Duchess Paradise Project Pre-Feasibility Study

The results of the Pre-Feasibility Study ("PFS") on Rey's 100% owned Duchess Paradise Project demonstrates a strong economic case for development.

The PFS was prepared by consulting engineer Mr. AJ Lodge (FAusIMM) on the Company's behalf and is based on the 511 million tonne JORC resource that was reported in 2009. It builds on conceptual studies that envisage mining and transport of coal by truck along the Great Northern Highway to the port of Derby and then trans-shipment by barges into larger vessels for export to Asian thermal coal markets.

The key findings were as follows:

• Positive Pre-feasibility study outcome meets initial concepts
• Initial operations of 2Mtpa from trench highwall mining generate:
  • IRR of 34% at current prices and exchange rates
  • NPV = $88 million at A$/US$ 90c and $161 million at A$/US$ = 80c
• Low capital costs of A$113 million
• Production to commence in 2013

Full feasibility study commenced

Following positive Pre Feasibility Study results, the Company's Board has approved the Preliminary Feasibility Study and has committed to a Definitive Feasibility Study (DFS) for the Duchess Paradise surface operations. The Company intends to apply for a Mining Licence and continue with environmental and community discussions. The DFS will include reserve definition, engineering and hydrological drilling as well as combustion testing and environmental and marketing studies.

Development Strategy

The PFS has demonstrated a robust low capital entry method for unlocking the potential of the large coal deposits in the Canning Basin. The development strategy of the Company envisages initial mining of near surface resources for modest capital while studies continue on the existing larger underground resource and conceptual exploration targets. Drilling will continue to establish further near surface resources amenable to highwall mining while defining a larger resource on the extensive land package. This strategy will enable a staged entry to larger mining operations.

Highwall Mining Operations

The Preliminary Feasibility Study concludes that an initial, relatively simple operation producing two million tonnes per year of saleable thermal coal from trench highwall mining is the optimal and most financially robust approach to begin commercialisation of the resource at Duchess Paradise.

The PFS proposes that mining operations will comprise Highwall Miners operating from a series of trenches cut into the P1 coal seam from the outcrop see example in Figure 1.

Highwall Trench Mining - conceptual illustration

Mining is to occur entirely from Measured and Indicated Resources .The ROM production will be washed and trucked along the Great Northern Highway to Rey's existing wharf at Derby, which then will be transported by barge to ships for export to Asian power generation markets. The operating parameters are presented below.

Table 1. Trench Mining- key operating parameters

Financial Performance of Trench Highwall Mining Operations

The PFS concludes that the trench highwall mining generates positive financial returns at current coal prices and exchanges rates, with coal price assumptions derived by adjustment relative to the benchmark coal price of US$ 79.90/t (6,200kcal/kg gar Newcastle). The financial valuation parameters are summarised 2 below. Cashflow, NPV and IRR estimates are derived from un-escalated, pre tax and all equity cashflow projections. Construction is assumed to start in 2012, with a full year of operation in 2013.

Table 2. Key valuation parameters for trench highwall mining with exchange rate sensitivity

Capital Expenditure for Trench Highwall Mining

Capital expenditures are estimated at $113 million.The largest components of the capital expenditure estimates are: wash plant ($31 million); construction of a mine haulage road to the Great Northern Highway ($12 million); and purchase of highwall mining equipment ($28 million). The trucking operation is assumed to be undertaken by contractors. The cost of a Definitive Feasibility Study is estimated at $10 million and is included in the total capital expenditure estimate.

Exploration for near surface coal

The board has approved an exploration program of approximately 18,000 metres along the predicted outcrop of the coals to the north of Paradise to explore for additional near surface coals suitable for trench highwall mining. This coal would be closer to the Great Northern Highway and could reduce initial transport costs below those adopted in the PFS. Drilling is expected to commence in April/ May following conclusion of the wet season and subject to Heritage and Government approvals.