Ann: Quarterly Activities Report, page-99

MM,

This is part of what I posted previously on the matter. as background I was regional CFO of a multinational and had to deal with auditors on accounts in a few countries in the APAC region.

The writedowns have nothing to do with tax, even if the company was in a tax paying position, they could only claim a deduction if the assets were scrapped or if sold the difference between book value and sale price.

In my experience, having had to support asset values in annual accounts for large manufacturing sites for 20 plus years, there are two explanations

a) Some of the assets or not usable and have been scrapped
or
b) based on performance, the forward profit projections did not support the value of the plant.

An example of point B is if the plant was only able to contribute say $200 mill to profit in the next ten years and was valued at $300 mill, you would take a $100 mill writedown and depreciate the $200 mill over 10 years. This would be based on actual planty capacity, current costs and selling prices, forward projections on these factors can be used if they are able to be supported, e.g. sales contract with locked in higher prices.

The company in one announcement said it was written down when compared to Phase 2 as replacement cost was $190 mill less. I can not believe that one, if that were true, they could replace phase 1 for well under $150 mill ?

The wording in the accounts gets a bit closer to the truth, it says in comparing the cost and performance of phase 2 assets, they took a $190 mill hit to the carrying value of phase 1 assets.

in other words, Phase 1 assets are not performing and will not perform as expected, so there is no way in the world phase 1 assets can produce 11,000 tonnes per annum.

Based on AL,s interview yesterday, I would suggest that they have turned some Phase 1 assets off and are using phase2. Jantimont pointed out that AL said they were using 4 kilns and now only two and AL did not say they were phase 1. It was very telling that she did not say only Phase 1 assets were used to get to Septembers production figure. If this is true, Phase 2 asets or same of are already in use and there is not additional 11,000T capacity available.

While AL is a bit more open, we are still not being told the full story. Details of why teh assets were written down of written off, why did they only sell 75% of Sept qtr production, was it because the rest would have dragged down ASP.

Still lots of questions to be asked at AGM