DEEPGREEN MINERALS CORPORATION LTD QUARTERLY REPORT - QUARTER ENDED 30 JUNE 2004 HIGHLIGHTS • Improved sales and firm market for Pageton coal • Western Canadian raises new funds, advances coal projects • Asia Energy upgrades production targets • Meeting date set to consider merger proposal PAGETON, WEST VIRGINIA Operations at Deepgreen’s wholly-owned Pageton coal project in McDowell County, West Virginia, improved markedly in the June quarter. Coal sales amounted to 14,871 tons for revenue of US$353,595 and the project generated a positive cash flow for the period. June quarter sales compare with March quarter sales of 7,657 tons for revenue of US$140,353, when operations were hampered by severe weather conditions and equipment breakdowns. Pageton’s sales for the financial year to 30 June amounted to 44,131 tons for revenue of US$809,329 compared with 32,229 tons for revenue of US$531,813 in the previous financial year. Coal sales for the June quarter again fell short of Deepgreen’s targeted sales rate of 10,000 tons per month but operating costs continued at the low levels implemented in the December quarter after the major review of Pageton’s operations. Further steps are being taken to meet sales targets, including a resumption of dry mining from selected higher quality sections of the Pageton fine coal impoundment, to lift production of marketable coal to in excess of 10,000 tonnes a month in the current quarter. Demand for Pageton’s steaming coal production continued to firm in line with a general rise in demand for coal from power stations in the US. WESTERN CANADIAN COAL CORPORATION (WCC) Deepgreen continues to hold 13,179,500 WCC shares and 4,482,500 warrants exercisable at Can$0.40 and $0.60 per share. However, because of placements made by WCC in the June quarter, Deepgreen’s interest has been diluted from 44% to 32% of WCC’s capital on a fully diluted basis. The placements, made at Can$1.25 per share and warrant and Can$1.00 per share and warrant raised Can$11.5 million to fund pre-development work on two of WCC’s coal deposits, Burnt River and Perry Creek, in the north east of British Columbia, Canada. Cambrian Mining Plc, Deepgreen’s major shareholder, participated in the placements so that, if the proposed merger with Deepgreen proceeds, the merged entity will hold in excess of 50% of WCC. Applications have been made for the necessary permits to develop the Burnt River and Perry Creek deposits at an annual rate of 2.6 million tonnes and discussions are being held with numerous potential steel mill customers in Europe and Asia for the sale of planned production. Production of coal suitable for pulverized coal injection (PCI) in blast furnaces from Burnt River is planned to commence in the December quarter at a rate of 250,000 tonnes per quarter. The shortage of high quality coking coal in international coal markets has generated considerable interest in the coal fields of north east British Columbia which are well served by existing township, rail and port facilities. Page 2 DEEPGREEN MINERALS CORPORATION LTD QUARTERLY REPORT - QUARTER ENDED 30 JUNE 2004 WCC also entered an agreement to explore and evaluate Talisman Energy’s coal deposits at Sukunka located between WCC’s two proposed operations and estimated historically to contain a resource in excess of 120 million tonnes of hard coking coal. Deepgreen’s shareholding in WCC, based on market prices, remained valued at $20 million over the quarter. ASIA ENERGY PLC (AEN) AEN listed on the London Stock Exchange Alternative Investment Market (AIM) in April after raising ₤13.9 million (A$36.3 million) from a public offering and subsequent private placement at ₤0.75. Deepgreen has retained a holding of almost 10 million shares, representing 26.5% of AEN’s capital. Upon listing, AEN was granted a 30 year Mining Licence on the former Area B which covers 1,921 ha and most the 370 million tonne Phulbari coal deposit in Bangladesh. AEN also announced that in view of the outlook for the coal market, it would accelerate the feasibility study into development of Phulbari by targeting a one year, rather than a two year, study on the project and would increase the scale of the proposed mine from 9 million tonnes of steaming coal annually to 15 million tonnes annually. During the quarter, AEN appointed a management team and commenced the feasibility study. Deepgreen’s shareholding in AEN was valued at $18 million, based on AIM prices, and the company has retained a royalty of $US1 per tonne on coal mined from the Phulbari deposit. CAMBRIAN MINING PLC - MERGER In December, 2003, Deepgreen announced that it had entered an agreement to merge with its major shareholder, Cambrian Mining Plc, under Schemes of Arrangement that would result in shareholders receiving one share in Cambrian for every 24 shares they now hold in Deepgreen and one share in Cambrian for every 75 options they now hold in Deepgreen. After the close of quarter, the Supreme Court of Victoria approved the holding of meetings by Deepgreen shareholders and Deepgreen option holders on 30 August, 2004, to consider and, if thought fit, to pass resolutions relating to the Schemes of Arrangement. Documentation calling the meeting and setting out the terms to the proposed merger, including the report of an independent expert, DMR Corporate, and the recommendation of independent directors, are being posted to shareholders. Yours faithfully, For and on behalf of DEEPGREEN MINERALS CORPORATION LTD JURGEN DEBRODT Company Secretary
