss Lower, Upper Sulphide and Boss Oxide lode resources. Resources were estimated by Mr Simon Tear of Hellman & Schofield Pty Ltd and reported in March, 2009. 114
Table 3.2.5_1: Creat Resources Holdings Summary Comstock Resource Inventory (at 1% Zn cutoff) Classification Project Lode/Deposit Tonnes Zn (%) Pb (%) Ag (g/t) Measured Comstock Allison s 14,850 5.4 1.1 21.0 Indicated Comstock Allison s 20,625 4.2 1.2 34.7 Inferred Comstock Boss Lower 1,266,300 3.0 3.5 73.6 Comstock Boss U Sulphide 125,700 1.3 2.5 23.8 Comstock Boss Oxide 1,585,200 0.2 1.0 25.7 Comstock Watson s 28,800 3.9 1.8 21.6 Comstock Main 36,200 4.0 2.0 42.9 Comstock Main Surface 19,500 0.9 1.4 42.6 Comstock Allison s 21,200 3.9 1.3 38.9 Total 3,118,400 1.5 2.1 47.6 Source: CRHL, March 2009. Rounding may lead to computational discrepancies The drilling, sampling and assay programs initiated in 2007 resulted in a new resource estimate undertaken by Hellmann and Schofield (Tear, 2008a). A 1m composite sample length was adopted in resource estimation (Tear, 2008a) to reflect the sampling intervals and the amount of data available, with a minimum composite of 0.3m length. In subsequent analysis and estimation, the raw samples were extracted from the drillhole database using a mineralised zone wireframe and then composited to 1m intervals within these zones. No domaining of the mineralisation was undertaken as generally the geologically interpreted shapes were relatively simple. Sufficient data and the relatively low coefficients of variation between Pb, Zn and Ag allowed for the use of Ordinary Kriging ( OK ) as the preferred modelling method for the Boss Lower and Boss Oxide mineralisation. Directional variograms indicate weak continuity with the implication being additional infill drilling is required, to achieve resource status with confidence status greater than Inferred. Block modelling procedures and algorithms are comprehensively reported in Tear, 2008a. Block model reporting was constrained by using a cutoff either 1% zinc for the Boss Lower or 0.5% Pb for the Boss Oxide, within the relevant wireframe shape for the respective lode. An Inverse Distance Squared ( ID2 ) estimation technique for single domains was considered suitable for the smaller bodies of mineralisation with a lower number of data points i.e. Watson s Lode, Main Lode and the Upper Boss Sulphide. Source data was the relevant string file of extracted composite values from the drillhole database. The modelling was constrained to limiting the block grades to inside the relevant wireframe. No results of reconciliation of mining against the resource modelling have been reported. All resource models presented to date do not factor in geometallurgical recovery or mining dilution, these are thus in-situ geological models. 3.3 Operations CRHL has undertaken trial mining at Allison s Lode. In 2007 Coffey Mining submitted plans to CRHL for the deepening of the Allison s pit to RL 273m for trial mining purposes. In addition, designs were submitted to extract ore to RL 270m at South Comstock. CRHL had a permit to mine 100,000 tonnes. This trial mining took place on a contractor (Hoare Brothers) based, truck and shovel, drill and blast, basis using articulated 40 tonne 6 x 6 dump trucks and excavators. Mining was suspended in June 2008. In May 2007 CRHL announced the commencement of commissioning of the crushing circuit of the gravity plant and an expectation that the processing plant would be operational by the end of June 2007. The tailings dam and the associated water management systems at the Comstock Site were also expected to be fully operational by the end of June 2007. The gravity plant was designed to produce three products, a saleable gravity concentrate which could be on-sold immediately, a mineralised preconcentrate which has been stockpiled for treatment in a future flotation plant and un-mineralised tailings which were disposed of in the existing Comstock tailing dam. In July 2008, CRHL announced 500t of processed ore had been sold to the then Zinifex Ltd, now known as Nyrstar Ltd. In August 2008, CRHL reported that 1500 tonnes of high grade ore has been extracted and processed over the last year. Of this 620 cubic metres was massive zinc-lead sulphide dominated 115
materials and 4,270 cubic metres a mixed massive and disseminated zinc-lead sulphide. These are currently stockpiled awaiting processing and/or sale. CRHL expensed approximately AU$2.5 million on the plant in 2007-8 and AU$1.8 million on the tailings dam. The combined capital and operation expenditure over two years was approximately AU$11 million. The plant facilities are intact (Figures 3.3_1 and 3.3_2) but CRHL announced in July 2009 that they had been sold. Figure 3.3_1 Comstock Processing Plant - October, 2009 ROM bin and feeder, Comstock plant Crusher, Comstock processing plant Figure 3.3_2 Plant and Processing, Comstock Pit Trommel and Jig - October, 2009 Trommel and conveyors, processing plant Inline pressure jig, sulphide recovery circuit 3.4 Exploration and Development Potential The Comstock plant is under care and maintenance and if a Retention Licence is granted, no further mining or exploration will occur in the area of the licence. The immediate focus will be on exploration and Ni exploration in particular. The potential for an Avebury-style nickel deposit is considerable, with similar geological and geophysical conditions observed to extend into CRHL s regional tenement EL30/2002 from the nearby Avebury deposit, to the southeast. CRHL holds the tenements to both the north and east of that deposit. This area of CRHL s tenements also displays a similar spatial relationship to the Heemskirk Granite, believed to be the cause of the remobilisation and deposition of the Avebury Ni-skarn deposit. The serpentinised, altered ultramafics that host the Avebury deposit are also developed within the Pontiac and Foundation Stone prospects and these are directly to the east of the East Avebury/Saxon deposits. An example of the serpentinised ultramafics found in CRHL s tenements can be seen below in Figure 3.4_1, in the footwall to the Tenth Legion fault. The assay returned 50.7ppm Ni over 6m in predominantly pyrrhotite (Fe1-xS), reported in Farrell, 2002. 116
Figure 3.4_1 Nickel Mineralisation in CRHL Comstock Drillhole SY 009 Source: Tenement report, EL30/2002, 2008 The Avebury Nickel deposits occur as a Ni-skarn type mineralisation, with disseminated pentlandite (Ni,Fe)9S8) hosted within a late Cambrian ultramafic intrusive, subcropping some 70m below the current surface. This orebody occurs at the serpentinised contact between basalt and ultramafic intrusives. The existing resources at Avebury are known to induce distinct magnetic anomalies that extend well into the CRHL tenements. The anomaly appears in a large D-shape with Avebury sitting in the far southwest corner, extending eastward in CRHL s EL18/2003, then curves to the north, and under the Comstock mine then back to the west and the Tenth Legion area of EL30/2002. This anomaly can be attributed to magnetite deposits in the northern area around Tenth Legion, but its relationship to the Avebury deposit, and large areas of the magnetic anomaly with the exploration licences held by CRHL make this area a highly prospective target for nickel. 117
4. OCEANA PROJECT 4.1 Tenure The CRHL tenure (Figure 2.7_1) over this project stems from Mining Licence 2M/2005 and Retention Licence RL3/2009. Both licences are surrounded in toto by granted EL 20/2002, which is held by a CRHL subsidiary, ZZ Exploration Pty Ltd (ZZE). 4.2 Geology and Mineralisation 4.2.1 Regional Geology The Oceana lead/zinc project (Figure 4.2.1_1) is hosted by Ordovician-aged carbonates of the Gordon Limestone. The deposit type is similar to the Irish-type of carbonate hosted lead/zinc deposit, particular with the Silvermines and Tynagh deposits in the Republic of Ireland (Taylor & Mathison, 1990). Figure 4.2.1_1 Project Geology Oceana Project Source: Tear, 2007. 4.2.2 Project Geology The Oceana lead/zinc deposits occur as two parallel lodes in steeply east dipping calcsiltites, calcarenites and synsedimentary breccias of the Ordovician-aged Gordon Limestone. The mineralised body is split into two sections by the obliquely cross cutting Oceana Mine Fault with the northern limit of mineralisation truncated by the cross cutting Oceana Fault (Figure 4.2.1_1). The southern end of the mineralisation is believed to taper out to the south whilst both sections are open at depth. The mineralisation north of the Oceana Mine Fault was identified CRHL reports as Resource A and consists of a variety of competent, sideritic limestones with galena and sphalerite adjacent to clay-rich oxidised lead-and zinc-rich material. The historical logging records oxidised products of the sulphide mineralisation as being cerussite and hemimorphite/smithsonite. Sections of the old workings allude to the possibility of small scale flat lying dextral thrust faults (Tear, 2007). 4.2.3 Mineralisation Mineralisation comprises stratabound, semi-massive, galena and sphalerite, locally with semi-massive pyrite, associated with an intensely pervasive, hydrothermal-related, siderite alteration (Figure 4.2.3_1). There are also zones within the drill core and at surface of dark grey/black clays, which are likely to be residual weathering deposits of both the limestone (Figure 4.2.3_2) and/or the sulphide bodies. 118
Figure 4.2.3_1 Oceana Project Access road to Oceana Project Pb and Zn mineralisation, Oceana Project Figure 4.2.3_2 Project Geology and Tenements Oceana Project 4.2.4 Exploration History The initial discovery of lead (and silver) mineralisation at Oceana was in 1887 as part of the Zeehan Mineral Field boom of the late 1880 s. From 1892 to 1899 a series of small shafts and drives were driven on the deposit and total of 1016t of ore was extracted at 39% Pb and 445g/t Ag (Blissett, 1962). Mining ceased when the shaft collapsed. Minor extraction went on from 1909 to 1925 and in the early 1950 s. A joint venture called Zeehan Mines Pty Ltd. was formed in order to drill out and mine the resource. Drilling consisted of 39 surface diamond holes and 58 underground diamond holes. Mining began in 1954, ceasing in 1960 due to excessive water inflows, reported as 11.3 mega-litres per day (Jack 1961). A 200m shaft was sunk, with the first 30m in decomposed limestone clay, and the establishment of a further 5 levels was completed. Production is reported in Blissett (1962), as comprising 131,821 tonnes of ore at 11.5% Pb and 132g/t Ag (no zinc reported). Mining was by flat back cut and fill stoping with fill comprising deslimed mill tailings. Exploration was re-established in 1978 by AMOCO (Jones, 1981) and then an AMOCO/EZ/ Cyprus joint venture (Jones, 1983), followed ultimately by Pasminco in 1992-6 (Quayle, 1993). The exploration work by AMOCO included a study of the Zeehan Mines historical work (Curtis, 1981) with further diamond drilling and costeaning enabling resource estimations to be undertaken. An AMOCO/ Cyprus Gold Australia Corporation JV continued exploration in 1988 producing a geological study and a feasibility report respectively (Ingham, 1988), quoting 2.47Mt at 9.4% Pb, 4% Zn and 68ppm Ag to a depth of 350m (approximately 840mRL) with a 5%Pb+Zn cutoff. These resource figures were reported to a JORC (1985) standard. 119
Pasminco (Saxon 1994) re-estimated the resource based on previous explorers work, concluding with a figure of 2.49Mt at 7.5% Pb, 2.6% Zn and 45.4ppm Ag. These resource figures were for internal use by Pasminco and were never reported publicly. In 1997 Mancala Pty Ltd completed a re-assessment of the data and concluded that potential for an open pit existed to the immediate north of the old mine, around Oceana Resource A (Ackerman, 1998). The estimated resource of 135,000 tonnes at 12% Pb, 2.8% Zn and 68g/t Ag, was based on an open pit operation to 50m, with a 10% Pb+Zn cutoff. These resource figures were never reported to JORC standards and are only included here for historical purposes. The Oceana database comprises 10,776m of diamond drilling. CRHL completed 100m of aircore drilling. 4.2.5 Mineral Resources and Reserves A re-evaluation of the resources at the Oceana Deposits was completed by CRHL in 2007 (Tear, 2007). This included the incorporation of new aircore drilling data as well as a reconstruction of the old Oceana Lead Mine and its environs. New resource estimates, using more advanced techniques were completed for both the Oceana Resource A and the Resource B deposits, the latter of which is associated with the old underground mine. Past production from the underground mine was 131,821 tonnes of ore at 11.5% Pb and 132g/t Ag. The 2006 aircore drilling resulted in a minor revised delineation for the East Lode of Resource A, but reduced by roughly 10% the size of the West Lode and sub-splitting it into three sections. The figures for Resource A were thus slightly reduced. The resource estimation for Resource A consisted of 1m composites of data sourced from trenching, diamond drilling and aircore drilling, constrained by either a 1% or 0.2% Pb wireframe. For Resource B the data source was 1m composites from mainly diamond drilling (surface and underground) and some costeaning, constrained by a 0.2%Pb wireframe. Statistical analysis indicated all data types could be amalgamated into two single datasets, namely Resource A and Resource B. Tear (2007) used Ordinary Kriging for the resource estimation method as opposed to previous work which used Inverse Distance Squared (ID2) methods. Variography was used to identify continuity trends within the data, which were used to create variogram models for the different elements. Conditional simulation software (GS3) was used to model the data with the output loaded back into Surpac for resource reporting (Table 4.2.5_1). The reporting was constrained by using a block grade >0% Pb, the relevant lead grade wireframe and above the 1000mRL. An ID2 check was completed on Resource A for comparison with earlier work. Table 4.2.5_1: Oceana Project Classified Mineral Resource at 0% Pb Cutoff (after Tear, 2007) Classification Tonnes Pb (%) Zn (%) Ag (ppm) Indicated 610,400 5.3 1.2 49.5 Inferred 1,534,600 5.2 1.8 45.2 Total 2,145,000 5.2 1.6 46.4 The Oceana Deposits comprise two, parallel, stratabound, semi-massive galena and sphalerite bodies (+/-semi-massive pyrite) hosted in steeply-dipping, sideritised carbonates of the Ordovician-aged Gordon Limestone. The obliquely cross-cutting Oceana Mine Fault separates the northern Resource A from the southern Resource B. The deposits are cutoff in the north by the cross cutting Oceana Fault, whilst the southern margin is a more ambiguous tapering off. The resources overall, measure 250m by up to 50m wide at surface and have a current resource depth of about 190m with potential for more mineralisation at depth. Densities are assumed at 3.05t/m³ for Resource A and 3.35t/m³ for Resource B, a wireframe constraint 1%Pb has been applied in modelling, blocks populated only at >0% Pb. Further upgrade of the resource will require both extensive infill drilling and a mineralogical analysis of the minerals present and potential recovery rates. The occurrence of lead and zinc secondary minerals within the upper parts of Resource A and possibly Resource B may be significant. These minerals may require different processing techniques to the sulphide mineralogy and therefore it is important to know the distribution and abundance of these minerals. This can be done by a combination of assay techniques and mineralogical analysis using thin sections, X-ray diffraction and/or the Qemscan (SEM) process. 120
There is also the potential risk of zinc occurring as zincian siderite, which is known to exist in the Gordon Limestone around Zeehan. Reconciliation of assay grades with sulphur assays can assist the differentiation of sphalerite from zincian siderite. Any future drilling programme should make provision for the collection of metallurgical testwork samples. 4.3 Proposed Mining Operations Coffey Mining prepared a report (Atkinson and Buechner, 2007) in support of the re-application for the existing mining lease (2M/2005). The within pit mineral inventory (Table 4.3_1) was to underpin a conventional drill and blast, truck and shovel open pit mining operation. The mine business case was based on excavated ore being crushed at Oceana in a mobile crushing plant and then trucked to Comstock where it will be treated in the existing gravity concentration plant. The recoverable resource is documented in Table 4.3_2. This project had advanced to scoping level stage and basic operating costs estimated (Table 4.3_2). Table 4.3_1 Oceana Project Mineral Inventory Coffey Mining, 2007 Cutoff Grade Resource Ore Grade Pb equivalent Category Tonne Pbe Pb Zn Ag % % % % g/t 1.00 Measured 297,093 5.2 3.5 1.6 19.2 Indicated 245,823 4.3 2.8 1.4 16.1 Inferred 391,380 6.1 4.3 1.6 19.4 Total 934,296 5.3 3.7 1.5 18.5 3.52 Measured 231,000 5.9 4.1 1.6 22.1 Indicated 144,733 5.4 3.8 1.4 21.0 Inferred 278,494 7.5 5.7 1.6 24.3 Total 654,227 6.5 4.7 1.6 22.8 Difference Total 280,069 2.6 1.2 1.4 8.6 Table 4.3_2 Oceana Project Mining Optimisation Break-Even Parameters Coffey Mining, 2007 Item Unit Value Mining Cost $/Tonne 5 Stripping Ratio Waste/Ore 5 Lead Price $US/Tonne 3,200 Exchange Rate $A/$US 0.8 Metallurgical Recovery % 80 Smelter Pays % 80 Haulage, Treatment & Realisation Cost $/Tonne 60 Total cost per ore tonne $/Tonne 90 Cash Breakeven Lead Equivalent Grade % 3.52 A pit design was based on a 20 metre maximum bench height, excavated in 10 metre flitches, 12.5m wide haul roads with a road grade of 10%, 5 metre berm width, 60 degree inter-berm wall angle below 1200mRL, 45 degree inter-berm wall angle above 1200mRL, a pit base at 1120mRL, the pit floor with 30 metre working width consistent with safe and practicable working space requirements. 121
Table 4.3_3 Oceana Project Designed Open Pit Volumes Bench RL Waste Ore Total Strip Ratio From To Cubic Metre Waste:Ore Surface 1280 1,700 1,700 1280 1270 8,118 8,118 1270 1260 17,670 17,670 1260 1250 24,842 24,842 1250 1240 40,915 40,915 1240 1230 54,906 54,906 1230 1220 79,086 79,086 1220 1210 96,156 96,156 1210 1200 138,890 138,890 1200 1190 255,832 14,648 270,480 17.5 1190 1180 271,572 60,102 331,674 4.5 1180 1170 198,679 55,414 254,093 3.6 1170 1160 157,332 50,609 207,941 3.1 1160 1150 98,731 43,063 141,794 2.3 1150 1140 67,368 35,977 103,345 1.9 1140 1130 25,554 27,031 52,585 0.9 1130 1120 7,457 14,539 21,996 0.5 Total 1,544,808 301,383 1,846,191 5.1 Waste removed from the pit was designed to be disposed on the hillside that marks the western flank of the valley. A swell factor of 25% was applied to the waste volumes generated from the pit giving a total waste dump volume requirement of 1,931,000 cubic metres. The design has a footprint area of 17.6 hectares. A visualization of the pit and waste dump is shown in Figure 4.3_1. Figure 4.3_1 Pit and Waste Dump Design Source: Coffey Mining, 2007 4.4 Mining Risk A geotechnical analysis of the pit walls is required to optimise the wall angles and berm dimensions. There is a steep hillside to the north of the resource, which impacts on any pits north wall design and Coffey Mining recommended that excavation of the hillside be minimized as much as possible. Preliminary designs have shown that the use of switchbacks on the pit ramp (one on the western side at RL 1130, then all on the eastern wall) will bring the northern pit crest back about 25 metres. Additionally 122
a geotechnical investigation of the north wall is required to investigate if the overall wall angle can be increased. An inter-berm angle increase of 10 degrees from 60 degrees to 70 degrees will bring the pit crest back about 17 metres. A combination of these improvements along with a small loss of ore will negate the need to mine any of the hill side to the north of the resource. CRHL nor Coffey Mining has declared a reserve to JORC standard. The figures presented here are at Scoping Study level and should form the basis for further Studies, once the tenement title is renewed. AMC Consultants completed a scoping study for Zeehan Zinc in March 2008, based on a 10.2Mt pit with 1.2Mt mill feed. The outcome of this was an NPV of AU$39 million at a discount rate of 8%. The lead price assumption provided to AMC was US$2,600 per tonne, a price last achieved in April, 2008. However Coffey Mining had submitted a report in support of mining lease application 2M/2007, which is still current, with different metrics, these are reported here. 4.5 Exploration and Development Potential CRHL reports a potential target at depth of from 1.2 to 1.4Mt between the 1000mRL and the 750mRL, below the existing resource. The surround exploration tenement should be viewed with respect to fault offsets, repetitions and stratigraphic and structural repeats. 123
5. MARIPOSA PROJECT 5.1 Tenure Tenure over this Project is held as RL1/2008 surrounded by an Exploration Lease (Figure 2.7_1). The total Project area is 69km². 5.2 Geology and Mineralisation The Mariposa Project is part of a series of limestone-hosted base metal prospects (Figure 5.2_1) located around the town Zeehan which have been subjected to historic mineral exploration. The former Oceana lead/zinc deposit/mine provided much of the impetus for such exploration to be undertaken over all the outcropping areas of the Gordon Limestone in the general Zeehan area (Tear 2005a). Figure 5.2_1 Mariposa Project Regional Geology Source, Tear (2005a) 5.3 Project Geology The structure for the Mariposa Project has been interpreted as a simple steeply dipping package of limestones, fault bounded on its eastern margin and conformably overlain by sandstones of the Crotty Quartzite. In review Tear (2005a) indicates that there is another level of structural complexity, mainly associated with faulting, that may not have been appreciated in mapping by previous explorers, in particular the occurrence of cross faults offsetting the geology. Tear (2005a) has some doubt as to the dip direction of the Mariposa Fault. Analysis of end-of-hole samples has indicated drilling may have ended in stratabound dolomitic alteration. This may be due to either reflux dolomitisation or base metal mineralisation. Weathering of the Gordon Limestone produces black clays which accumulate in the valleys and can form a surficial deposit ranging from <1m to 50m thick. Other surficial deposits include washed in sand and gravel from eroded Crotty Quartzite forming deposits on the western flank and the floor of the limestone valley. The western lode (Figure 5.3_1) is a strata-parallel siderite vein or replacement zone with disseminated galena and sphalerite hosted within limestone. In the AMOCO drillholes the mineralised zone generally appears to be competent core, in some of the North Broken Hill cores there are mentions of substantial cavities. The mineralisation occurs some 50m below the contact with the overlying Crotty Quartzite, at the base of the regional dolomitised upper section of the Gordon Limestone. The delineated zone from drilling and trenching data measures 340m long and ranges between 100m and 200m down dip with a true width ranging between 1m and 6m. The lode is regarded as open at depth and closed off to the north by a cross fault. An additional 30m has been included in the resource estimate as an extra shape at the south end of the lode based on drillhole MM4. The lode structure persists to the south but is of diminished grade. 124
The eastern lodes are based on CRAE aircore drilling that occur on the eastern side of the Gordon Limestone. The narrow lodes are defined on assay values encountered in vertical drillholes (at 1% Pb and/or 1% Zn), with instances of shallow diamond drillhole support (but with poor recovery). These lodes indicate strike lengths of approximately 520m with an average of 70m depth. Known depth limits are due to lack of deeper drilling. Widths vary from 1m to 5m locally. There is potential for an additional 250m of strike to the south as indicated by a solitary drillhole intercept. The level of confidence in the modelled mineral shapes and continuity is much less than for the West Lode. The most persistent lode is based on lead and/or zinc assays from drillholes in conjunction with a mapped stratabound siderite zone. Siderite alteration is ubiquitous with lead and zinc mineralisation in the Gordon Limestone around Zeehan. In terms of stratigraphy there is a distinct, non-calcareous unit about one third down the Gordon Limestone stratigraphy characterised by having calcirudites with large bryozoan clasts and other coraltype fragments. The hangingwall is the Crotty Quartzite, a white locally friable sandstone, and that conformably overlies the Gordon Limestone. There are suggestions of a faulted contact, in the north of the prospect. This unit forms a topographic high which has shed rubble and sediment into the valley below with sand and gravel accumulations masking parts of the limestone. The stratigraphy is fault bounded and two major faults are recognised, the Mariposa and Nevada faults. The Mariposa fault is a complex fault zone that occurs on the eastern margin of the limestone. It has been perceived to be steeply dipping to the west but its orientation is poorly constrained. At its southern end it is believed to pass into the Nevada Fault. This fault is projected down as steeply dipping to the west. 125
Figure 5.3_1 Mariposa Project Interpreted Outcrop Geology- after SMG Consultants 2006 126
5.3.1 Mineralisation The base metal mineralisation that occurs at Mariposa is hosted by calcarenites and calcsiltites of the Ordovician-aged Gordon Limestone. The sequence is steeply dipping to the west with the Crotty Quartzite overlying the limestone, forming a distinct topographic high, possibly as a faulted contact. The footwall to the limestone is believed to be a faulted contact, now called the Mariposa Fault, juxtaposing the limestone with Cambrian age Dundas Group of sediments and volcaniclastics. Within the limestone is a non-calcareous, mudstone marker unit with coarse bioclastic material called the Lords Siltstone. Regionally-related reflux dolomitisation has occurred across the upper part of the limestone creating a vuggy dolomite unit. A siderite alteration zone with anomalous lead/zinc values was identified in the base-of-hole aircore samples, from the CRAE work, that straddles the faulted eastern contact. For the main Mariposa Lode, now called the Western Lode, the lead/zinc mineralisation is associated with a seemingly strata-parallel, siderite replacement unit. Galena is the dominant sulphide species in conjunction with lesser amounts of sphalerite. This lode has been the focus of the majority of the diamond drilling. The eastern lodes are weakly defined due to limited shallow drilling, but they are perceived to be steeply dipping and strata-parallel. The 19th century workings on the East Lode involved a shaft and a 400' (ft) long main drive along the ore. 5.3.2 Exploration History The original Mariposa deposit began its mine life in the 1890 s as a small trial mining campaign with a shaft and underground drives developed with production amounting to 1000 tons of milling ore at 33% Pb and 17ozs Ag (Cadwallader, 1951). Various attempts at re-opening the mine ensued until North Broken Hill undertook a diamond drilling campaign in the early 1950 s. This work identified a resource and included a scoping study with some estimation of mining costs, but the reports contain no maps and four of the reported twelve drillholes cannot even be located (Tear, 2005a). Macintyre Mines completed exploration in the 1970 s, drilling one diamond hole just south of the main Mariposa Lode (Bates, 1972). This intersected weak lead/zinc mineralisation in the expected position. In the 1980 s the area was held as an exploration licence by AMOCO/CYPRUS who undertook a systematic search looking to find an Irish-type carbonate hosted lead/zinc deposit. This included drilling of the main Mariposa Lode and substantial trenching over the whole carbonate outcrop at Mariposa. Significant mineralisation and geochemical anomalism was encountered but follow up work was limited (Ellis 2002, Jones & Kary 1983 and Kary 1985). Con-Zinc Rio Tinto Australia Exploration (CRAE) were the subsequent explorers in the mid 1990 s and completed an extensive aircore drilling programme coupled with some diamond drilling and other geological studies including mineralogy (Parkinson, 1994, Parkinson, 1995, Tear, 1996 and Tear & Russell, 1997). Again significant mineralisation and geochemical anomalism was discovered but follow up work was not completed. 5.3.3 Mineral Resources and Reserves The Mariposa database comprises 8748m of drilling and trenching, with 18 diamond drillholes for 2048m and 17 costeans for 2384m of sampling. The remainder, 212 drillholes for 4316m of drilling is aircore, predominantly from the CRAE area. The CRAE drilling dates to 1993-1994 and that undertaken by AMOCO was in 1984. Geological coding for the drillhole lithologies is based on the CRAE logging codes which are consistent across the Gordon Limestone around Zeehan (SMG, 2006). All interpretation work was completed on the Mariposa local grid developed by AMOCO. A subsequent CRAE map for the prospect has indicated a 25m eastward shift in the baseline for the grid, relative to AMG. This movement is plausible as several of the AMOCO drillholes into the Western Lode appear to occur up the Crotty Quartzite slope. Future work will have to re-establish the grid and resolve these collar location issues. Within the database any below detection element values were substituted with half the detection value. Where there were cavities no value was substituted as the estimator reasonably felt that these drillhole cavities are related to mineralisation and hence the grade interpolation was allowed to carry across these gaps. North Broken Hill sometimes left gaps in the assaying when the material was considered of low grade. Silver grades for some of the earlier drilling were represented as ounces per ton, this was assumed to be troy ounces per long ton which was converted to ppm (or g/t) by multiplying by 30.612. A visual inspection of the combined data for both the West and East Lodes resulted in no top cut being applied. No standards or duplicates were used in any of the drilling. 127
Two block models were created, one for the West Lode and one for the East Lode. The details for the West Lode are dealt with first followed by the East Lode. Using the basic statistical data and the drillhole spacing it was considered for the West Lode that 8m by 2m by 4m was a suitable block size with subcelling to 2m, 0.5m, and 1m. The number of combined data composite samples (75) was considered low for estimation purposes and not sufficient for any geostatistical analysis, hence Kriging was not considered a suitable method for the resource calculation. Simple Inverse Distance Squared was applied as the method for interpolation and block grade estimation, initially using a search distance of 25m, with expanded 50m search results would be used for the overall resource reporting. Where cavities were interpreted for both the West and East Lodes, the block model was allowed to infill cavities with block grades that reflected the nearest composited samples. To date there have been no density measurements made on drill core for Mariposa. Density is assumed at 2.7g/cm³ and is a conservative preference for both lodes at this stage. It takes into account the likely effect of weathering, the mineral species and alteration distribution. 5.3.4 Resource Statement The resource estimate was completed by SMG consultants in 2006 and the resources were classified as Inferred (Table 5.3.4_1). SMG (2006) provided a sample and distance based resource classification system, but given the resource risks associated with the data, re-classified the resource as Inferred. Table 5.3.4_1: Mariposa Project CRHL Summary Mariposa Classified Inferred Resource Deposit Tonnes Pb (%) Zn (%) Ag (ppm) East Lode 154,800 4.1 4.0 72.2 West Lode 355,500 5.5 1.3 64.5 Total 510,400 5.0 2.1 66.8 5.3.5 Resource Risk In evaluating the resource for the Mariposa Project and its mineralised lodes, there are several documented risks including: A paucity of drilling, Strong doubt as to the accuracy of the drillhole locations, There are no bulk density measurements, The distribution of natural cavities is unknown and has the potential to impact negatively on the resource size. There are limited reports in the drill logs on core recoveries, Ambiguity as to the exact nature of the ore model type impacting on the confidence in understanding the spatial behaviour and continuity of the mineralisation, The frequency and effect of flat-lying faults (thrusts and related splays) is unknown, No documented sample QA/QC on any of the assay results, and Ore mineralogy may have an impact on recovery however CRAE reported work that suggested the East Lode had simple galena/sphalerite mineralogy. 5.3.6 Proposed Mining Operations There are no currently planned mining operations. 5.3.7 Exploration and Development Potential The work carried out to date indicates that there is insufficient drilling on the property. There is an opportunity to discover of more base metal resource, particularly in the immediate vicinity and peripheral to the current mineralisation outlines. Both lode systems are open at depth. Infill drilling may enhance the current resource providing better definition and an increase in the level of confidence of the resource shape, size and grade continuity. Infill drilling with more modern drilling techniques may resolve the cavity issue. The current resource estimate includes in excess of 1Moz of Ag, which should provide incentive for further drilling. CRHL expended AU$55,782 on the surrounding EL 20/2002 in 2008, after expending AU$1,153,632. The bulk of the exploration effort (AU$751,091) was directed at a geophysical two dimensional (2D) survey. These results are reported in Guo (2009). 128
Terrex Seismic conducted the Zeehan Zinc 2D Seismic Survey, commencing on the 20 March 2007 and completing it on the 7 May 2007, covering 123.21km line kilometres. CRHL has received interpretations that indicate westward vergent fault duplex systems that interpret Late Cambrian beds in the west overthrust the Ordovician Gordon Limestone. Mineralisation hosted within the limestone would therefore underlie the Cambrian units (Figure 2.7_1). There is potential for iron skarn and related mineralisation where ultramafic complexes have been intruded and are in contract with carbonate lithologies. In addition primary Ni-sulphide mineralisation in the ultramafic complexes is an attractive target. Given the seismic interpretation at hand, zinc and related mineralisation in the footwall to the thrust complexes would be an additional attractive target. 129
6. OTHER TENEMENTS 6.1 Tenure CRHL has acquired EL 21/2004 from Rubicon Min Tech Ventures Pty Ltd as of 1 December, 2009. A material agreement exists with Discovery Minerals for net smelter return (i.e. a private royalty) in respect to commercial discoveries made on the tenement. The tenement in acquisition borders the Mariposa project to the north and the Comstock Project to the west. The tenement is subject to a 2% net smelter royalty on transfer. 6.2 Geology, Mineralisation and Potential The geology is similar to the Oceana and Mariposa Projects. EL 21/2004 is bordered to the west by EL20/2002, which is also held by CRHL. Figure 6.2_1 EL 21/2004 District Geology A recently identified nickel province, the West Tasmania Nickel Province, occurs as a narrow belt of rocks striking for 60km. The belt begins on the West Coast of Tasmania to the east at Trial Harbour and ends at Luina near Waratah. Within this belt are the old nickel mines at Melba Flats (Cuni) and the Avebury Nickel deposit. Avebury has a resource of 12Mt at 1% Ni. Minerals and Metals Group (MMG) is reviewing whether to reopen the mothballed nickel mine. Those Tasmanian assets were acquired by MMG, the newly created Australian arm of China Minmetals Corp, along with other assets from copper and gold miner OZ Minerals Ltd. CRHL has concentrated geological field work on the Melba Flats region, prospecting for gabbro-hosted nickel-pge deposits (Figure 6.2_2). The Cuni nickel deposits were originally pegged in 1893 with the first extraction of ore in 1909. Intermittent production from 1909 to 1948 totalled approximately 10,000 tonnes at 6-10% nickel (Ni) and 3-5% copper (Cu) from near surface high grade mineralised shoots, to a depth of 30m. The nickel-copper sulphide deposits are associated with a series of gabbro dykes and sills that appear to have been emplaced along a major north-south orientated fault zone within volcanoclastic sediments of either the Cambrian Dundas Group or the Rosebery Group. The sulphide bodies with pentlandite (Fe,Ni) 9 S 8, niccolite (NiAs) and millerite (NiS), are small, generally <50m in strike length and down dip. 130
Figure 6.2_2 EL 21/2004 and Geophysical Interpretation Source, Tear, 2008b The combination of EL 21/2004 and EL 20/2002 exposes CRHL to a major new Ni exploration province. Geophysical and geological interpretations are ongoing. CRHL has budgeted approximately AUD$760,000 focusing on the Comstock Project, with a combined drilling and geophysical campaign targeting the Tenth Legion Fault and nickel mineralisation. An airborne transient electromagnetic study has been completed in January 2009 and a structural interpretation received in October 2009. 131
7. REFERENCES Ackerman, T, 1998. TCR98_4225 Oceana Retention Licence 8809, Annual Report for Period Ending September 1998. AMC Consultants, 2008. Ocean Scoping study, AMC report 107120, 151pp. AMOCO Minerals, Zeehan Exploration Drill Logs, Holes 1-63 and 64-139. ASX, 2009. Australian Stock Exchange announcements available through the ASX website. Atkinson, B and Buechner, A, 2007. Oceana Tasmania PTY LTD, Mine Design and Operation Plan, Coffey Mining Report MINENTWN00173AA, 25pp. AusIMM, 2004. The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code ), 21pp. AusIMM, 2005. Code for the Technical Assessment and Valuation of Mineral and Petroleum assets and securities for Independent Expert Reports (Valmin Code) 41pp. Bates, T E, 1972 TCR72_0861 McIntyre Mines Final report on Special Prospecting Licence no. 46, Zeehan, West Tasmania. Blissett, A H 1962. Geological Survey Explanation Report Zeehan. Burrows, T L, 2008. Oceana Scoping Study. Zeehan Zinc Draft Report, AMC Consultants Ltd, 151pp. Cadwallader, W J, Garretty, M D, Loh, R P, 1951. North Broken Hill TCR50_0106-Mariposa Mine. Curtis, R, 1981. Review of the Oceana Mine Area, Zeehan, Tasmania for AMOCO Minerals Australia, in Jones, P A, 1981 report TCR 81-1593A. Ellis, P D, 2002. TCR02_4820 AMOCO Report Past Exploration within the area of EL 15/1976 Dundas. Farrell, J N, 2002. Zeehan Zinc, Sampling Report for SY005 and SY009. Unpublished report, 17pp. Guo, B, 2009. Zeehan Zinc Report, Seismic data interpretation, SRK Report ZEE001, 53pp. Hancock, M.C. and Stephenson, P.R. 2000: Comstock Property, Zeehan, Tasmania, Interim Report and Valuation for Zeehan Zinc Pty Ltd (Behre Dolbear Australia Pty Ltd.). Jack, R, 1961. Report on the Oceana Mine Zeehan. Technical Report No. 5, Tasmania Department of Mines. Jones, P A and Kary, G L 1983. Report TCR83_1998-Progress Report, January to June 1983, Amoco/ CSR Joint Venture, Part Exploration Licence 15/76, Dundas, Tasmania. Jones, P.A., 1981; TCR81_1593 Progress Report June 1980-81, Zeehan Project, EL4/78 Tasmania. Kary, G L, 1985. Report TCR85_2457 Progress Report July 1984 to June 1985 Part EL 15/76 Dundas, Tasmania (for AMOCO). London Stock Exchange, 2006. Guidance note for mining, oil and gas companies, March 2006, 15pp. (www.asx.com.au). Newham, L A, 1999. EL38/89 Grieves Project, Zeehan Area, Allegiance Annual Report. Parkinson, R G, 1994. Report TCR94_3551 Mount Dundas EL 45/92, Tasmania, CRAE Report on Exploration for the First Year of Tenure, 16/4/93 to 15/3/94. Parkinson, R G, 1995. Report TCR95_3722 Mt Dundas EL 45/92 Tasmania Report on Exploration for Year 2 16.4.94 to 15.3.95 (for CRAE). Quayle, P M, 1993. TCR93_3501 RL8809 Oceana Annual Report for Pasminco Exploration. Russell, S A J, Tear, S J, 1997; Report TCR97_4009 CRAE Annual Report EL 45/92 Mt Dundas. Saxon, MS, 1994. Oceana RL8809 JV Annual Report September 1993 to August 1994.Pasminco Exploration Report No. T94-9. 132
SMG Consultants, 2006. Geological Interpretation and block model report for the Mariposa Project, Zeehan Zinc Report, 70pp. Taylor, S and Mathison, I J, 1990. Oceana Lead/Zinc/Silver Deposit in Geology of the Mineral Deposits of Australia and Papua New Guinea (Ed. F E Hughes), pp1253-1256 (The Australian Institute of Mining and Metallurgy; Melbourne). Tear, S J 2005a: Zeehan Zinc report Geological Interpretation for the Allison s Lode & West Lode and Oceana Deposit, Zeehan, West Tasmania. Tear, S J 2007. Zeehan Zinc Resource Estimation Update for the Oceana Pb/Zn Deposit, Western Tasmania, 109pp. Tear, S J 2008a. Zeehan Zinc, Report on the Resource Estimates for the Comstock Project, Tasmania, Australia, 168pp. Tear, S J 2008b. Zeehan Zinc, Nickel Project, Western Tasmania. EL20/2002 Annual report, Appendix A. 22pp. Tear, S J, 1996. Report TCR96_3885 CRAE Annual Report EL 45/92 Mt Dundas. Tear, S J, 2002. TCR02_4757 Noranda Pacific Annual Report for EL 6/2001 (Professor Creek) for the period 22 June 2001 to 22 June 2002. Tear, S.J. 2005b: Zeehan Zinc Block Model Report for the Oceana Pit Resource, Zeehan, West Tasmania. Veska, L 2008. Zeehan Zinc, EL 30/2002 Annual December2007 December 2008. 29pp. 133
8. GLOSSARY A full listing of abbreviations used in this report is provided in Table 8_1 below. Table 8_1: List of Abbreviations Description Ag Silver AUD$ Australian dollars AHD Australian height datum, in metres AGD 66 An Australian survey grid, since superseded AIM Alternate Investment Market, London Stock Exchange basalt An extrusive mafic rock Cambrian A geological period, from 542Ma to 488 Ma DDH diamond drillhole dolomite sedimentary rock (CaMg(CO 3 ) 2 ) Devonian A geological period from 416Ma to 359Ma galena The ore of lead, PbS g/t grams per metric tonne granite An intrusive rock dominated by quartz, feldspar +/-mica hemimorphite A mineral with composition Zn 4 Si 2 O 7 (OH) 2 -H 2 O kg kilogram kg/t kilogram per tonne km kilometres km² square kilometres MSL Mean sea lvel m metres Ma million years metasomatic The proves of alternation of pre-existing rocks by the passage of fluids mudstone A fine grained sedimentary rock ºC degrees centigrade Palaeozoic Geological period, < 542Ma Oxidised zone The zone of an orebody dominated by altered oxide minerals replacing fresh rock and sulphides ppb parts per billion Ordovician A geological period from 488Ma to 443Ma ppm parts per million Precambrian A geological period > 542 Ma psi pounds per square inch pyritic A rock description, meaning containing the mineral pyrite, FeS 2 QA quality assurance PQ size of diamond drill rod/bit/core QC quality control RC reverse circulation a drilling technique RL relative level, a height above sea level schist A tectonised metamorphic rock exhibiting micro to macro scale layering siderite A minerals with composition FeCO 3 SG Specific gravity sphalerite PbS, the sulphide ore of lead. SiO2 Silica, the mineral quartz t Metric tonnes smithsonite A mineral, ZnCO 3 Tertiary geological period < 2.6 Ma to 65.5 Ma thrust A low angle reverse fault, usually with large scale displacement and folding in its hangingwall ultramafic A term describing intrusive and extrusive rocks dominated by high magnesia and iron willemite A mineral with composition Zn 2 SiO 4 134
3. Galaxy Summary Report Set out below is the full text of the Galaxy Summary Report: 20 January, 2010 The Directors Creat Resources Holdings Limited Level 2 116 Bathurst Street Hobart Tasmania 7000 Australia Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU United Kingdom Dear Sirs RE: Creat Resources Holdings Limited Independent Technical Summary - Galaxy Resources - Western Australian Mineral Assets Coffey Mining Pty Limited ( Coffey Mining ) has been commissioned by Creat Resources Holdings Limited ( CRHL ) and Grant Thornton Corporate Finance, the nominated adviser to CRHL, to provide the following two independent summary reports (the Summary Reports ): 1) Independent summary report on the Tasmanian mineral properties and mines of CRHL (the CRHL Assets ) covering the period since the CRHL was admitted to trading on AIM in March 2007 to the date of the report; and 2) Independent summary report on the Western Australia mineral properties and mines of Galaxy Resources Limited (the Galaxy Assets ) covering the period since Galaxy Resources Limited ( Galaxy ) was listed on the Australian Stock Exchange in February 2007 to the date of the report. The Summary Reports have been prepared for inclusion in the admission document of CRHL dated on or about 10 February 2010 (the Admission Document ), relating to the acquisition by CRHL of 19.9% of the issued share capital of Galaxy (the Acquisition ) and the proposed re-admission of the entire issued share capital of CRHL to trading on AIM, a market operated by the London Stock Exchange plc. The Summary Reports are based on publicly information in the case of Galaxy Resources Limited and both publically available and in house information in the case of CRHL. Mr Troy Lowein, a Coffey Mining representative, undertook a site visit to Tasmania to assess the CRHL Assets in October 2009. No site visit was undertaken to assess the Galaxy Assets. Final drafts of the Summary Reports were also provided to CRHL, along with a written request to identify any material errors or omissions. Coffey Mining confirms that, to the best of its knowledge, the information contained in the Summary Reports is in accordance with the available information, contains no known omission likely to affect their import and no material change has occurred from 19 January 2010 to the date hereof that would require any amendment to the Summary Reports. The Summary Reports are complete up to and including 19 January 2010. We hereby consent, and have not withdrawn our consent, for the inclusion of the Summary Reports In the Admission Document, and to the inclusion of statements made by Coffey Mining and to references to our name in other parts of the Admission Document) in the form and context in which the Summary Reports and those statements and references appear. The Summary Reports relate specifically and sojely to the subject assets and is conditional upon various assumptions that are described therein. Coffey Mining Pty Ltd ABN 52 065 481 209 1162 Hay Street, West Perth WA 6005 Australia PO Box 1671, West Perth WA 6872 Australia T (+61) (8) 9324 8800 F (+61) (8) 9324 8877 coffey.com 135 MINEWPER00746AA
Coffey Minng has reviewed the information contained elsewhere in the Admission Document which relates to the information contained in the Summary Reports and confirms that the information presented is accurate, balanced, and complete and is not inconsistent with the Summary Reports. Coffey Mining also confirms that, where any information contained in the Summary Reports has been sourced from a third party, such information has been accurately reproduced and, so far as they are aware and are able to ascertain from the information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Coffey Mining is a mining industry consulting firm which has been providing services and advice to the international mineral industry and financial institutions for over 50 years. The primary authors of the Summary Reports are Mr Paul Mazzoni and Mr Albert Thamm. Both are professional geologists with over 20 years of experience in the minerals industry and full time employees of Coffey Mining. Both authors are Fellows of the AusIMM. Each of the authors has the appropriate relevant qualifications, experience, competence and independence to be considered an Expert under the definitions provided in the JORC Code. Neither Coffey Mining, nor the authors of the Summary Reports have, or have had previously, any material interest in CRHL or Galaxy or the CRHL Assets or Galaxy Assets or is earning, an interest. Our relationship with CRHL is solely one of professional association between client and independent consultant. The Summary Reports are prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of the Summary Reports. The Summary Reports were provided for the sole use of CRHL and Grant Thornton Corporate Finance acting as nominated adviser to CRHL. Except with permission from Coffey Mining, the Summary Reports may not be reproduced or redistributed, in whole or in part, to any person or published, in whole or in part, for any purposes without the express consent of Coffey Mining. For and on behalf of Coffey Mining Pty Ltd Paul Mazzoni Chief Geologist Galaxy Resources - Western Australian Mineral Assets MINEWPER00746AA Independent Technical Summary 20 January, 2010 136
GALAXY RESOURCES WESTERN AUSTRALIA MINERAL ASSETS Independent Technical Summary Prepared by Coffey Mining Pty Ltd on behalf of: Creat Resources Holdings Limited 20 January 2010 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 INTRODUCTION 1.1 Terms of Reference 1.2 Qualifications Experience and Independence 1.3 Principal Sources of Information 1.4 Reliance on Other Experts 2 ASSET BACKGROUND 2.1 Mineral Projects 2.2 Regulatory Background 2.3 Schedule of Tenements 2.4 Lithium Industry 3 MT CATTLIN LITHIUM PROJECT 3.1 Location Access Physiography and Climate 3.2 Tenure 3.3 Geology and Mineralisation 3.3.1 Regional Geology 3.3.2 Project Geology 3.3.3 Mineralisation 3.4 Exploration History 3.5 Mt Cattlin Mineral Resources 3.5.1 Drilling and Sampling 3.5.2 Analyses and QA/QC 3.5.3 Resource Estimation 3.6 Proposed Mining Operations and Ore Reserves 3.7 Proposed Processing Operations 3.7.1 Metallurgical Test Work 3.7.2 Process Flow Sheet and Processing Plant Design 3.8 Financial Analysis and Risk Assessment 3.8.1 Costs 3.8.2 Discounted Cash Flow Models 3.8.3 Risk Assessment 3.9 Exploration and Development Potential 3.9.1 Mt Cattlin Project 3.9.2 Dowling Pit Incremental Reserve Potential 3.9.3 Near Mine Potential 137
4 RAVENSTHORPE EXPLORATION PROJECTS 4.1 Location Access Physiography and Climate 4.2 Tenure 4.3 Bakers Hill/West River Lithium Tantalum Project 4.4 Aerodrome Lithium Tantalum Project 4.5 West Kundip Manganese Project 4.6 McMahon Pyrite-Base Metals Project 4.7 Elverdton Manganese (Copper-Gold) Project 4.8 Exploration History 4.9 Exploration Potential 4.10 Exploration Strategy and Budget 5 PONTON CARBONATITE PROJECT 5.1 Location Access Physiography and Climate 5.2 Tenure 5.3 Geology and Mineralisation 5.4 Exploration History 5.5 Exploration Potential U-REO, Ni Cu Co 5.6 Exploration Strategy and Budget 6 SHOEMAKER IRON ORE PROJECT 6.1 Location Access Physiography and Climate 6.2 Tenure 6.3 Geology and Mineralisation 6.4 Exploration History 6.5 Exploration Potential 6.6 Exploration Strategy and Budget 7 CONNOLLY PROJECT 7.1 Location Access Physiography and Climate 7.2 Tenure 7.3 Geology and Mineralisation 7.4 Exploration History 7.5 Exploration Potential 7.6 Exploration Strategy and Budget 8 BOXWOOD HILL PROJECT 8.1 Location Access Physiography and Climate 8.2 Tenure 8.3 Geology and Mineralisation 8.4 Exploration History 8.5 Exploration Potential 8.6 Exploration Strategy and Budget 9 OTHER RELEVANT INFORMATION 9.1 Mt Cattlin Lithium Project Approvals 9.2 Freehold and Native Title 10 REFERENCES 11 GLOSSARY 138
LIST OF TABLES Table A Mt Cattlin Project 2009 Global Resource Estimate Table B Mt Cattlin 2009 Dowling Pit Reserves Table 2.3_1 Galaxy Resources Ltd Tenement Schedule Table 3.5.3_1 Mt Cattlin 2008 Dowling Pit and Northern Areas Resource Estimate Table 3.5.3_2 Mt Cattlin Project May 2009 Reported Global Resources Table 3.6_1 Mt Cattlin Project June 2009 Ore Reserves Table 3.8.1_1 2009 DFS Reported Costs Table 3.9.2_1 Significant Drill Intersections Below Planned Dowling Pit List of Figures Figure 2.1_1 Galaxy Resources Western Australian Projects Figure 2_2 Summary of License Terms and Fees Applicable for Western Australian Mineral Titles Figure 3.1_1 Ravensthorpe Project Location Figure 3.2_1 Mt Cattlin Project Core Mining Leases Figure 3.2_2 Mt Cattlin Project Core Lease Extensions Post June 2009 Figure 3.3.1_1 Regional Geological Map of Ravensthorpe Figure 3.3.2_1 Simplified Geological Map of M74/12 Figure 3.5.1_1 Mt Cattlin Drilling Figure 3.6_1 Mt Cattlin Dowling Pit Design Figure 3.7.2_1 2009 Process Flowsheet Figure 3.9.2_1 Dowling Pit Area Footwall Pegmatites Figure 3.9.3_1 Trakka Joint Venture Rock Chip Sampling -% Li 2 O Figure 4.1_1 Galaxy Resources Ravensthorpe Project Tenements Figure 4.3_1 Bakers Hill/West River Project Geology and Leasing Figure 4.4_1 Aerodrome Project Geology and Leasing Figure 4.5_1 West Kundip Project Geology and Leasing Figure 4.6_1 McMahon Project Geology and Leasing Figure 4.7_1 Elverdton Joint Venture Geology and Leasing Figure 5.3_1 Ponton Project Magnetic Targets and Leasing Figure 6.3_1 Shoemaker Project Geology and Leasing Figure 6.3_2 Shoemaker Project Gravity Survey and Rock Chip Sample Results Figure 7.3_1 Connolly Project Radar Imagery and Leasing Figure 8.3_1 Boxwood Hill Project Geology and Leasing 139
EXECUTIVE SUMMARY This Independent Summary Report has been produced by Coffey Mining Pty Ltd (Coffey) at the request of Creat Resources Holdings Limited (CRHL) and Grant Thornton. It provides an independent technical summary of the mineral exploration and development assets of Galaxy Resources Limited (Galaxy) in the State of Western Australia and is based solely on publically available information. CRHL are subscribing for a 19.9% equity in Galaxy. Galaxy listed on the Australian Stock Exchange on 2 February 2007 after a successful IPO. The principal asset is the Mt Cattlin Lithium Project (the Project), adjacent to the town of Ravensthorpe. The Project is an advanced pre-development project, comprising a planned mine and mineral processing facility which will produce 137,000tpa of spodumene concentrate containing 6% Li 2 O and 850tpa of primary tantalite concentrate with a shipping grade of 25% Ta 2 O 5. Galaxy is finalising plans to establish a lithium carbonate chemical facility in Jiangsu Province, China, producing 17,000tpa of lithium carbonate from Mt Cattlin spodumene concentrates. Galaxy has completed a Definitive Feasibility Study (2009 DFS) of the Project which supports the development of the Project as commercially viable. Galaxy appears to have obtained the necessary approvals to allow construction of the mine and processing facility and an EPCM Contractor has been appointed. Galaxy announced that construction is expected to commence during November 2009 and the facility is expected to be producing spodumene in the third quarter of 2010. The proposed operation is based on mining and processing 15Mt of ore over a 15 year period. The key process steps are: Open pit mining. Crushing and screening of ROM ore to-6mm. Three stage heavy media separation (HMS) of spodumene (lithium ore mineral). Gravity concentration (spirals and wet tables) of tantalite (tantalum ore mineral). Contract dressing and packaging of tantalite concentrates (in Perth). Annual production of 137,000t of spodumene concentrate @ 6% Li 2 O. Shipment of bulk concentrate through Esperance port to Zhangjiagang port in China. The Project is based on the following Mineral Resources (January, 2010) and Reserves (May, 2009) reported by Galaxy for the initial mining area (Dowling Pit). Coffey Mining has not independently validated the Resources or Reserves but has documented the estimates that were publically declared as JORC compliant and based on a 0.4% Li 2 O cutoff. Table A Mt Cattlin Project 2010 Global Resource Estimate Category Tonnes Li 2 O % Ta 2 O 5 ppm Measured 2,672,000 1.17 150 Indicated 9,629,000 1.09 171 Inferred 3,575,000 1.00 145 Total 15,875,000 1.08 161 Table B Mt Cattlin 2009 Dowling Pit Reserves Reserve Category Tonnes Li 2 O % Ta 2 O 5 ppm Proved 2,333,400 1.09 130 Probable 6,949,600 1.02 140 Total 9,283,000 1.04 138 140
Coffey has not conducted any financial modelling for the Project nor has Coffey independently validated the modelling results presented by Galaxy. The results of financial modelling presented by Galaxy in January 2009 for the Project DFS indicate that the Project is commercial viable with an NPV (at an 8% discount rate) of $121.5M with the IRR estimated at 25%. This model did not include the lithium carbonate plant. More recent financial modelling by Galaxy for a fully integrated project producing 17,000tpa of lithium carbonate in China from Mt Cattlin spodumene concentrates suggest an NPV of $511M with an IRR% of 45% and a payback period of 2.1 years. These models are based on 15 years of production while Proven and Probable Reserves equate to 9 years of life with a further 3 years in Resources. Galaxy report that to date, no impediments have been identified or raised by the various stakeholders, local and state authorities, which could deny Project approval. In the June Quarter of 2009, Galaxy secured the Works Approval from the Western Australia Department of Environment and Conservation (DEC) to commence construction of the minerals processing plant. On November 5th 2009 Galaxy announced that it had secured Mining Approval from the DoMP to commence mining at Mt Cattlin. Galaxy also holds a portfolio of five other groups of projects in Western Australia at various stages of exploration and development. These projects include Ravensthorpe, Ponton, Shoemaker, Conolly and Boxwood Hill. The Ravensthorpe group of projects comprise five projects in the immediate vicinity of Mt Cattlin which are regarded as being variously prospective for lithium/tantalum, base metals, gold, manganese and iron. The Bakers Hill and Aerodrome Projects are contiguous tenements to the west and southwest of Mt Cattlin which contain known lithium and tantalum bearing pegmatites. These appear the most prospective for additional pegmatite hosted lithium resources although the currently known lithium mineralogy is not easily amenable to processing. The West Cundip manganese and McMahon iron sulphide Projects are small tenement blocks which appear to be in the preliminary stage of investigation by Galaxy but are based on known occurrences of both metals. The Elverdton Joint Venture tenements are being managed by Pioneer Resources Limited. The Shoemaker Project is primarily of interest for iron ore exploration and has returned some encouraging results from surface sampling a gravity survey. Grab samples with up to 62% Fe have been recorded. This project been farmed out to General Mining Corporation (GMC) in a Sale and Joint Venture Agreement through which GMC will have the right to earn 80% equity by conducting exploration and fulfilling a number of other conditions. The Boxwood Hills (base and precious metals), Connolly (lead zinc nickel) and Ponton (rare earths base metals U) Projects are largely conceptual targets over which little or no prior exploration has occurred and over which little work appears to be planned in the near future. 141
1. INTRODUCTION 1.1 Terms of Reference Coffey Mining Pty Ltd ( Coffey ) has been commissioned by Creat Resources Holdings Limited (CRHL) and Grant Thornton to provide an independent summary report of the Galaxy Resources Limited (Galaxy) mineral assets in the Sate of Western Australia in which Creat is subscribing for a 19.9% interest. The report is based solely on readily accessible publically available information. 1.2 Qualifications Experience and Independence The qualified person who prepared this report is Mr Paul Mazzoni who is the sole author. Mr Mazzoni is a full time employee of Coffey. Coffey and its parent, Coffey International, has been providing consulting services for over 50 years. Coffey International Limited is an Australian-based international consulting firm specialising in the areas of mining and geotechnical engineering, hydrogeology, hydrology, tailings disposal, environmental science and social and physical infrastructure. The author of this report, Mr Paul Mazzoni, is a professional geologist with 35 years experience in exploration and mining geology. He is the Chief Geologist with Coffey, in Perth, Western Australia. Mr Mazzoni is a Fellow of the Australian Institute of Mining and Metallurgy (AusIMM) and has the appropriate relevant qualifications, experience and independence to generally be considered as a Competent Person as defined in the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code, 2004). Neither Coffey, nor the Expert responsible for compiling this report, have or have had previously any material interest in CRHL or the mineral properties in which CRHL has, or is earning, or acquiring, an interest. Our relationship with CRHL is solely one of professional association between client and independent consultant. This report is prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of this report. 1.3 Principal Sources of Information The principal sources of information used to compile this report comprise public statements by Galaxy, publically available Galaxy documents and other published reports. These include the publically available January 2009 Feasibility Study (DFS) and the 2006 Independent Geologist s Report for the Galaxy assets. In addition, Coffey has used public reports available from the Department of Mines and Petroleum which is an agency of the State Government of Western Australia. Public reports are available on-line and Coffey has utilized this facility to access relevant information. Galaxy is a company listed on the Australian Stock Exchange and its public reporting and ASX announcements are available through the ASX website as well as the Galaxy website. The principal sources of information are listed in Section 10 of this report. Coffey was not requested to make a site visit to the Mt Cattlin Project or any of the other Galaxy Projects. 1.4 Reliance on Other Experts Coffey has not independently validated the resources at Mt Cattlin. Mineral Resources were estimated by Mr Robert Spiers who is a full time employee of Hellman & Schofield Pty Ltd. Information that relates to Exploration Results is based on information compiled by Mr Philip Tornatora who is a full time employee of Galaxy. Mr Spiers and Mr Tornatora are Members of the Australian Institute of Geoscientists and qualify as Competent Persons under the meaning of the 2004 JORC Code. Mr Tornatora has similarly been accountable for the public reporting of Galaxy s mineral exploration results. Galaxy last provided a resource update on 20 January 2010 and consents were provided. Coffey has not conducted any financial modelling for the Project nor has Coffey independently validated the modelling results presented by Galaxy. The results are publically reported by Galaxy. Coffey has not independently verified, nor is it qualified to independently verify, the legal status of the Galaxy tenements, and has relied on readily accessible publically reported information 142
2 ASSET BACKGROUND 2.1 Mineral Projects Galaxy is an Australian Stock Exchange listed company with exploration and development tenements in Western Australia. Galaxy listed on the Australian Stock Exchange on 2 February 2007 after a successful IPO. Galaxy s principal asset is regarded as being the Mt Cattlin lithium-tantalum Project (the Project), adjacent to the town of Ravensthorpe. In May 2009, Galaxy reported a global resource of 14.37Mt at 1.08 Li 2 O and 153ppm Ta 2 O 5 at Mt Cattlin. This Project represents an advanced predevelopment project over which a considerable amount of work has been undertaken, including a Definitive Feasibility Study, completed in January 2009 (2009 DFS). The Project comprises a planned mine and minerals processing plant scheduled to produce 137,000tpa of 6% Li 2 O spodumene concentrate. Galaxy intends to add value to the Project by establishing its own downstream lithium chemical processing facility in Jiangsu Province, China, producing 17,000tpa of lithium carbonate. Galaxy has secured Works Approval from the Department of Environment and Conservation (DEC) and Mining Approval from the Department of Mines and Petroleum (DMP) to commence the mine and construction of the minerals processing plant at Ravensthorpe. Construction is expected to commence during November 2009 and the facility is expected to be producing spodumene in the third quarter of 2010. Galaxy also holds a portfolio of several other exploration projects in Western Australia at various stages of exploration and development (Figure 2.1_1). The other projects include; Ravensthorpe, Ponton, Shoemaker, Conolly and Boxwood Hill. The exploration and development tenements which form the primary mineral assets of Galaxy are listed in Table 2.3_1. Source: Galaxy Resources Web site Figure 2.1_1: Galaxy Resources Western Australian Projects 143
The most advanced of the exploration projects is the Ravensthorpe Project which is primarily regarded as being prospective for lithium/tantalum pegmatites. This provides brownfields exploration potential adjacent to the proposed Mt Cattlin operation. The project tenements are also regarded by Galaxy as being prospective for base metals, gold and iron ore. The remaining projects are greenfields exploration targets with little work completed by Galaxy. These are conceptual targets, based on interpretation of geological structures in prospective geological settings. The Ponton Project is regarded as prospective for rare earths and uranium, while Shoemaker is regarded as being prospective iron ore, base metals and precious metals. Connolly and Boxwood Hill have both been targeted for base and precious metals. All the Galaxy Projects are in the Australian State of Western Australia (WA) which boasts one of the largest and most diverse mining and petroleum industries in the world. The State produces more than 50 different minerals and is a globally significant producer of iron ore, Liquefied Natural Gas (LNG), alumina, gold, nickel, diamonds and mineral sands. WA is also a significant producer of zinc, copper, lead, petroleum and coal. In 2008, the WA mining and petroleum industries generated $71.8 billion in revenue and accounted for 89% of WA s income from Merchandise Exports. 2.2 Regulatory Background The mining and petroleum industries in WA are administered by the Department of Mines and Petroleum, a branch of the Government of Western Australia. Exploration and mining titles in Western Australia are granted in accordance with the Mining Act 1978 (WA). The Department of Mines and Petroleum (DMP) administers this Act. Mineral exploration and mining activities are administered under the Act for onshore areas, and for offshore areas to a limit of (nominally) three nautical miles from the coast. There are a number of types of tenement, including prospecting licences (PL), exploration licenses (EL), mining leases (ML) retention licenses (RL) and other miscellaneous and general purpose licences. The principal forms of title required for mineral exploration and development in WA are described below. Prospecting Licence The maximum area for a prospecting licence is 200 hectares. Prospecting licences must be marked out in the field. Application is made to the Mining Registrar of the relevant Mineral Field. An application fee and rental is payable. There is no limit to the number of licences a person or company may hold, but a security (or bond) is required in respect of each licence. The term of a prospecting licence is four years, with the provision to extend for one further four year period. The holder of a prospecting licence may, in accordance with the licence conditions, extract or disturb up to 500t of material from the ground, including overburden, and the Minister may approve extraction of larger tonnages. Exploration Licence On 28 June 1991, a graticular boundary (or block) system was introduced for exploration licences. The minimum size of an exploration licence is one block, and the maximum size is seventy blocks, except in areas not designated as mineralised areas, where the maximum size is 200 blocks. An exploration licence is not required to be marked out. Application is made to the Mining Registrar of the relevant Mineral Field. An application fee and rental is payable. There is no limit to the number of licences a person or company may hold but a security (or bond) is required in respect of each licence. The term of an exploration licence is five years. The Minister may extend the term in prescribed circumstances. At the end of both the third and fourth year of its term, the licensee is required to surrender 50% of the licence. For a licence applied for and granted after 10 February 2006, the surrender requirement is 40% at the end of the fifth year. The holder of an exploration licence may in accordance with the licence conditions, extract or disturb up to 1,000t of material from the ground, including overburden, and the Minister may approve extraction of larger tonnages. 144
Mining Lease The maximum area for a mining lease applied for before 10 February 2006 is 1,000 hectares. The size applied for is to relate to an identified orebody as well as an area for infrastructure requirements. Mining leases must be marked out in the field. Application is made to the Mining Registrar of the relevant Mineral Field. An application fee and rental is payable. An application for a mining lease shall be accompanied by either a mining proposal OR a statement in accordance with subsection (1a) and a mineralisation report that has been prepared by a qualified person. The statement under subsection (1a) shall set out information regarding the mining operation likely to be carried out including: When mining is likely to commence; The most likely method of mining; and The location, and the area, of land that is likely to be required for the operation of the plant, machinery and equipment and for the other activities associated with those mining operations. There is no limit to the number of mining leases a person or company may hold. The term of a mining lease is 21 years and may be renewed for further terms. The lessee of a mining lease may work and mine the land, take and remove minerals and do all things necessary to effectually carry out mining operations in, on or under the land, subject to conditions of title. Retention Licence A Retention Licence is a holding title for a mineral resource that has been identified but is not able to be further explored or mined. A Retention Licence may be granted in respect of the whole or any part of land within the boundaries of a primary tenement (i.e. prospecting licence, exploration licence or mining lease or combination of such tenements). Application is made to the Mining Registrar of the relevant Mineral Field. An application fee and rental is payable. The term of a Retention Licence cannot exceed five years and is renewable for further periods not exceeding five years. There is no maximum area. Prospecting Licences, Exploration Licences and Mining Leases are subject to a prescribed minimum annual expenditure commitment. This requirement applies to granted tenements only and the labour cost of the tenement holders own work on the tenement (contract equivalent) may be treated as expenditure. There is no prescribed annual expenditure for a Retention Licence, however the Minister may determine the level of expenditure by condition on grant. If a licensee/lessee cannot fulfil the expenditure obligations, it is possible to apply for exemption from all or part of the commitment. The holder of Prospecting Licences, Exploration Licences, Retention Licences and Mining Leases must lodge a Form 5 (Report on Operations on Mining Tenement) Report each year with the Department of Mines and Petroleum (DMP) at Perth. Any person may, on payment of the prescribed fee, obtain a copy of the front page of that Report, which summarises the activities undertaken and their cost. When any minerals are produced or obtained from a mining tenement, a quarterly production report must be lodged and a royalty is payable. Regulation 86 sets out the rates of royalty payable. Relevant fees and expenditure commitments for mineral titles are summarised in Figure 2_2. 145
Source: Western Australian Department of Mines and Petroleum website Figure 2_2: Summary of License Terms and Fees Applicable for Western Australian Mineral Titles 2.3 Schedule of Tenements The following schedule of mineral tenements is sourced from the Galaxy Annual Financial Report for 2009, amended with subsequent Galaxy public releases and information contained in the DMP online titles search facility accessed on 22 October 2009. DMP records suggest Galaxy lodged a conditional surrender for core mining leases at Mt Cattlin (M74/12, 155 and 182) in favour of a single new license application (M74/244). This new lease was awarded in January, 2010. Coffey has not independently verified, nor is it qualified to independently verify, the legal status of the Galaxy tenements, and has relied on readily accessible publically reported information. 146
Table 2.3_1 Galaxy Resources Ltd Western Australia Tenement Schedule (DMP-Mineral Titles Search) Area Applied Expiry Lease Status (Ha/bl) Date Date Holder Mt Cattlin Project M74/244 Granted 1832 07/08/2009 23-Dec-30 Galaxy Resources Ltd E74/400 Granted 3bl 14/03/2008 13/03/2013 Vistarise Ltd P74/307 Granted 66.63 14/03/2008 13/03/2012 Vistarise Ltd P74/308 Granted 23.62 14/03/2008 13/03/2012 Vistarise Ltd) E74/401 + Granted 4bl 14/03/2008 13/03/2013 Traka Resources Ltd P74/309 + Granted 92.2 14/03/2008 13/03/2012 Traka Resources Ltd P74/310 + Granted 19.6 14/03/2008 13/03/2012 Traka Resources Ltd L74/46 Application 9.34 21/07/2009 Galaxy Resources Ltd Ravensthorpe Project Aerodrome E74/334 Granted (1bl) 17/05/2005 16/05/2010 Galaxy Resources Ltd E74/398 Granted (15bl) 08/04/2008 07/04/2013 Galaxy Resources Ltd Bakers Hill E74/287** Granted (8bl) 18/12/2002 17/12/2009 Galaxy/UCABS E74/295 Granted (2bl) 12/09/2003 11/09/2010 Galaxy Resources Ltd E74/299 Granted (3bl) 13/02/2008 12/02/2013 Galaxy Resources Ltd E74/415 Granted 19bl 10/03/2009 09/03/2014 JML Resources Ltd P74/278 Granted 59.05 02/07/2008 01/07/2012 Galaxy Resources Ltd P74/336 Granted 136.32 05/02/2009 22/12/2013 Galaxy Resources Ltd McMahon M74/165 Application 158 12/08/2002 Galaxy Resources Ltd M74/184 Application 116 23/09/2004 Galaxy Resources Ltd P74/334 Application 11.736 11/09/2008 Galaxy Resources Ltd Western Copper Pty Ltd Mosaic M74/136 Application 23.37 29/05/2000 Chaytor, Locsei, Walker, Dowling, Wanless Tenement Schedule (DMP-Mineral Titles Search) Area Applied Expiry Lease Status (Ha/bl) Date Date Holder Elverdton JV M74/162* Application 981 22/11/2001 Galaxy Resources Ltd M74/163* Granted 489 28/08/2006 27/08/2027 Galaxy Resources Ltd Pioneer Resources Ltd P74/304* Granted 200 19/02/2008 18/02/2012 Galaxy Resources Ltd Pioneer Resources Ltd P74/305* Granted 167 19/02/2008 18/02/2012 Galaxy Resources Ltd Pioneer Resources Ltd P74/306* Granted 120 19/02/2008 18/02/2012 Galaxy Resources Ltd Pioneer Resources Ltd E74/406* Granted (18bl) 12/08/2009 11/08/2014 Galaxy Resources Ltd Western Copper Pty Ltd West Kundip M74/133 Application 285 09/09/1999 Galaxy Resources Ltd M74/238 Application 288 09/02/2006 Galaxy Resources Ltd 147
Table 2.3_1 continued Tenement Schedule (DMP-Mineral Titles Search) continued... Area Applied Expiry Lease Status (Ha/bl) Date Date Holder Boxwood Hill Project E70/1988 Granted 70bl 09/10/2007 08/10/2012 Galaxy Resources Ltd E70/2493 Application 50bl 30/01/2002 Galaxy Resources Ltd E70/2513 Application 34bl 08/05/2002 Galaxy Resources Ltd E70/2514 Application 55bl 08/05/2002 Galaxy Resources Ltd E70/2547 Application 5bl 07/10/2002 Galaxy Resources Ltd Connolly Project E69/1878 Application 54bl 10/01/2003 Galaxy Resources Ltd Ponton Project E28/1317 Application 70bl 13/01/2003 Galaxy Resources Ltd E28/1830 Application 70bl 14/02/2003 Galaxy Resources Ltd Shoemaker Project*** E69/1869 Granted 70bl 15/06/2006 14/06/2011 Galaxy Resources Ltd E69/1870 Granted 70bl 15/06/2006 14/06/2011 Galaxy Resources Ltd E69/1871 Granted 52bl 15/06/2006 14/06/2011 Galaxy Resources Ltd + Galaxy earning 80%from Traka Resources Limited. * Ravensthorpe JV with Pioneer Nickel; Pioneer has earned 75% in all minerals ** Cocanarup JV with UCABS, 80% Galaxy, 20% UCABS *** Galaxy farming out to General Mining Corporation Limited (GMC) through a sale and joint venture agreement. Tenement areas shown in hectares or number of graticular blocks (bl). 1 block approximates 300Ha 2.4 Lithium Industry The forecast and outlook for lithium reported by Galaxy is based on information presented by major global lithium producers, SQM, Chemetall and, FMC Lithium as well as research groups such as TRU Group and Roskill. These show a world lithium demand growing around three fold in the next ten years. Current demand for lithium measured as Lithium Carbonate Equivalent (LCE) is around 110,000tpa. This is expected to rise to around 250,000 to 300,000tpa in 2020, driven by secondary (rechargeable) batteries and electric vehicle (EV) batteries. The outlook for lithium consumption appears positive with overall growth estimated at 5% to 8% pa. Independent review of USGS data up to and including 2007 suggest total world lithium market consumption in 2007 was estimated to be 16,300t of lithium contained in minerals and compounds (equivalent to 87,165t of lithium carbonate) with a compound annual growth rate of 7.5%. Global enduse markets were estimated as follows: batteries, 25%; ceramics and glass, 18%; lubricating greases, 12%; pharmaceuticals and polymers, 7%; air conditioning, 6%; primary aluminium production, 4%; continuous casting, 3%; chemical processing 3%; and other uses, 22%. Lithium use in batteries expanded significantly in recent years because rechargeable lithium batteries were being used increasingly in portable electronic devices and electrical tools. In 2008, Chile was the leading lithium chemical producer in the world followed by Argentina, China and the United States with the bulk of this production derived from lithium brines. Australia, Canada, Portugal, and Zimbabwe were major producers of lithium ore concentrates derived largely from pegmatites. Production from the Greenbushes pegmatite deposit in Western Australia dominates world supply. In 2007, Australia produced about 220,000t of spodumene concentrates (equivalent to 8,140t of contained Li). US import data indicated that lithium carbonate and lithium hydroxide prices increased significantly in 2007. The average customs unit value for imported lithium carbonate was $3.45/kg, about 49% higher than in 2006, a result of increased global demand, especially for lithium batteries. The inaugural Lithium Conference held in Chile during January 2009 was the result of a growing demand for more transparent information about the lithium market. Development of the electric car fleet is seen as integral to the further development of the lithium battery as the preferred choice for electric car manufacturers. The conference reinforced the message that the lithium battery is vastly superior to the nickel metal hydride (NiMH) and other alternatives and that electric cars are almost certainly going to rely on some form of lithium battery at least in the near term. There appears to be adequate lithium in current reserves and resources to meet world demand in the long term. The potential inability of industry to quickly expand production to meet the foreseen demand in growth over the next ten years provides the opportunity for new project entry. 148
3 MT CATTLIN LITHIUM PROJECT 3.1 Location Access Physiography and Climate The Project site is located in the Phillips River Mineral Field, which surrounds the township of Ravensthorpe, 450km southeast of Perth, Western Australia. The regional centre of Albany is located 281kms to the west and the port of Esperance is 187kms to the southeast (Figure 3.1_1). Other small towns in the region include Hopetoun, Jerramungup and Bremer Bay. Access to the project is via the sealed South Coast Highway and then via either Old Newdegate or Floater Roads which are presently of gravel construction. Figure 3.1_1: Ravensthorpe Project Location Most of the district consists of undulating plains and lateritised plateau and around Ravensthorpe, greenstone hills rise up to 400m above sea level. The Project site is located within drainage valleys on either side of the Ravensthorpe Range which contribute to the headwaters of the major surface drainages namely the Jerdacuttup, Steere, Phillips, West and Hamersley Rivers. These rivers flow seasonally and consist of disconnected pools of varying salinities at other times. Cattlin Creek crosses the site in a northwest-south easterly direction. This is a seasonally flowing watercourse. There is a relatively small ephemeral wetland area associated with the creek to the northeast of the site. The land use is predominantly grazing (sheep) and dry-land agriculture (wheat, etc) with lesser areas of conservation, Unoccupied Crown Land, Crown reserves, roads and other easements and forestry plantation. Natural vegetation comprises scrub heath on upper slopes and crests while Mallee and scrubland occupy the mid to lower slopes. The Ravensthorpe area has a Mediterranean climate featuring moist, mild winters and hot, dry summers. The mean annual rainfall is 425mm, and around 75% of the rainfall occurs between March and October. Mean annual maximum temperature is 22.7.C and mean annual minimum 10.4.C. Daily maxima above 30.C are common from December to February. The mean daily maximum temperature in summer is 28.9.C with a mean daily minimum temperature of 14.5.C. The mean maximum temperature for winter is 17.2.C, with a mean minimum temperature of 6.7.C. The average wind speeds vary throughout the year from 10.2km/h to 19.3km/h in the morning to 12.1km/h to 16.3km/h in the afternoon. In this climatic region, the annual evaporation greatly exceeds the mean annual rainfall. 149
3.2 Tenure The Project site is located in the Phillips Mineral Field, which surrounds the township of Ravensthorpe, 450km southeast of Perth, Western Australia. The proposed mine and processing facilities are located on core tenement M74/244 which is 2km northwest of the township (Figure 3.2_1). The full tenement schedule is included in Table 2.3_1. Galaxy increased its core tenement holding at Mt Cattlin by signing a 100% purchase agreement for a block of tenements from Vistarise Limited for $100,000 in July 2009. The tenement block includes E74/400, P74/307 and P74/308 (Figure 3.2_2 left). In September 2009, Galaxy further extended its core tenement package near Mt Cattlin through an agreement to acquire an 80%interest in E74/401, P74/309 and P74/310 from Traka Resources Limited (Figure 3.2_2). Source : Galaxy Resources, ASX announcement, 15 January 2010. Figure 3.2_1: Mt Cattlin Project Core Mining Leases 150
Original core tenements shown in yellow (now replaced by M74/244) with main pegmatite in blue. Sequential lease acquisitions shown in red. Source :Galaxy Resources ASX releases July (left) and September (right) 2009. Figure 3.2_2: Mt Cattlin Project Core Lease Extensions Post June 2009 3.3 Geology and Mineralisation 3.3.1 Regional Geology The Project is located within the Archaean Ravensthorpe greenstone belt on the Yilgarn Craton of Western Australia. The Ravensthorpe greenstone belt has been subdivided into three distinct tectonostratigraphic terranes by Witt (1998). The three terranes are thought to represent fault-bounded accreted domains, with subsequent deformation producing the major south-plunging Beulah synform. The Carlingup Terrane (~2960Ma) lies to the east and comprises metamorphosed mafic, ultramafic and sedimentary rocks with minor felsic volcanic rocks (Figure 3.3.1_1). The Ravensthorpe Terrane (~2990-2970Ma), which hosts the Mt Cattlin deposit, forms the central portion of the belt and comprises a tonalitic complex, together with a volcanic association with predominantly andesitic volcaniclastic rocks. The Cocanarup greenstones to the west consist mainly of metasedimentary rocks, with lesser ultramafic and mafic rocks. Metamorphic grade indicated by metamorphic mineral assemblages varies from greenschist to amphibolite facies. 151
The Ravensthorpe Terrane is predominantly a calc-alkaline complex, and has been subdivided into the Annabelle Volcanics and the Manyutup Tonalite, with both sequences showing similar chemical and age characteristics. The Annabelle Volcanics sequence is dominated by volcaniclastic rocks with minor lavas. The sequence comprises roughly 10% to 20% basalt, 50% to 70% andesite and 20% to 30% dacite. Pegmatites intruding the Ravensthorpe Terrane are interpreted to have intruded late in the Archaean geological history and have very sharp contacts with country rocks, generally showing no deformation across the contact and the pegmatites appear unmetamorphosed. Taken from Galaxy January 2009 Feasibility Study Report Figure 3.3.1_1: Regional Geological Map of Ravensthorpe 152
3.3.2 Project Geology The Mt Cattlin deposit is hosted by both the Annabelle Volcanics to the west, and the Manyutup Tonalite to the east. The Annabelle Volcanics at Mt Cattlin area consist of intermediate to mafic volcanic rocks, comprising both pyroclastic material and lavas. In the Mt Cattlin area, the Manyutup Tonalite comprises mainly quartz diorite. Swarms of north-south trending metamorphosed dolerite dykes show chilled contacts with the quartz diorite. A NNE-trending pyroxenite body marks the easterly quartz dioritevolcanic contact. Metamorphism of the Annabelle Volcanics and Manyutup Tonalite country rocks up to amphibolites facies is evident at Mt Cattlin. A simplified geological map over the resource area is given in Figure 3.3.2_1. Source: Galaxy January 2009 DFS Report Figure 3.3.2_1: Simplified Geological Map of M74/12 The pegmatites, which comprise the orebody, occur as a series of sub-horizontal dykes, hosted by both volcanic and intrusive rocks. Several gabbro dykes trending roughly ENE and north-south cut all lithologies including the pegmatite dykes, and are believed to be Proterozoic in age. A NNW-trending, sub-vertical fault, evident on cross sections and aeromagnetic data, transgresses the western side of the currently-defined orebody and offsets the pegmatite as well as the main ENE -trending dolerite dyke. Displacement across this fault is oblique, sinistral with west block down. 153
3.3.3 Mineralisation The pegmatite dykes occur as a series of sub horizontal to gently-dipping horizons. In places, they occur as stacked horizons which overlap in section. The defined ore-body is a flat-lying pegmatite sheet of 3m to 30m thickness, averaging 10m to 12m, with a maximum depth of 80m. Several different types of pegmatite have been recognised including simple pegmatites, complex lepidolite pegmatites and albitespodumene pegmatites. The pegmatites are zoned vertically, and can be quite variable laterally, with a single pegmatite horizon showing characteristics of all three types at various locations. The pegmatite mineralogy consists largely of quartz, albite, microcline, perthite, spodumene, muscovite and lepidolite. Minor minerals include tourmaline, beryl, microlite, columbite-tantalite, sphalerite, amblygonitemontebrasite, triphylite, apatite, spessartite and fluorite. Spodumene is the dominant lithium ore mineral occurring mostly as light green and white varieties. The spodumene content of the pegmatites is variable, and the pegmatites vertically zoned with respect to mineralogy and grain size. The main zones recognised include an aplitic rock comprising mainly quartz-albite-muscovite near contacts with country rocks, and zones of predominantly light green and predominantly white spodumene. A dark green alteration product of the light green and white spodumene is locally associated with albite stringers or prehnite-rich veins. Economically significant grades of tantalum (present as columbite-tantalite and microlite) also occur within the pegmatite. The weathering profile is shallow, with fresh rock generally being encountered at depths of less than around 20m. The main pegmatites drilled to date are generally less than 30m below surface and outcrop in part. Deeper zones of lithium-mineralised pegmatites have also been intersected over 130m below the surface in a few deeper drillholes. 3.4 Exploration History The pegmatites upon which the Project is based were first reported in 1843 and were more extensively reported by the Geological Survey of Western Australia (GSWA) in 1958 (GSWA Bulletin 35). They intrude both the basalts of the Ravensthorpe Greenstone belt and the Ravensthorpe diorite. They contain economically significant mineralisation comprising lithium in spodumene (and subordinate lepidolite) and tantalum-niobium as oxides in tantalite/columbite as well as sporadic tin as cassiterite. The Cattlin Creek pegmatites have been the subject of several drilling, sampling and metallurgical test campaigns as well as feasibility studies dating back to the 1960 s. During the period 1962 to 1966, Western Mining Corporation carried out an extensive drilling programme and established a resource of green and white spodumene. Extensive mineralogical and metallurgical test work was carried out as part of this programme, culminating in WMC preparing an internal feasibility study on the mining and production of 10,000 to 15,000tpa of spodumene from the deposit on Mining Lease M74/12. Since the 1960 s, the tenements have been owned by several companies who viewed them as prospective for tantalite and conducted drilling and metallurgical test work accordingly. Major programs have been as follows: Pancontinental Mining Limited, 1989, 101 RC holes and resource estimate. Pancontinental Mining Limited, 1990, additional 21 RC holes. Greenstone Resources NL, 1997, three diamond, 38 RC holes and soil sampling; also 23 x 44 gallon drums of freshly blasted ore sent to Nagrom for crushing, screening and gravity separation testing. Haddington Resources Limited, 2001, nine diamond holes for metallurgical test work, remainder RC holes for in-fill and sterilisation. Galaxy acquired ML74/12 from the Administrators of Sons of Gwalia Limited in November 2006. Other leases containing the deposit were subsequently acquired by Galaxy. An extensive drilling programme culminated in an initial resource estimate completed in late 2007. An updated resource estimate was completed in November 2008 for the planned initial mining area in the northern portion of the deposit (Dowling Pit area). Further drilling and sampling in 2009 led to a resource upgrade in January, 2010. 154
3.5 Mt Cattlin Mineral Resources 3.5.1 Drilling and Sampling Drilling has been carried out by Galaxy and previous project operators using a mixture of diamond, reverse circulation (RC), rotary air blast (RAB) and unspecified open-hole techniques. The drilling database contains a total of around 885 collar records and more than 8,600 assay records This includes 858 RC holes (totalling 39,745m) and 27 diamond holes (951m). The methods employed for drill collar surveys and limited downhole surveying reported in the 2009 DFS appear adequate. The drilling pattern over the deposit varies from 20m x 20m in the central northern portion, to 40m x 40m in the north-western and eastern portions. In the south-west, the drill density is generally 40m x 80m (Figure 3.5.1_1). Figure 3.5.1_1: Mt Cattlin Drilling Source : Galaxy January 2009 Feasibility Study Report An analysis of sample recovery from RC drilling reportedly showed that average recovery was acceptable, although below about 56m, downhole the recovery falls away quite rapidly. No correlation was found between grades and recovery. During Galaxy s 2001 drill program, Hellman (2001) reports that two rig duplicates were collected to check the consistency and reliability of sampling procedures for the RC drilling. During 2007, duplicate sampling was not carried out by Galaxy and only internal laboratory duplicates and repeats were completed. In 2008, a program of field duplicate and check sampling was carried out during the 2008 RC program with duplicates and blanks and a lithium standard inserted in the field sample stream. Geological logs are captured on paper and then entered in an Access database, with data validation carried using Micromine software. The 2009 DFS reports that in general the drilling and sampling practices and field QA/QC procedures were considered adequate by Hellman and Schofield. Limited bulk density measurements have been carried out at Mt Cattlin. Five density determinations completed in 2001/2002 on HQ diamond drill core averaged 2.70gm/cc and this average was assumed for the 2007 and 2008 resource models. More recently, 270 density measurements were made on drill core and returned an average value of 2.65gm/cc for pegmatite. 155
3.5.2 Analyses and QA/QC Since 2007, samples have been routinely assayed for Li, Ta, Nb, and Sn at SGS Laboratories, with check assaying undertaken by Ultratrace Laboratories. In some cases, SiO 2, Al 2 O 3, CaO, Cr 2 O 3, Fe 2 O 3, K 2 O, MgO, MnO, P 2 O 5, SO 3, TiO 2, V 2 O 5 Cs, Rb, Ga, Be, and Nb were analysed. A detailed analysis of check sampling including available duplicate, standard and blank samples was carried out in conjunction with the resource modelling. Galaxy reported that assays for standards generally fell within acceptable industry standards and results from laboratory duplicates and repeats were considered good for lithium and tantalum. 3.5.3 Resource Estimation A resource estimate which encompassed known mineralisation on the Project was completed in late 2007 and an updated resource estimate for the northern portion of the deposit, which includes the Dowling Pit area, was completed in November 2008. Both resource estimates were carried out by consultants Hellman and Schofield and have been publically declared. Resource modelling domains were based on geological wireframes of mineralised pegmatites established from drill logs. The analytical data were examined statistically to determine any biases or conditional relationships and to establish top cuts for resource modelling. Some marginal assay data generation biases were indicated and the possibility of an RC sampling bias for Ta was evident which requires further investigation. The 2010 resource model was undertaken using a single pass, 3D Ordinary Kriging (OK) for Li 2 O, Ta 2 O 5 and NbO 5. The OK search parameters were based on variography. The OK used initial blocks of 30mE x 30mN x 5.0mRL. The block grades were then imported into a Micromine 3D model, trimmed to the existing geological model wireframe using sub blocks of 5m x 5m x 2m and regularised for use in mine planning software. The 2010 resource estimate used similar methodologies to the 2007-9 resource estimates, with minor differences in the search radii and sub-block dimensions. The 2008 resource model was used for subsequent pit optimisations in the 2009 DFS and is shown in Tables 3.5.3_1. Table 3.5.3_1 Mt Cattlin 2008 Dowling Pit and Northern Areas Resource Estimate Cutoff Grade (Li 2 O %) Tonnes Ta ppm Ta 2 O % Li ppm Li % Li 2 O % Spodumene % Category 0.50 980,640 135 0.02 4838 0.48 1.04 15.32 Inferred 5,514,178 108 0.01 5370 0.54 1.16 17.00 Indicated 747,403 167 0.02 5491 0.55 1.18 17.39 Measured 7,242,221 117 0.01 5310 0.53 1.14 16.81 Total Source Galaxy Resources Jan 2009 Feasibility Study Report A resource estimate for the complete Mt Cattlin deposit was reported by Galaxy in May 2009. This report contained resources of 155,000t of Li 2 O and 4.83Mlb of Ta 2 O 5. This resource was updated in January, 2010 and these results are shown in Table 3.5.3_2. No publically available information was sighted providing details of the 2009 or 2010 resource estimation processes. The geological wireframes were reportedly updated by combining the two previous models and incorporating additional drilling data not used in the earlier estimates. The remaining methodology is assumed to follow that employed for the 2008 estimate, and incorporated additional drilling data not used in the previous estimate and the new wireframes. The estimates are based on a 0.4% Li 2 O cut-off grade with no top cut applied. Table 3.5.3_2 Mt Cattlin Project January 2010 Reported Global Resources Category Tonnes Li 2 O % Ta 2 O 5 ppm Measured 2,672,000 1.17 150 Indicated 9,629,000 1.09 171 Inferred 3,575,000 1.00 145 Total 15,875,000 1.08 161 Source: Galaxy Resources ASX announcement, 20 January, 2010 156
3.6 Proposed Mining Operations and Ore Reserves The proposed operation is based on open pit mining and processing of 15Mt of pegmatite ore over a 15 year period from the Cattlin Creek ore body. The orebody is flat lying and allows mining to proceed at a constant strip ratio, once the ore is uncovered. Contract mining is planned for grade control drilling and earthmoving operations (drilling, blasting, load, haul and ancillary work) for the open cut mining operation. The initial pit design encompasses existing Measured and Indicated Resources from the May 2009 Mt Cattlin global resource estimate and has been defined as the Dowling pit. Reserves were estimated within an optimal Whittle pit shell developed by consultants Orelogy and a final pit design prepared by Mining Resources. The pit design was created around the optimum pit shell generated by the Whittle 4X pit optimisation software. Smoothing the pit designs involved redefining the optimised pit shells to provide equipment access and to ensure that pit slopes were designed in accordance with the recommended slope angles for each zone. The pit haulage ramps were designed with a typical width of 25m and a maximum gradient of 1 in 9. The pit design incorporates geotechnical pit design parameters developed by Dempers and Seymour and haul ramp designs suitable for 85t trucks. The design was based on a 5m bench height for drilling and blasting with loading done in two flitches of 2.5m each. The pit design is illustrated in Figure 3.6_1. Figure 3.6_1: Mt Cattlin Dowling Pit Design Proposed pit shells, with contained resource blocks coloured by Li 2 O grade, overlain on airphoto. Source: Galaxy Resources 2009 Annual Report Reserve estimation has incorporated data from resource definition drilling, geological modelling/resource estimation, detailed surface topography surveys, metallurgical test work, process/plant design, capital/ processing cost estimation and mine planning. A mining recovery of 95% and 10% dilution have been assumed. Updated cost and revenue figures, including data for the Jiangsu Lithium Carbonate Plant were used in preparing the Reserve statement (Table 3.6_1). The declared Proved and Probable Reserves will support a nine year mine life. In addition to Reserves shown in Table 3.6_1, the design pit shells contain an additional 3.47Mt at 1.02% Li 2 O and 141ppm Ta 2 O 5 as Inferred Resources. Galaxy is currently completing a drill program to upgrade the Inferred Resources to Indicated or Measured category, in addition to drilling for resource extensions with the objective of defining sufficient Reserves for a 15 mine life. 157
Table 3.6_1 Mt Cattlin Project June 2009 Ore Reserves Reserve Category Tonnes Li 2 O % Ta 2 O 5 ppm Proved 2,333,400 1.09 130 Probable 6,949,600 1.02 140 Total 9,283,000 1.04 138 Source: Galaxy Resources 2009 Annual Report 3.7 Proposed Processing Operations 3.7.1 Metallurgical Test Work Metallurgical test work is extensively described in the 2009 DFS. Test samples were initially sourced from stockpiles remaining from the WMC test mining and pilot plant treatment trial in 1963. Subsequent test material was sourced from composites made up from seven diamond drillholes. The preliminary results indicated that the overall recovery of Li to concentrate was about 78% and that the target minimum concentrate grade of 5.0 % Li 2 O could be achieved at this recovery. The study reports that 10kg of concentrate was sent to Outotec s laboratories in Finland for testing of both the soda ash and sulphuric acid processes, and results indicated that high quality lithium carbonate could be produced from Mt Cattlin spodumene by both routes. 3.7.2 Process Flow Sheet and Processing Plant Design The proposed processing plant will be located to the west of the planned Dowling pit, approximately 2km north-west of the Ravensthorpe Townsite. The plant design includes of a four-stage crushing circuit producing a -6mm product from ROM ore at a treatment rate of 1Mtpa. The crushing circuit is designed to run on day shift only and feed to an ore bin which feeds the concentrator on a continuous 24 hour per day basis. The concentrator design comprises a reflux classifier to remove mica flakes and two stages of Heavy Media Separation (HMS) cyclones in two separate size streams. The HMS pre-screen undersize (-0.5mm) is treated by gravity separation (spiral classifiers) to recover tantalite with grinding and flotation of the remaining < 0.5mm stream to recover and return spodumene to the final product. The process flow-sheet is schematically illustrated in Figure 3.7.2_1. Galaxy Resources Limited Mt Cattlin Spodumene Project Mass Flow and Operating Parameters 1 Mtpa Open Pit Mining Ore Haulage ROM ROM Hopper 3 Stage Crusher -20mm 1.1% Li 2O Crushed Ore Bin Heavy Media Separation >3mm Mica Removal 4 th Stage Crusher 150 tphr 1 o Heavy Media Separation Attritioner Screening -6mm +0.5mm 1 o Tantalite Waste Waste Reflux Recovery 1 o Spodumene Recovery <3mm Classifier -0.5mm 2 o Spodumene Tantalite Recovery Heavy Media Separation Attritioner Waste Waste Chemical Spodumene Feed 6.0% Li 2O Esperance Port Zhangjiagang Port Figure 3.7.2_1: 2009 Process Flowsheet 158
The final spodumene concentrate will be stacked on a pad adjacent to the plant area, drained and hauled by road to Esperance for shipment in bulk. Coarse waste (light material) from the HMS plant will be stacked adjacent to the plant area and hauled by truck to mined out areas of the pit(s) as back-fill. The plant is expected to produce of 137,000tpa of spodumene concentrate averaging 6.0% Li2O, which will be shipped as bulk concentrate through Esperance to Zhangjiagang in China. Tantalite concentrates will be trucked to contractors in Perth for dressing and packaging in 200 litre drums for shipment to customers by container from Fremantle. Primary tantalite concentrate production is expected to be about 850tpa with a shipping grade of 25% Ta 2 O 5. Tantalite is the oxide from which the metal tantalum is derived. The biggest single use of tantalum is in the production of capacitors, required in communication systems, computers and instrumentation. The tantalite circuit tailings and other plant spillage streams will be directed to a thickener for process water recovery. Thickener underflow will be pumped to a tailings dam approximately 500m from the plant. Power will be provided by dedicated diesel generators providing an estimated 3Mw average demand. Process water requirements estimated at 360Ml/yr will be sourced from bores located on the tenements. For Project implementation, Galaxy announced in August 2009 that it had awarded the Engineering, Procurement and Construction Management (EPCM) contract for its minerals processing plant to the DRA Pacific, Mintrex, BEC Engineering Joint Venture (DMB JV). Galaxy also announced that construction is scheduled to commence in November 2009 with commissioning and start up expected in October 2010. The Project workforce is expected to be domiciled in Ravensthorpe and/or Hopetoun. 3.8 Financial Analysis and Risk Assessment 3.8.1 Costs Estimated capital and operating costs for Mining and Processing are described in the 2009 DFS and are summarised in Table 3.8.1_1. There was minimal allowance for mining capital since contract mining is proposed. Table 3.8.1_1 2009 DFS Reported Costs Mt Cattlin Capital Cost Estimate A$ (million) Construction and earthworks 2.37 Processing Plant 53.74 Infrastructure and Utilities 6.39 Light Vehicles and mobile equipment 1.40 Working capital and pre-start 4.09 Total 68.0 Mt Cattlin Operating Cost Estimat ($/t ore) Mining 17.93 Processing 16.30 Transport & logistics 5.36 Admin 1.41 Other 3.80 Total Operating Costs 44.80 159
3.8.2 Discounted Cash Flow Models 2009 DFS A financial analysis of the Project was presented in the 2009 DFS. It was based on a 15 year mine life with a life of mine strip ratio of 2.4 and total ore mined reported as 14.6Mt, averaging 1% Li 2O and 116ppm Ta2O5. Metal recoveries used were 75% for Li and 22% for Ta. Annual spodumene concentrate production was 150,000t, averaging 5% Li2O and primary tantalite concentrate production was 850tpa with a shipping grade of 25% Ta2O5. The outcome from discounted cash flow modelling reported the Net Present Value (NPV) of the Project, at an 8% discount rate, as $121.5M with the Internal Rate of Return (IRR) estimated at 25% and the Payback as 4.63 years. This model does not include the lithium carbonate plant in China. Current The Galaxy 2009 Annual Report presented an updated financial model based on an integrated project producing lithium carbonate in China from spodumene concentrate from Mt Cattlin. This included an additional $50M in capital for the lithium carbonate plant in China to increase the total capital cost to $130M. The production from the Mt Cattlin mine and minerals plant was upgraded to 137,000tpa of 6% Li2O spodumene concentrate. The combined Project was modelled to generate a life of mine (LOM) average sales revenue of $166M per annum ($80M net cash pre tax) based on the sale of a final lithium carbonate product and a tantalite concentrate. The Project NPV (real and non-geared, before tax), using a discount rate of 8%, was estimated at $511 million with an IRR% of 45% and a payback period of 2.1 years. The model is based on 15years of production while Proved and Probable Reserves equate to 9 years of production (at 1Mtpa) with a further 3 years in Resources. 3.8.3 Risk Assessment The financial analysis in the 2009 DFS was accompanied by a risk assessment using quantitative risk analysis techniques including probabilistic modelling and Monte Carlo simulation. The modelling suggested that the Project NPV at a 90% confidence interval was between $72.5M (5%) and $193.1M (95%) with the IRR lying between 19% and 32% and the Payback between 3.5 and 6 years. No public information was sighted relating to subsequent risk analyses as part of the updated financial model reported in the Galaxy 2009 Annual Financial Report. 3.9 Exploration and Development Potential 3.9.1 Mt Cattlin Project Positive results from the 2009 DFS, finalised funding arrangements and significant progress in obtaining Project development permitting all clearly indicate that the Project is on a firm development path. On November 5th 2009 Galaxy announced that it had secured Mining Approval from the DoMP to commence mining at Mt Cattlin. Galaxy s preparations for construction of downstream lithium carbonate production facilities in Jiangsu, China, further support the development potential of the Project. 3.9.2 Dowling Pit Incremental Reserve Potential Galaxy report ongoing drilling to define additional resources around the Dowling Pit and to upgrade the classification of the Inferred Resources within the pit shell and convert these to Reserves. In August 2009, Galaxy commenced a 150 hole, RC drilling, programme (8,000 m) targeting the immediate extensions to known mineralization. There is a reasonable expectation that this work will be successful in upgrading the classification of the in-pit Resources as well as increasing the resource base. The lateral extent of the mineralisation does not appear to have been closed off by previous drilling. Deeper drillholes in the Dowling Pit area illustrate the potential for additional mineralised pegmatites below the level of the proposed pit (Table 3.9.2_1 and Figure 3.9.2_1). Investigation of this deeper area appears to be at an early stage and the open pit stripping ratio or potential for underground mining will be the critical issues for determining the economic viability of these deeper bodies. 160
Table 3.9.2_1 Significant Drill Intersections Below Planned Dowling Pit Hole Width From Li 2 O Spodumene GX858 9m 70m 1.57% 23.1% GX861 13m 84m 0.99% 14.6% GX863 13m 84m 0.77% 11.3% GX884 7m 81m 1.17% 17.2% GX888 5m 71m 0.52% 7.7% GX888 6m 81m 0.72% 10.5% Source: Galaxy Source: Galaxy January 2009, DFS Figure 3.9.2_1: Dowling Pit Area Footwall Pegmatites 3.9.3 Near Mine Potential The tenements acquired from Vistarise Limited in July 2009 to the north of the Mt Cattlin resource are covered by cleared farmland, including ploughed paddocks with limited outcrop. Mapping previously completed by the Geological Survey of Western Australia (GSWA) shows scattered outcrops of pegmatite extending onto the ground. Spodumene has been reported in an outcropping pegmatite in the area and there is potential for more substantial and continuous pegmatite bodies at depth. In September 2009, Galaxy entered into an agreement to acquire an 80% interest in three tenements from Traka Resources Limited. The tenements are largely located on cleared farmland contiguous with Galaxy s Mt Cattlin tenements. They contain a number of spodumene (lithium)-bearing pegmatite outcrops and rock chip sampling of pegmatite outcrops returned significant Li 2 O values. Five rock chip samples collected over a strike length of more than 500m from one partially outcropping pegmatite returned values over 0.70% Li 2 O, with a maximum of 2.04% Li 2 O (Figure 3.9.3_1). Drill testing of this pegmatite was planned and Galaxy is currently arranging the required permitting. Diamond drilling by previous companies exploring for gold on the tenements have encountered significant widths of pegmatites, which will also be followed up by Galaxy. 161
Source: GXY ASX Release Sept 2009 Figure 3.9.3_1: Traka Joint Venture Rock Chip Sampling -% Li 2 O New zones of mineralisation intersected to the north and northwest of the current resource in 2009 were reported to the ASX on 18 November, 2009. They include 16m @ 1.35% Li 2 O (GX1054) and 2.13% Li 2 O (GX947). Further follow-up drilling is planning for the first quarter of 2010. 162
4 RAVENSTHORPE EXPLORATION PROJECTS The Ravensthorpe Exploration Projects comprises five main tenement blocks as shown in Figure 4.1_1. The tenements are variously regarded as being prospective for base and precious metals, lithium and manganese. 4.1 Location Access Physiography and Climate The Ravensthorpe Exploration Projects are located in the Phillips Mineral Field, about 450km eastsoutheast of the City of Perth in Western Australia (Figure 4.1_1). The tenements are centred on the town of Ravensthorpe and cover an area that has been subjected to extensive exploration and mining in the past. The total area of the Projects is approximately 160km². Figure 4.1_1: Galaxy Resources Ravensthorpe Project Tenements 4.2 Tenure The Ravensthorpe Exploration Project tenements are described in five separate blocks by Galaxy. They are listed in Table 2.3_1 and their locations shown in the following figures. Tenements in the Elverdton JV are subject to a Joint Venture Agreement with Pioneer Nickel Limited (ASX:PIO), who have earned 75% interest in all minerals. The Aerodrome Project was subject to a similar JV agreement but Pioneer withdrew and 100% equity reverted to Galaxy 4.3 Bakers Hill/West River Lithium Tantalum Project The Bakers Hill/West River project is located 20km south west of Mt Cattlin and comprises six tenements covering an area of 90km² over the southern half of the western flank of the Ravensthorpe Greenstone Belt. The northern most tenement, E74/287, is subject to a Joint Venture agreement with Ucabs Pty Ltd, with Galaxy holding an 80% equity. The local geology in the project area comprises Archaean granitoid gneiss and mafic/ultramafic rocks of the Cocanarup Terrane in the west with calc-alkaline volcanic rocks of the Annabelle Volcanics underlying the central and eastern project area. The easternmost project area is underlain by the Manyutup Tonalite (Figure 4.3_1). 163
Source: Galaxy website Figure 4.3_1: Bakers Hill/West River Project-Geology and Leasing 164
Late stage tourmaline-rich pegmatite dyke swarms intrude mainly the Annabelle Volcanics, but also extend into the Cocanarup Terrane, and have been mapped over a strike length of 10km. Historic exploration has indicated significant lithium and tantalum grades in some of these pegmatites associated with lepidolite, zinnwaldite and amblygonite and the pegmatites also contain tantalum and niobium oxides. Several historic copper-gold prospects also occur in the project leases and have been investigated in the past by various explorers. Whilst the pegmatites in this area are clearly extensive, the available evidence suggests that the lithium mineralisation in the area is predominantly in the form of lepidolite. Lepidolite presents processing challenges in both the production of a concentrate and in subsequent processing of the lepidolite to produce saleable products such as lithium carbonate. Galaxy completed a compilation of the available data and acquired additional remote sensing data in preparation for a mapping and surface sampling program targeting lithium/tantalum mineralisation. 4.4 Aerodrome Lithium Tantalum Project The Aerodrome project consists of two tenements covering 46km² about 10km west of Ravensthorpe. The project is contiguous with the Bakers Hill/West River tenements, and covers the northern half of the western flank of the Ravensthorpe Greenstone Belt (Figure 4.4_1). The tenements cover substantial ultramafic units of the Cocanarup greenstones, which have been the subject of previous nickel exploration. In 2008, soil geochemistry and geological mapping was completed by Pioneer over areas of ultramafic stratigraphy, VTEM and MLTEM anomalies. Coincident nickel-copper-pge anomalies were identified adjacent to magnetic highs. Results of follow up were not sighted, however Pioneer subsequently withdrew from the JV on these tenements and the Ni potential is not considered significant. Previous mapping at Aerodrome has indicated the presence of pegmatites which lie on a trend to the north east of mineralised pegmatite outcrops on the Bakers Hill/West River Project. Historical surface geochemical sampling in the project area has indicated some low level gold anomalies. Galaxy report that they plan to review past work on the project prior to planning follow up work on the lithium-tantalum and gold potential of the area if warranted. 165
4.5 West Kundip Manganese Project The West Kundip Project is 15km south of Ravensthorpe and comprises two Mining Lease Applications covering 5.75km². The Manyutup Tonalite intruded by numerous Proterozoic dykes covers the northern portion of the tenement. The tonalite is overlain by Mt Barren Group sediments which include a 23m thick dolomite and mudstone sequence defined by drilling. This sequence is then overlain by quartzites and shales, with a second dolomite layer covering the eastern part of the leases (Figure 4.5_1). Source: Galaxy website Figure 4.4_1: Aerodrome Project Geology and Leasing 166
Source: Galaxy website Figure 4.5_1: West Kundip Project Geology and Leasing The basal dolomite comprises approximately 20% of the Mt Barren Group and includes a manganeserich unit of the dolomite occurring as cavity fillings and replacement of the dolomite. Previous drilling aimed at proving up dolomite resources for acid neutralisation confirmed the presence of manganese mineralisation. Results from rock chip sampling returned values up to 38% Mn and previous drilling include values up to 12.9% Mn over a 1m interval. 4.6 McMahon Pyrite-Base Metals Project The McMahon Project comprises three tenement applications located 5km to the east of Ravensthorpe Township (Figure 4.6_1). The Project area is underlain by the basal formation of the Archaean Carlingup Terrane, the Chester Formation. The Chester Formation sequence contains up to 40m thick sulphide facies pyritic banded iron formations that are hosted by black shales. They trend northwest over a total strike length of about 4km. The depth of weathering varies between 20m and 45m and the pyritic bodies have been oxidised to hematite and goethite. Lenses of calc alkaline volcanics occur within the sequence, suggesting that the Chester Formation could have potential for the discovery of volcanic hosted massive sulphide copper-zinc-silver and gold deposits. Following grant of the tenements, Galaxy proposes a program of geological mapping, geochemistry and RC drilling to define pyrite and iron resources and identify and test potential massive sulphide base metal targets. 167
Source: Galaxy website Figure 4.6_1: McMahon Project Geology and Leasing 4.7 Elverdton Manganese (Copper-Gold) Project The Project lies 9km south of Ravensthorpe and comprises four granted tenements and two tenement applications covering approximately 70km². The project is a joint venture between Galaxy and Pioneer Nickel Limited. Pioneer has earned 75% interest in all minerals and Galaxy has a 25% contributing interest. The Project lies within the Carlingup Terrane to the east of the Archaean Ravensthorpe Greenstone Belt. The tenements are largely underlain by the Chester Formation, which comprises a sequence of siltstones, shales, massive pyrite beds and Banded Iron Formations. The initial exploration focus was on the potential of the historic Elverdton-Desmond copper-gold workings. The copper gold workings occur within en-echelon shear zones in Archaean host rocks on the northern flanks of the Manyutup Tonalite. The shear zones can be up to 1km long and 30m wide, but are disrupted by later faults and dykes, forming complex, usually narrow, mineralised shoots 30m to 300m in strike. Copper occurs within disseminated to massive, chalcopyrite-pyrite-pyrrhotite-magnetitegold-mineralised lenses. 168
Source: Galaxy website Figure 4.7_1: Elverdton Joint Venture Geology and Leasing Results from drilling completed at the project by Pioneer during 2007 included drill intercepts of 15m at 2.32% Cu and 1.04g/t Au; and 3.0m at 13.8% Cu and 4.31g/t Au. Pillars of remnant ore intersected by earlier Pioneer drilling included 3m at 13.8% Cu and 4.3g/t Au. A significant program of RC and diamond drilling completed by the joint venture along the strike and below the old working indicates that the development of copper mineralisation within the shear zone is erratic and strongly shoot controlled. It is thought to be unlikely to support a stand-alone mining operation. In 2008, the focus shifted to manganese following the discovery of a manganese rich horizon within the Chester Formation that returned rock chip samples up to 45% Mn. Prospectors discovered the manganese horizon within the Ravensthorpe Ranges over 100 years ago and an adit was excavated through the hill at the Mt Chester Prospect to sample the horizon approximately 30m below the surface outcrop as a possible source for flux for a nearby copper smelter. During the 1990s, Metana Metals NL completed 5m composite chip samples along the length of the adit assaying for gold, copper, and manganese. The manganese horizon averaged 15m at 17.7% Mn, including 5m at 21.6% Mn. Work completed by the joint venture includes preliminary mineralogy of samples taken from remnant adit stockpiles. The dominant manganese mineral has been identified as pyrolusite. Other work included rock chip sampling and soil sampling that has traced the manganese horizon along a strike of approximately 600m. 169
4.8 Exploration History Exploration histories are briefly discussed in each of the preceding Project summaries. 4.9 Exploration Potential The exploration potential is described in each of the preceding Project summaries. 4.10 Exploration Strategy and Budget Current exploration strategies and planned budgets are not well described in publically available information. Galaxy report that the current focus in the Ravensthorpe area is on the development of the Mt Cattlin Lithium Project and work on other areas will be largely deferred until late in 2010. At Elverdton, (now Chester Manganese Project), Pioneer is managing the exploration and reports it has permits in place to complete up to 12 drillholes to test an initial 200m strike length of manganese mineralisation. At Kundip, Galaxy proposed further rock chip sampling and mapping to identify the extent of the manganese mineralisation at surface with the possible use of surface EM to identify the extent of the manganese. It appears unlikely that this work will be a priority until the Mt Cattlin Operation is underway. 170
5 PONTON CARBONATITE PROJECT 5.1 Location Access Physiography and Climate The Ponton Project is located approximately 535km east of Perth and 190km east of Kalgoorlie in the Eastern Goldfields of Western Australia (Figure 2.1_1). The major East-West Trans Australia railway is situated 50km to the south of the Project. The Cundeelee Aboriginal Settlement is located 25km to the southeast. The area is accessed from the Kalgoorlie-Kurnalpi-Pinjin road to Pinjin station and thence by approximately 110km of dirt tracks to the northern boundary of the Project. 5.2 Tenure Project tenure consists of a single Exploration Licence Application covering about 206km² (Table 2.3_1) and lies within both the Queen Victoria Spring Nature Reserve and Aboriginal Reserve 22100. 5.3 Geology and Mineralisation The Project area is located at the south eastern margin of the Archaean Yilgarn Craton and is mostly covered by aeolian sand that forms prominent dunes in places. These are underlain by Tertiary sandstones and siltstones which in turn overlie either Permian fluvio-glacial sediments of the Patterson Formation or Archaean granitoids. In the northwest of the project area, a discrete circular magnetic anomaly was interpreted by Galaxy as a possib le carbonatite similar to that intersected by deep drilling at Cundelee, 18km to the south west (Figure 5.3_1). 5.4 Exploration History During 1995 to 1997, Union Oil Development Corporation drilled a 600.5m deep drillhole in the vicinity of the Cundeelee magnetic anomaly. The hole intersected Archaean basement at 554.7m, and from 557m to the end of the hole, intersected ultramafic intrusives including magnetite pyroxenite cut by apatitechlorite-carbonate veins. This interval contained anomalous lead (to 0.81% Pb), zinc (to 3.25% Zn) and phosphorous (to 1.51% P 2 O 5 ). From 1971 to 1987, the cover sequence was explored for sandstone hosted uranium by Afmeco Pty Ltd, PNC Exploration and Uranerz Australia Pty Ltd. In 1990, Metana Minerals NL completed ground radiometric surveys and collected 26 surface samples which indicated strong radioactivity was sourced from high Th levels (up to 14%) and lesser U (up to 800pm) accompanied by strongly anomalous lanthanides. These appear to have been associated with weakly silicified and strongly kaolinised quartzofeldspathic rocks of unknown derivation. Between 1994 and 1995, the area was further explored by Herald Resources Limited who completed a 20 hole aircore drilling program (990m). A small area of mineralisation averaging 12.2% lanthanide oxides and 1.2% Th was outlined. 171
Figure 5.3_1: Ponton Project Magnetic Targets 5.5 Exploration Potential U-REO, Ni Cu Co Galaxy has targeted carbonatite-hosted mineralization of the Palabora type associated with concealed magnetic anomalies within the Ponton Tenement. Any carbonatites associated with the magnetic anomalies are thought to have potential for copper, nickel, lead, zinc, uranium, vermiculite, phosphate, rare earths and titaniferous magnetite. The Palabora style targets are thought to be fairly deep and drilling to 500m is required to test some of these targets. The location is on reserved lands and some more rigorous environmental conditions and permitting will apply as well as the more complex access requirements for Aboriginal Reserves. 5.6 Exploration Strategy and Budget There is no currently reported exploration program or budget for this project. 172
6. SHOEMAKER IRON ORE PROJECT 6.1 Location Access Physiography and Climate The Shoemaker Project is located on the southern margin of the Earaheedy Basin about 830km northeast of Perth, 120km north of the Township of Wiluna, Western Australia (Figure 2.1_1). The project is accessed by well formed gravel roads. 6.2 Tenure The Project comprises three granted exploration licenses covering a total area of 596km² (Table 2.3_1). On 8 July 2009, Galaxy announced it has signed a sale and joint venture (SJV) agreement with General Mining Corporation Limited (GMC) for the exploration and development of the Shoemaker Project. The SJV allows GMC to earn up to 80% in the Project subject to certain conditions being met. 6.3 Geology and Mineralisation The focus of the project tenements is the Shoemaker Meteorite Impact crater which has a diameter of about 30km (Figure 6.3_1). The structure covers the southern part of the Proterozoic Earaheedy Basin which overlies the Archaean Yilgarn Craton to the south. The structure is deeply eroded with bedrock only rarely outcropping. It comprises a central uplift surrounded by a ring syncline and ring anticline. The central alkali rich syenitic Teague Granite is interpreted as being related to impact induced hydrothermal activity. Initial interest was on possible base metal mineralisation associated with Sweetwaters Well Dolomite, a Member of the Proterozoic Yelma Formation. Lead-zinc-copper mineralisation is known from these dolomites immediately west of the project tenements. Subsequent interest was focused on the iron potential of the Frere Formation. 6.4 Exploration History During the period 1993 to 1998, the area in and to the west of the Shoemaker Structure was investigated by RGC Exploration who completed extensive exploration for base metals. This work comprised geological mapping, soil and rock chip sampling, 4,450m of RC drilling (60holes) and 1474m of diamond drilling 913 holes). This work outlined an extensive area of scattered but uneconomic Zn-Cu- Pb mineralisation. The Proterozoic Earaheedy Basin was the subject of minor iron ore exploration during the late 1970 s, undertaken by BHP and Amax Exploration (Australia) Inc that targeted the extensive iron formations (Frere Formation) developed within the basin. The Earaheedy Basin is of similar age and size to the Hamersley Basin exhibiting similar rock types and styles of mineralisation. A number of areas of hematite enrichment were located and sampled, with historical grades from rock chip sampling of up to 69.6% Fe. Galaxy s Shoemaker Project area was the subject of rock chip sampling within outcrops of hematite enrichment within the iron formations of the Frere formation, undertaken by Amax during 1977 principally in the northwest section of the Shoemaker structure. The rock chip samples returned values ranging from 56.1% to 69.6% Fe in outcrops of sub vertical hematite enriched iron formation that varied between 5 and 30 metres true width. The Fe assays were accompanied by low phosphorous levels of 0.03% to 0.09%. 173
Source: Galaxy website Figure 6.3_1: Shoemaker Project Geology and Leasing During 2007 and 2008, surface rock chip sampling, gravity surveys and satellite photography were completed by Galaxy at the Shoemaker project. These were focused on the delineation of hematite iron mineralisation within the Proterozoic Frere Formation. In August 2008, Galaxy announced the results of a gravity survey and rock chip sampling of hematite iron mineralisation. Assay results of the rock chip sampling confirmed the presence of high grade hematite iron mineralisation at the project and a number of significant gravity anomalies were defined with strike lengths of 1,000m to 5,000m (Figure 6.4_1). 174
Source: Galaxy 2008 Annual Report Figure 6.4_1: Shoemaker Project: Gravity Survey and Rock Chip Sample Results 6.5 Exploration Potential The primary exploration potential resides with the high grade hematite iron mineralisation hosted in the Frere Formation. Extensive iron formation has been mapped on the tenements, or can be inferred from gravity data. A large continuous east-west oriented gravity high, extending for several kilometres along strike, is present in the southern part of the structure. The anomaly occurs in an area where surface iron formation has not been mapped and/or there is no outcrop. Field reconnaissance and possibly RC drill testing will be required to determine if the anomaly is related to the development of hematite, Rock chip sampling by Galaxy has returned values up to 61.75% Fe. Other targets include base metals such as copper, lead and zinc, and gold, which may have been concentrated by structures and hydrothermal systems related to the impact event. 6.6 Exploration Strategy and Budget As a result of the SJV agreement, GMC will acquire a 50% interest in the Shoemaker Project through cash and other considerations. The SJV also allows GMC to earn a further 30% by expenditure of $1 million on the Shoemaker project within two years of the date of completion. Galaxy is free carried from all expenditure for the Project to the completion of a Bankable Feasibility Study. No specific exploration program or budget has been reported. 175
7 CONNOLLY PROJECT 7.1 Location Access Physiography and Climate The Connolly Project is located 1,225km northeast of Perth and 720km southeast of Port Headland in the south-eastern part of the Canning Basin (Figure 2.1_1). The area is relatively remote arid land with effectively no infrastructure. Access is restricted to sparse desert tracks. 7.2 Tenure A single Exploration License Application of 154km² covers the project area. 7.3 Geology and Mineralisation The project area is focused on the Connolly basin impact crater, a 9km circular depression thought to be a meteorite impact structure similar to Shoemaker (Figure 7.3_1). Figure 7.3_1: Connolly Project: Radar Imagery and Leasing The area is generally covered by Tertiary laterite but the structure itself is evident as a subdued outer topographic rim confining a central playa that rises 25m to 40m above the surrounding lateritic plains. The oldest exposed rocks occur within the central playa as a 1km wide zone of chaotically uplifted Permian sandstone blocks and fragments. Palaeozoic and Mesozoic sediments of the Canning Basin cover sequences up to 6km thick in the region and are known to include carbonates and salt diapirs. Gravity profiles across the Connolly structure suggest some igneous and metamorphic rocks of probable Archaean age occur at depths of 500m to 1,000m, presumably due to the central uplift associated with the impact structure. The structure itself has never been drilled. 7.4 Exploration History Known previous exploration is believed to have been confined to investigation of oil and gas potential and drilling of favourable seismic targets in the region. No base or precious metal exploration is known to have been done. 176
7.5 Exploration Potential Galaxy propose conceptual exploration potential for carbonate-hosted zinc-lead deposits in the fractured and hydrothermally altered carbonates or massive nickel sulphides at >500m depth in Archaean basement. 7.6 Exploration Strategy and Budget The 2006 Galaxy Independent Geologists Report suggested that on grant of the tenement, a program of airborne geophysics and geological modelling be implemented as the first stage of identifying the potential for deep drill targets. An estimated cost of the proposed work was A$250,000 in the first and second years of exploration. As the tenement has not been granted, no work has been reported to date. 177
8. BOXWOOD HILL PROJECT 8.1 Location Access Physiography and Climate The Boxwood Hill Project is located about 370km southeast of Perth, Western Australia and approximately 60km northeast of the town of Albany (Figure 2.1_1). 8.2 Tenure The Galaxy website suggests that the Project comprises three tenements, covering an area of 600km² of which 196km² is granted and the remainder under application (Table 2.3_1). The Galaxy 2009 Annual Report tenement schedule also lists P70/1559 1561, however these are listed as expired on Mines Department Records having been superseded by one of the Exploration Licenses. 8.3 Geology and Mineralisation Geological survey mapping describes the rocks within the Project area as Archaean and Proterozoic gneiss. The metamorphic overprint is attributed to a period of Proterozoic thrusting along the intensely deformed Albany-Fraser mobile zone, which is believed to represent an accretionary zone of thrusting between continental margins. The Project is sited at a triple junction between the Albany Fraser Mobile Zone and the two Archaean terranes-the Western Gneiss and Yilgarn Block. The triple point is regarded as favourable target areas for concentration of minerals (Figure 8.3_1). Source: Galaxy website Figure 8.3_1: Boxwood Hill Project Geology and Leasing Late Proterozoic quartzo-feldspathic gneiss containing quartz-filled shears with copper and lead mineralisation have been reported. Silicified limonitic gossans, which exhibit fine boxwork texture after sulphides, are documented and minor galena mineralisation dated at 1.9Ga has been reported. 8.4 Exploration History The recorded exploration history is confined to drilling and trenching completed by Eucla Minerals exploring for heavy mineral sands along the palaeo coastal strip. No success was reported. 8.5 Exploration Potential Galaxy regard the confluence of major structures will have produced many dilational features that represent potential concentration sites for base and precious metals. 8.6 Exploration Strategy and Budget The 2006 Galaxy Independent Geologists Report proposed a $250,000 exploration program following grant. This comprised airborne geophysical surveying, geological mapping, surface geochemistry and RC drilling. No exploration has been reported to date. 178
9. OTHER RELEVANT INFORMATION 9.1 Mt Cattlin Lithium Project Approvals Galaxy report that to date, no impediments have been identified or raised by the various stakeholders, local and state authorities, which could deny Project approval. As soon as it lodges bond monies of some $880,000 with the WA DMP, Galaxy will be able to commence pre-strip and mining at the proposed Dowling Pit. In the June Quarter of 2009, Galaxy secured the Works Approval from the DEC to commence construction of the minerals processing plant. A new mining lease M74/244 was awarded and superseded earlier mining leases in January, 2010. This mining lease is valid until 23 December 2030. 9.2 Freehold and Native Title A large percentage of the Project site is located on freehold property. Galaxy has entered into an access agreement with the owner and has also negotiated an option to purchase the land required for development. The majority of the land upon which the Project is located is private land over which native title has been extinguished. The vacant Crown Land to the east of Floater Road upon which mining will occur in the latter stages of the mine life is subject to native title. Ethnographic and archaeological surveys were completed and no significant sites reported. Galaxy commenced negotiations with the South West Aboriginal Land and Sea Corporation and the Wagyl Kaip and Southern Noongar people for a mining agreement covering tenements outside the Project freehold area. Typically these involve a range of provisions, including compensation payments during the life of the project and a commitment to employment and training initiatives for traditional owners. 179
10. REFERENCES AusIMM, 2004. The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code ). AusIMM, 2005. Code for the Technical Assessment and Valuation of Mineral and Petroleum assets and securities for Independent Expert Reports (Valmin Code). ASX, 2009. Australian Stock Exchange announcements available through the ASX website (www.asx. com.au). DMP, 2009. The Western Australian Department of Mines and Petroleum, Annual Report 2008-2009. DMP, 2009. The Western Australian Department of Mines and Petroleum. Mineral Titles Online, 21 October 2009. Fox, K., 2006. Independent Geologist s Report, Galaxy Resources, 12 December 2006, pp21-62. Galaxy, 2008. ASX Announcement. Gravity Survey and Rock Chip Sampling Confirms Iron Potential at Shoemaker Project, 22 August 2008. Galaxy, 2009. Galaxy Resources 2009 Annual Report. Galaxy, 2009. Galaxy Resources Web Site. October 2009. www.galaxyresources.com.au. Galaxy, 2009. Ravensthorpe Spodumene Project Feasibility Study. Galaxy Resources, January 2009, 168p. Grubb, P. L., 1963. Spodumene from Ravensthorpe and Mt Marion, WA. Mineralogical and chemical study. CSIRO Mineragraphic investigation, Report No. 871. Jaskula, B. W. 2008. Lithium. USGS 2007Minerals Yearbook. Advance Release August 2007. London Stock Exchange, 2006. Guidance note for mining, oil and gas companies, March 2006. Raffan, N and Hill, A. 2009. State One Stockbroking Ltd., Market Analysis, Galaxy Resources, September 2009. Spiers,R., 2007. Resource estimate for the Mt Cattlin Li-Ta deposit, Ravensthorpe, WA. Hellman and Schofield Report, November 2007. Spiers, R., 2008. Mt Cattlin interim resource estimates, Li-Ta elements,ravensthorpe, WA. Hellman and Schofield Report, December 2008. Sullivan, A., Broomfield, D., 1989. Cattlin Creek ML72/12 Annual report for the year ending 21/07/89. Pancontinental Mining Ltd, Exploration division. Wanless, R., 1991. Cattlin Creek Tantalum Resource. Witt, W.K., 1998. Geology and mineral resources of the Ravensthorpe and Cocanarup 1:100,000 sheets: Western Australia Geological Survey, Report 54. 180
11. GLOSSARY µ Microns. 3D AIM albite amblygonite amphibolite andesite andesitic apatite AUD$ basalt beryl calc-alkaline carbonatite columbite Cu dacite DDH dolomite Three dimensional. Alternate Investment Markey, London stock exchange. Sodium rich plagioclase feldspar-a common silicate mineral within granites and metamorphic rocks, and an alteration mineral. A fluorophosphate mineral, (Li,Na)AlPO 4 (F,OH), composed of lithium, sodium, aluminium, phosphate, fluoride and hydroxide. A metamorphic crystalline rock consisting mainly of amphibole and some plagioclase. An intermediate volcanic rock composed of andesine plagioclase and one or more of the minerals olivine, pyroxene, and iron and titanium oxide. An intermediate volcanic rock composed of andesine and one or more mafic minerals. A calcium phosphate mineral, containing essential rare earth elements and typically present in igneous rocks in accessory abundances. Australian dollars. An extrusive volcanic rock of low silica (<55%) and high iron and magnesium composition, composed primarily of plagioclase and pyroxene, with or without olivine. A beryllium-alumino silicate mineral, Be 3 Al 2 Si 6 O 18, often found in pegmatites. Emerald is a gem variety of beryl. An igneous rock in which the proportion of lime and alkalies is such that the dominant minerals are feldspars, hornblende and/or augite. An alkaline, carbonate-rich magmatic rock. Generally refers to ferrocolumbite, an orthorhombic mineral, FeNb 2 O 6, in granites and pegmatites; an ore of niobium. Chemical symbol for copper. Felsic volcanic rock composed predominantly of the mineral plagioclase and minor quartz, amphibole and biotite, and containing intermediate to high abundances of silica (SiO 2 ). Diamond drillhole. A rock composed of calcium and magnesium carbonate. fluorite A natural calcium fluoride, CaF 2. g g/m³ Gram. Grams per cubic metre. 181
greenschist greenstone HQ hr ISO kg kg/t km km² kriging kw lanthanides lepidolite Li lithium M m Ma metasomatic microlite ml mm A metamorphosed basic igneous rock which owes its colour and schistosity to abundant chlorite. Term commonly applied to low metamorphic grade rocks of basic composition and comprised of the minerals chlorite and amphibole. Commonly applied to Archaean rock sequences dominated by these rock types. A diamond drill core size, larger in diameter than NQ and smaller than PQ. Hours. International Standards Organisation. Kilogram. Kilogram per tonne. Kilometres. Square kilometres. A geostatistical technique of grade interpolation between data points in mineral resource/ore reserve calculation. Kilowatt, a standard metric unit of power. The Lanthanides are the 14 rare earth chemical elements which lie between lanthanum and lutetium on the periodic table. Lanthanides are metals. A lithium-alumino silicate, K 2 (Li,Al) 5-6 (Si 5-6, Al 2-3 ) O 20 (OH, F) 4, and commonly found in pegmatites. Chemical symbol for lithium. A soft, silvery-white metallic element of the alkali group, the lightest of all metals. Million. Metre, a standard metric unit measure of distance. Million years ago. Alternation of pre-existing rocks by the passage of fluids. A pale-yellow, reddish, brown, or black isometric mineral of the pyrochlore group: (Ca,Na) 2 Ta 2 O 6 (O,OH,F). It is isomorphous with pyrochlore, and it often contains small amounts of other elements (including uranium and titanium). Microlite occurs in granitic pegmatites and in pegmatites related to alkalic igneous rocks, and it constitutes an ore of tantalum. Millilitre. Millimetres. 182
montebrasite Mtpa mudstone muscovite Mw niobium NQ A triclinic mineral, LiAl(PO 4 )(OH 1 F); amblygonite group; perfect cleavage; occurs in granite pegmatites where it may be a source of lithium. Million metric tonnes per annum. Sedimentary rock formed from mud or clay. A white to pale green, potassium-aluminium mica commonly found in igneous and metamorphic rocks. A standard metric unit measure of power, equivalent to one million watts. A shiny, white, soft, and ductile metallic element. Symbol, Nb. Used as an alloying agent in carbon and alloy steels, in nonferrous metals, and in superconductive magnets. A diamond drill core size, smaller in diameter than HQ. ºC Degrees Celsius. Pb pegmatite perthite ppb ppm Precambrian prehnite A chemical symbol of Lead. A very coarse grained intrusive felsic igneous rock which commonly occurs in dyke-like bodies sometimes containing lithium-boron-fluorine-rare earth bearing minerals. A variety of alkali feldspar. Parts per billion. Parts per million. Pertaining to all rocks formed before Cambrian time (older than 545 million years). An orthorhombic mineral, Ca 2 Al 2 Si 3 O 10 (OH) 2, in which Fe replaces Al; forms botryoidal or mammillary and radiating aggregates. pyritic Containing the mineral pyrite, FeS 2. QA/QC RAB (Rotary Air Blast) RC RL schist SG SiO 2 Quality Assurance/Quality Control. Drilling method employing a rotary action on a drill bit, which yields sample material delivered to the surface outside the rod string by compressed air. Reverse Circulation a drilling technique. Relative level, a height above sea level. A micaceous crystalline metamorphic rock having a foliated or parallel structure due to the recrystallisation of the constituent minerals. Specific gravity. Silica. Dioxide of silicon, SiO 2, usually found as the various forms of quartz. 183
spessartite Alternate name for spessartine, a type of garnet mineral. spodumene A monoclinic mineral, LiAlSi 2 O 6. synform t t/m³ tantalite tantalum Tertiary Th Tonalite tourmaline tpa Downward closing fold. Tonnes. Tonnes per cubic metre. A tantalum-iron-manganese oxide mineral (Fe, Mn) Ta 2 O 6, often found in pegmatites and associated veins. A rather brittle, lustrous, hard, heavy, gray metallic element. Occurs principally in the mineral columbite-tantalite, (Fe,Mn)(Nb,Ta) 2 O 6. Widely used to fabricate chemical process equipment, nuclear reactors, and aircraft and missile parts. Used to make electrolytic capacitors, vacuum furnace parts, and surgical appliances. Subdivision of geological time covering the period from 65 million years to 1.8 million years ago. Chemical symbol for thorium A coarse grained granitic rock composed of quartz, sodium-calcium feldspar and a high proportion of iron rich minerals. A complex aluminium silicate mineral containing boron. Tonnes per annum. triphylite A lithium iron phosphate mineral with the chemical formula LiFePO 4. U ultramafic variography volcaniclastic Zn Chemical symbol for uranium. An igneous rock in which more than 90% of the minerals are ferromagnesium minerals, with only trace quartz and feldspar, synonymous with ultrabasic. A geostatistical technique involving the measurement of the spatial continuity of an element or measurement of interest. Pertaining to a clastic rock predominantly comprised of volcanic material. Chemical symbol for zinc. 184
4. Extract from Coffey Mining Valuation Report For the purposes of the Independent Expert s Report, the Independent Expert commissioned Coffey Mining to provide it with an independent technical valuation report on the Company s mineral assets. An extract of the Coffey Mining Valuation Report dated 18 January 2010 with the report s principal conclusions is reproduced and set out below. The conclusions are subject to the scope, assumptions and limitations of the full Coffey Mining Valuation Report, a copy of which can be found at www.creatresources.com. 7 Technical Valuation 7.1 Valuation Methods 7.1.1 Introduction There are numerous recognised methods used in valuing mineral assets. The most appropriate application of these various methods depends on several factors, including the level of maturity of the mineral asset, and the quantity and type of information available in relation to any particular asset. The Valmin Code, which is binding upon Experts and Specialists involved in the valuation of mineral assets and mineral securities, defines the level of asset maturity under the following categories: Exploration Areas refer to properties where mineralisation may or may not have been identified, but where a mineral resource has not been defined. Advanced Exploration Areas and Pre-Development Projects are those where Mineral Resources have been identified and their extent estimated, but where a positive development decision has not been made. Development Projects refers to properties which have been committed to production, but which have not been commissioned or are not operating at design levels. Operating Mines are those mineral properties, which have been fully commissioned and are in production. The various recognised valuation techniques are designed to provide the most accurate estimate of the asset value in each of these categories of project maturity. In some instances, a particular mineral property or project may include assets that logically fall under more than one of these categories. Regardless of the valuation techniques adopted, the consideration must reflect the perceived fair market value, which is described in Definition 41 of the Valmin Code as the estimated amount of money, or the cash equivalent of some other consideration for which, in the opinion of the Expert reached in accordance with the provisions of the Valmin Code, the mineral asset or security should change hands on the Valuation Date between a willing buyer and a willing seller in an arm s length transaction, wherein each party had acted knowledgeably, prudently and without compulsion. 7.1.2 Discounted Cashflow In the case of Pre-development, Development and Mining Projects, where Measured and Indicated Resources have been estimated and mining and processing considerations are known or can be reasonably determined, valuations can be derived with a reasonable degree of confidence by compiling a discounted cashflow (DCF) and determining the net present value (NPV). 7.1.3 In-situ Resource or Yardstick Where mineral resources remain in the Inferred category, reflecting a lower perceived level of technical confidence, the application of mining parameters is inappropriate and their economic value can therefore not be demonstrated using the more conventional DCF/NPV approach. A similar situation may apply where economic viability cannot be readily demonstrated for a resource assigned to a higher confidence category. In these instances it is frequently appropriate to adopt the In-situ Resource (or Yardstick ) 185
method of valuation for these assets. This technique involves application of a heavily discounted valuation of the total in-situ metal contained within the resource. This usually equates to a range of 1% to 5% of the spot metal price as at the valuation date, but may vary substantially in response to a range of additional factors including physiography, infrastructure and the proximity of a suitable processing facility and known metallurgical performance. In the case of Exploration Areas, and to a lesser extent Advanced Exploration Areas, the potential is speculative compared to projects where mineral resources have been estimated. The valuation of Exploration Areas is dependent, to a large extent, on the informed, professional opinion of the valuer. 7.1.4 Multiple of Exploration Expenditure Where useful previous and committed future exploration expenditure is known or can be reasonably estimated, the Multiple of Exploration Expenditure ( MEE ) method is considered to represent one of the more appropriate valuation techniques. This method involves assigning a premium or discount to the relevant effective Expenditure Base ( EB ), represented by past and future committed expenditure, through application of a Prospectivity Enhancement Multiplier ( PEM ). This factor directly relates to the success or failure of exploration completed to date, and to an assessment of the future potential of the asset. The method is based on the premise that a grass roots project commences with a nominal value that increases with positive exploration results from increasing exploration expenditure. Conversely, where exploration results are consistently negative, exploration expenditure will decrease along with the value. 7.1.5 Comparable Transactions Where sale transactions relating to mineral assets that are comparable in terms of location, timing and commodity, and where the terms of the sale are suitably arms length in accordance with the Valmin Code, such transactions may be used as a guide to, or a means of, valuation. 7.1.6 Joint Venture Terms Where a joint venture agreement has been negotiated as an arm s length transaction, the Joint Venture Terms valuation method may be applied. In a typical staged earn-in agreement, the value assigned to each of the various stages can be combined to reflect the total, 100% equity, value, as follows: V 100 =V Stage 1 +V Stage 2 +... The value of equity assigned to an entity buying into the project, the farminor, at any earn-in stage of a joint venture can be considered as the sum of the value liquid assets transferred to the seller, or farminee, in cash or shares, plus the value of future exploration expenditure. Commonly, an agreement may stipulate a minimum expenditure that must be met by the farminor prior to allowing withdrawal from the agreement, and these funds are thus committed, as distinct from the notional expenditure to successful completion of the earn-in stage. In calculating the value of an agreement that includes future expenditure, it is considered appropriate to discount (usually at a rate of 10% per annum) that expenditure by applying the discount rate to the mid-point of the term of the earn-in phase. A probability range is also usually applied to each earn-in stage to reflect the degree of confidence that the full expenditure specified to completion of any stage will occur and, consequently, each equity position achieved. The value assigned to the second and any subsequent earn-in stages will always involve discounted funds, and is likely to require exponentially increasing speculation as to the likelihood that each subsequent stage of the agreement will be completed. Correspondingly, in applying the Joint Venture Terms approach to staged earn-in agreements, it is regarded as most correct to consider only the first stage as the basis for estimating cash value equivalence at the time of the deal. Coffey adheres to this guideline by adopting the end of the initial earn-in period for valuation purposes. 186
The total project value of the initial earn-in period can be estimated by assigning a 100% value, based on the deemed equity of the farminor, as follows: where: V 100 = 100 D [ CP + ( CE * 1 (1+I) 1 2 ) + ( EE * 1 (1+I) 1 2 *P)] V100 = Value of 100% equity in the project ($) D = Deemed equity of the farminor (%) CP = Cash equivalent of initial payments of cash and/or stock ($) CE = Cash equivalent of committed, but future, exploration expenditure and payments of cash and/or stock ($) EE = Uncommitted, notional exploration expenditure proposed in the agreement and/or uncommitted future cash payments ($) I = Discount rate (% per annum) t = Term of the Stage (years) P = Probability factor between 0 and 1, assigned by the valuer, and reflecting the likelihood that the Stage will proceed to completion. 7.2 Previous Valuations In 2006 Anderson & Schwab Australia Ltd completed a valuation of the mineral assets of Zeehan Zinc Limited in conjunction with the AIM listing documents. Anderson & Schwab s valuation provided a range of values from $160.8M and $344.4 with an estimated fair market value of $291.0M. The bulk of Anderson & Schwab s valuation was derived from NPV/DCF modelling and was predicated on perceived future cash flows from proposed mining operations at the Comstock, Oceana and Mariposa deposits. Anderson & Schwab s financial modelling made a number of assumptions concerning capital and operating costs, production schedules, metal prices and metal recoveries amongst other variables. Coffey Mining considers this valuation optimistic, as a series of key criteria was assumed or estimated without reference documentation or any technical work being completed including, but not limited to, QAQC sampling, bulk density testwork, geotechnical studies, mining studies and metallurgical testwork. Studies including these disciplines would be required as a minimum to more accurately provide cost inputs for cash flow modelling purposes. In 2008 AMC completed scoping study level investigations for the Oceana deposit. A number of technical parameters were assumed from previous operational experience, however an NPV of some $39M was generated, using US$2,600/t for both lead and zinc at an AUD/USD exchange rate of 0.75. The study was based on an assumed in pit tonnes of 10.2Mt of rock providing 1.2Mt of mill feed at a grade of 5.3%Pb, 1.7% Zn and 40g/t Ag. Financial modelling at scoping study level accuracy of +/ 30% indicated that the project became cash positive in Year 4 of a 5 1/2 year project. The studies indicated that the project was sensitive to metal prices, however was worthy of further work. Coffey Mining has updated this AMC s cash flow model with current metal prices and AUD/USD exchange rates. This generates a negative NPV using the same capital and operating costs and provides an indication of the Oceana (and Comstock and Mariposa) projects sensitivity to fluctuation in revenue and thus puts the 2006 Anderson & Schwab in perspective. Coffey Mining is not aware, nor have we been made aware, of any other previous valuations of the CRHL mineral assets. 7.3 Comparable Transactions Coffey Mining has completed a search for recent publicly available market transactions involving lead-zinc exploration projects in Australia. Unfortunately only a limited number of suitable transactions were identified. There is an insufficient amount of information to complete any detailed analysis of transactions involving exploration ground prospective for sediment hosted lead-zinc deposits. However review of the limited transactions available suggests exploration areas have implied values generally between $1,000/km 2 and $5,000/km 2, while strategically located projects with defined Mineral Resources may have implied values 187
exceeding $50,000/km2. Coffey Mining was unable to locate any recent and relevant comparative transactions involving skarn-style or ultramafic intrusion related exploration projects prospective for nickel in Australia. 7.4 Comstock Project The Comstock Project can be classified as an Advanced Exploration Project. Having considered the various methods used in the valuation of the project, Coffey Mining has elected to apply the In-situ or Yardstick method of valuing the Mineral Resources associated with the project, and the Multiples of Exploration Expenditure method to value the remaining exploration potential of project (EL18/2002 & EL30/2002). In order to estimate a value for the Mineral Resources associated with the Comstock Project Coffey has elected to apply the In-situ or Yardstick method of valuing the contained metal. The Mineral Resources associated with Comstock Project include Inferred and Indicated resources aggregating 3.12Mt grading 1.5% Zn, 2.1% Pb and 47.6g/t Ag as detailed in Section 3.2.5. Discounting the implied value of the contained metal to a range from 1% to 3%, results in a valuation range for a 100% interest in the Mineral Resources associated with the Comstock Project of between $3.29M and $9.86M using spot metal prices of US$2,169/t Zn, US$2,273/t Pb and US$16.40/Oz Ag (3/11/2009) at an AUD/USD exchange rate of 0.9039. Coffey has elected to assign a preferred value of $4.5M at the lower end of this range to reflect the significant work required to convert this Resource into a Reserve, the general low grade nature of the mineralisation, and the potential of poor recoveries in the oxide profile which represent approximately 50% of the resource tonnes. In valuing the exploration potential associated with the Comstock Project (EL18/2002 & EL30/ 2002), Coffey Mining has elected to apply the Multiples of Exploration Expenditure method. As far as can be reasonably ascertained, recent exploration expenditure by CRHL or its subsidiaries on the area encompassing the Comstock Project approximates some $1.52M. Most of this exploration expenditure has been spent on geological management, geophysical surveys including a large seismic survey and a ground magnetic survey across the Tenth Legion area, along with limited geochemical sampling and data compilation. Coffey Mining has elected to exclude historic expenditure from earlier tenement operators as accurate expenditure details were not able to be estimated, and much of this data relates to exploration for lead and zinc mineralisation and has been superseded by more recent work. Further Coffey Mining understands that a significant proportion of the historic expenditure (prior to CHRL) was directed at the Comstock resource area, which has been valued separately above. Early expenditure by CRHL and its subsidiaries also generally related to exploration focusing on lead and zinc mineralisation, however some of the data generated will provide useful for exploration for nickel and PGEs. Coffey Mining has reasonably elected to assign a range of productivity enhancement multipliers (PEMs) from 0.25 to 0.75 to the EB of $1.52M to derive a range of provisional values for the exploration and resource potential associated with the Ocean and Mariposa projects from $0.72M to $2.16M, within which range we have selected a preferred provisional value of $1.3M towards the middle of the range of this range. 7.5 Oceana Deposit Project The Oceana Project can be classified as an Advanced Exploration Project. Having considered the various methods used in the valuation of the project, Coffey Mining has elected to apply the In-situ or Yardstick method of valuing the Mineral Resources associated with the project, and the Multiples of Exploration Expenditure method to value the remaining exploration potential of project (EL20/2002). In order to estimate a value for the Mineral Resources associated with the Oceana Project Coffey has elected to apply the In-situ or Yardstick method of valuing the contained metal. The Mineral Resources associated with Oceana Project include Inferred and Indicated resources aggregating 2,15Mt grading 1.6% Zn, 5.2% Pb and 46.4g/t Ag as detailed in Section 4.2.5. Discounting the implied value of the contained metal to a range from 1% to 3%, results in a valuation range for a 100% interest in the Mineral Resources associated with the Oceana Project of between $3.80M and $11.4M using spot metal prices of US$2,169/t Zn, US$2,273/t Pb and 188
US$16.40/Oz Ag (3/11/2009) at an AUD/USD exchange rate of 0.9039. Coffey has elected to assign a preferred value of $7M towards the middle of this range to reflect the significant work required to convert this Resource into a Reserve and the resource/mining risks surrounding the mineralogy of the zinc ore throughout deposit and the potential implication on processing. Providing future exploration is successful and further studies are favourable, or there is a considerable increase in base metal prices potential exists to toll-treat ore at the nearby Rosebery plant operated by MMN Limited. In valuing the exploration potential associated with the Oceana and Mariposa projects (EL20/ 2002), Coffey Mining has elected to apply the Multiples of Exploration Expenditure method. As far as can be reasonably ascertained, recent exploration expenditure by CRHL or its subsidiaries on the area encompassing the Oceana Project approximates some $2.87M. Most of this exploration expenditure has been spent on geological management, geophysical surveys including a large seismic survey and gravity survey, along with limited geochemical sampling and data compilation. Coffey Mining has elected to exclude historic expenditure from earlier tenement operators as accurate expenditure details were not able to be estimated, and much of this data relates to exploration for lead and zinc mineralisation and has been superseded by more recent work. Further Coffey Mining understands that a significant proportion of the historic expenditure (prior to CHRL) was directed at the Oceana resource area, which has been valued separately above. Early expenditure by CRHL and its subsidiaries also generally related to exploration focusing on lead and zinc mineralisation, however some of the data generated will provide useful for exploration for nickel and PGEs. Coffey Mining has reasonably elected to assign a range of productivity enhancement multipliers (PEMs) from 0.25 to 0.75 to the EB of $2.87M to derive a range of provisional values for the exploration and resource potential associated with the Ocean and Mariposa projects from $0.72M to $2.16M, within which range we have selected a preferred provisional value of 1.3M towards the middle of the range of this range. 7.6 Mariposa Deposit Project The Mariposa Project can be classified as an Advanced Exploration Project. Having considered the various methods used in the valuation of the project, Coffey Mining has elected to apply the In-situ or Yardstick method of valuing the Mineral Resources associated with the project, and the Multiples of Exploration Expenditure method to value the remaining exploration potential of project. In order to estimate a value for the Mineral Resources associated with the Mariposa Project Coffey has elected to apply the In-situ or Yardstick method of valuing the contained metal. The Mineral Resources associated with Mariposa Project include Inferred resources aggregating 0.51Mt grading 2.1% Zn, 5.0% Pb and 66.8 g/t Ag as detailed in Section 5.3.4. Discounting the implied value of the contained metal to a range from 1% to 3%, results in a valuation range for a 100% interest in the Mineral Resources associated with the Mariposa Project of between $0.99M and $2.98M using spot metal prices of US$2,169/t for Zn, US$2,273/t for Pb and US$16.40/Oz for Ag (3/11/2009) at an AUD/USD exchange rate of 0.9039. Coffey has elected to assign a preferred value of $1.2M at the lower end of this range to reflect the significant work required to convert this upgrade the Resource classification, and remedy many of the resources risks identified in Section 5.3.5. In valuing the exploration potential associated with the Mariposa Project, Coffey Mining has elected to apply the Multiples of Exploration Expenditure method. The exploration potential has been valued in combination with the Oceana Project (EL20/2002) in Section 7.5. 7.7 Dundas Project The Dundas Project can be classified as an Exploration Area. CRHL has incurred limited expenditure on the project relating to acquisition costs and data compilation. Coffey Mining has not been able to review historic expenditure details related to previous work completed on the Dundas Project. As such Coffey Mining has selected a preferred notional value of $0.25M, which reflects CRHL s recent purchase costs, for a 100% interest in the Dundas Project as at the Valuation Date (18/01/2010). The project is prospective for skarn-hosted and ultramafic intrusion related nickel mineralisation. 189
7.8 Material Agreements The provisional project valuations reflect a 100% interest in each of the project assets in accordance with the Valmin Code. Ministerial approval has been received for the transfer of the Dundas Project tile (EL21/2004) to CRHL. On this basis, Coffey Mining understands that all the projects are 100% owned by CRHL or its subsidiaries. We are not aware, nor have we been made aware, of any other agreements that have a material influence on the provisional valuations of the CRHL s mineral assets, and on this basis no further adjustments are necessary. 7.9 Valuation Summary A summary of the CRHL mineral asset valuations is provided below in Table 7.9_1. These valuations reflect CRHL s deemed equity interest in the various mineral assets. The applicable valuation date is 18 January 2010. The value of Creat Resource Holding Ltd s equity interest in the various mineral assets is considered to lie in a range from $9.43M to $27.8M, within which range we have selected a preferred value of $14.75M. Table 7.9_1 Creat Resource Holding Ltd Summary of Mineral Asset Valuations Project Permit Asset CRHL Interest Low $M High $M Preferred $M Comstock Deposit 5M/2007 Mineral Resources 100% 3.29 9.86 4.5 Comstock Exploration EL18/2003 Exploration Potential 100% 0.09 0.26 0.15 Comstock Exploration EL30/2002 Exploration Potential 100% 0.29 0.88 0.35 Oceana Deposit 2M/2005 Mineral Resources 100% 3.80 11.4 7 Oceana & Mariposa EL20/2002 Exploration Potential 100% 0.72 2.16 1.3 Exploration Mariposa Deposit RL1/2008 Mineral Resources 100% 0.99 2.98 1.2 Dundas Exploration EL21/2004 Exploration Potential 100% 0.25-0.25 0.25 Total 9.43 27.8 14.75 *Note: Totals may not add up due to rounding error 190
PART 5 ADDITIONAL INFORMATION 1 The Company 1.1 The Company was incorporated and registered in Tasmania on 13 August 1999 under the Act as a proprietary company with the name Zeehan Zinc Pty Ltd. and its registered number is ACN 089 093 943. The Company converted to a public company and changed its name to Zeehan Zinc Limited on 5 July 2001. On 7 August 2009, the Company changed its name to Creat Resources Holdings Limited. The principal legislation under which the Company operates is the Corporations Act and the regulations made thereunder. The liability of the members of the Company is limited. 1.2 The Company has no commercial name other than its registered name. 1.3 The Company s registered office and principal place of business is at Level 2, 116 Bathurst Street, Hobart, Tasmania 7000 Australia. The Company s telephone number at such address is +613 6216 2700. 1.4 The Company is the holding company of the Group. Details of the Company s subsidiaries are set out in Section 1.5 below. 1.5 The Company has the following subsidiaries: Name of Group Company Registered or principal office Country of incorporation or residence Issued Share Capital Business Percentage owned or, if different, percentage of voting power held Oceania Tasmania Pty Ltd (registered number ACN 009 524 047) Level 2, 116 Bathurst Street, Hobart, Tasmania 7000, Australia Australia 1000 Class A 20 Ordinary shares Comstock Mine Operation 100 ZZ Exploration Pty Ltd (registered number ACN 092 488 214) Level 2, 116 Bathurst Street, Hobart, Tasmania 7000, Australia Australia 1 Ordinary share Exploration 100 Zeehan Zinc Administration Pty Ltd (registered number ACN 123 112 372) Level 2, 116 Bathurst Street, Hobart, Tasmania 7000, Australia Australia 100 Ordinary shares Administration 100 Zeehan Zinc Properties Pty Ltd (registered number ACN 124 520 510) Level 2, 116 Bathurst Street, Hobart, Tasmania 7000, Australia Australia 100 Ordinary shares Administration 100 2 Share Capital and Securities Admitted to Trading on AIM 2.1 Under the Corporations Act, Australian companies do not have a par value for their issued shares nor do they have a specified authorised share capital. This results in there being no limit in the Act or a company s constitution on the power of the directors to issue shares in the company. However, the Constitution does contain pre-emption rights which limit the ability of the Directors to issue shares otherwise then on a pro rata basis to existing shareholders. Please refer to paragraph 3 of this part 5 for a summary of those provisions of the Constitution. 191
2.2 In the three years preceding 30 June 2009 and the period from 1 July 2009 to the Latest Practicable Date the following alterations in the Company s issued share capital have occurred: 2.2.1 On 14 December 2009, the Company issued 114,000,000 Ordinary Shares to the Cornerstone Subscribers pursuant to the Cornerstone Placing at 5 pence per share. 2.2.2 On 29 December 2008, the Company issued 308,300,000 Ordinary Shares to Creat Group at 1 pence per Ordinary Share in accordance with the terms of a share subscription agreement entered into by the Company and Creat Group on 14 November 2008. 2.2.3 On 15 August 2007, the Company placed an additional 13,175,000 Ordinary Shares into the market at 15 pence per Ordinary Share. 2.2.4 On 6 March 2007, the Company placed 46,153,846 Ordinary Shares 19.5 pence per Ordinary Share in connection with the Company s initial admission to trading on AIM. 2.2.5 On the Company s initial admission to trading on AIM, a Convertible Unsecured Note Certificate and attached terms and conditions dated 29 November 2006 issued to Wind City Inc. and subsequently assigned to Europe Wind III B.V. was converted into 14,652,014 Ordinary Shares which were allotted to Europe Wind III B.V. 2.2.6 On 30 November 2006, the 1,000 A class shares in the Company were converted to Ordinary Shares on a one for one basis. The A class shareholders, being Malcolm Bendall as to 500 and the David James Bendall Family Trust as to 500, consented in writing to the conversion of the A class shares to Ordinary Shares. 2.2.7 On 27 October 2006, the Company issued 9,000,000 Ordinary Shares to Terralinna Pty Ltd as Trustee for the Phillip Simpson Family Trust ( Terralinna ) pursuant to subscription agreements dated 18 October 2006, at a subscription price of A$0.25 per Ordinary Share, for a total subscription price of A$2,250,000. 2.2.8 On 24 October 2006, the Company issued 800,000 Ordinary Shares to David James Bendall at a price of A$0.25 per Ordinary Share, for a total value of A$200,000 pursuant to a subscription agreement with the Company dated 20 October 2006. 2.2.9 On 24 October 2006, the Company issued 1,600,000 Ordinary Shares to D A Tanner Holdings Pty Ltd pursuant to a debt/equity conversion for debts owed by the Company to D A Tanner Holdings in respect of consultancy services rendered at an agreed conversion rate of A$0.25 per Ordinary Share, for a total value of A$400,000. 2.2.10 On 24 October 2006, the Company issued 400,000 Ordinary Shares to Terralinna pursuant to an agreement under which Terralinna paid loan monies owed by the Company to the David James Bendall Family Trust in return for the issue of Ordinary Shares to it, at an agreed price of A$0.25 per Ordinary Share, for a total value of A$100,000. 2.2.11 On 24 October 2006, the Company issued 880,000 Ordinary Shares to Grenada Capital Pty Ltd pursuant to a debt/equity conversion for debts owed by the Company to Grenada Capital Pty Ltd in respect of services rendered at an agreed price of A$0.25 per Ordinary Share, for a total value of A$220,000. 2.2.12 On 20 September 2006, the Company issued 373,200 Ordinary Shares to Libertas Capital pursuant to the terms of the engagement of Libertas Capital Corporate Finance as corporate finance adviser and broker to the Company. 2.2.13 On 15 August 2006, the Company issued 2,440,000 Ordinary Shares to Maitland Investments Ltd at a subscription price of A$0.25 per Ordinary Share, for a total subscription price of 250,000, pursuant to an investment agreement with the Company. 2.2.14 On 2 August 2006, the Company issued 9,760,000 Ordinary Shares to Credit Suisse Client Nominees (UK) Limited as nominees for RAB Special Situations (Master) Fund Limited at subscription price of A$0.25 per Ordinary Share, for a total subscription price of 1,000,000 pursuant to an investment agreement with the Company. 2.2.15 On 21 July 2006, the Company issued to Dawn Norton 240,000 Ordinary Shares pursuant to the terms of an undated heads of agreement between Malcolm Bendall and David Bendall and Dawn Norton in respect of certain funds lent to them for and on behalf of the Company in September 2000 at an agreed conversion rate of A$0.014 per Ordinary Share for a total value of A$3,360. All of these 240,000 Ordinary Shares were sold at a price of A$0.25 per Ordinary Share to a number of persons in January 2007. 192
2.2.16 On 21 July 2006, the Company issued to Peter Norton 160,000 Ordinary Shares pursuant to an undated heads of agreement between Malcolm Bendall and David Bendall and Peter Norton in respect of certain funds lent to them for and on behalf of the Company in September 2000 at an agreed conversion rate of A$0.014 per Ordinary Share for a total value of A$2,240. All of these 160,000 Ordinary Shares were sold at a price of A$0.25 per Ordinary Share to a number of persons in January 2007. 2.2.17 On 21 July 2006, the Company issued to Sundew Holdings Pty Ltd 200,000 Ordinary Shares pursuant to a debt/equity conversion for debts assumed by the Company in respect of services provided to Oceania Tasmania dating back to 1997 at an agreed conversion rate of A$0.014 per Ordinary Share for a total value of A$2,800. 2.3 The Placing Shares will be issued pursuant to the authorities and powers given to the Directors of the Company to issue shares as contained in the Company s Constitution. A summary of these provisions of the Constitution is set out in paragraph 3 of this Part 5. 2.4 No more than ten per cent. of the issued ordinary share capital as at the date of this document has been paid for with assets other than cash for the period covering the latest three financial years. 2.5 The issued ordinary and fully paid share capital of the Company as at the date of this document is 567,276,674 Ordinary Shares. 2.6 Immediately following Re-Admission, the issued ordinary and fully paid share capital of the Company will be 850,610,007 Ordinary Shares (assuming the Second Round Placing is fully subscribed). 2.7 No securities of the Company are currently in issue with a fixed date on which entitlement to a dividend arises and there are no arrangements in force whereby future dividends are waived or agreed to be waived. 2.8 The Company has 300,000 options outstanding over the share capital of the Company entitling the option holder, being Stephen Powell, to subscribe in aggregate for 300,000 Ordinary Shares as described in paragraph 5.2 of this part 5. All these options were granted under the Share Option Plan, a summary of which is set out in paragraph 4 of this part 5. 2.9 Save as disclosed in this document and apart from the issue of Placing Shares and the Convertible Loan Note: 2.9.1 no share or loan capital of the Company has been issued or is proposed to be issued; 2.9.2 there are no outstanding convertible securities, exchangeable securities or securities with warrants issued by the Company; 2.9.3 there are no shares in the Company not representing capital; 2.9.4 there are no shares in the Company held by or on behalf of the Company itself or by subsidiaries of the Company; 2.9.5 there are no acquisition rights and/or obligations over authorised but unissued share capital of the Company or an undertaking to increase the share capital of the Company; 2.9.6 no person has any preferential subscription rights for any share capital of the Company; and 2.9.7 no share or loan capital of the Company or any member of the Group is under option or agreed conditionally or unconditionally to be put under option. 2.10 The Ordinary Shares are not redeemable and would only be convertible into some other class of share with the appropriate shareholder majority. Shares can be bought subject to the Corporations Act. 2.11 The Ordinary Shares may be held in certificated form or uncertificated form. The Constitution permits the holding and transfer of depositary interests in Ordinary Shares under CREST. Computershare is in charge of keeping the records in respect of Ordinary Shares held in uncertificated form. Please refer to paragraph 18 of Part 1 and paragraph 14 of Part 5 for further details regarding settlement of Ordinary Shares and depositary interests. 2.12 The currency of the Placing Shares is Sterling. 2.13 The International Security Identification Number of the Ordinary Shares is AU000XINAAD8. 193
3 Constitution A summary of the material terms of the Constitution is set out below. This summary does not include the changes to be proposed at the 2009 AGM under Resolutions 4 and 5. A summary of those changes can be found at section 7 of the Explanatory Statement. 3.1 Application of the Act The rules that apply as replaceable rules to companies under the Act do not apply to the Company except so far as they are repeated in the Constitution. 3.2 Share Capital Subject to the provisions of the Constitution, the directors are authorised to exercise all powers of the Company to give effect to any resolution altering the Company s share capital including issue, allot or grant options for, or otherwise dispose of, shares in the Company. 3.3 Indemnities If the Company becomes liable for any reason under a law to make a payment in respect of a holder s shares or in any way/on account of or relating to a holder, the holder must fully indemnify the Company and pay interest on any payments owed to the Company. 3.4 Pre-Emption Rights on Issue The Company shall not (except under an employee share scheme) allot any equity securities, as defined in the Constitution, in the Company for cash on any terms to a person unless it has made an offer to each person who holds shares to allot to them on the same or more favourable terms a proportion to those shares almost equal to the proportion of shares already held by that person, unless the period during which any such offer may be accepted has expired or notice of the refusal or acceptance of every offer has be received by the Company. Directors may be given power by a special resolution to allot shares in derogation of the rules referred to above. In the period following the General Meeting held on 31 July 2009 until the AGM, the rules above do not apply to the allotment of such number of equity securities which does not exceed fifty percent of the outstanding number of Ordinary Shares at 31 July 2009 ( Disapplication Limit ), provided that in the period following the 2010 Annual General Meeting and each year thereafter the Disapplication Limit shall be thirty percent of the outstanding number of Ordinary Shares at the date of the 2010 Annual General Meeting. 3.5 Preference Shares The Company may issue preference shares which, at the option of the Company or holder, are able to be redeemed or converted into Ordinary Shares. Holders of Preference Shares have priority to the payment of any dividend over holders of Ordinary Shares. The rights attached to Preference Shares are those set out in the Constitution. 3.6 Voting Rights Subject to any rights or restrictions attached to any Shares or class of shares, each Shareholder entitled to vote may vote in person or by proxy, attorney or representative. On a show of hands every person present who is a Shareholder or a proxy, attorney or representative of a Shareholder has one vote. On a poll, every person present who is a Shareholder or proxy, attorney or representative of a Shareholder has one vote for each fully paid share held, but in respect of partly paid shares shall have the number of votes being equivalent to the proportion paid up on those shares. 3.6.1 Joint Holders A joint holder may vote at a meeting either personally or by proxy, attorney or representative as if that person was the sole holder. If more than one joint holder tenders a vote in respect of the relevant shares, the vote of the holder named first in the register must be accepted to the exclusion of the votes of the other joint holders. 194
3.6.2 Non-registered holders A person entitled to a share because of a transmission event (as defined in the Constitution, to include, for example, death) may vote at a general meeting in respect of that share in the same way as if that person were the registered holder of the share if the directors: (a) admitted that person s right to vote at that meeting in respect of the share; or (b) were satisfied of that person s right to be registered as the holder of, or to transfer, the share. Any vote duly tendered by that person must be accepted and the vote of the registered holder of those shares must not be counted. 3.7 Dividends The directors may pay any dividend that the financial position of the Company justifies. However, the directors may rescind a decision to pay a dividend if they decide, before payment, that the Company s financial position no longer justifies the payment. Interest is not payable by the Company on any dividend. All dividends must be paid equally on all shares, except that a partly paid share confers an entitlement only to the proportion of the dividend which the amount paid (not credited) on the share is of the total amounts paid and payable (excluding amounts credited). The directors, when paying a dividend, may direct payment of the dividend wholly or partly by distribution of specific assets, including fully paid shares or other securities of the Company or of any other body corporate, either generally or to specific members. Subject to the AIM Rules for Companies, the Act and any rights or restrictions attached to any shares or class of shares and any special resolution of the Company, the directors may capitalise and distribute among the holders entitled to receive dividends any amount forming part of the undivided profits of the Company or otherwise available for distribution as a dividend. 3.8 Redemption and purchase of own shares There is no specific provision in the Constitution providing for the redemption or purchase by the Company of its share capital. There are however special procedures requiring member approval under the Act. 3.9 Distribution of assets on a winding-up Subject to the Constitution and any rights or restrictions attaching to any Shares or class of shares, on winding up, the liquidators of the Company may divide among the Shareholders the property of the Company available for distribution after payment of (a) all the debts and liabilities of the Company; and (b) the costs, charges and expenses of the winding up. The excess must be divided among the Shareholders in proportion to the number of shares held by them, irrespective of the amounts paid or credited as paid on the shares. 3.10 Variation of Rights The rights attached to any class of shares may (unless their terms of issue state otherwise) be varied with the consent of the holders of a three-quarters majority of the shares of the class, or by special resolution passed at a separate meeting of the holders of shares of the class. The rights conferred on the holders of any class of shares are deemed not to be varied by the creation or issue of further shares ranking equally with them. 3.11 Transferability 3.11.1 Form of transfer Subject to the Constitution and any restrictions attached to a member s shares, a member may transfer any of their shares by a written transfer in any usual form or in any other form approved by the directors. 195
A transferor of shares remains the holder of the shares until a proper transfer has been effected or the transferee s name is entered in the register of members. 3.11.2 Right to refuse registration The directors may decline to register, or prevent registration of, a transfer of shares or apply a holding lock to prevent a transfer including in circumstances required by the Act or the AIM Rules for Companies. 3.11.3 Power to suspend registration of transfers The directors may suspend the registration of transfers at any time, and for any period, subject always to the Act, the AIM Rules for Companies and the United Kingdom Uncertificated Securities Regulations 2001 in respect of any securities permitted to be transferred by means of an uncertificated system. 3.12 Uncertificated shares and depositary interests The directors may do anything that is necessary or desirable for the Company to participate in any computerised, electronic or other system for facilitating the transfer of shares or operation of the Company s registers operated or sponsored by the London Stock Exchange or a related body corporate of the London Stock Exchange or approved or permitted pursuant to the United Kingdom Uncertificated Securities Regulations 2001. Subject to the Act and the United Kingdom Uncertificated Securities Regulations 2001, the directors shall have power to implement and/or approve any arrangements that they may think fit in relation to the evidencing of title to and transfer of interests in shares in the capital of the Company in the form of depositary interests or similar interests, instruments or securities, and to the extent such arrangements are so implemented, no provision of the Constitution shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of the shares in the capital of the Company represented. 3.13 Pre-emption rights on Transfer The Constitution does not provide for pre-emptive rights on the transfer of securities. 3.14 Directors 3.14.1 Number of directors The number of directors must be such a number not less than three and not more than twelve as the directors determine, unless the Company in general meeting determines otherwise. The directors must not determine a maximum which is less than the number of directors in office at the time the determination takes effect. All directors shall be natural persons. The Company may by resolution and in accordance with Section 203D of the Act remove a director from office and by resolution fill the vacancy created by such removal. 3.14.2 Directors Appointment and Retirement by Rotation At each annual general meeting of the Company one-third of the directors (rounded down if necessary to the nearest whole number); and any other director who, if he or she does not retire, will at the conclusion of the meeting have been in office for three or more years (excluding the managing director), must retire from office as director. The directors to retire at an annual general meeting must be those who have been longest in office since their last election but, as between persons who were became directors on the same day, those to retire must be determined by agreement amongst themselves or, in the absence of agreement, by lot. A retiring director is eligible for re-election. The Company may by resolution in accordance with the Act remove a director from office and by resolution elect another person to fill that office. 196
3.14.3 Remuneration of directors The directors may be paid as remuneration from the Company for their services, which must not exceed an aggregate maximum sum (not being a commission or percentage of profits on operating revenue) of A$1.1 million per annum, unless otherwise determined by the Company in a general meeting. This aggregate maximum sum does not include any remuneration for services provided by a director as an employee or in any other capacity, paid to a superannuation, retirement or pension fund or for any insurance premium paid or agreed to be paid for a director under the Constitution. The directors are entitled to be paid all travelling expenses and if a director, with the concurrence of the other directors, performs extra services for the benefit of the Company, the directors may cause that director to be paid out of the funds of the Company such additional remuneration as the directors decide. 3.14.4 Pension and Superannuation for directors The directors may establish or support, or assist in the establishment or support, of funds and trusts to provide pension, retirement, superannuation or similar payments or benefits to the directors or former directors and grant pensions and allowances to those persons or their dependants either by periodic payments or a lump sum. 3.14.5 Directors interests Subject to the Act and the Constitution, any director may: (a) make regulations requiring the disclosure of interests that a director, and any person deemed by the directors to be related to or associated with the director, may have in any matter concerning the Company or a related body corporate; (b) be or become a director of or otherwise hold office of, or be interested in, any related body corporate or any other body corporate, and need not account to the Company for any remuneration or other benefits the director receives; (c) hold any office or position (except auditor) in the Company or a related body corporate in conjunction with his or her directorship and may be appointed to that position on terms (including remuneration and tenure) as the Directors decide. No act, transaction, agreement, instrument or resolution is invalid or voidable where a director discloses his interest in the relevant matter in accordance with the Act or any regulation made under paragraph 3.14.5(a) above or where a director s interest in the matter is immaterial or remote. 3.14.6 Restrictions on Directors voting Except as permitted by the Act, a director who has a material personal interest in a matter that is being considered at a meeting of directors may not vote, be present nor be counted in a quorum at the meeting in accordance with the provisions of the Act. 3.14.7 Responsibilities and Powers The directors are responsible for managing the business of the Company and may exercise all powers and do all things that are within the Company s power and are not expressly required by the Corporations Act or the Constitution to be exercised by the Company in general meeting. 3.14.8 Board Meetings The directors may meet together, or hold a meeting by telephone or other electronic means to attend to business and adjourn and otherwise regulate their meetings as they decide. A director may, whenever the director thinks fit, call a meeting of the directors. A secretary must, if required by a director, call a meeting of the directors. No business may be transacted at a meeting of directors unless a quorum of directors is present at the time the business is dealt with. A quorum consists of: (a) if the directors have fixed a number for the quorum, that number of directors; and (b) in any other case, two directors. 197
3.14.9 Delegation of powers The directors may delegate any powers to a committee of directors. A committee to which any powers have been delegated must exercise the powers delegated in accordance with any directions or the directors. The directors may also appoint one or more of the directors to the office of managing director or other executive director. The directors may also delegate any of their powers to one director, who must perform that additional function in accordance with any directions of the directors. 3.15 General Meetings In accordance with the Act, the Company must hold an annual general meeting at least once every calendar year, and within the period of five months after the end of the financial year, at such time and place as determined by the directors. A general meeting may only be called by a directors resolution or as otherwise provided in the Act. No business may be transacted at a general meeting, except the election of a chairperson and the adjournment of the meeting unless a quorum of two members who are entitled to vote on a resolution at the meeting are present when the meeting proceeds to business. 3.15.1 Notice Notice of a general meeting must be given to each member, director or auditor of the Company. The content of a notice of a general meeting called by the directors is to be decided by the directors, but must state the general nature of the business to be transacted at the meeting any other matters required by the Act and the AIM Rules for Companies. Unless the Act provides otherwise no business may be transacted at a general meeting unless the general nature of the business is stated in the notice calling the meeting and except with the approval of the directors or the chairperson, no person may move any amendment to a proposed resolution the terms of which are set out in the notice calling the meeting or to a document which relates to such a resolution and a copy of which has been made available to members to inspect or obtain. A person may waive notice of any general meeting by written notice to the Company. 3.16 Forfeiting partly paid shares If a member fails to pay the whole of a call or an instalment of a call by the time specified for payment, the directors may serve a notice on that member requiring payment of the unpaid part of the call or instalment, giving a further time by which it is to be paid and stating that if the amount is not paid the shares will be liable to be forfeited. If a member does not comply with the notice, the directors may by resolution forfeit any share at any time after the day named in the notice and before the payment required by the notice is made. A forfeited share becomes the property of the Company and the directors may sell, reissue or otherwise dispose of the share. A person whose shares have been forfeited ceases to be a member as to the forfeited shares, but must, if the directors decide, pay all calls, instalments, interest, costs, expenses and damages owing on the shares at the time of the forfeiture; and interest on the unpaid part. 3.17 Disclosure of Interests The Constitution includes a compulsory notification procedure for shareholders. A person who has an interest in Company shares must notify the Company in writing at any time when the aggregate nominal value of the shares in which that person has interests is equal to or more than three per cent. of the nominal value of the Company s issued share capital. 198
4 Share Option Plan The Company operates the Share Option Plan which enables directors and employees of the Company to be granted options to acquire Ordinary Shares. The Share Option Plan provides the Directors with a means to attract, retain and reward directors and employees. The key provisions of the Share Option Plan are as follows: 4.1 Eligibility The remuneration committee of the Board or, if such a committee has not been appointed, the Board itself, in its entire discretion, may grant options to any employee or a director of: (a) the Company; (b) a related body corporate; (c) a body corporate that has voting power in the Company of not less than 20 per cent.; or (d) a body corporate in which the Company has voting power of not less than 20per cent.. No option may be granted to a person on any date which is less than two years before the date at which the person is bound to retire under their contract of employment. No option may be granted to a person if, on the intended date of the grant, the market value of the shares for which the option can be exercised, when aggregated with the market value of shares for which other options granted under the Share Option Plan or any other share option scheme adopted by the Company in the same calendar year may be exercised, would exceed four times that person s annual remuneration. 4.2 Grant of options Subject to the AIM Rules for Companies, the Act and the Share Option Plan rules, options may be granted: (a) at any time within the period of 42 days immediately succeeding the announcement to the London Stock Exchange of the Company s annual or interim results; or (b) at any other time if the Board considers that exceptional circumstances exist to justify the grant at such other time, including the achievement by the Company of certain strategic milestones. Notwithstanding the above, no option may be granted after 6 October 2016. 4.3 Share capital limits on options No option may be granted if the number of shares issued on its exercise in full, when, aggregated with the number of shares that have or may be issued upon the exercise of options granted under the Share Option Plan or any other employees share plan adopted by the Company in the period of ten years ending, on that date, would exceed ten per cent of the number of Ordinary Shares in issue on that date. 4.4 Compliance with law No option may be granted to any person if to do so would contravene any of the AIM Rules for Companies, Australian laws or any other applicable law. 4.5 Exercise of options 4.5.1 Rights Options granted in accordance with the Share Option Plan may be exercised in whole or in part in accordance with the Share Option Plan rules. In summary, options may only be exercised: (a) after any vesting period specified by the remuneration committee of the Board or the Board has expired; (b) provided the remuneration committee of the Board or the Board is satisfied that any objective conditions which apply to the option pursuant to the Share Option Plan have been met; and (c) provided such exercise occurs before the date such option would expire or lapse, or such earlier date as determined by the remuneration committee of the Board or the Board. 199
In the occurrence of a transaction which results in a change of control of the Company, accelerated vesting of the right to exercise an option shall apply as prescribed by the Share Option Plan. 4.5.2 Option holder ceases employment or to hold office If an option holder ceases employment with the Company or another participating company by reason of: (a) injury, disability or ill-health; or (b) redundancy; or (c) a subsidiary ceasing to be under the control of the Company, or a business or part of a business being transferred to a person who is neither an associated company nor a company of which the Company has control, the option holder may exercise the option to the extent vested within 6 months of cessation of employment. Where the option holder ceases to hold office or employment, as required by the Share Option Plan, for any other reason any option shall lapse on the date of cessation, except to the extent that the remuneration committee of the Board or the Board consent to the exercise of such option to the extent vested in whole or in part during a period ending up to 12 months after the date of such cessation. 4.5.3 Option holder dies If an option holder dies, the deceased s personal representative may, to the extent vested, exercise the options within 12 months of the death of the option holder, after which, to the extent it remains unexercised, the option shall lapse. 4.5.4 Voluntary winding-up of the Company If the directors resolve to voluntarily wind up the Company, except for the purposes of a reconstruction, option holders may exercise the portion of their options which is vested at the time until that resolution is passed or duly defeated, after which time an option shall lapse. 4.5.5 Other circumstances in which options lapse In addition and notwithstanding the circumstances set out above, options lapse in any of the following circumstances: (a) the fifth anniversary of the date of grant, save for options granted prior to the adoption of the Share Option Plan, or conditional upon initial admission to trading on AIM, which lapse on the fifth anniversary of initial admission to trading on AIM; (b) the conclusion of a period during which any person (or group of persons acting in concert) becomes bound or entitled to acquire shares in the Company under Chapter 6A of the Corporations Act (compulsory acquisition procedures); (c) the conclusion of any liquidation or winding-up of the Company (other than in connection with a reconstruction); or (d) the option holder being adjudicated bankrupt. 4.6 Manner of exercise of options An option shall be exercised by notice in writing, accompanied by the relevant option certificate and a remittance for the exercise price. Within three business days of receipt, the Company will issue the shares in respect of the exercised options and provide a share certificate in respect of same. Shares issued following the exercise of any option under the plan are to rank equally with those ordinary shares already on issue. 200
4.7 Exercise Price The exercise price payable (denominated in Sterling unless the remuneration committee of the Board or the Board determines otherwise) shall be determined by the remuneration committee of the Board or the Board, but shall not be less than the higher of: (a) the nominal value of an Ordinary Share of the Company; and (b) the market value on the date of grant, save that the remuneration committee of the Board or the Board may in its absolute discretion waive the requirement set out in (b) above in exceptional circumstances. 4.8 Non-Transferability of options Options cannot be transferred, assigned or charged. Any purported transfer, assignment or charge results in the option lapsing. 4.9 Change in Control If the Company is acquired by another company by way of either a sale or a reconstruction, the option holder may, by agreement with the acquiring company, release his option in consideration of the grant to him of an equivalent right over shares in the acquiring company. 4.10 Effect of the Cornerstone Placing and the Second Round Placing If the Cornerstone Placing and the Second Round Placing result in a Change in Control, as defined in the Share Put Option Plan (and, by reference, the Corporations Act), that occurrence will trigger the accelerated vesting provisions of the Share Option Plan, at the time of unconditional completion of Re-Admission. 4.11 Adjustment of option terms The number of shares that are the subject of an option and/or the relative exercise price attaching may be adjusted by the remuneration committee of the Board or the Board upon the occurrence of any capitalisation, issue of shares or offer by way of rights or upon any sub-division, reduction or consolidation or other variation of the share capital of the Company after the date on which the option is granted. 4.12 Administration and Amendment of Share Option Plan Rules Subject to compliance with the AIM Rules for Companies and the Act, the Board may vary and amend the terms of the Share Option Plan, provided that, except with approval of the Company in general meeting, no amendment to the material advantage of option holders may be made to the provisions relating to the definition of eligible person, share capital and individual limits and the basis for determining and adjusting an option holder s entitlement. However, no amendment can be made to the Share Option Plan rules to the extent to which it would detrimentally affect the subsisting rights of an option holder with respect to an option granted prior to the amendment being made unless the sanction of option holders has been obtained in accordance with the provisions for alteration of class rights contained in the Constitution. An extraordinary resolution of a meeting of option holders held in accordance with the Share Option Plan rules shall have the power to sanction any scheme or compromise any arrangement affecting options or the rights thereunder and shall be binding on all option holders. 4.13 Tax The option holder is solely liable for any taxes deriving from the grant, exercise or other dealing in the option and the option holder indemnifies the Company and any subsidiary of the Company in respect of any taxes it incurs in respect of same, whether or not as a consequence of a change in the relevant tax legislation, practice of the relevant taxation authority or rate imposed. 4.14 Governing Law The plan and the rights of option holders deriving from the Share Option Plan are governed and construed in accordance with the laws of Tasmania, Australia. 201
5 Directors and Other Interests 5.1 As at the date of this document and immediately following Re-Admission, the interests (all of which are beneficial unless otherwise stated) of the Directors and their families (as defined in the AIM Rules for Companies) in the share capital of the Company which (i) have been notified to the Company pursuant to the AIM Rules for Companies, or which (ii) are required to be disclosed in the register of members pursuant to section 169 of the Act, or which (iii) are interests of a person connected (within the meaning of the DTR) with a Director which would, if the connected person were a Director, be required to be disclosed under (i) or (ii) above and the existence of which is known to, or could with reasonable diligence be ascertained by, that Director were and will be as follows: Director Number of Ordinary Shares as at the date of this document Percentage of issued ordinary share capital as at the date of this document Number of Ordinary Shares immediately following Re-Admission 4 Percentage of issued ordinary share capital immediately following Re-Admission 4 Yuewen Zheng 1 317,300,000 55.93% 317,300,000 37.3% Xiaojian Ren 2 Tad Ballantyne Phillip Simpson 3 10,000,000 1.76% 10,000,000 1.18% Stephen Powell 360,000 0.06% 360,000 0.04% 1 2 3 4 Beneficial interest in shares held directly or indirectly through Marvel Link Group Limited and Kingwealth Finance Limited (nominees of Creat Group) (317,300,000 shares). Dr Zheng has a 52% controlling interest in Creat Group. Mr Ren has a 12% interest in Creat Group which itself has a beneficial interest in the Company of 55.93% per cent. as at the date of this document. Beneficial interest in shares held directly or indirectly through Terralinna Pty Ltd (6,000,000 shares) and Kingdom Securities Pty Ltd (4,000,000 shares). Assuming the Placing Shares are fully subscribed and accordingly the Convertible Loan Note is not required to be issued. 5.2 As at the date of this document, the Directors hold the following Options to subscribe for Ordinary Shares: Name of Director Number of Options Vesting Date Expire Date (1) Exercise Price Per Ordinary Share Yuewen Zheng Xiaojian Ren Tad Ballantyne Phillip Simpson Stephen Powell 300,000 6 March 2007 in respect of 100,000 shares 6 March 2008 in respect of 100,000 shares 6 March 2009 in respect of 100,000 shares 6 March 2012 19.5p in respect of 200,000 shares 25.35p in respect of 100,000 shares 1 The Options lapse if option-holder resigns or is removed from office for cause. 202
5.3 Save as disclosed above, none of the Directors nor any member of their respective families (as defined in the AIM Rules for Companies) nor any person connected with the Directors (within the meaning of the DTR) has any interest, whether beneficial or otherwise, in the share capital of the Company. 5.4 None of the Directors nor any member of a Director s family (as defined in the AIM Rules for Companies) is interested in any related financial product (as defined in the AIM Rules for Companies) whose value in whole or in part is determined directly or indirectly by reference to the price of the Ordinary Shares, including a contract for difference or a fixed odds bet. 5.5 Save as disclosed in paragraph 8.6, there are no outstanding loans or guarantees provided by the Company for the benefit of any of the Directors nor are there any outstanding loans or guarantees provided by any of the Directors for the benefit of the Company. 5.6 Save as otherwise disclosed in this document, no Director has any interest, whether direct or indirect, in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company and which was effected by the Company and which remains in any respect outstanding or unperformed. 5.7 Save as disclosed in paragraph 5.1, the Directors are aware of the following persons who, as at the date of this document and immediately following Re-Admission were or will be interested, directly or indirectly, in three per cent. or more of the issued ordinary share capital of the Company: Name Number of Ordinary Shares as at the date of this document Percentage of issued ordinary share capital as at the date of this document Number of Ordinary Shares immediately following Re-Admission 1 Percentage of issued ordinary share capital immediately following Re-Admission 1 Creat Group 2 317,300,000 55.93% 317,300,00 37.30% Silvermine Industries 68,000,000 11.99% 68,000,000 7.99% Limited Xinao Asia Capital Management Limited 36,000,000 6.35% 36,000,000 4.23% 1 2 Assuming the Placing Shares are fully subscribed These shares are held by Creat Group s wholly owned subsidiaries, Marvel Link Group Limited (314,300,000 Ordinary Shares) and Kingwealth Finance Limited (3,000,000 Ordinary Shares) 5.8 Save as disclosed in paragraphs 5.1 and 5.7 of this part 5, the Directors are not aware of any person who, at the date of this document and immediately following Re-Admission, was or will be interested, directly or indirectly, in three per cent. or more of the issued share capital of the Company. 5.9 The Company s major shareholders (as disclosed in paragraphs 5.1 and 5.7 of this part 5) do not have voting rights in respect of the share capital of the Company (issued or to be issued) which differ from any other Shareholder. 5.10 Save as disclosed in paragraphs 5.1 and 5.7 of this part 5, the Company is not directly or indirectly owned or controlled by any person. 5.11 There are no arrangements known to the Company and the Directors the operation of which may at a subsequent date result in a change of control of the Company. 203
6 Director s Service Contracts, Remuneration and Employees 6.1 The Company has one executive director, who has entered into an executive service agreement with the Company. The principal terms are set out below: 6.1.1 Xiaojian Ren Mr Xiaojian Ren has been a director of the Company since 30 January 2008. He was appointed Managing Director of the Company on 16 March 2008 and entered into an employment agreement with the Company dated 18 August 2008. On 1 April 2008 he became acting Chief Executive Officer of the Company. The agreement can be terminated immediately upon the resolution of the Board to remove Mr Ren from the position of Managing Director. Under this agreement Mr Ren is entitled to payment for his services at a rate of A$250,000 per annum. He has agreed to devote the hours reasonably required to undertake the duties of his role which may include reasonable additional overtime. Mr Ren is entitled to paid annual leave of 20 working days. Mr Ren s role as Managing Director includes responsibility for providing leadership on the management of operational functions and budgetary activities relating to the Company. Mr Ren is required to ensure that strategies are in place to ensure maximum economic return on investments. Under this agreement, Mr Ren is required to ensure that certain key performance indicators are achieved within the required timeframe. Mr Ren must also ensure that the Chairman of the Board is provided with relevant work updates on a regular basis. Key areas of accountability for Mr Ren as Managing Director are to provide strategic direction and advice to the Board on all matters relating to financial, human resources and business development functions; to monitor trends in production costs; to develop, implement and monitor plans to enhance service delivery and provide organisational stability and growth; to develop and revise business plans and direct improvements to ensure effectiveness, efficiency and quality; to monitor the cost effective performance of the Company in complying with legal, statutory and industrial requirements; the preparation of business plans, budgets and reports as required; and to maintain effective business relationships, both internal and external. There are also requirements as to the use of confidential information and obligations to disclose conflicts of interest. 6.2 The following Directors have entered into letters of appointment with the Company all of which are governed by Tasmanian law and, the details of which are as follows: 6.2.1 Yuewen Zheng, Chairman & Non-Executive Director Dr Yuewen Zheng has been a director of the Company since 16 March 2008, on which date he was appointed Chairman. He entered into a letter of appointment dated 2 April 2008 as a non-executive director of the Company. The appointment can be terminated on three months written notice at any time by either party. There are also provisions for automatic termination in circumstances where Dr Zheng: is removed from office by resolution of shareholders; resigns in writing and the directors resolve to accept such offer; is removed by reason of mental incapacity; is in breach of the share dealing code adopted by the Company upon admission to the AIM; has a receiving an order made against him; has breached the terms of the appointment letter; is guilty of gross misconduct or serious negligence; or is prohibited by law from acting as a director. Also, he must retire by rotation as a director in accordance with the Constitution. Dr Zheng is entitled to payment for his services as director at the rate of 20,000 per annum, such fee to accrue day by day and payable monthly in arrears. He is also entitled to be reimbursed for any reasonable expenses incurred in attending to the business of the Company. 204
Dr Zheng s duties involve attendance at all meetings of the Company, to carry out such other functions and duties as reasonably required and to commit such time as is necessary to the discharge of his duties. Additional consulting fees are payable for services above standard board duties. For these additional consulting duties an annual retainer and a daily incremental rate are to be determined by the Board. There are also requirements as to the use of confidential information and obligations to disclose conflicts of interest. 6.2.2 Tad Ballantyne, Deputy Chairman & Non-Executive Director Mr Tad Ballantyne was appointed non-executive director of the Company on 2 April 2008. The appointment can be terminated on three months written notice at any time by either party. There are also provisions for automatic termination in circumstances where Mr Ballantyne: is removed from office by resolution of shareholders; resigns in writing and the directors resolve to accept such offer; is removed by reason of mental incapacity; is in breach of the share dealing code adopted by the Company upon admission to the AIM; has a receiving an order made against him; has breached the terms of the appointment letter; is guilty of gross misconduct or serious negligence; or is prohibited by law from acting as a director. Also, he must retire by rotation as a director in accordance with the Constitution. Mr Ballantyne is entitled to payment for his services as director at the rate of 20,000 per annum, such fee to accrue day by day and payable monthly in arrears. He is also entitled to be reimbursed for any reasonable expenses incurred in attending to the business of the Company. Mr Ballantyne s duties involve attendance at all meetings of the Company, to carry out such other functions and duties as reasonably required and to commit such time as is necessary to the discharge of his duties. Additional consulting fees are payable for services above standard board duties. For these additional consulting duties an annual retainer and a daily incremental rate are to be determined by the Board. There are also requirements as to the use of confidential information and obligations to disclose conflicts of interest. 6.2.3 Phillip Simpson, Non-Executive Director Mr Phillip Simpson was appointed non-executive director of the Company on 12 October 2009. The appointment can be terminated on three months written notice at any time by either party. There are also provisions for automatic termination in circumstances where Mr Simpson: is removed from office by resolution of shareholders; resigns in writing and the directors resolve to accept such offer; is removed by reason of mental incapacity; is in breach of the share dealing code adopted by the Company upon admission to the AIM; has a receiving an order made against him; has breached the terms of the appointment letter; is guilty of gross misconduct or serious negligence; or is prohibited by law from acting as a director. Also, he must retire by rotation as a director in accordance with the Constitution. Mr Simpson is entitled to payment for his services as director at the rate of 20,000 per annum, such fee to accrue day by day and payable monthly in arrears. He is also entitled to be reimbursed for any reasonable expenses incurred in attending to the business of the Company. 205
Mr Simpson s duties involve attendance at all meetings of the Company, to carry out such other functions and duties as reasonably required and to commit such time as is necessary to the discharge of his duties. Additional consulting fees are payable for services above standard board duties. For these additional consulting duties an annual retainer and a daily incremental rate are to be determined by the Board. There are also requirements as to the use of confidential information and obligations to disclose conflicts of interest. 6.2.4 Stephen Michael Powell, Non-Executive Director Mr Stephen Powell was appointed non-executive director of the Company on 23 January 2007. The appointment can be terminated on three months written notice at any time by either party. There are also provisions for automatic termination in circumstances where Mr Powell: is removed from office by resolution of shareholders; resigns in writing and the directors resolve to accept such offer; is removed by reason of mental incapacity; is in breach of the share dealing code adopted by the Company upon admission to the AIM; has a receiving order made against him; has breached the terms of the appointment letter; is guilty of gross misconduct or serious negligence; or is prohibited by law from acting as a director. Also, he must retire by rotation as a director in accordance with the Constitution. Mr Powell is entitled to payment for his services as director at the rate of 20,000 per annum plus nine per cent. superannuation, such fee to accrue day by day and payable monthly in arrears. He is also entitled to be reimbursed for any reasonable expenses incurred in attending to the business of the Company. Mr Powell s duties involve attendance at all meetings of the Company, to carry out such other functions and duties as reasonably required and to commit such time as is necessary to the discharge of his duties. Additional consulting fees are payable for services above standard board duties. The Board has resolved that such additional consulting fees are payable at a rate of A$1,450 per day or other rate as determined by the Board from time to time. There are also requirements as to the use of confidential information and obligations to disclose conflicts of interest. 6.3 The following individuals form the Corporate Management Team of the Company. Set out below are details of the service agreements of agreements for service relating to them, all of which are governed by Tasmanian law and, the details of which are as follows: 6.3.1 Mr Derek Sun, Chief Financial Officer Mr Derek Sun is employed as the Vice-President of Creat Mining Investments Limited ( Creat Mining ). Creat Mining entered into a Contract for the Provision of Services Chief Financial Officer with ZZ Administration, a wholly owned subsidiary of the Company, on 21 April 2008 for a term of twelve months which has been renewed on an ongoing basis. Creat Mining is in all respects an independent contractor of the Group, and is not an employee of the Company. The contract may be terminated by either ZZ Administration or Creat Mining on four weeks notice or pay in lieu of notice. The contract may also be terminated by ZZ Administration without notice in the event of unremedied breach by Creat Mining, and certain events of misconduct, non-performance or insolvency in respect of Creat Mining and/or Mr Sun. Creat Mining acknowledges that it is an essential and continuing condition of the contract that Mr Sun will perform the services to be provided under the contact. The remuneration to which Mr Sun is entitled for his services as Chief Financial Officer was increased from A$165,000 to A$200,000 on 14 October 2009 under the approval of Mr Xiaojian Ren, Chief Executive Officer of the Company. ZZ Administration must also pay to Creat Mining an amount equal to any GST payable for anything provided or supplied by Creat Mining in connection with the provision of its services. Mr Sun will 206
generally be responsible for the payment of expenses incurred in the performances of its services. Creat Mining will work for 10.4 days per month. This time may be averaged over the year depending on the needs of ZZ Administration. The services to be provided under the contract are those of a chief financial officer. Creat Mining may provide or agree to provide to another person, firm or company services the same or similar to the services provided under this contract, provided the provision of those services does not in any way impair or hinder the performance by Creat Mining of the services to the ZZ Administration. The contract also contains requirements as to disclosure of information during the course of the agreement, intellectual property and confidentiality. 6.3.2 Shu Zhan, Managing Geologist Cenobright Pty Ltd ( Cenobright ) entered into a Contract for the Provision of Services with the Company on 13 July 2009, effective 1 July 2009, under which Cenobright was appointed as Managing Geologist of the Company. Under the terms of this contract Cenobright must employ Mr Zhan to perform the role of Managing Geologist, unless another person is approved by the Company in writing. Cenobright is in all respects an independent contractor of the Company, and is not an employee of the Company. The contract may be terminated by either the Company or Cenobright on four weeks notice or pay in lieu of notice. The contract may also be terminated by the Company without notice in the event of unremedied breach by Cenobright, and certain events of misconduct, non-performance or insolvency in respect of Cenobright. Cenobright acknowledges that it is an essential and continuing condition of the contract that Mr Zhan will perform the services to be provided under the contact. Cenobright is entitled to remuneration at the rate of A$10,173.30 per month. The Company must also pay to Cenobright an amount equal to any GST payable for anything provided or supplied by Cenobright in connection with the provision of its services. Cenobright will generally be responsible for the payment of expenses incurred in the performances of its services, expect for travel expenses including accommodation, a A$50 per working day food allowance granted by the Company to Mr Zhan on 21 July 2009. Mr Zhan will work for 10.4 days per month. This time may be averaged over the year depending on the needs of the Company. The services to be provided under the contract are to lead and manage the geology and explorations team and related activities of the Company, under the direction of the Chief Executive Officer; to participate in the development and implementation of Company strategy relevant to geology and exploration, under the direction of the Board through the Chief Executive Officer; to comply with any and all policies adopted by the Company; and to recognize and manage any risk connected with the role and the geology and exploration area. Cenobright may provide or agree to provide to another person, firm or company services the same or similar to the services provided under this contract, provided the provision of those services does not in any way impair or hinder the performance by Cenobright of the services to the Company. The contract also contains requirements as to disclosure of information during the course of the agreement, intellectual property and confidentiality. 6.3.3 Ms Yasmine Healy, General Counsel & Company Secretary Ms Yasmine Healy was appointed General Counsel and Company Secretary on 2 August 2007. The terms of her employment were subsequently varied by a deed of variation on 2 April 2008 ( Deed of Variation ) and further amended on 15 June 2009. The employment agreement may be terminated by the Company by giving Ms Healy three months written notice or a payment of A$49,050, whichever is the greater, by Ms Healy by giving 4 weeks written notice, or by mutual written consent. There are also provisions for termination if Ms Healy fails to perform any of the duties imposed on 207
her under the agreement and does not remedy the failure within 1 month after being advised of it. In such case the Company may terminate the agreement by giving 90 days written notice or the equivalent pay in lieu of notice. Ms Healy is entitled to payment for her services at a rate of A$200,000 per annum, plus a contribution of at least A$16,200 per year to the Ms Healy s nominated superannuation fund. Ms Healy works on a part-time basis, and is employed to work ordinary hours comprising 30 hours per week. For every hour worked by Ms Healy in excess of 30 hours per week, she is entitled to remuneration at an hourly rate of A$92 per hour which will be paid into her nominated bank account upon production to the accounts personnel of the relevant timesheet. Ms Healy s duties include the provision of legal, regulatory and compliance, and risk management assistance in the areas of workspace relations, legal documents, business advisory matters, regulation and compliance, risk management and managing relations with external advisors. 6.4 In respect of the last completed financial year of the Company, save as set out in this document, no member of the administrative, management or supervisory bodies service contracts with the Company or any Group Company provide for benefits upon termination of employment. 6.5 The aggregate remuneration (including salaries, bonus payments, consultancy fees and benefits in kind) granted to the Directors by the Company for the year ended 30 June 2009, being the most recent completed financial year amounted to A$391,795. It is estimated that the aggregate remuneration for the Directors for the year ending 30 June 2010, being the current financial year, will be approximately A$442,000. 6.6 During the financial period ending 30 June 2009, a payment was made to Frank Lewis, a former non-executive director of the Company. Please see paragraph 8.6 of this part 5 for details. 6.7 Brief details of employees of the Group for each financial year during the period covering the latest three financial years up to the Latest Practicable Date are as follows: Company Financial period Number of employees at the end of each financial period Average number of employees during financial period Main categories of activity of employees Main geographic locations of employees Number of temporary employees on average during most recent financial year The Company 1 July 2006 30 June 2007 1 July 2007 30 June 2008 1 July 2008 30 June 2009 1 July 2009 Latest Practicable Date 7 7 Administrative Staff 27 35 Administrative Staff 18 30 Administrative Staff 14 14 Administrative Staff Tasmania 3 Tasmania 0 Tasmania 0 Tasmania 0 208
Company Financial period Number of employees at the end of each financial period Average number of employees during financial period Main categories of activity of employees Main geographic locations of employees Number of temporary employees on average during most recent financial year Oceania Tasmania Pty Ltd 1 July 2006 30 June 2007 1 July 2007 30 June 2008 1 July 2008 30 June 2009 1 July 2009 Latest Practicable Date 1 7 Geology, planning, environment and administrative 1 Geology, planning and environment Geology, planning, environment and administrative staff Geology, planning and environment Tasmania 0 Tasmania 0 Tasmania 0 Tasmania 0 Zeehan Zinc Administration Pty Ltd 1 July 2006 30 June 2007 1 July 2007 30 June 2008 1 July 2008 30 June 2009 1 July 2009 Latest Practicable Date 23 10 Administrative & field staff 27 35 Administrative & field staff Administrative & field staff Administrative & field staff Tasmania 0 Tasmania 0 Tasmania 0 Tasmania 0 Zeehan Zinc Properties Pty Ltd 1 July 2006 30 June 2007 1 July 2007 30 June 2008 1 July 2008 30 June 2009 1 July 2009 Latest Practicable Date Tasmania 0 Tasmania 0 Tasmania 0 Tasmania 0 209
7 Additional information on the Board 7.1 In addition to their directorship in the Company, the Directors hold or have held the following directorships or are or have been partners in the following partnerships within the five years immediately prior to the date of this document: Director Yuewen Zheng Current Directorships and Partnerships Beijing Keruicheng Mining Investment Co., Ltd Beijing Kerui Jinchuan Mining Investment Co., Ltd Glory Industrial Co., Ltd Kerui Tiancheng Investment Holdings Limited Create (Europe) Limited Jiangxi Chengkai Investment Group Co., Ltd Jiangxi Zhongcheng Construction Development Co. Ltd Creat Group Co., Ltd Shanghai RAAS Blood Products Co., Ltd Galaxy Resources Limited 1 Past Directorships and Partnerships Beijing RAJ Network Sales Co. Ltd. Glory Cause Land Afforestation Co., Ltd. Lead REITS Asset Management Corporation Xiaojian Ren Creat Group Co., Ltd Henan Ping Gao Electric Co, Ltd Shanghai RAAS Blood Products Co., Ltd Yantai North Andre Juice Co, Ltd Beijing Keruicheng Mining Investment Co., Ltd Lead REITS Asset Management Corporation Beijing Kerui Jinchuan Mining Investment Co., Ltd Beijing RAJ Network Sales Co., Ltd Glory Industrial Co., Ltd Kerui Tiancheng Investment Holdings Limited Jiangxi Chengkai Investment Group Co., Ltd Jiangxi Zhongcheng Construction Development Co., Ltd Create Group Ltd Glory Cause Land Afforestation Co., Ltd. Beijing RAJ Network Sales Co. Ltd Tad Mackay Ballantyne BR Industries, Inc. Empire Energy Corporation International Euro-Industrial LLC Jilin Jimei Foods Ltd. Life Partners Holdings, Inc Mackay Limited Partnership Pacific Rim Foods Ltd. Thomsen Group LLC Amacan Resources Corporation Hoopeston Foods Inc. Mach One Corporation American Lorain Corporation Amacan Resources Corporation Texas Steel Partners Grand Monarch Holdings Inc 1 Mr Xiaojian Ren was appointed as Dr Zheng s alternate as a Galaxy director on 8 January 2010 210
Director Phillip Bradley Simpson Current Directorships and Partnerships Terralinna Pty Ltd. Seascan Pty Ltd. Fishing Investment & Management Kingdom Vision Humanitarian Aid Organisation Ltd. Southland Lighthouse Aid Organisation Past Directorships and Partnerships Great Southland Minerals Ltd. Olim Humanitarian Aid International Ltd. Empire Energy Corporation International Kingdom Business Corporation Ltd. Stephen Powell Orange Investments Pty. Ltd. Great South Land Minerals Limited Devil Drinks Pty. Ltd. Hartz International Pty. Ltd. Forest Marsh Pty. Ltd. 25 Davey Pty. Ltd. Pentinvest Pty Ltd Prosser Production Pty. Ltd. RR & SM Powell Holdings RR & SM Powell Pty. Ltd. 25 Davey Pty Ltd Oceania Tasmania Pty Ltd Zeehan Zinc Administration Zeehan Zinc Properties ZZ Exploration Mountain Maid 7.2 Mr Ballantyne was a director of Texas Steel Partners LLC ( Texas Steel ) between 2001 and 2003. During 2003, Texas Steel filed for reorganization and was liquidated pursuant to a bankruptcy Chapter 7 conversion. Mr Ballantyne was an officer and director and 50 per cent. shareholder of Texas Steel. 7.3 Mr Powell is currently a director of RR & SM Powell Pty. Ltd. which was placed under the control of management controllers on 1 April 2008. This company has been wound up, however, the company remains the subject of legal action in respect of which an outcome is expected in late 2010. 7.4 Save as disclosed in paragraph 7.2 and 7.3, none of the Directors have: (a) any unspent convictions in relation to indictable offences; (b) had any bankruptcy order made against him or entered into any voluntary arrangements; (c) been a director of a company which has been placed in receivership, compulsory liquidation, administration, been the subject of a voluntary arrangement or any composition or arrangement with its creditors generally or any class of its creditors whilst he was a director of that company or within the 12 months after he ceased to be a director of that company; (d) been a partner in any partnership which has been placed in compulsory liquidation, administration or been the subject of a partnership voluntary arrangement whilst he was a partner in that partnership or within the 12 months after he ceased to be a partner in that partnership; (e) been the owner of any assets which have been the subject of a receivership; (f) been a partner in any partnership which has been placed in receivership whilst he was a partner in that partnership or within 12 months after he ceased to be a partner in that partnership; (g) been publicly criticised by any statutory or regulatory authority (including recognised professional bodies); or (h) been disqualified by a court from acting as a director of any company or from acting in the management or conduct of the affairs of a company. 211
8 Related Party Transactions The Company has entered into the following related party transactions: 8.1 Placing Agreement 8.1.1 The Company has entered into the Placing Agreement, further details of which are set out in paragraph 10.3 of part 5 of this document. Under the Placing Agreement, Creat Group has agreed that it will procure that the Convertible Loan Subscriber will make an advance to the Company to fund any shortfall in the subscription of the Further Galaxy Shares, pursuant to a Convertible Loan Note to be issued by the Company. The terms of the Convertible Loan Note and the related orderly marketing deed of undertaking are included in separate schedules to the Placing Agreement and are summarised below. 8.1.2 Convertible Loan Note Under the Placing Agreement, the Convertible Loan Subscriber has agreed that it will and Creat Group will procure that the Convertible Loan Subscriber will advance an amount equal to 17,000,000 less the amount raised pursuant to the Second Round Placing (net of commission) and less any amount invested by third parties procured by Creat Group to subscribe for Ordinary Shares. Please see paragraph 10.3.1 for details of the documentation. Creat Group has informed the Company that it intends to explore opportunities to procure investment in the Company by third party investors between the date of this document and the AGM. If successful, any such investment would reduce the amount advanced under Convertible Loan Note. 8.1.3 Orderly Marketing Deed of Undertaking regarding Convertible Loan Note Under the Placing Agreement, the Convertible Loan Subscriber has agreed that in the event that it subscribes for the Convertible Loan Note, it shall enter into an orderly marketing deed of undertaking with the Company, Grant Thornton UK LLP and Westhouse. Pursuant to this deed, the Convertible Loan Subscriber irrevocably undertakes that from the date of Re-Admission until a date falling twelve months thereafter, any assignment of the Convertible Loan Note or any sale, transfer or other disposal of any legal beneficial or any other interests in or rights over any of the Ordinary Shares issued pursuant to the Convertible Loan Note shall be effected solely through Westhouse. If Westhouse is unable to find a buyer for the Convertible Loan Note or the relevant Ordinary Shares within five trading days at a price which is acceptable to the Convertible Loan Subscriber or the relevant shareholder (as appropriate), the Convertible Loan Subscriber or the relevant shareholder (as appropriate) may dispose of the Convertible Loan Note or the Ordinary Shares (as relevant) through another broker. Furthermore, the Convertible Loan Subscriber undertakes that any disposal shall be in such manner as Westhouse shall reasonably require to ensure the maintenance of an orderly market in the shares of the Company. The agreement sets out certain exceptions to the requirement for disposals to be made in accordance with its provisions. The deed includes a provision which requires any purchaser of the Convertible Loan Note or any of the Ordinary Shares issued pursuant to the Convertible Loan Note during the twelve month period following Re-Admission to enter into an orderly marketing arrangement in substantially the same form as the one entered into by the Convertible Loan Subscriber. 8.2 Nomination Letter The Company has entered into the Nomination Letter, further details of which are set out in paragraph 10.1 of part 5 of this document. 8.3 Convertible Unsecured Loan Note The Company entered into a convertible unsecured loan note with Create Group (HK) Limited to raise 4,275,000, by the issue of two notes of 2,137,500 each, dated 7 December 2007 to fund the Company s working capital expenditure requirements and to explore and evaluate 212
existing and future payments. The interest payable on the outstanding principal amount is calculated daily from the date of issue of each note at 6 per cent. per annum. On 15 February 2013 (or such other date as agreed between the parties) the loan note will convert into such number of Ordinary Shares as shall be equal to such amount of the principal amount to be converted divided by the conversion price. The Company shall not be required to process a conversion notice nor issue any conversion shares in the event that the issue of such shares would cause the noteholder, in aggregate, to own or to have a relevant interest in twenty per cent. or more of the issued share capital of the Company. At the request of Create Group (HK) Limited, the Company agreed to the early repayment of 1,250,000 plus accrued interest, on 7 January 2009. Funds from the first note have been received in full. Funds from the second note have been received in part, with 2,495,866 outstanding. In February 2009 the Company gave an extension to Creat Group concerning the remaining funds due under the second note. A proportion of the note outstanding equal to 887,500 is due for repayment on 15 February 2013 and the rest, equal to 1,608,366, is due for repayment on 15 April 2013. 8.4 Unsecured Loan Facility An unsecured loan agreement, dated on or around 31 August 2009 was entered into between Creat Group and the Company, as borrower, for funding the Company s current liabilities and progressing its working capital and expansion plans. Under the loan agreement, a 500,000 unsecured loan was provided to the Company. Simple interest is payable at 10 per cent. per annum. The loan is to be repaid on the repayment date of 1 March 2010 or sooner, at the discretion of the Company. As at 1 February 2010, the Creat Group has confirmed that it will not call for repayment of this loan in March 2010. 8.5 Loan Agreement A loan facility was entered into on 10 October 2008 between Mr Xiaojian Ren, who is a Director of the Company, and the Company, as borrower, as bridging finance for funding the Company s liabilities. Under the loan agreement, a A$500,000 loan was provided to the Company on 14 October 2008. Interest was payable at 10 per cent. per annum. A Variation to the Loan Agreement was executed on 16 December 2008 under which the Company agreed to repay the loan and accrued interest to Create Group (HK) Limited or a nominee of Create Group (HK) Limited. The Company repaid the full amount of the loan and accrued interest on 23 December 2008. 8.6 Terralinna The Company has entered into a sale agreement and a subscription agreement with Terralinna Pty Ltd as trustee for the Philip Simpson Family Trust. Please see paragraphs 10.19 and 10.20 for further details. 8.7 Past Director payments During the financial period ending 30 June 2009 the Company made payments to Frank Lewis, former non-executive director of the Company, amounting to A$16,052 for director s fees and termination of services. 9 Mandatory Offers and Compulsory Acquisition of Shares 9.1 A takeover of an Australian listed public company or an unlisted public company with more than 50 members (such as the Company) is regulated by the Corporations Act (Chapters 6, 6A, 6B and 6C in particular). The principal regulatory bodies are the ASIC and the Takeovers Panel (which is the principal forum for the resolution of takeover disputes but is not a court of law). The courts also have a role to play, although it tends to be a secondary one. The Corporations Act does not have a mandatory bid rule. The Corporations Act (section 606) provides that a person must not acquire a relevant interest in issued voting shares of a company as a result of a transaction in relation to the securities entered into by or on behalf of a person, if, because of the transaction, a person s voting power in the company: increases from 20 per cent. or below to more than 20 per cent.; or increases from a starting point that is above 20 per cent. but less than 90 per cent. 213
In essence, a person has a relevant interest in securities of a company if that person is the holder of the securities, has the power to exercise, or control the exercise of, a right to vote attached to the securities or has the power to dispose of, or control the exercise of a power to dispose of, the securities. A person s voting power is determined by calculating the votes attached to the relevant securities a person and his associates have. The definition of associate is set out in sections 10 to 17 Corporations Act. The main (but not exclusive) definition of associate for the purpose of Chapters 6, 6A, 6B and 6C, is found in section 12(2). It provides that a person ( the second person ) is an associate of the primary person if, and only if, one or more of the following applies: (a) the primary person is a body corporate and the second person is: (i) a body corporate the primary person controls; (ii) a body corporate that controls the primary person; (iii) a body corporate that is controlled by an entity that controls the primary person; (b) the second person is a person with whom the primary person has, or proposes to enter into a relevant agreement for the purpose of controlling or influencing the composition of the body s board or the conduct of the body s affairs; (c) the second person is a person with whom the primary person is acting or proposing to act, in concert in relation to the body s affairs. The Corporations Act (section 611) provides that section 606 does not apply in certain circumstances including, among others, acquisitions under takeover bids, acquisitions approved by shareholders in general meeting, acquisitions of no more than 3 per cent. in any six month period (but starting from a base of at least 19 per cent.), rights issues, dividend reinvestment schemes and underwritings. Takeover bids may be made by an off-market bid for quoted and unquoted securities or an on market bid for quoted securities only. In the absence of an applicable exemption under section 611, which includes the making of a takeover bid, an acquisition of relevant interests in more than 20 per cent. of the issued voting shares in a company will be a breach of section 606 that may result in enforcement action being taken by ASIC. Where a person publicly proposes to make a takeover bid for securities in a company and that does not occur within two months after the proposal, the person will breach the Corporations Act and the Court has the power to order the person to proceed with the takeover bid. The Corporations Act further provides for the circumstances in which a person must disclose that he has a substantial holding (5 per cent.) in a listed company (which the Company is not). All movements of substantial holdings equal to 1 per cent. or more also require a disclosure. Also, a person who obtains at least 90 per cent. of the securities in a class of securities of a company may move to compulsorily acquire all remaining securities in that class, in accordance with the procedure set out in the Corporations Act. Minority shareholders have certain limited rights to resist a compulsory acquisition. 9.2 There have been no public takeover bids by third parties in respect of the Company s equity, which have occurred during the last financial year or the current financial year. 10 Material Contracts The following contracts, being either (i) contracts which relate to the Group s mining leases and exploration licences and are, or may be, material; and/or (ii) contracts not entered into in the ordinary course of business which have been entered into by a member of the Group in the two years prior to the date of this document or prior thereto where a member of the Group has any outstanding obligations thereunder and are, or maybe, material. 10.1 Galaxy Subscription Agreement and Nomination Letter On 21 August 2009, Creat Group entered into the Galaxy Subscription Agreement pursuant to which it agreed to subscribe for the Galaxy Shares and to provide or procure the provision of a project finance facility of A$130 million. 214
On 14 December 2009, Creat Group nominated the Company as the subscriber under the Galaxy Subscription Agreement of the Initial Galaxy Shares and on 15 December 2009, the Company purchased the Initial Galaxy Shares. On 10 February 2010, the Company, Creat Group and Galaxy entered into the Nomination Letter pursuant to which Creat Group has conditionally nominated the Company to subscribe for the Further Galaxy Shares on the terms of the Galaxy Subscription Agreement as amended by the Nomination Letter. The amount payable in respect of the subscription for the Further Galaxy Shares shall be A$0.88 per Galaxy Share. Under the Galaxy Subscription Agreement (as amended), the Further Galaxy Subscription is conditional upon, among other things: (a) obtaining the approval of the Galaxy shareholders by no later than 28 February 2010 (which has been obtained on 10 February 2010); (b) no material adverse change occurring in relation to Galaxy; (c) Galaxy not issuing or agreeing to issue any shares other than to the Company, or to the holders of outstanding options over shares in Galaxy in respect of the exercise of such options, or as otherwise agreed by the Company; and (d) the warranties contained in the Galaxy Subscription Agreement being true and correct in all material respects as at the date of completion of the Further Galaxy Subscription. The nomination by Creat Group of the Company as the subscriber for the Further Galaxy Shares under the Galaxy Subscription Agreement is conditional upon: (a) approval having been given by the Shareholders under (i) Rule 14 of the AIM Rules for Companies in respect of the reverse takeover of the Company in relation to the subscription for the Further Galaxy Shares (when aggregated with the subscription of the Initial Galaxy Shares); and (ii) section 136(2) of the Act to amend Article 17.2 of the Constitution in a manner set out in the Notice of AGM; (b) the entry into on or about the date of this document of the Placing Agreement and the conditions to the Placing Agreement being satisfied or waived (save for any condition as to the Nomination Letter becoming unconditional and not having been terminated, any condition as to the unconditional allotment of the Further Galaxy Shares and any condition relating to Re-Admission) and the Placing Agreement not having been terminated in accordance with its terms; (c) all Galaxy shareholder approvals which are required in order for the Further Galaxy Shares to be issued to the Company having been obtained (which has been obtained on 10 February 2010); and (d) an amount not less than the total subscription amount (in Australian dollars) for the Further Galaxy Shares (not including any amounts committed by investors through the Placing) having been deposited in an escrow account prior to the AGM. The conditions to the Further Galaxy Subscription and the nomination may be waived at the discretion of the Company. The Nomination Letter provides that the Company will be entitled to exercise all of the rights given by Galaxy to Creat Group under the Galaxy Subscription Agreement other than those relating to the project finance facility. Specifically, the Company will have the right to appoint a director to the board of Galaxy. On 8 January 2010, the Company exercised its right to appoint a director to the board of Galaxy and Dr Yuewen Zheng was appointed as a non-executive director and Mr Xiaojian Ren was appointed as his alternate. The Nomination Letter provides that Creat Group shall cease to have any rights under an anti-dilution mechanism contained in the Galaxy Subscription Agreement and that the right shall be for the benefit of the Company. The anti-dilution rights provide that in the event that Galaxy agrees to issue further shares on or before 20 August 2010, the Company is entitled to participate in such an issue, to the maximum extent permitted by law, and subscribe for further shares in Galaxy to ensure that its percentage shareholding in Galaxy is not diluted. Furthermore, the terms on which the Company is entitled to participate in such a new issue of Galaxy shares shall be on substantially the same terms as for any new subscriber for Galaxy shares. 215
Other rights the Company is entitled to exercise pursuant to the to the Nomination Letter (up to the date of issue of the further Galaxy Shares) include (i) a restriction on Galaxy s ability to solicit interest in a takeover or issue of shares of 4.99 per cent. or more of Galaxy s shares; (ii) an obligation on Galaxy to inform the Company in the event that it receives an unsolicited approach for a takeover or issue of shares; and (iii) a right for the Company to match any third party proposal. Furthermore, the Company would be entitled to a break fee equal to 1 per cent. of the equity value of Galaxy (calculated at A$0.88 per share) in the event that before the Further Galaxy Shares are issued, a third party takeover bid or a shareholder approved acquisition is recommended by a majority of the board of directors of Galaxy. Following completion of the Further Galaxy Subscription, the Company agrees, pursuant to the Nomination Letter, that it will not increase its voting power in Galaxy other than in limited circumstances, including (i) if someone other than the Company acquires more than a 15 per cent. interest in Galaxy; (ii) where the increase is no more than 3 per cent. in any six month period in accordance with the Act; and (iii) where the board of directors of Galaxy is recommending a third party takeover bid or shareholder approved acquisition. Galaxy has agreed to issue the Further Galaxy Shares on an unconditional basis prior to Re-Admission taking place, and has agreed that the payment of a portion of the subscription price for the Further Galaxy Shares equal to the amount committed by third party investors under the Second Round Placing (net of placing commissions) may be deferred until the date falling two Business Days after Re-Admission. Any shortfall or default in payment by third party investors shall be covered by the Convertible Loan Subscriber on such date by way of an increase of the Convertible Loan Note. The terms of the project finance facility were confirmed by the Original Debt Facility Agreement. It is intended that the obligation to provide the project finance facility is to be assumed by the New Lending Banks pursuant to the New Lending Banks Facility Agreement, a form of which is attached to the Nomination Letter. Provided that the New Lending Banks Facility Agreement (in a form substantially the same as that attached to the Nomination Letter) is entered into on or before the Long Stop Date, the Company agrees that provided the Further Galaxy Subscription has occurred, it shall enter into the Share Mortgage and the Facility Put Option. The Company shall under no circumstances be obliged to make available the project finance facility. If the New Lending Banks Facility Agreement is not entered into and funds are not made available for first drawdown by the Long Stop Date, Creat Group will remain obliged to advance the facility under the Original Debt Facility Agreement. In relation to the Company s agreement to enter into the Share Mortgage and Facility Put Option, Galaxy agrees to procure that copies of any documents and notices relating to the New Lending Banks Facility Agreement shall be provided promptly to the Company. Furthermore, Galaxy agrees that it shall not, without the prior written consent of the Company, agree to vary, amend, terminate, waive or assign any of its rights under the New Lending Banks Facility Agreement or take any action that might reasonably be expected to have an actual effect on the Company s present or future, actual or contingent rights. Galaxy has also agreed to comply with the terms of the New Lending Banks Facility Agreement and meet its payment obligations thereunder. 10.1.1 Facility Put Option The form of the Facility Put Option is appended to the Nomination Letter. Under the Nomination Letter, the Company has agreed that, provided that Galaxy enters into the New Lending Banks Facility Agreement in substantially the form appended to the Nomination Letter, it will enter into the Facility Put Option with the New Lending Banks on or prior to the Long Stop Date. On that date, the New Lending Banks shall pay to the Company a fee of US$10 for the entry into the Facility Put Option. As at the Latest Practicable Date, the Facility Put Option had not been entered into. Consequently there is no guarantee that the terms of the Facility Put Option, as described below, will not change to the detriment of the Company. The Facility Put Option entitles the New Lending Banks to require the Company to purchase the amount owing under the New Lending Banks Facility Agreement and the New Lending Banks rights, titles and interests in the New Lending Banks Facility 216
Agreement ( Outstanding Debt ). The purchase price to be paid by the Company shall be the sum of Outstanding Debt at the time the option is exercised, together with any accrued interest and fees. The Facility Put Option may only be exercised by the New Lending Banks during the period commencing four years from the date of the initial drawdown under the New Lending Banks Facility Agreement and ending on 10 December 2016. The Facility Put Option may only be exercised once and must be exercised in respect of the full Outstanding Debt. Prior to completion of the purchase of the Outstanding Debt, the benefit of the security relating to the Outstanding Debt will be assigned to the Company. Under the Facility Put Option, the Company will undertake to the New Lending Banks to enter into the Share Mortgage by no later than the date falling three months after the date of the initial drawdown made under the New Lending Banks Facility Agreement. The Facility Put Option provides that the Share Mortgage will be released and discharged as soon as the Company s obligations under the Facility Put Option have been satisfied in full. The New Lending Banks will provide representations, warranties and an indemnity to the Company upon exercise of the Facility Put Option and on the date the purchase of debt is completed in respect of, inter alia, ownership of the debt, compliance with their material obligations, and that amounts used in calculating the purchase price are true and correct. The New Lending Banks will also provide an indemnity in respect of any breach of the provisions of the Facility Put Option, the Share Mortgage or any transaction document effecting the New Lending Banks Facility (together the Transaction Documents ). The New Lending Banks will undertake to provide to the Company copies of all documents sent or received under or in respect of any of the Transaction Documents by any of the New Lending Banks to or from any person who is or becomes a party to the Transaction Documents. The New Lending Banks will also undertake, at all times during the period when the option is exercisable, to exercise their rights under the Transaction Documents in accordance with their standard practices for transactions of the type provided for under the Transaction Documents. Following completion of the purchase of the outstanding debt, the Company will agree to indemnify the New Lending Banks in respect of any loss arising after that date out of or in connection with the debt or the Transaction Documents from the date of completion of the purchase of the debt. The Facility Put Option also provides that all dividends and distributions which may be paid or declared by Galaxy to the Company prior to completion of the Facility Put Option are immediately lent back to Galaxy by the Company by way of shareholder loan. Upon receipt of such payments, the Company shall procure that Galaxy use the shareholder loan for the purposes of procuring that members of the Galaxy Group prepay drawings made under the New Lending Banks Facility Agreement. The Facility Put Option may not be assigned without the prior written consent of each other party. The total liability of the Company to the New Lending Banks under the Facility Put Option (together with its liability under the Share Mortgage) is limited to the total amount available to the Security Trustee as a result of a realisation of the shares the subject of the Share Mortgage. 10.1.2 Share Mortgage The form of the Share Mortgage is appended to the Nomination Letter. Under the Nomination Letter, the Company has agreed that, provided that Galaxy enters into the New Lending Banks Facility Agreement in substantially the form appended to the Nomination Letter, it will enter into the Share Mortgage with the New Lending Banks as provided for in the Facility Put Option. 217
As at the Latest Practicable Date, the Share Mortgage had not been entered into. Consequently there is no guarantee that the terms of the Share Mortgage, as described below, will not change to the detriment of the Company. Under the terms of the Share Mortgage, the Company will grant security over at all times, up to a maximum aggregate of 19.9 per cent. of shares in Galaxy, and certain rights attaching to the shares including the right to receive dividends, in favour of the Security Trustee. The security will secure all amounts owing to the New Lending Banks under the Transaction Documents by Galaxy, and all other obligors under the Transaction Documents and all amounts owing by the Company under the Facility Put Option. The Share Mortgage provides that the Company may not, without the consent of the Security Trustee (1) sell or dispose of the shares pledged in favour of the Security Trustee, (2) create any further encumbrances over the shares pledged in favour of the Security Trustee (other than any lien arising by operation of law and in the ordinary course of trading and not as a result of any default or omission by the Company), (3) waive any right attached to the shares pledged in favour of the Security Trustee or (4) deal in any other way with the shares pledged in favour of the Security Trustee. Unless an event of default is continuing, the Company may exercise rights to take up further shares in Galaxy and may exercise any voting power in respect of the shares pledged in favour of the Security Trustee. If an event of default occurs, such rights cease and the Company must procure that all dividends or other income in respect of the shares pledged in favour of the Security Trustee are paid directly to the Security Trustee. The Company must comply with certain continuing obligations including providing the Security Trustee with all announcements made by the Company. The Company has provided representations and warranties to the Security Trustee in respect of, inter alia, due incorporation, ownership of the shares pledged in favour of the Security Trustee and validity of the Company s obligations under the Share Mortgage. The Company is also required to make payments to the Security Trustee gross of any taxes that are payable. The Share Mortgage becomes enforceable if (1) there is an event of default under the New Lending Banks Facility Agreement; (2) the Share Mortgage becomes wholly or substantially void or does not have the priority which the Security Trustee intended it to have; or (3) the Company does not comply with its obligation under the Share Mortgage or the Facility Put Option and such non-compliance is incapable of remedy within thirty days. The Company has also provided an indemnity to the Security Trustee in respect of all losses incurred in connection with the events of default set out in the second and third sub-paragraphs of this paragraph 10.1.2. In the event of an event of default under the first paragraph of this paragraph 10.1.2, the Security Trustee may only enforce the Share Mortgage after it has enforced its other rights or remedies under the other securities set out in the New Lending Banks Facility Agreement. In the event of an event of default under the second and third sub-paragraphs of this paragraph 10.1.2, the Security Trustee may enforce the Share Mortgage without having to first enforce its rights or remedies under the other securities. An event of default will occur under the Share Mortgage if the Company fails to complete the exercise of the Facility Put Option. The total liability of the Company to the Financiers under the Facility Put Option (together with its liability under the Share Mortgage) is limited to the total amount available to the Security Trustee as a result of a realisation of the shares pledged in favour of the Security Trustee. The Company may not assign or otherwise deal with its rights under the Share Mortgage without the consent of the Security Trustee. The Security Trustee may deal with its rights under the Share Mortgage without the consent of any other person. 218
10.1.3 New Lending Banks Facility Agreement The form of the New Lending Banks Facility Agreement is appended to the Nomination Letter. Under the Nomination Letter, the Company has agreed to enter into the Facility Put Option and the Share Mortgage provided that the New Lending Banks Facility Agreement is entered into in substantially the form appended to the Nomination Letter on or prior to the Long Stop Date. As at the Latest Practicable Date, the New Lending Banks Facility Agreement had not been entered into. Consequently, there is no guarantee that the terms of the New Lending Banks Facility Agreement, as described below will not change to the detriment of Galaxy or in a manner which may have a detrimental effect upon the Company under the Share Mortgage or the Facility Put Option. The New Lending Banks Facility Agreement will be made between the Borrowers, Galaxy as guarantor, the New Lending Banks, Galaxy Lithium (Jiangsu) Co Ltd, (a direct subsidiary of Galaxy), and the Agent and Security Trustee. The New Lending Banks Facility Agreement will replace the Original Debt Facility Agreement. The terms of the New Lending Banks Facility Agreement provide that (inter alia) the interest rate payable on each drawing is SIBOR plus 4.50 per cent. per annum. The Borrowers agree to repay the drawings made under the New Lending Banks Facility with an initial repayment of US$10.5 million on 26 August 2012 then amortisation on a straight line basis with half yearly payments of US$10.5 million with a final repayment of US$10.5 million on 26 February 2017. The final loan repayment date is 10 December 2016. Monies borrowed under the New Lending Banks Facility (of up to US$105,000,000 (with US$60 million being lent by China Development Bank Corporation and US$45 million being lent by RZB Austria Finance (Hong Kong) Limited)) are for the purpose of funding the development of the Mt Cattlin Project and the Jiangsu Project. The New Lending Banks facility will be available for a period of twelve months from the date of the New Lending Banks Facility Agreement. Representations and warranties customary for this type of facility have been given by each of the Obligors under the New Lending Banks Facility Agreement. There are numerous events of default described in the New Lending Banks Facility. Examples of these events of default include: (a) non-compliance with any of the transaction documents or project documents; (b) certain change of control events occurring within the Galaxy Group; or (c) an event occurs which has or is likely to have a material adverse effect on an Obligor s ability to comply with its obligations, the value of the property secured under the security arrangements or the rights of a Financier. The New Lending Banks Facility Agreement also includes detailed provision on, inter alia, conditions and amount of drawdown of the New Lending Banks Facility, cashflows and mandatory prepayment of excess cashflow. Galaxy has agreed to grant security over (inter alia) its interests in (1) the share capital of each of the Borrowers and Galaxy Lithium (Jiangsu) Co Ltd, (2) the Mt Cattlin Project and the Jiangsu Project, including the bank accounts relating to such projects and (3) the mining lease. Other than its obligations set out in the Share Mortgage and Facility Put Option, the Company does not have any obligations in relation to the New Lending Banks Facility. 10.2 Cornerstone Placing Agreements The Company entered into three share subscription agreements with the Cornerstone Subscribers. These agreements together comprise the Cornerstone Placing. Pursuant to the agreements, on 15 December 2009, the Cornerstone Subscribers subscribed for 114,000,000 new Ordinary Shares at a price of 0.05 per share. On or around the same time as the placing agreements were executed by the relevant parties, Creat Group granted the Equity Put Options to each of the Cornerstone Subscribers in relation to the shares they each subscribed for pursuant to the Cornerstone Placing. The put option agreements are conditional on, inter alia, approval of the shareholders under item 7 of section 219
611 of the Act which is included as one of the Resolutions. The Cornerstone Subscribers are entitled to exercise their respective Equity Put Option on 14 December 2010 if the price of the Ordinary Shares is less than 6 pence. The Company commissioned the Independent Expert to consider the advantages and disadvantages of the Equity Put Option for Australian regulatory purposes and the Independent Expert s conclusions are set out in its report dated 5 February 2010, which is included in its entirety in the Notice of AGM. A copy of the Notice of AGM can be found at www.creatresources.com. 10.3 Placing Agreement The Company has entered into the Placing Agreement. Pursuant to the Placing Agreement, Westhouse has agreed, subject to certain conditions, to act as agent for the Company and to use its reasonable endeavours to procure subscribers for the Placing Shares at a price of 0.06 per share. The Company shall pay Westhouse a commission of five per cent. of the amount raised by Westhouse under the Second Round Placing. The Company shall also pay any incidental costs and charges incurred by Westhouse in relation to the Second Round Placing. Westhouse shall not be obliged to subscribe for any of the Second Round Placing Shares under the Agreement. In the event that Westhouse does not introduce subscribers for the maximum number of Placing Shares, the Company is also entitled to procure investors for the unsubscribed Placing Shares. Under the terms of the Placing Agreement the completion of the Second Round Placing is conditional upon, inter alia, the Shareholders having approved the Further Galaxy Subscription, the Company becoming unconditionally entitled under the Nomination Letter to subscribe for the Further Galaxy Shares, such shares having been allotted and issued to the Company, the Nomination Letter not having been terminated, the Company s funding for the Further Galaxy Subscription (other than the funds raised from investors through Westhouse under the Second Round Placing) being held in escrow in accordance with the Nomination Letter and Re-Admission becoming effective. The long stop date for such conditions to be fulfilled or waived in accordance with the Placing Agreement is 23 April 2010. The Directors and Creat Group are parties to the Placing Agreement and, inter alia, give a number of warranties to both Grant Thornton UK LLP, as the nominated adviser to the Company and Westhouse. The Placing Agreement also includes a provision stating that any issue of Placing Shares to investors introduced by the Company as part of the Second Round Placing shall be subject to such investors signing an orderly marketing agreement in substantially the same form as those entered into by the Cornerstone Subscribers as described in paragraph 10.5 below. Grant Thornton Corporate Finance shall act as nominated advisor to the Company, pursuant to the Nominated Adviser Agreement and the Letter of Engagement. Under the Placing Agreement, Creat Group has agreed that it will procure that, pursuant to the Convertible Loan Note, the Convertible Loan Subscriber shall advance an amount equal to 17,000,000 less the proceeds of the Second Round Placing (net of commission) to the Company. The terms of the Convertible Loan Note and the related orderly marketing deed of undertaking are included in separate schedules to the Placing Agreement. 10.3.1 Convertible Loan Note Under the Placing Agreement, the Convertible Loan Subscriber has agreed that it will, and Creat Group will procure that the Convertible Loan Subscriber will, at the time of completion of the Further Galaxy Subscription, advance to the Company an amount equal to 17,000,000 less the amount raised pursuant to the Second Round Placing (net of any commission) and less any amount to be invested by third parties procured by Creat Group to subscribe for Ordinary Shares. Such amount will be advanced by or on behalf of the Convertible Loan Subscriber under a Convertible Loan Note to be issued to the Convertible Loan Subscriber, the terms of which are set out in a schedule to the Placing Agreement. The Convertible Loan Note is repayable by the Company on the maturity date, which shall be the date that is twelve months after the date of issue. The Convertible Loan Subscriber may require early repayment upon material breach or upon certain insolvency events. The Convertible Loan Note will bear interest at a rate of 10 per cent. 220
per annum and the interest will be payable in cash on the maturity date, or upon repayment in full, if earlier. The Convertible Loan Note will be unsecured and will not carry a right to vote at general meetings of the Company unless provided by law. The Convertible Loan Note is convertible at the option of the holder into Ordinary Shares at a conversion price of 0.06 per Ordinary Share, save that no conversion shall be effective if the issue of the shares would cause the holder to breach the prohibition under section 606 of the Act (which restricts the ability of a person to increase its holding to 20 per cent. or more). The holder of the Convertible Loan Note may assign its rights and benefits under the Convertible Loan Note in whole or part to a third party either (i) with the prior written consent of the Company; or (ii) provided certain conditions are fulfilled including, without limitation, that the assignee is not a related party to the Company, that upon assignment the Convertible Loan Note is immediately converted into Ordinary Shares, and that the assignee s relevant interests in Ordinary Shares will not exceed 19.99 per cent. Upon any assignment, the assignee must enter into an orderly market deed of undertaking, the terms of which are scheduled to the Placing Agreement and are summarised in paragraph 8.1.3. 10.3.2 Orderly Marketing Deed of Undertaking regarding Convertible Loan Note Under the Placing Agreement, the Convertible Loan Subscriber has agreed that in the event that it subscribes for the Convertible Loan Note, it shall enter into an orderly market deed of undertaking with the Company, Grant Thornton UK LLP and Westhouse. Pursuant to this deed, the Convertible Loan Subscriber irrevocably undertakes that from the date of Re-Admission until a date falling twelve months thereafter, any assignment of the Convertible Note or any sale, transfer or other disposal of any legal beneficial or any other interests in or rights over any of the Ordinary Shares issued pursuant to the Convertible Note shall be effected solely through Westhouse. Please see paragraph 8.1.3 of this part 5 for further details. 10.4 Undertaking from Creat Group dated 1 February 2010 Creat Group provided an undertaking to the Company on 1 February 2010 whereby it confirmed its intention to provide financial support to the Company if required. In particular, and for the purpose of supporting the Company s 18 month working capital forecast from 1 February 2010, Creat Group undertook: (i) to provide further funding to the Company as projected based on market rates; and (ii) not to call on the 500,000 loan currently due for repayment in March 2010 which is described in paragraph 8.4 of part 5 of this document. 10.5 Orderly Marketing Deed of Undertaking relating to Cornerstone Placing Each of the Cornerstone Subscribers have entered into an orderly market deed of undertaking with the Company, Grant Thornton UK LLP and Westhouse dated 5 February 2010. Pursuant to such deeds each of the Cornerstone Subscribers has irrevocably undertaken that from 16 December 2009 until 15 December 2010, any sale, transfer or other disposal of any legal beneficial or any other interests in or rights over any Cornerstone Shares shall be effected solely through Westhouse. If Westhouse is unable to find a buyer for the relevant Cornerstone Shares within 5 trading days at a price which is acceptable to the relevant Cornerstone Subscriber, the relevant Cornerstone Subscriber may dispose of the Cornerstone Shares through another broker. Furthermore, each Cornerstone Subscriber has undertaken that any disposal shall be in such manner as Westhouse shall reasonably require to ensure the maintenance of an orderly market in the shares of the Company. The agreement sets out certain exceptions to the requirement for disposals to be made in accordance with its provisions. The undertakings shall terminate and cease to have effect if admission of the Cornerstone Shares has not become effective in accordance with the AIM Rules for Companies on or before 31 March 2010. The restrictions on the Cornerstone Subscribers do not apply to trades of their Ordinary Shares that are effected off-market, provided that any transferee agrees to be bound by the provisions of the Orderly Marketing Deed of Undertaking. 221
10.6 Lock-In and Orderly Marketing Deed of Undertaking Creat Group has entered into lock-in and orderly marketing deed of undertaking with the Company, Grant Thornton UK LLP and Westhouse dated 10 February 2010 pursuant to which Creat Group has irrevocably undertaken that for the twelve month period starting on the date of Re-Admission ( Lock-In Period ), it will not sell, transfer, charge, encumber or grant any option over or otherwise dispose of, the legal, beneficial or any other interests in or rights over any Ordinary Shares it holds. Creat Group has further undertaken that in the twelve month period following the Lock-In Period, any sale, transfer or other disposal of any legal beneficial or any other interests in or rights over any Ordinary Shares held by Creat Group shall be effected solely through Westhouse. If Westhouse is unable to find a buyer for the relevant Ordinary Shares within 5 trading days at a price which is acceptable to Creat Group, Creat Group may dispose of the Cornerstone Shares through another broker. Furthermore, Creat Group has undertaken that any disposal shall be in such manner as Westhouse shall reasonably require to ensure the maintenance of an orderly market in the shares of the Company. The agreement sets out certain exceptions to the requirement for disposals to be made in accordance with its provisions. The restrictions on Creat Group do not apply to trades of its Ordinary Shares that are affected off-market, provided that any transferee agrees bound by the provisions of the Lock-In and Orderly Marketing Deed of Undertaking. 10.7 Deed Poll and Depositary Services Agreement Please refer to the description of these agreements in paragraph 13 of this part 5. 10.8 Letter of Engagement A letter agreement dated 29 September 2009 between the Company and Grant Thornton Corporate Finance appointing Grant Thornton Corporate Finance to act as Nominated Adviser for the proposed Acquisition and the Re-Admission of the Company. Grant Thornton Corporate Finance has agreed, inter alia, to provide such independent advice and guidance to the directors of the Company as they may require to ensure compliance by the Company with the AIM Rules for Companies in relation to the Re-Admission. The Company has agreed to pay Grant Thornton Corporate Finance a fee upon completion of the Re-Admission, and the fees set out in the Nominated Adviser Agreement (as set out at 10.8 below). A separate fee (to be negotiated at the time) will be payable should the Company enter into a related party transaction or any transaction requiring a circular to Shareholders. The Agreement continues until terminated in accordance with its terms, which includes 30 days written notice by either party, or upon Re-Admission, which ever is earlier. Should the Re-Admission not proceed, Grant Thornton Corporate Finance shall continue to act as the Company s Nominated Adviser on an on-going basis, pursuant to the terms of the Nominated Adviser Agreement (as set out below). 10.9 Nominated Adviser Agreement The Company, the Directors and Grant Thornton Corporate Finance have entered into an agreement (the Nomad Agreement ) dated 27 April 2009, pursuant to which, the Company has appointed Grant Thornton Corporate Finance to act as Nominated Adviser to the Company as required by the AIM Rules for Companies. Pursuant to the Nomad Agreement, Grant Thornton Corporate Finance has agreed, inter alia, to provide such independent advice and guidance to the directors of the Company as they may require to ensure compliance by the Company on a continuing basis with the AIM Rules for Companies. The Company has agreed to pay Grant Thornton Corporate Finance an annual retainer fee for its services as Nominated Adviser under the Nomad Agreement (plus all reasonable expenses incurred in relation to their engagement and in carrying out ongoing due diligence checks). The Company and Grant Thornton Corporate Finance will enter a separate engagement for any transaction that fall outside the scope of Grant Thornton Corporate Finance s services under the Nomad Agreement. The Nomad Agreement contains certain undertakings and indemnities given by the Company in respect of, inter alia, compliance with all applicable laws and regulations. 222
10.10 Broker Agreement The Company and Westhouse Securities Limited have entered into an agreement (the Broker Agreement) dated 23 September 2009 pursuant to which the Company has appointed Westhouse to act as Broker to the Company on the proposed reverse takeover and on an ongoing basis. In connection with the Placing, the Company has agreed to pay Westhouse a commission of 5 per cent. of all amounts placed with investors introduced by Westhouse and will re-imburse Westhouse s administration expenses. In connection with its ongoing role as Broker, the Company has agreed to pay Westhouse a fee of 20,000 per annum and will re-imburse Westhouse for out-of-pocket expenses. The Broker Agreement shall continue until terminated on one month s written notice by either party. The Broker Agreement is supplemented by an additional letter of engagement dated 27 October 2009 pursuant to which Westhouse has agreed to organise an investor roadshow for the Company in order to identify investors to participate in the Second Round Placing. The Company has agreed to pay Westhouse a fee of 50,000 on commencement of the roadshow and a commission of 5 per cent. of all amounts placed with investors introduced by Westhouse who subscribe for Ordinary Shares under the Second Round Placing. 10.11 Convertible Loan with Creat Group Company Limited The Company entered into a convertible loan with Creat Group Company Limited on 7 December 2007. Further information is set out at paragraph 8.3 of part 5 of this document. 10.12 Australian Tax Advisory and Compliance Services A letter agreement dated 5 March 2009 between the Company and Grant Thornton Services (NSW) Pty Ltd (GTS) appointed GTS as the Company s Australian tax and compliance adviser. The term of engagement began 5 March 2009 and shall continue for a period of 12 months. 10.13 Mining Leases, Exploration Licenses and Applications Please refer to the description of these in report prepared by Coffey Mining entitled Zeehan Zinc Tasmania Assets Independent Summary Report dated 19 January 2010 which can be found in part 4 of this document. 10.14 Tasmanian Drilling Services Exploration Drilling Agreement Tasmanian Drilling Services Pty Ltd ( Tasdrilling ) is providing exploration drilling services to ZZ Exploration at the Comstock mine. The cost of these services is calculated on a range of prices including hourly rates and base retainers. 10.15 Loan Arrangement with the David James Bendall Family Trust The Company has entered into an arrangement with the David James Bendall Family Trust ( DJBF Trust ) pursuant to which the DJBF Trust provides interest free loans to the Group as and when required. The DJBF Trust has been providing loans to the Group since early 2003. During that time, certain debts have been converted into equity in the Company as further described in paragraphs 2.2.13 of Part 5 of this document. As at 16 January 2007, the Group has fully repaid all debts owed to DJBF Trust. The Company does not intend to borrow any further funds pursuant to this arrangement. 10.16 Tenement Sale Agreement The Company entered into an agreement to purchase Exploration Licence 21/2004 and its related exploration/mining information known as the Dundas Nickel Project from Stellar Resources Limited and its subsidiary, Rubicon Min tech Ventures Pty Ltd, on 28 August 2009. The consideration paid by the Company was A$250,000, and an obligation to provide the previous owner with a 2 per cent. net smelter royalty as required for the transfer. The Company announced on 15 December 2009 that the required approval from the Minister for Energy and Resources of the government of the State of Tasmania had been obtained. The Licence is situated adjacent the Company s existing Exploration Licence 20/2002 in Western Tasmania, and covers around 13km 2 of prospective nickel, tin and tin-copper deposits. 223
10.17 Terralinna Sale Agreement The Company entered into a sale agreement with Terralinna Pty Ltd ( Terralinna ), as trustee for the Phillip Simpson Family Trust, on 8 September 2008 for the purchase of six Tasmanian Abalone Quota Units. The purchase price under the agreement was A$1,620,000, payment for which was to be made by the issue of 6,460,000 Ordinary Shares in the Company. Pursuant to a subscription agreement described at 10.20 below, Terralinna and the Company agreed that the Terralinna Sale Agreement be terminated and the rights, obligations and liabilities of the parties were extinguished. 10.18 Terralinna Subscription Agreement The Company entered into a subscription agreement with Terralinna, in its own right and as trustee for the Phillip Simpson Family Trust, on 18 October 2006. Pursuant to the subscription agreement, Terralinna subscribed for 9,000,000 Ordinary Shares, at A$0.25 per Share, for a total subscription price of A$2,250,000. 10.19 CopperChem Purchase Agreement Pursuant to a purchase agreement made on 22 July 2009, Oceana Tasmania, one of the Company s subsidiaries, through its agent Minasco Australia Pty Ltd, agreed to sell specified flotation plant equipment and associated intellectual property to CopperChem Limited ( CopperChem ) for a total price of A$1,100,000. The conditions to the agreement specified that CopperChem enter into an underwriting agreement, and that their proposed IPO must open for public subscription within 45 days of signing the agreement. Following satisfaction of the conditions the sale of the plant equipment was completed, and CopperChem paid the purchase price to Oceana Tasmania, on 6 October 2009. Oceana Tasmania has made limited representations and warranties relating to its ownership and ability to transfer the plant equipment 10.20 Zinc Ore Sale and Purchase Agreement with Zinifex Australia Limited ( Zinifex ) The Company entered into a sale and purchase agreement on 2 July 2008 with Zinifex pursuant to which Zinifex agreed to sell to the Company zinc ore produced by it at Comstock Mine, Zeehan, Tasmania. The total price payable for the ore delivered under the agreement shall be calculated on the basis of the percentage content of zinc and lead in accordance with the London Metal Exchange Cash Settlement Prices for zinc and lead, minus a US$40 per dmt processing charge. The agreement remains in full force until the parties fulfill their obligations for the sale and purchase of 500 wet metric tonnes of ore which was completed in early July 2008. Zinifex is responsible for ensuring necessary regulatory and community approvals are in place prior to commencing deliveries. All risk of loss or destruction of the ore shall pass from Zinifex to the Company at the point of delivery. Insurance shall be the responsibility of Zinifex until the Company takes possession. Neither party shall be liable for any consequential or indirect damages resulting from a breach of the agreement and each party indemnifies and forever releases the other in respect of any loss, cost, damage, expense or claim whatsoever that arises or may arise directly or indirectly out of any negligent or unlawful act or omission or any breach of the agreement. 10.21 Royalty Agreement Under the Royalty Agreement between MMG Australia Limited ( MMG ) and Oceania Tasmania under which MMG (formerly Pasminco Australia Limited) filed a caveat dated 3 November 2000 with Mineral Resources Tasmania against mining tenement 123M/47, owned by Oceania Tasmania, MMG claims an entitlement to be paid a royalty of 5 per cent. of net smelter return on any ore sold from the said lease pursuant to a term of Transfer of Mining Tenement from Electroytic Zinc Company of Australasia Limited to Oceania Tasmania dated 23 January 1989. MMG is successor in title to all rights, titles and interest of the Electrolytic Zinc Company of Australasia Limited. Mining tenement 123M/47 was amalgamated into lease 5M/ 2007, and this royalty entitlement may now relate to part of that lease. 224
10.22 Agreements with former directors in relation to remuneration payouts On 21 June 2007, the Company agreed with Mr John Pollard, former Chief Executive Officer of the Company, an entitlement for early termination in lieu of notice following his resignation and a remuneration payout amounting to a total of A$116,730.83. On 28 March 2008, the Company agreed with Mr Ralph Rossouw, former Managing Director of the Company, an entitlement for early termination in lieu of notice following his resignation and a remuneration payout amounting to a total of A$52,084.28. 11 Legal and Arbitration Proceedings 11.1 Libertas Capital Corporate Finance ( LCCF ) Pursuant to a letter of engagement dated 30 January 2006, two further addenda dated 8 February 2006 and 4 September 2006 and a subsequent agreement dated 27 February 2007, the Company instructed Libertas Capital Corporate Finance Limited ( LCG ), through its then subsidiaries, LCCF and Libertas Capital Securities Limited ( LCSF ), to provide the Company with corporate finance advice and broking services in relation to raising funds and admitting the Company s shares to trading on AIM. LCG was put into administration on 12 May 2009 and is now under the control of BDO Stoy Hayward LLP. BDO Stoy Hayward LLP was appointed as liquidator of LCS on 25 September 2009. LCCF has alleged that the Company has not yet paid seven invoices dated from May 2008 to April 2009. The Company received a letter dated 5 October 2009 from LCCF s solicitors requesting immediate settlement by 23 October 2009. The amount due under the invoices is 156,041.48 plus interest. The Company issued a letter to LCCF s solicitors on 26 October 2009 in response to these claims. The Company asked for further information in relation to one invoice, and has asserted that one of the invoices has been paid in full. The Company disputes the validity of the remaining invoices. The Company received a further letter from LCCF s solicitors dated 2 November 2009 which states that all seven invoices remain disputed. The Company has been informed that if payment is not made by 16 November 2009, proceedings will be issued without further notice and it is the Company s current intention to defend any such proceedings. The total amount due at 2 November, including interested, is 168,675.46. The Company responded to LCCF on 30 November 2009 and as at the date of this document have not had a response. 11.2 Atlantic Law LLP ( Atlantic ) Libertas received a letter of demand from Gherson solicitors, dated 17 December 2008, for fees and share options relating to services provided by their client, Atlantic, to the Company in 2005. The total sum demanded amounts to over 9,000,000. The Company disputed this demand and has not received any further correspondence from Gherson or Atlantic. It is the Company s current intention to defend any such proceedings and the Board believe the claim is without merit. 11.3 Malcom Bendall Malcom Bendall, a previous director of the Company, notified the Company through his legal representatives in September 2007 of his intention to seek recovery of A$421,687 for past consultancy services and non-business related expenses. The Company appointed a representative to negotiate a settlement with Mr Bendall. No conclusion was reached on these negotiations, and the Company no longer intends to seek a settlement. 11.4 Save as disclosed above, the Group is, not, nor has at any time in the 12 months immediately prior to preceding the date of this document been, engaged in any governmental, legal or arbitration proceedings, and the Company is not aware of any such governmental, legal or arbitration proceedings pending or threatened by or against the Group, nor of any such proceedings having been pending or threatened at any time in the 12 months preceding the date of this document in each case which may have, or have had in the recent past, a significant effect on the Group s financial position or profitability. 225
12 Environmental Matters 12.1 On 4 July 2007, an Environmental Assessment Report was issued by Caloundra Environmental Pty Ltd for the Tasmania Department of Tourism, Arts and the Environment in respect of the Comstock Mine, a mine and mineral works at mining lease 5M/2007. This report identified a number of non-compliances with Land Use Planning Permit 6194 issued on 19 June 2001 (as amended by Environment Protection Notice No.684/1 ( EPN ), the Permit ) and deferred an application for increase in production at the site. The Company has not pursued this application for increased production. 12.2 On 20 June 2008, the Director of Environmental Management issued the Chief Executive Officer of the Company with a Formal Written Warning in relation to a number of potential breaches of environmental conditions of the Permit during a site inspection on 8 May 2008. The director considered that there was prima facie evidence to support five charges against the Company, each of which may have given rise to a penalty exceeding A$100,000. However, the director concluded that it was not in the public interest to proceed with these charges. 12.3 In order to address the issues raised by the director, and further issues raised by an audit conducted on 4 August 2008 by the Environmental Protection Authority, the Company undertook to: (i) relocate sulphide ore, which was then stockpiled near the processing plant; (ii) submit a draft rehabilitation plan; and (iii) submit surface and groundwater monitoring results to the director as required (including monthly reports to the director on progress towards improving the quality of the water discharged into Comstock Creek). 12.4 An Environmental Management Operational Plan for Rehabilitation and Decommissioning has since been produced. Monthly reporting of progress towards improving surface water quality and development of a water budget has not occurred. However the Company is currently taking steps to address this issue and has made a commitment to start monthly reporting following a meeting with the Environmental Protection Agency on 23 November 2009. In addition, quarterly reporting is continuing in accordance with the EPN. At the date of this document, the sulphide ore has not yet been relocated owing to budgetary constraints, and it is unlikely that the ore will be relocated before the end of this calendar year. 12.5 In a letter dated 28 August 2008, the director has indicated that legally enforceable timeframes for the Company to address water management and water quality issues at the Comstock Mine will be incorporated into a new Environmental Protection Notice, which will be issued in due course to update the current Permit conditions. There may be significant costs in bringing the site into compliance with current and future Permit requirements. However, as matters stand, the Company is not operating these sites as going concerns and is hopeful that the director will issue a new EPN or enforce compliance with the existing EPN until such time as operations re-commence. Rehabilitation bond monies remain in place and retention bond amounts have been paid for the Company s retention licence applications at Comstock and Oceania. 13 Working Capital The Directors are of the opinion, having made due and careful enquiry, that, after taking account of the estimated net proceeds of the Second Round Placing and the proceeds of the Convertible Loan Note (if relevant), the working capital available to the Company will be sufficient for its present requirements, that is for at least 12 months from the date of Re-Admission. 14 Crest and Settlement 14.1 Setting up Depositary Interests The Company s Ordinary Shares are in registered and certificated form. Ordinary Shares may be delivered, held and settled in CREST by means of the creation of dematerialised depositary interests representing such Ordinary Shares. In order to achieve this Computershare UK Limited (the Registrar ), will issue dematerialised depositary interests representing entitlements to Ordinary Shares (known as Depositary Interests or DIs ). The DIs will be independent securities constituted under English law that may be held and transferred through the CREST system. 226
The depositary agreement under which the Company has appointed the Registrar to provide the DI arrangements and the principal registry agreement under which the Company has appointed Computershare Investor Services (Australia) Limited in Sydney, Australia to provide registry services, are described further below. The DIs will be created pursuant to and issued on the terms of a deed poll executed by the Registrar in favour of the holders of the DIs. Prospective holders of DIs should note that they will have no rights against Euroclear UK & Ireland or its subsidiaries in respect of the underlying Common Shares or the DIs representing them. Ordinary Shares will be registered in the name of the Registrar or its nominated custodian (the Custodian ) and the Registrar will issue DIs to participating CREST members. Each DI will be treated as one Ordinary Share for the purposes of determining, for example, eligibility for any dividends. The Registrar will pass on to holders of DIs any stock or cash benefits received by it as holder of Ordinary Shares on trust for such DI holder. DI holders will also be able to receive notices of meetings of holders of Ordinary Shares and other notices issued by the Company to its Shareholders. The DIs will have the same security code (ISIN) as the underlying Ordinary Shares and will not require a separate listing on AIM. 14.2 Summary of Deed Poll The deed poll, made by the Registrar on 17 January 2007 (the Deed Poll ), contains, among other things, provisions to the following effect which are binding on holders of DIs. Pursuant to the Deed Poll, the Registrar will hold (itself or through the Custodian), as bare trustee, the underlying securities issued by the Company and all and any rights and entitlements attributable to the underlying securities pertaining to the DIs for the benefit of the holders of the relevant DIs. Holders of DIs warrant, among other things, that the securities in the Company transferred or issued to the Custodian for the account of such holder on behalf of the Registrar are free and clear of all liens, charges, encumbrances or third party interests and that such transfers or issues are not in contravention of the Company s Constitution or any contractual obligation, law or regulation. The Registrar or Custodian must pass on to DI holders and exercise on behalf of DI holders all rights and entitlements received by it in respect of the underlying securities which are capable of being passed on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to call for, attend and vote at meetings shall be passed on, subject to the Deed Poll, in the form which they are received together with any amendments and additional documentation necessary to effect such passing-on, or, as the case may be, exercise in accordance with the Deed Poll. The Deed Poll contains provisions excluding and limiting the Registrar s liability. For example, the Registrar shall not be liable to any DI holder or any other person for liabilities arising out of or in connection with the performance or non-performance of its obligations under the Deed Poll or otherwise except as may result from its negligence or wilful default or fraud or that of any person for whom it is vicariously liable, provided that the Registrar shall not be liable for the negligence, wilful default or fraud of any custodian or agent which is not a member of its group unless it has failed to exercise reasonable care in the appointment and continued use and supervision of such custodian or agent. Furthermore, the Registrar s liability to a holder of DIs will be limited to the lesser of (a) the value of the deposited property that would have been properly attributable to the DIs to which the liability relates and (b) that proportion of 5,000,000 which corresponds to the portion which the amount the Registrar would otherwise be liable to pay to the DI holder bears to the aggregate of the amounts the Registrar would otherwise be liable to pay to all such holders in respect of the same act, omission or event (or, if there are no such other amounts, 5,000,000). The Registrar is entitled to charge each DI holder fees and expenses for the provision of its services under the Deed Poll. Each holder of DIs is liable to indemnify the Registrar and any Custodian (and their agents, officers and employees) against all liabilities arising from or incurred in connection with, or arising from any act related to, the Deed Poll so far as they relate to the property held for the account of DIs held by that holder, other than those resulting from the wilful default, negligence 227
or fraud of the Registrar, or the Custodian or agent if it is a member of the same group of companies as the Registrar or if the Custodian or agent is not a member of the same group, where the Registrar has failed to exercise reasonable care in the appointment and continued use and supervision of such Custodian or agent. The Registrar may terminate the Deed Poll by giving at least 90 days notice to the holders of DIs. During such period, holders may cancel their DIs and withdraw their deposited property and, if any DIs remain outstanding after termination, the Registrar must, among other things, deliver the deposited property in respect of the DIs to the relevant DI holders or, at its discretion, sell all or part of such deposited property. It shall, as soon as reasonably practicable, deliver the net proceeds of any such sale, after deducting any sums due to the Registrar, together with any other cash held by it under the Deed Poll pro rata to holders of DIs in respect of their DIs. The Registrar or the Custodian may require from any DI holder or former or prospective holder information as to the capacity in which DIs are owned or held and the identity of any other person with any interest of any kind in such DIs or the underlying securities and the holders are bound to provide such information requested. To the extent that, among other things, the Constitution requires disclosure to the Company of, or limitations in relation to, beneficial or other ownership of, or interests of any kind whatsoever in, the Company s securities, the holders of DIs are to comply with such provisions and with the Company s instructions with respect thereto. It should also be noted that holders of DIs may not have the opportunity to exercise all of the rights and entitlements available to holders of Ordinary Shares including, for example, the ability to vote on a show of hands. In relation to voting, it will be important for holders of DIs to give prompt instructions to the Registrar or Custodian, in accordance with any voting arrangements made available to them, to vote the underlying Ordinary Shares on their behalf or, to the extent possible, to take advantage of any arrangements enabling holders of DIs to vote such Ordinary Shares as a proxy of the Registrar or its Custodian. 14.3 Terms of Depository Agreement The terms of the depository agreement dated 17 October 2006 between the Company and the Registrar (the Depository Agreement ) under which the Company has appointed the Registrar to issue the DIs on the terms of the Deed Poll and to provide certain other services in connection with the DIs, are summarized below. The Registrar agrees to provide certain depository and custodian services under the Depository Agreement (the Depository and Custodian Services ) with reasonable skill and care and in accordance with FSMA and the CREST Regulations. The services include complying with the provisions of the Deed Poll, maintaining a DI register and dealing with routine correspondence with holders of DIs. The agreement is for an initial fixed term of 1 year following which it can be terminated by either party on six months notice. The agreement may also be terminated in certain other circumstances. The Company agrees to provide to the Registrar all information, data and documentation reasonably required by the Registrar to carry out the Depository and Custodian Services. Each party gives certain undertakings in relation to compliance with relevant data protection legislation. The Registrar is entitled, by serving prior written notice on the Company, to change the Depository Agreement if it is reasonably necessary to do so to reflect any change to CREST services or law. The Registrar indemnifies the Company against any loss arising as a result of the fraud, negligence or wilful default of the Registrar, subject to a cap on its liability of two times annual fees for any 12 month period. The Company agrees to indemnify the Registrar against all losses arising from its performance of its obligations under the Depository Agreement. The Company is to pay certain fees and charges as agreed between the Company and the Depository including, among other things, an annual fee, a fee based on the number of transactions conducted in DIs each month, and certain CREST related fees. The Registrar is also entitled to recover out of pocket fees and expenses. 228
14.4 Terms of Registry Agreement The terms of the registry agreement (the Registry Agreement ) between the Company and Computershare Investor Services Pty Limited (Australia) (the Registrar ) dated 26 October 2006 under which the Company has appointed the Registrar to maintain a branch share register of the Company in Australia, are summarised below. The Registrar agrees to provide certain registry services under the Registry Agreement. The services include maintaining the Company s share register in Australia. The agreement can be terminated by either party giving six months notice. The Agreement contains a provision that neither party shall be liable to the other party in respect of any loss incurred by the other party as a result of the discharge of its obligations under the Registry Agreement, save where such loss is incurred as a result of fraud, wilful deceit, negligence or breach of the Registry Agreement by the other party. The Company is to pay certain fees and charges, including an annual management fee. The Registrar is also entitled to recover out of pocket expenses. 15 Taxation The following comments are intended to provide a general summary of the Australian and UK taxation implications that may arise for certain Shareholders in respect of holding and disposing of Ordinary Shares. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular investor, and no representations are made with respect to the Australian and UK income tax consequences to any particular investor. Accordingly, prospective purchasers of shares in the Company should consult their own tax advisors for advice with respect to their particular circumstances. Investors should also be cognisant that any changes to the legislation or judicial interpretation of the legislation may affect their investment. You should also note that taxation is only one of the matters that you need to consider when making a decision on a financial product. The comments are based on the law and understanding of the practice of the tax authorities in the UK and Australia at the date of this document. 15.1 Tax residence of the Company It is expected that the Company will be managed and controlled in Australia and not elsewhere. Accordingly, it should be treated as being resident in Australia under the United Kingdom/ Australian double tax treaty and consequently not resident in the United Kingdom under the United Kingdom s domestic law. 15.2 Australian Taxation The following comments are based on the provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. The taxes applying to Australian resident companies include GST, Income Tax, Withholding Tax and other indirect taxes. A general summary of the major aspects of the Australian Tax System is provided below. Goods and Services Tax A Goods and Services Tax of 10 per cent. is imposed on the supply of most goods and services consumed in Australia. Taxation of Future Share Disposals Australian Resident Shareholders The taxation treatment on the disposal of Ordinary Shares will depend upon whether the shares are held on revenue or capital account. Australian resident Shareholders who trade in Ordinary Shares as part of the ordinary course of their business would hold their shares on revenue account. These Shareholders will be required to include the profit arising from the disposal of their Ordinary Shares in their assessable income. Conversely, a loss arising from the disposal of Ordinary Shares on revenue account would be allowed as a deduction from assessable income. 229
Generally, all other Australian resident Shareholders will hold their Ordinary Shares on capital account. These Australian resident Shareholders should consider the impact of Australian capital gains tax rules on the disposal of their Ordinary Shares. An Australian resident Shareholder will derive a capital gain where the proceeds received on disposal exceed the cost base of the Ordinary Share for capital gains tax purposes. Any net capital gain (after recoupment of capital losses) is included in the Shareholder s assessable income. Similarly, a Shareholder will make a capital loss on the disposal of an Ordinary Share where the disposal proceeds received are less than the reduced cost base of the Ordinary Share for capital gains tax purposes. Capital losses can only be used to offset current year capital gains or carried forward to offset future capital gains, they cannot be used to reduce non capital income. A discount may apply to reduce the amount of net capital gains that might otherwise be included in a Shareholder s assessable income. This is only available to shareholders that are individuals or trustees. For Shareholders that are individuals and trustees (other than trustees of complying superannuation funds) a 50 per cent. discount is available if the shares are held for at least 12 months. This concession will result in only 50 per cent. of the capital gain (after recoupment of capital losses) being assessable. For complying superannuation funds a one-third discount is available if the Ordinary Shares are held for at least 12 months. This concession will result in only two-thirds of the capital gain (after recoupment of capital losses) being assessable. Non-Australian Resident Shareholders Where Non-Australian resident Shareholders hold Ordinary Shares on revenue account, the profits on sale of the Ordinary Shares may be required to be included in the Shareholder s assessable income. This is subject to the application of any double tax treaty relief which may exclude such profits from Australian taxation. Generally, all other Non-Australian resident Shareholders will hold their Ordinary Shares on capital account. These Non-Australian resident Shareholders should consider the impact of Australian capital gains tax rules on the disposal of their Ordinary Shares. Non-Australian resident Shareholders holding their Ordinary Shares on capital account will only be liable to Australian taxation on any capital gain made on these shares where they (alone or with associates) hold a 10 per cent or greater interest in an Australian company and the assets of that company are predominately interests (direct or indirect) in Australian real property or mining, quarrying or prospecting rights over materials situated in Australia. We understand that the Company holds most of its real property assets in Australia at this point in time. As the majority of the real property interests of the Company are held in Australia, Non-Residents who (alone or with associates) hold a 10 per cent or greater interest in the Company will be subject to Australian Capital Gains Tax in the same manner as applicable to Australian Residents, as discussed above. Non-Australian resident shareholders will need to seek specific advice in respect of their particular circumstances with respect to Australian capital gains tax on the disposal of shares in the Company. Dividends Broadly, dividends paid on Ordinary Shares may be franked or unfranked. Franked dividends have franking credits attached. These credits represent underlying Australian corporate tax that has been paid on the profits distributed. To the extent a dividend is unfranked no franking credits are attached. Depending on the residency status of the Shareholder and whether a dividend is franked or unfranked, the receipt of a dividend will have different income tax implications as set out below. 230
Australian Resident Shareholders Australian resident Shareholders will include dividends received together with any attached franking credits in their assessable income. A tax offset will be allowed equal to the amount of franking credits attached to the dividend. Generally, to be eligible for the franking credit or franking offset, the Shareholder must have held the shares at risk for 45 days (not counting the day of acquisition or disposal). However, this rule should not apply where the tax offset entitlement does not exceed A$5,000 in respect of all dividends received during the income year in which the dividend is paid. Individual Shareholders and Complying Superannuation Funds may receive a tax refund if the franking credits attached to the dividend exceed their tax liability for the income year. Where the Shareholder is a corporate entity, the Shareholder will be entitled to a franking tax offset. Where the franking tax offset is greater than the tax payable by the company in an income year, the balance of the franking tax offset is grossed up and carry forward as a loss that can be used to reduce income in the future years. The receipt of a franked dividend will also generally give rise to a credit in the corporate entity s franking account to the extent the dividend is franked. Non-Australian Resident Shareholders Fully franked dividends, and dividends to the extent they are franked, paid to Non-Australian Resident Shareholders are generally not subject to withholding tax. Unfranked dividends paid to Non-Australian Resident Shareholders will be subject to withholding tax at a rate of 30 per cent. on the unfranked component of the dividend paid. The withholding tax rate is generally reduced to 15 per cent. (lower for certain other countries) where there is an applicable double tax treaty. Where a withholding tax applies the Company will be required to deduct the appropriate amount of withholding tax prior to making the dividend payment. Australian Stamp Duty There is no liability for stamp duty in Australia on the issue of Ordinary Shares or New Options by the Company. Similarly, there will be no liability for stamp duty in Australia if the Ordinary Shares are disposed of by a Shareholder as the company is listed. Other Matters Australian Resident Shareholders will generally be required to notify the Company of their tax file number (or Australian Business Number if carrying on an enterprise) in respect of Ordinary Shares held. Failure to do so may result in the Company being required to withhold tax at the top marginal individual rate including Medicare levy (currently 46.5 per cent.). The Shareholder will however be entitled to a credit or refund in their tax returns to the extent of the tax withheld. 15.3 United Kingdom taxation The following is a general description of certain UK tax consequences relating to the acquisition, ownership and disposal of the Company s Ordinary Shares by persons who are resident (and in the case of individuals, ordinarily resident and domiciled) in the UK for UK tax purposes and who are holding ordinary shares beneficially as investments (other than under a personal equity plan or an individual savings account) and who have not acquired (and are not deemed to have acquired) their shares by virtue of an office or employment. It is based on laws, regulations and other authorities in effect as of the date of this document, all of which are subject to change, possibly with retrospective effect. It provides general information only and may not apply to certain categories of persons such as brokers, traders or dealers in securities, insurance companies, charities, collective investment schemes or pension providers or to persons who (together with associates) have a 10 per cent. or greater interest in the Company. An investor s tax position will be affected by their own specific circumstances. It is recommended that all Shareholders obtain their own taxation advice with regards to the consequences of the purchase, ownership and disposal of the Ordinary Shares in light of their particular circumstances, including the potential impact of any relevant double tax agreements. 231
Taxation of dividends paid on ordinary shares in the UK No UK withholding tax is payable in respect of any dividends the Company may pay on its Ordinary Shares. Holders of Ordinary Shares who are resident in the UK for UK tax purposes and within the charge to UK tax will in general be subject to UK corporation tax or income tax on dividends received in respect of the Company s Ordinary Shares. Individual shareholders resident and domiciled in the UK receiving such dividends will be liable to income tax at the dividend rate of 10 per cent. or the dividend rate of 32.5 per cent. depending on their tax position. Different rates of tax may apply for certain individuals in receipt of dividends with effect from 6 April 2010 following changes in UK tax rates. Individual shareholders are entitled to a non refundable 10 per cent. tax credit on dividends. This tax credit is set against the individual s UK tax liability on the dividend. Note that in certain limited circumstances and where the individual shareholder owns a 10 per cent. or greater shareholding, the tax credit can be restricted. Individuals should seek their own advice to verify their position. Dividends paid to a UK resident corporate shareholder will be taxable income of the UK corporate shareholder unless the dividends fall within an exempt class and certain other conditions are met. It is however expected that dividends paid by the Company to a UK resident corporate shareholder would generally be exempt. To the extent that dividends are not exempt, UK resident corporate shareholders may be able to obtain credit for any withholding tax and any underlying tax paid by the Company, subject to certain conditions. The UK has complex double tax relief and controlled foreign company rules and therefore UK resident corporate shareholders should seek further advice on these issues. Taxation of capital gains in the UK Cost of acquisition To the extent that a shareholder acquires Ordinary Shares issued to him, the Ordinary Shares so issued will, for the purpose of tax on chargeable gains, be treated as acquired on the date of issue. The amount paid for the Ordinary Shares (together with any incidental costs of acquisition) will constitute the base cost of a Shareholder s holding. Individual investors A disposal or deemed disposal of Ordinary Shares by an individual who is resident or ordinarily resident and Non-UK domiciled, for UK tax purposes may, depending on that investor s circumstances, give rise to a capital gain or allowable loss for the purposes of UK taxation of capital gains. The current rate of tax on capital gains is 18 per cent. In very limited situations, relief may be available to reduce the gain chargeable to tax but specific advice should be sought in this regard. If an individual shareholder ceases to be resident or ordinarily resident in the UK for a period of less than five years and disposes of the Ordinary Shares, any gain on that disposal may be liable to UK capital gains tax upon that Shareholder becoming once again resident or ordinarily resident in the UK. Corporate investors UK resident corporate shareholders will, on first principles, be subject to corporation tax on any gain (after indexation allowance) made on the sale of Ordinary Shares, unless the substantial shareholding exemption applies to exempt the gain from a charge. Further advice should be sought on this exemption if relevant. Stamp duty and Stamp Duty Reserve Tax No stamp duty will be payable on the issue of Ordinary Shares. Stamp duty can however apply on the transfer of Ordinary Shares at the rate of 0.5 per cent. of the consideration paid for the transfer (rounded up to the nearest 5). It applies to a written transfer of Ordinary Shares executed in the UK or relating to any matter or thing done in the UK. Where stamp duty applies, such a transfer may not, except in criminal proceedings, be given in evidence or be 232
available for any purpose in the UK unless it is duly stamped. Whether or not an instrument is stamped, however, will not affect the registration of the transfer in the Company s registers of Ordinary Shares so long as that register is kept outside of the UK. Stamp Duty Reserve Tax ( SDRT ) will be chargeable (at a rate of 0.5 per cent. of the consideration) on an agreement to transfer Depositary Interests representing the ordinary shares within CREST. No SDRT will be chargeable on the issue of the Ordinary Shares nor on the transfer of the Ordinary Shares not within (or represented by DIs within) CREST provided the Company s register of Ordinary Shares is kept outside the UK. 16 Investments 16.1 Save as disclosed in this document, the Group has had no principal investments for each financial year during the period covering the latest three financial years up to the date of this document. 16.2 Save as disclosed in this document, the Group has had no principal investments that are in progress as at the date of this document. 16.3 Save as disclosed in this document, the Group does not have principal future investments on which the relevant company s Directors or management have made firm commitments as at the date of this document. 17 General 17.1 The gross proceeds of the Second Round Placing are expected to be 17,000,000 and the net proceeds after deduction of expenses are estimated at up to 15,118,600 for the Company. 17.2 The total costs and expenses of and incidental to Re-Admission and the Second Round Placing including registration and London Stock Exchange fees, professional fees and the costs of printing and distribution and are estimated to amount to approximately 1,950,000 (including Value Added Tax and placing commission) all of which will be payable by the Company. 17.3 The accounting reference date of the Company is 30 June. 17.4 The following payments aggregating over 10,000 have been made to governmental, regulatory and other such bodies by or on behalf of the Company with regard to the acquisition and maintenance of the Company s assets: 17.4.1 A$2,500,000 2 year term deposit invested with the Australia and New Zealand Banking Group Limited in the name of MRT, as trustee for Oceania Tasmania Pty Ltd, on 13 March 2007. The deposit carried an interest rate of 6.44 per cent. and matured on 13 March 2009. 17.4.2 A$250,000 bank guarantee was provided by Rimmelzwaan Homes on behalf of the Company to finance a rehabilitation bond to MRT for certain mining leases at Comstock. A$100,000 of the bond was paid in February 2001 and a further A$150,000 was paid in September 2001. 17.4.3 A$22,000 Environmental Bond was paid in two instalments dated 5 October 2005 and 1 August 2006, pursuant to EL 20/2002 in respect of the Oceana Deposit. 17.4.4 Payment of A$67,679 was made by the Company as its contribution for an electricity power line constructed by Aurora Energy Pty Ltd in March 2006. 17.4.5 Payment of A$222,610 was made on 13 April 2006 to West Coast Council (WCC) for contribution to the Trial Harbour Road Stage 2 Diversion for 123M/1947. 17.5 Except as disclosed in section 17.4 above, no payments aggregating over 10,000 to any government or regulatory authority or similar body have been made by or on behalf of the Company with regard to the acquisition or maintenance of its assets. 17.6 Save as disclosed in this document, no person (excluding professional advisers otherwise disclosed in this document and trade suppliers) has: (a) received, directly or indirectly, from the Company within 12 months preceding the date of this document; or (b) entered into contractual arrangements (not otherwise disclosed in this document) to receive, directly or indirectly, from the Company on or after Re-Admission any of the following: (i) fees totalling 10,000 or more; or 233
(ii) securities in the Company with a value of 10,000 or more calculated by reference to the Placing Price; or (iii) any other benefit with a value of 10,000 or more at the date of Re-Admission. 17.7 To the extent that information in this document is sourced from a third party, it has been accurately reproduced and so far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. 17.8 Grant Thornton UK LLP, whose registered office is at Grant Thornton House, Melton Street, Euston Square, London NW 1 2EP United Kingdom, has given and not withdrawn its written consent to the issue of this document with the inclusion of references to its name in the form and context in which they appear. 17.9 Westhouse Securities Limited is registered in England and Wales with registered number 05861129 and its registered office is at 12th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom. Westhouse Securities Limited is regulated by the FSA. Westhouse has given and not withdrawn its written consent to the issue of this document with the inclusion of references to its name in the form and context in which they appear. 17.10 Coffey Mining have given and not withdrawn their consent to the issue of this document with the inclusion of its name and references to its name in the form and context in which it appears, and the inclusion of the Creat Resources Summary Report, the Galaxy Summary Report and the extract from the Coffey Mining Valuation Report. 17.11 F.R. Schwab & Associates have given and not withdrawn their consent to the issue of this document with the inclusion of its name and references to its name in the form and context in which it appears, and the inclusion of the Anderson & Schwab Report. 17.12 Deloitte Corporate Finance Pty Limited has given and not withdrawn its written consent to the issue of this document with the inclusion of references to its name and Independent Expert s Report in the form and context in which they appear in this document or Notice of AGM. 17.13 Save as set out in this document, the Directors are not aware of any exceptional factors that have influenced the Company s activities. 17.14 Save as set out in this document, since 30 June 2009, being the date to which the last audited historical financial information relating to the Group has been published, the Group has continued its exploration activities as well as pursuing potential acquisitions or other transactions that would result in expansion of its mining operations within and outside Australia and resource diversification. On 7 September 2009, the Company received an unsecured loan of 500,000 so as to enable the Group to meet working capital requirements and its current liabilities. The Group is reliant on the continuing financial support of Creat Group. With the exception of these matters, there has been no significant change in the financial or trading position of the Group which has occurred since 30 June 2009. 17.15 Save as set out in this document, no commission is payable by the Company to any person in consideration of his agreeing to subscribe for securities to which this document relates or of his procuring or agreeing to procure subscriptions for such securities. 17.16 Save as disclosed in this document, there are no patents or licences, industrial, commercial or financial contracts which are material to the Group s business or profitability. 17.17 The name and address of the Company s current auditors and the current auditors of each member of the Group is Deloitte Touche Tohmatsu of Level 9, 22 Elizabeth Street, Hobart, Tasmania. Deloitte Touche Tohmatsu was appointed following an Extraordinary General Meeting of the Shareholders held on 31 July 2009. Prior to the appointment of Deloitte Touche Tohmatsu, the auditors of the Company and each member of the Group for the period covering the latest three financial years was UHY Haines Norton of Level 11, 1 York Street, Sydney NSW 2000, Australia. 17.18 Save as set out in paragraph 17.17, no auditors of any member of the Group have resigned, been removed or not been re-appointed during the period covering the latest three financial years. 17.19 Save as set out in this document, there are no environmental issues that may affect the Group s utilisation of its tangible fixed assets. 234
18 Availability of Admission Document A copy of the document will be available on the Company s website at www.creatresources.com. Copies of this document will be available free of charge during normal business hours on any weekday (except Saturdays and public holidays) at the offices of Norton Rose LLP, 3 More London Riverside, London, SE1 2AQ from the date of this document and shall remain available for a period of one month from Re-Admission. Date: 10 February 2010 235