Ann: Response to ASX Query Letter, page-24

I'm in Commercial Finance with one of the big 4 (and have accounting quals) so see this type of transaction on a daily basis and nothing stands out as improper or commercially unrealistic. The asset impairments are a normal prudent accounting action at a point in time only and timing of cattle sales will see adjustments in due course (like the 336 of head sold in Dec and Mar).

It's pretty obvious they saw the station as a strategic asset to the exploration activities and given they had been operating from there (and paying for the accommodation and earthmoving) made the choice to reduce outgoings in these areas by owning the assets when they became aware the station was to be sold. Operating from there would probably explain why they were able to have the knowledge the station was going to be sold.

The asx announcements regarding the purchase and terms does reference independent valuations being conducted on the plant and equipment and the comments made by Summers on this announcement further add further clarity so the comments regarding a lack of due diligence are wrong. Having operated from the station for the period prior to purchase would have given them first-hand experience with the quality of the assets and what was needed to be rationalized or upgraded, remembering they bought the station primarily as an exploration company not as a pastoral company so their priorities would be different to the vendor.

On the matter of cash flow don't forget that a significant part of the previous owner's cash flow was coming from Torian/Asra which would then naturally cease when we took ownership and in turn our expenses would reduce by that amount. This will affect headline cashflow numbers (and also EBITDA and NPAT for that entity) and reported number moving forwards will depend entirely on the accounting process they undertake for the underlying individual entities. For example, will they expense the full exploration costs (accommodation, track construction, drill pad clearing, drill site rehab etc) to the Asra parent entity which will then show as cashflow to the station and civils entities, or will they simply aggregate under the combined entities accounting standards?
The same cash flow treatment can be made with the external drilling costs. Either invoice the drilling companies for the accomodation and civils costs independently or reduce the agreed drilling contract by this amount. Net position to the company is unchanged but it will have the appearance of a reduced cashflow on the financials if the second option is utilized.
This is something I will be watching when the full accounts are produced after they have been operating for a minimum of 12 months. (appears currently to be some adjustments and contra entries in the cashflow statements which should wash out between underlying entities after a full financial year of operations).

My personal view is that it appears the purchase is an educated and strategic one that adds value to the company (unlike the BullionFX deal which I am still scratching my head over). My issue with the company is the lack of updates on the MRE and rare earths progress.

Hope that helps because there appears to be a lot of confusion and misinformation on this thread.