Ann: Business Update , page-28

Hi Ladies and Gents

Here is an email from Hamish in reply to my email:

Cheers

Dear,,,,,

Notwithstanding that coal prices are at a long time low, the industry as a whole is in a lot of pain, our major NZ producer is relying on financial support from Treasury and we have been dragged through an incredibly long and expensive process to get our Buller project on the road, we believe that we are in a position to ride out the current cycle and be ready with Escarpment when the market turns.

Our burn on licensing and related costs has abated and we have the cash to place our bonds for escarpment once DOC determine the final number based on our current work program – which they are doing at the moment. The March quarter was not cash positive as discussed below, however our forecast is to become so in the current quarter.

In February we announced our plans to restructure the company to ensure its viability in the face of plunging global coal prices. We made 19 people redundant and reduced spending where possible to ensure that our domestic operations could sustain the company until the coking coal prices recover. This quarter just gone carried the majority of those redundancy payouts however the reduced salary payments and other cost saving initiatives will reduce the admin costs going forward.

In terms of production costs, there is a forecast reduction from this point onwards as we have, up until now, incurred substantial costs for overburden removal at both the Cascade and Takitimu mine sites. Going forward our strip ratios at both sites will reduce substantially, so reducing the cost for production whilst the revenue income will remain around the $10 - 13 million mark.

The delay in securing all approvals for Escarpment has been a constant cash drain. The recent capital raising was to ensure that we had funds available to properly develop the Buller project. We are considering following this with a small rights issue to give all shareholders the chance to participate at the placement price.

Once the final Authority to Enter and Operate for Escarpment is issued we can commence preparatory mine works. Whilst we have announced that we will not be taking the mine to full commercial production until the export coking coal price recovers, we will have the opportunity to sell the initial construction coal into the domestic market at a reasonable margin.

I have enclosed our recent Quarterly Cash Flow and draw your attention to Section 7 which details the forecast for the next quarter.

I appreciate your frustration and anger at the position the Company is in, in the face of a long and drawn out consenting process and market collapse. However, we are working hard and focused on delivering positive results going forward.


Hamish Bohannan

Managing Director