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Are Australian Coal Mines Overpriced?

Manish GargPrincipal – Corporate Services

2XstractGroup.com

Overview of XstractMining Consultancy formed Feb 2009• Geological assessment• Mining • Corporate Services• Mineral Specialist Reports• Asset Valuation• Technical Due Diligence• Macro Economics & Corporate Strategy

• Countries• Commodities• Projects/Mines/Companies

First Reserve CorpGlencore US$2.5B

TemasekPlatminUS$250M

AngloPacificRoyaltyUS$25M

AMCIBelvedereUS$92M

India Mongolia Indonesia

Coal Iron Ore

Excellence from the outset

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Value by Project Development Status

Source: Lilford, 2007

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Value by Project Development StatusValuation Approach

Method Producing Properties

Development Properties

Exploration Properties

Income Discounted Cash Flow Yes Maybe No

Option Pricing Yes Yes No

Cost Appraised Value / Multiple of Exploration Expenditure

No Yes Yes

Geosciences Factor No Maybe Yes

Market Comparable Transactions Yes Yes Yes

“Rule of thumb” Yes Yes Yes

Use of “Comparable Transactions” is most popular. The difficulty with this method is in determining to what extent the property or transaction is indeed comparable.

“Rule of thumb” incorporate a capitalisation approach based on an operational or stock metric is often used in the mining industry to provide value estimates for projects that are in development stage for which reliable cash flow estimates or earnings data is unavailable.

Common Matrices: $/t Resource, $/t M + I Res, $/t Reserves, $/annual production

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Recent Transactions: ExplorersEV per Resource tonne (A$/t)

2006 2007 2008 2009

Sojitz M

inerva/Athena

Caledon Minyango

Korean Minerva/A

thena

Vale Belvedere

Xstrata Anvil

Enterpris

eE Arcadia

IPO Coalworks

Xinwen Emerald

Sojitz Yamala

Aston M

aules creek

-$0.60

-$0.00

$0.60

$1.20

$1.80

Average

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Recent Transactions: Developers/ProducersEV per Resource tonne (A$/t)

Kores Moolarb

en

Baosteel A

quila

Sojitz M

oolarben

EDF Narrabri

Jpower Narra

bri

Kores Narra

bri

Macarth

ur Middlemount

Cliff Sonoma

BHP New Saraji

Noble Glouceste

r

White

haven Werri

sCreek

Yanzhou Felix

Cockatoo Baralaba

Caledon Cook

AMCI Felix

Citic Maca

rthur

Xstract

Tahnoor

Vale AMCI

Anglo Foxleigh

ArcelorM

ittal Maca

rthur

Xstract

Newpac $-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00 ProducersDevelopers

Average

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Coal & Allie

d

MacArth

ur Coal

White

haven Coal

Centennial Coal

New Hope Corp

Glouceste

r

Cockatoo Coal

China Shenhua Energy

Peabody Energy

Yanzhou Coal

Consol E

nergy

Bumi Reso

urces

PT Adaro

Alpha Natural Reso

urces

Arch Coal

Massay Energy

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

ProducersEV per Mining Inventory (Reserve + M + I Resource) of major coal producers

A$/tonne

Australian International

Average

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Emerging Developments

• Coal Seam gas (CSG) and Underground Coal Gasification (UCG) considerations

• Overlapping exploration permits (coal, minerals and petroleum)

• Uncertainty associated with RSPT – higher geo-political risk rating

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Summary

Based on comparison of recent transactions

Australian coal mines are not overpriced- producers trading close to their international peers (Mar 2010)

Time will tell the impact of RSPT on the value of Australian coal mines & projects

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Thank You

Manish GargXstract Mining Consultants