White Energy updates on KSC's Tabang operation

White Energy Company Limited: Further to its previous update on 9 November 2011, White Energy wishes to advise shareholders of the result of discussions which took place with PT Bayan Resources Tbk (?Bayan?) late last week, relating to its 51% owned Indonesian subsidiary company PT Kaltim Supacoal (?KSC?).

During discussions involving senior representatives of White Energy and Bayan in Jakarta, the parties were unable to reach agreement on commercial terms relating to the ongoing supply of coal by Bayan to KSC.

White Energy requested that Bayan continue to supply run of mine coal from its Tabang mine to KSC up until the end of June 2012, in order to enable KSC to finalise the testing of plant modification works currently in the final stages of completion, which are designed to allow the Tabang plant to operate at a commercial rate of production.

However, Bayan proposed the following in response to White Energy?s request:

1. Bayan would supply run of mine coal to KSC at the Indonesian government coal reference (HBA) price;
2. Bayan would supply its run of mine coal up until 30 June 2012 to allow the outstanding plant modification works to be completed and commissioned;
3. Items 1 and 2 above were conditional upon White Energy agreeing to purchase Bayan?s 49% of KSC for around US$45 million, on terms acceptable to Bayan. This amount represents the funding contributions that Bayan have made to KSC since inception of the project.

The Directors of White Energy met over the weekend and concluded that it is not in the best interests of shareholders to purchase Bayan?s 49% equity for this amount, for a plant that will be stranded on the Tabang site without any ongoing feedstock coal supply.

Both shareholders of KSC have contributed significant at risk capital towards the Tabang project. As shareholders are aware, White Energy has funded KSC via disproportionate loans since mid-2010.

White Energy has given notice to Bayan that it is in breach of its obligations under the Joint Venture Deed between the KSC shareholders, including its obligation to procure coal supply to KSC, and has given Bayan 7 days to rectify the breach. In the interim, as a result of the above issues it may be that KSC will be unable to proceed with the completion of outstanding modification works at the Tabang plant.

Furthermore, Bayan have also formally requested an Extraordinary General Meeting of the shareholders of KSC, in order to discuss issues in relation to the supply of coal to KSC by Bayan, the purchase of upgraded coal by Bayan from KSC and the KSC joint venture.

In the meantime, White Energy will continue to review all available options. In this regard, the Company is currently in discussions with other Indonesian parties regarding the construction of one or more BCB plants on their mine sites in Indonesia. It is White Energy?s intention to take a direct equity interest in some of these potential mine sites.

Shareholders should also be aware that there exists a strong willingness from the local and national government in Indonesia to have a successful coal upgrading technology in the Indonesian market, which was confirmed during a recent visit by the regional governor to the KSC?s Ta bang site.

White Energy?s Managing Director and CEO, Brian Flannery, said ; ?White Energy?s Board and management team are clearly disappointed with the timing of Bayan?s recent actions, considering that modification works to address the remaining technical issues at the plant are in the final stages of completion.?

?However, White Energy feels that it would not be in the best interests of shareholders to succumb to Bayan?s demand to purchase Bayan?s 49% of KSC for US$45 million as a condition of continued coal supply to KSC. Rather, White Energy will pursue its legal and other commercial options.?

?The Company is on the cusp of bringing into full production the world?s largest coal upgrading plant, and whilst the current issues with Bayan may be a set-back for Ta bang, it does not change the Board?s firm view that there is an ongoing strong demand from large coal companies in both Indonesia and globally to partner up with White Energy to commercialise the BCB technology.?

?Our strategy in Indonesia is to leverage our technology into securing future resource ownership, and we are well advanced in talks with a number of interested parties in this regard.?

?Indonesian low rank coal is ideal for upgrading, and despite the current issues at the Tabang plant, we are determined to build a profitable coal exporting business into key Asian markets.? (ends)