Kangaroo updates Indonesian coal projects

MAMAHAK COAL PROJECT
Production at Mamahak Coal Mining (MCM) remains suspended pending identification of additional mineable reserves from MCM, Mahakam Energi Lestari (MEL), Mahakam Bara Energi (MBE) and BKL, construction of new road and port along with improvements in the international coal market. An exploration work program is in place to identify additional coal reserves.

During the September 2013 Quarter - no mining production activity was carried out, however coal crushing and coal hauling activity was continued to move all coal product stockpiles to the Long Hubung port area on the Mahakam River.

Low river water levels prevented the barging of coal during the September 2013 Quarter. Remaining coal stockpiles of around 64,265 tonnes will be sold down as soon as river levels allow barging from the existing port location, leaving only bedding coal of 7,675 tonnes.

Site investigation & exploration activities continued during the September 2013 Quarter. A total of 4 exploration drill rigs were in operation at MCM and MEL. During the September 2013 Quarter, a total of 126 boreholes were drilled for an aggregate total of 6,384m linear meters drilling at MCM and a further 44 holes equating to 2,717m of drilling were completed at MEL.

Exploration work has been increased progressively over the last 4 quarters with the introduction of additional drilling equipment and personnel.

Q4-201 2 3,402 Lin m drilled (84holes)
Q1-2013 4,058 Lin m drilled (93holes)
Q2-2013 7,389 Lin m drilled (l59holes)
Q3-201 3 9,042 Lin m drilled (170holes)

The 5,000 Hectare MEL concession is within an area designated for Production Forestry. The current forestry usage permit for MEL covers 1,516 Hectares.

MBE has not yet been explored. Access to the 5,000 Hectare MBE concession for exploration requires the establishment of a new road access over difficult terrain. The current forestry usage permit for MBE covers 1,420 Hectares.

Forestry usage permits are limited in both size and time and further applications for additional and/or replacement forestry permits will be necessary as the footprint of the Company?s exploration progresses.

The Company?s focus at Mamahak for the remainder of 2013 will be in continuing ongoing exploration in MCM & MEL concession areas and also in establishing new vehicular access to the eastern areas of MEL and also to the easternmost MBE concession to allow access for drilling rigs to commence exploration drilling.

The success of the Mamahak project is dependent on the identification and definition of a larger mineable Coal Reserve to justify the additional capital expenditure required to overcome the barging restrictions caused by the seasonal river level variations at the current Long Hubung port location.

PAKAR COAL PROJECT
4 projects (TA, AU, BS and CA) are now in the process of legal hand over between BAYAN and the Company. These 4 projects are in the hands of BAYAN who have now commenced the various legal processes necessary to have these transferred to the Company.

A new exploration strategy and individual exploration programs for each of the Pakar concessions is being prepared along with budget estimates in readiness for access to the Pakar areas. Additional work outstanding feasibility studies (based on existing site investigation data) and environmental impact studies will be required to support applications for forestry usage permits.

Pakar Infrastructure (SAU)
BAYAN currently has two coal mining concessions in production adjoining the northern boundary of the Company?s Pakar (North) concessions. BAYAN is currently barging coal from these concessions to the Gunung Sari port to the west on the Beloyan River. BAYAN is planning to construct a new road from these concessions to a new port location on the larger capacity Kedang Kepala River to enable a major expansion in production capacity from these mines.

Further discussions were held with Bayan during the September 2013 Quarter to enable the Companys Pakar projects to also access the proposed new haul road, conveyor and barge loading facilities once constructed. These facilities will connect all 9 Pakar coal projects to a new large scale port area on the Senyiur River.

BAYAN and the Company have identified an opportunity to utilise the currently unused SAU infrastructure, including haul roads, buildings and land in the establishment of the proposed new Infrastructure.

Further discussion between the Company and BAYAN will continue in the December 2013 Quarter to establish a cooperation framework and commercial agreements under which cooperation can be formalized for the long term benefit of both parties.

GRAHA PANCA KARSA COAL PROJECT (GPK)
The forestry usage permit ?Pinjam Pakai? required to enable it to carry out further exploration activities at the GPK Project has not yet been released by the authorities. The Company is required to secure the necessary forestry usage permits which will enable additional confirmation exploration to be carried out prior to the selection of a mining contractor and award of a mining contract. In-principle approval has been given, however activity cannot be commenced until the formal permit documentation has been issued.

To enhance tenure, the Company is also continuing the legal process of acquiring direct foreign ownership of the GPK asset by converting GPK into an Indonesian PMA company (a foreign investment company) and transferring approximately 84.82 per cent of the shares in GPK directly to the Company.

Under the terms on on existing commercial agreement with KAL Energy dating back to April 2010, upon receipt of the shares in GPK, the Company will issue approximately 8 per cent of its shares in GPK to KAL Energy leaving its total direct ownership at 76.82 per cent.

CORPORATE
During the September 2013 Quarter, the Company continued to monitor the Supreme Court of Western Australia proceedings initiated by a subsidiary of WEC (BCBC Singapore Pte Ltd) against BAYAN for freezing orders. The freezing orders made against the KRL were discharged following an order by the Supreme Court of Western Australia judgment which was delivered on 26 June 2013. Accordingly, these proceedings no longer concern KRL.

However, there are appeal proceedings on foot in the Western Australia Court of Appeal, brought by BAYAN. BAYAN continues to challenge the power of the Court to make freezing orders against it. KRL has been joined as an appellant to the proceedings only for the purpose of challenging the costs orders that were made against it in the court below but is not taking an active part in the appeal. The appeal proceedings are currently waiting for a hearing date for 1 to 2 days between February and April 2014.

On 10 May 2013, Chimaera Capital Markets Pte Ltd and Empire Equity Ltd (Plaintiffs) commenced proceedings against KRL in the Supreme Court of Victoria. The Plaintiffs claim payments payable totalling approximately $28 million plus KRL shares and warrants, pursuant to a mandate entered into by the parties on 17 November 2010 and amended on 7 December 2010, for the provision of consultancy services for a period of 3 months in relation to a proposed bond issuance by KRL. The bond issue did not occur and the Plaintiffs were paid in KRL shares to the value of approximately $810,000 for their services provided (the services provided being minimal). The Plaintiffs claim entitlement for additional fees for the transaction entered into by KRL with Bayan, which they did not procure or participate in.

KRL denies the allegations made by the Plaintiffs and in July this year, filed and served its defence in the proceedings. The current status of the proceedings involves KRL providing further discovery, with a Court ordered mediation to take place later this year.

Cash at bank at the end of the March Quarter was - AU$3.00 million, with a total of up to US$10.50 million due to be received once the complete project equity component of the Pakar transaction has been finalised,

In September 2013 the Indonesian Minister of Mines and Energy issued new regulations related to foreign ownership of mining concessions. As the new regulation is written, all foreign owned entities which hold mining licences in Indonesia will need to divest at some point to meet prescribed levels. Maximum foreign ownership of a mining concession is now restricted to 49% after 10 years of production.

This latest regulation has only just hit the streets and there is still some lack of clarity surrounding how and when foreign owned mining concessions will transition from their current positions in order to achieve compliance. The Company has sought further legal advice in this matter. (end of release)