Kangaroo updates Indonesian coal projects

MAMAHAK COAL PROJECT
During the Quarter, KRL?s subsidiary, PT Mamahak Cool Mining (?MOM?), decided to delay the resumption of operations at the Mamahak Coal Mine in Indonesia pending the completion of an operational? review and an improvement in international cool market conditions. As previously advised, mining operations at MOM were suspended in November 2012 due mainly to the impact of on industrial dispute between MCM?S mining contractor, PT PPA, and its on-site personnel.

The Company utilised this period to review operational efficiencies Mamahak including mine plans and strip ratios, contractor performance, barging strategy and exploration practices. This review was aimed at lowering costs to help counteract the impact of lower international coal prices.

The Company will consider a range of options to secure the longer term viability, of the Mamahak operation. This review has already identified several, potential cost-cutting measures, including the potential to lower the mining strip ratio ? which will result in reduced targeted production rates.

In light of this, Kangaroo terminated MCV?S contract with PT PPA which had equipped itself to meet the previously agreed production rates rather than the lower totes

proposed by Kangaroo. Accordingly, mamahak will pay compensation of US$,2.8 million to PT PPA for infrastructure which 1 had constructed on site. To offset The cost of demobilising equipment and to cover termination fees, associated with equipment on standby.

MCM has since signed an agreement with another mining contractor, PT Hero Krida Utama (PT HKU) under which Kangaroo will notify PT HKU three months the date wishes to start the new mining contract which will be dictated by an improvement in international coal market conditions.

Barging operations at Mamahak also remain temporarily suspended. However Kangaroo is in discussions with barge operators as part of a plan to ship the current on -site and port stockpiles which total 133,000 tonnes of coal. but this will cont rue ?a be highly dependent on adequate river levels allowing barge access.

In parallel with the operational review, Kangaroo is continuing its exploration a5ilin programme to increase the coal investor at mamahak. Resource definition and exploration drilling continued during the Quarter three drill rigs currently operation. During the Quarter 93 boreholes were dried for an aggregate 4,058 m.

In addition, the Company has been granted a Pinjam Pakai (environmental) permit for exploration during the next two years over a 1 4 km- area in another of the Company?s concessions within the Mamahak Project - MBE (Mahakam Bara Energi ) KRL will commence work on an exploration strategy for this concession immediately together with the MEL (Mahakam Energi Lestari) concession where the Pinjam Pakai was issued during Q4,2014

The focus for the remainder of 2013 will be continuing exploration in the newly opened areas (as well as the nearby concessions), with -he objective to increase the current? Mamahak coal resource and provide the basis for the definition of an Coal Reserve to justify the additional capex required to overcome the barging issues.

PAKAR THERMAL COAL PROJECT
KRL has previously announced the execution of direct foreign ownership or five key concessions and one asset-holding company at the Pakar Project.

The Pakar Cola Project is a cornerstone asset in KRL?s Indonesia coal production strategy, and the future cast flows to be generated by the Project, complementing its existing portfolio of thermal and coking coal projects in Indonesia.

During the Quarter, the Company continued the regulator process to obtain Government sign-off the transfer of the outstanding equity in the Pakar Project to KRL.

The completion of this process will further enhance the Company?s ownership of the Pakar Project and clear the way for commercial development of the asset to proceed.

In addition, the Company is continuing the preparation of feasibility studies and environmental impact studies to submit to the regulatory authority to convert all concessions from exploration status to exploration status to exploitation status.

The Company is also waiting on receipt of several Pinjam Pakai (environmental) permits before any on-site works can proceed at the Pakar Project,

GPK THERMAL COAL PROJECT
During ?the Quarter, the Company continued to progress the Pinjam Pakai permitting process required to enable it to carry out further exploration activities at the GPK Project The Company is aiming to secure the necessary permits which will enable confirmatory exploration to be carried out prior to the selection of a mining contractor and award a mining contract.

KRL is committed to the development of GPK but, in light of current coal markets, the Company is currently evaluating the timing of the development of the this project.

The Company is also continuing the process of acquiring direct foreign ownership of the GPK asset by converting PT GPK into and Indonesian PMA company (a foreign investment company) and transferring approximately 85 per cent of the shares in Pt GPK directly to KRL. Upon KRL receipt of the shares in PT GPK, KRL will issue approximately 8 per cent of its shares in PT GPK to Kal Energy.

CORPORATE
During the Quarter, the company continued to monitor the court proceedings initiated by white energy company limited (WEC) against PT bayan Resources Tbk. To KRL;s knowledge, it has only been joined as a party to these proceedings so that the order referenced in the WEC announcement could be made.

KRL in not aware of any other claim or allegation made against it in relation to the proceedings and therefore does not, at this stage, anticipate any adverse impact arising from the proceedings in relation to KRL or its operations.

Cash at bank at the end of the March Quarter was $3,8 million, with a total of to US$10,5 million due to be received once the complete project equity component of the pakar transaction has been finalized. (end of release)