Ann: Corporate Update May 2017, page-2

AIN INTERVIEWS 02/07/2017 "We came to Chukotka for a long time and seriously" Top management of Tigers Realm Coal on plans in the Far East The Australian company Tigers Realm Coal, Ltd.

Began production from the reserves of the coal field Fandyushkinsky field. The main assets of Tigers, a coal port and two licensed areas close to the sea coast with coking coal resources of more than 600 million tons, are located on the Chukchi coast of the Bering Sea. In early April, representatives of the company's management and shareholders intend to visit the Chukotka Autonomous Okrug once again and hold talks with the regional administration on further cooperation, taking into account the opportunities that the foreign investor opens up as a resident of the territory of advanced development (TOP). Chief Executive Officer (CEO) Tigers Realm Coal Peter Balka and CEO Denis Kurochkin told EastRussia of their plans. "We came to Chukotka for a long time and seriously" Photo: Tigers Realm Coal CEO Denis Kurochkin and CEO of Peter Balka // photo TASS - Foreign residents in the Russian Far Eastern TOPs are still rare. Your company is an exception: you not only did not stop the project in connection with "the difficult political situation and the regime of economic sanctions", but also brought it to the first intermediate finish. What business considerations did you follow? Denis Kurochkin: - Our tactics and strategy in working in the Russian Far East are dictated by objective circumstances, and, first of all, the situation on the world market. Sharp, two and a half or three times, the surge in coking coal prices in the second half of 2016, according to most experts, is a temporary phenomenon. This was due to the limitation of production volumes imposed by China. We understand that prices will inevitably go down, and we hope that their medium-term level will allow us to attract financing for the development of our assets. In the current situation, competitiveness depends on the quality of the extracted raw materials and logistics factors, primarily on the transport availability of the fields. In this regard, the development of deposits in Chukotka, not tied to the railway or foreign ports, is of special interest to us. Peter Balka: - At the beginning of the year we began to mine open-pit coal in the western part of the Fandyushkinsky field. In the first half of 2017, it is planned to produce the first 200 thousand tons of high-quality coking coal. As for the prospects, on the flanks of the field prospecting and appraisal work continues, and in the future there is a real opportunity to increase new territories to the Fandyushkinsky field. Our plans for additional exploration of the resource base of Upper Alkatvaam are best explained by the geographical map. Our license area is about 400 square meters. Km. According to our estimates, the field has the technical capacity to annually produce about 2 million tonnes of coking coal, in demand in industry and energy, over the next 15-20 years. It is very important that this coal can be transported through the seaport of Beringovsky, which is located less than 40 km from the mine. During 2017, it is planned to produce up to 400 thousand tons of coal at Fandyushkinsky field, and the shipment volume from the local port will be 200 thousand tons. Of course, this is a minimal, initial plan, it will take us some time to gradually increase the volumes. In 2018, production is planned to increase to 600 thousand tons. We expect that due to the development of the deposit in Chukotka, Tigers Realm Coal shares will soon grow in price on the Australian Stock Exchange (ASX). True, according to our legislation, I can not name specific figures and profitability indicators, so I will refrain from more detailed comments. - As a resident of the territory of advanced development (TOP) the company has a number of preferences. How important are these benefits and how is your cooperation now being built with authorities and development institutions in the Far East? Denis Kurochkin: - I became almost a native airport "Coal Mine" in Anadyr (it is across the strait from the city itself). Before the port of Beringovsky helicopters fly from there - the journey takes an hour and a half. In Chukotka, we work in close contact with the administration of the region, led by the governor Roman Kopin. We also find complete understanding in the Moscow specialized departments. Peter Balka: - Personally, I'm in Chukotka all the time and spend about three weeks there every two months. Only last week I returned from a two-week business trip to the region. Creation of TOP "Beringovsky" significantly facilitated all business processes in the Chukotka Autonomous Okrug. Thanks to this, we quickly obtain all the necessary permits, with the full cooperation of the Ministry of Economic Development of Russia, the highest executive bodies of state power, as well as the executive and administrative bodies of municipal entities in the territory of the Chukotka Autonomous District. To finance construction, as well as for geological exploration, the company uses the means of shareholders. However, we believe that the provision of all necessary documentation is a great help in the development of our project. - Does the company intend to carry out the reconnaissance further on its own? Peter Balka: - Our company performs additional exploration on its own and with the financial support of private investors, without the participation of the Chukotka AO administration. It was not yet about co-financing the work. In the exploration of new deposits, we plan to invest future revenues from coal mining in the Fandyushkinsky field. Thus, in three or four years we will be able to start development and other promising areas - we hope that their capabilities will last for another hundred years. This can also be considered our declaration of intent: we are in Chukotka for a long time and seriously. - Mr. Balka, as far as we know, you are a certified mining engineer and have been working in this industry for more than a quarter of a century. They began their industrial career in Rio Tinto, designed and built mines, mines and quarries not only in Australia, but also in Africa, Indonesia, Colombia, Laos, New Zealand. You have been in Russia for five years already. What is more - problems or opportunities? Peter Balka: - My personal experience in different countries and over different mining projects allows us to state with certainty only one fact - there are no conditions ideal for the mining industry in any country in the world. Each country, in every jurisdiction has its advantages and disadvantages, each has its own strengths and weaknesses. And in each country it would be possible to find interesting, that is, profitable in the development of the deposit. That's only in which countries new fields will be discovered, reconnoitered and mastered in fact? The methods of reconnaissance, the level of mining equipment, the technology of designing and developing deposits in all countries and on all continents are practically the same today. Differences - in the peculiarities of the legislation of different countries and in what is usually called the investment climate. These differences determine how many projects will attract the attention of investors and, accordingly, how many deposits will be open, explored and developed in the country. - What attracts foreign investors to the mining industry in Russia? Peter Balka: - First of all, in comparison with other countries and continents, its subsoil is very poorly explored. Hence, there is a huge potential to open large and rich deposits. But in reality there are very few new discoveries, and neither Russian nor foreign investors are eager to invest in geological exploration of Russian mineral resources. In 2012, for example, the entire vast territory of Russia accounted for about 3% of global exploration costs. The share of smaller and much more geologically explored countries is several times greater: Canada - 18%, Australia - 13%, the United States - 8%, South Africa - 8%, Mexico - 6%. Why so, you ask? "Of course I will." Peter Balka: - Because all relative prospects of Russian mineral resources are crossed out by two major drawbacks. First, risky in itself, in Russia, geological exploration is artificially burdened with the obligation to bear absolutely unnecessary costs for the good of the matter. So, in Russia, unlike the US, Australia, South Africa or Canada, you do not just need to spend money on a multi-page project, but also pass a state expertise and, with its positive conclusion, approve the project in the subsoil use agency. At the same time, the recommendations of the State Commission on Reserves, which are mandatory for the designers, are formulated more likely in the interest of geological science than the efficiency of prospecting and exploration of deposits. State experts are experienced geologists, not economists. As a result, for each such a geological project, you can write and defend a dissertation, but the money for discovery and exploration of the deposit will have to be multiply more than in Australia, the Americas or South Africa. Naturally, investors prefer to spend their money where they will have more returns, that is, outside of Russian jurisdiction. Read also: UN experts noted the compliance of Russia with a declaration on the rights of indigenous peoples In TOP and SPV of the Far East in 2016-17, attracted 1.67 trillion rubles Paratunka Kamchatka TOP attracted 12 investors with investments of 5.5 billion rubles Secondly, licenses for geological exploration in Russia are issued for five years, whereas in order to find and search for a deposit, an average of 10-12 years is required. As a rule, licenses are renewed after five years - for two or three years. But the risk that you will spend money, and a license may not extend, there is always. And for many investors, this risk is unacceptable. Likewise, the situation that is losing for the Russian jurisdiction is also in the state regulation of production. "But without it, not one country in the world can do it. The mining industry is strategically important for any state, it would be strange to give it entirely to the hands of private business without adequate control. Peter Balka: - Russian mining enterprises today also depend on the conjuncture of the world market, as well as their competitors in other countries and on other continents. The market dictates prices to producers, and with them both volumes and rates of extraction. Dictates everywhere - but not in Russia. Here, the supervisory authorities keep an eye on the fact that the enterprise should not be in demand of the market, but with the volumes and rates of production prescribed by the technical design of the field development, the indicators of which could be developed and approved in fundamentally different economic conditions, at other prices and another level of demand. In the course of mining, miners are required to approve mining plans every year, for which mining enterprises, as a rule, are subject to sanctions, until the production is stopped. In this senseless struggle against the forces of the market, the most experienced, most qualified specialists are employed on both sides, both at enterprises and supervisory departments. And in the losers are both enterprises whose profits are eaten by unproductive costs, and the state, which carries costs for maintenance of state controllers, and loses tax revenues. I agree that state supervision is necessary, and in Australia, for example, it is very tough. But they control what is really important for society in Australia. Namely, that development of deposits does not cause damage to nature and does not threaten life and health of people. As those people who live in the zone of potential impact of mining, and employees of the enterprise-subsoil user and its contractors. Where to drill, how, what and when to extract, the companies decide themselves, following the market trends and relying on the professional experience of their specialists. It seems to me that if the Russian government and lawmakers soberly assess the budget expenditures for controlling the mining business and simplify the administration of geological exploration and mining to at least the level of Australia or Canada - countries where, unlike the United States of America, the subsoil is also in the state, and Not private property - for the budget this will result in significant cost savings, and for the industry - increased efficiency and increased investment. - If we are talking not about the industry as a whole, but about your company - are the investors of Tigers Realm Coal happy with the implementation of the Chukotka project? And who are they, your shareholders? Denis Kurochkin: - Tigers Realm Coal is an open joint stock company with about a thousand co-owners. To date, the main holders of shares are Baring Vostok, RFPI and private Australian investor Bruce Gray. The rest - about a thousand Australian private investors and small funds. Investors fully support the company's strategic plans for business in Chukotka, as evidenced by the stable support that they provide when raising funds for the development of the company, including in the most difficult times. Peter Balka: - Over the past year, it has been possible to raise about 23 million Australian dollars of investments from existing shareholders of the company (approximately $ 18 million). We immediately began to invest this money in the construction of infrastructure facilities, not only engineering networks, but also housing for staff. From August to December 2016, we managed to master about $ 4 million, completely completing the construction of a road for the exploitation of the mine in winter. However, to make the land "avtozimnik" suitable for summer use, additional work will be required. We plan to make the all-season road the summer of 2017. In addition, industrial production facilities such as a repair shop at the field and a coal laboratory in the port have been built and put into operation, and from the non-production - an office building for administrative personnel and a residential complex for employees. Now part of the workers lives 40 km from the mine, in the village of Beringovsky, and every day goes home. The rest prefer to live in close proximity to production and work on a rotational basis. - Do you plan a massive recruitment? Given the harsh conditions of Chukotka, how can you attract such employees? Peter Balka: - At the first stage of development of the field, while the production volume does not exceed 200-500 thousand tons, we intend to employ 80 to 120 personnel. In the future, we plan to increase production and create about 500 jobs in the field and in the port by 2019-2020. We can hire people with both experience and no experience in the coal industry. At present, people from different regions of Russia work for us, but mostly, naturally, from the territory of the Far East and Eastern Siberia. Denis Kurochkin: - We provide our employees with a sufficiently high level of salary. So, for example, skilled production personnel working on the extraction and transportation of coal receives about 80-100 thousand rubles a month, key engineering and technical employees - twice as much. We value qualified personnel and try not to lose them. Peter Balka: - Currently, about 30 local residents are involved in the field - both administrative and maintenance, as well as engineering and technical personnel.Near the village Beringovsky recently closed the local mine, so we were able to hire people of different professions with experience in the coal industry. Overall, the Russian company are about 120 people, including the Moscow office, consisting of 10-12 people. The company's management is also often the case in Russia and closely monitors the business processes. While dissatisfaction neither the company nor the shareholders nor employees are not expressed. I hope that in the future Chukotka reason we will not give up for disappointment. - Are there difficulties in the implementation of the project to date? Denis Kurochkin: - As such intractable problems associated with the project itself, no. But as with any project, there is a problem of bureaucratic approvals, receipt of which is time consuming. For example, to start exporting coal deliveries in the second half of the year, to be opened checkpoint in the port of Bering. To do this, you want to get a number of approvals from the customs, border and health authorities about the start of work in the conditions to meet their minimum requirements. Currently border crossing that meets all the requirements stipulated by the legislation, to build in such a short time we can not afford. But he did not need for the port, which is only for shipment of 10-15 vessels with coal for export within five months of navigation. We hope that based on the already existing support of regional and federal authorities, we will be able to pass this period with minimum efforts and time.

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