Due Diligence and Valuation Report

Arrowhead Code: 09-03-04 Coverage initiated: 27 June 2011 Company: Hot Rock Limited This document: 13 August 2012 Ticker: ASX: HRL Fair share value bracket: AU$0.80 to AU$1.37i Headquarters: Brisbane, Australia Share price on date: AU$0.017ii Managing Director: Mr. Peter Barnett Analyst team Vishal Pasari Mohanarangam Purushothaman Website: www.hotrockltd.com [email protected] [email protected] Market Data projects in the region. EDC recognized the potential of HRL’s projects and this was borne out 52-Week Range: AU$0.017 - AU$0.11iii Average Daily Volume: 188,191iv in a major recent deal between EDC and HRL in v which EDC executed joint venture agreements Market Cap. on date: AU$3.94MM covering HRL geothermal projects in Chile and Financial Forecast Data (in AU$) Peru on 03 February 2012. ‘12E ‘13E ‘14E ‘15E 16E ‘17E ‘18E Agreements on two HRL projects in Peru were High profit/ completed in May 2012 in which EDC will acquire (loss) MM (1.9) (1.0) (2.9) 63.9 63.2 68.2 71.28 a 70% interest in each project company in Peru High EPS and will sole fund the exploration stage of up to cents (0.8) (0.4) (1.3) 27.5 27.2 29.4 30.72 Low profit/ US$12MM per project. Post this, tenements are (loss) MM (1.9) (1.0) (2.9) 52.9 51.4 55.6 58.00 expected to be transferred from HRL into the JV Low EPS companies within the next 2 months. HRL is then cents (0.8) (0.4) (1.3) 22.8 22.1 24.0 25.00 expected to receive from EDC an initial payment Fiscal Year (FY) 1st July – 30th June of US$0.8MM and a further payment of US$1.2MM if EDC continues past an initial 15 Summary month period. - Hot Rock Limited (HRL) is a geothermal EDC has announced in May and June 2012 that it exploration and development company. will not proceed with the JV at Calerias and Focused on conventional volcanic and HSA Longavi projects in Chile and will instead focus geothermal projects with potential for their geothermal exploration and development 3000MWe of power generation. interests with HRL in Peru. HRL now holds 100% - Major joint ventures in Peru with Energy ownership in the Calerias and Longavi projects in Development Corporation (EDC) the world’s Chile. largest geothermal generator. In Peru, work is in progress on securing - EDC 1,400MWe generation: US$2,400MM, community engagement and land access HRL with 3000MWe potential generation: approvals at HRL’s two wholly owned, granted US$5MM market cap. geothermal exploration authorizations at Turu and - Current cash plus cash expected to be Rupha. The company has announced in June received from EDC over next 2 months is 2012 that EDC intends to soon commence AU$0.8MM, and a further $1.2MM within 15 detailed field work programs, including geological, months thereafter. geochemical and geophysical magneto-telluric The current portfolio of assets the company holds (MT) surveys, at Quellaapacheta followed by comprises geothermal development projects in Chocopata. Peru, Chile and Australia. In Chile, company is continuing with field After exhaustive analysis of geothermal settings investigations and delineation of inferred worldwide, it was determined that Chile and Peru geothermal resources at Calerias and Longavi possessed an optimal mix of characteristics for projects. It has recently received land access commercial geothermal power development. HRL approval from land owners for the Sta Macarena moved quickly and early and has secured one of prospect where geo-scientific exploration surveys the largest holdings of volcanic geothermal are now in progress. Also, the Chile Ministry of

Hot Rock Ltd. – Arrowhead BID 1 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Energy has granted extension to two exploration 0.12 7000 concessions for a further two years at the Calerias Yearly Price Graph 6000 and Longavi projects. 0.1 5000 The company continues to discuss funding options 0.08 for Australian projects, for particularly proof of 4000 0.06 concept well drilling and testing along with pilot 3000 scale power generation at its Hot Sedimentary Price (AU$)

0.04 Volume ('000) Aquifer (HSA) project near Koroit. HRL is working 2000 closely with the Australian Geothermal Energy 0.02 1000 Association in formulating a broad package of 0 0 geothermal resource drilling and testing activities

Australia wide to attract government funding from

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Agency (ARENA). Given due diligence and valuation estimates HRL’s five HSA tenements in the Otway Basin based on intrinsic revenue capacity of existing have now been extended to May 2013 during assets, Arrowhead believes that Hot Rock’s fair which time the company will seek funding from share value lies between AU$0.80 to AU$1.37vi. ARENA for the Koroit project. HRL has 13 granted This valuation is based solely on the Koroit projects in Chile and has filed application for project in Australia, the Longavi and Calerias exploration authorization at ten volcanic projects in Chile and the Turu, Chocopata and geothermal projects in Peru. Quellaapacheta projects in Peru.

Hot Rock Ltd. – Arrowhead BID 2 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Table of Contents

Company Presentation ...... 4

News ...... 7

Contacts ...... 8

Major Shareholders ...... 8

Management and Governance ...... 9

Assets and Projects ...... 11

Technologies and Markets ...... 20

Project Risk Profile Analysis ...... 24

Hot Rock Risk Assessment ...... 24

Value ...... 30

Analyst Certifications and Important Disclosures...... 33

Valuation ...... 34

Notes and References ...... 35

Hot Rock Ltd. – Arrowhead BID 3 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Company Presentation Hot Rock is an ASX listed company focused on geothermal resource exploration and development in commercially attractive countries with growing energy markets. Strategically, the company is focusing on commercially proven volcanic geothermal systems and developing its extensive portfolio in Chile and Peru complimented with Hot Sedimentary Aquifer prospects in Australia. The Company is currently focused on its volcanic projects in South America which have the highest near term potential for creating value. In February 2012 the company executed joint venture agreements which have enabled EDC to become the majority partner in Hot Rock’s Quellaapacheta and Chocopata projects in Peru. After significant due diligence EDC is now proceeding with the JV at these two projects. This joint venture is a major milestone given EDC’s significant operating expertise and success in developing geothermal assets from discovery through to sale of power, over a time frame of 35 years. EDC intends to commence detailed field work programs in the next few months at Quellaapacheta and Chocopata, including geological, geochemical and magneto-telluric (MT) geophysical surveys.

Hot Rock’s Asset Portfolio – Chile – South America: Hot Rock’s wholly owned subsidiary Hot Rock Chile SA holds thirteen granted geothermal exploration concessions covering 7 projects. All of these tenements remain 100% Hot Rock owned. The Chile Ministry of Energy has approved the applications to extend two exploration concessions for a further two years at the 100% held at Calerias and Longavi projects. Applications to renew two further exploration concessions at the Longavi project have been recently submitted. A reconnaissance field investigation program has been completed at HRL’s Santa Macarena project. – Peru – South America: Hot Rock’s wholly owned subsidiary Hot Rock Peru SA has filed applications for exploration authorizations at ten volcanic geothermal projects in Peru. Four of these have been granted to HRP of which two are included in the JV with EDC. Preliminary resource evaluation reports have been completed by HRL for the Quellaapacheta, Chocopata, Turu and Rupha projects. Also, HRL’s applications for a further five high quality geothermal exploration authorizations remain in process. – Otway Basin – Victoria, Australia: HRL’s five HSA tenements in the Otway Basin have been recently extended to May 2013 during which time the company will seek funding from the Australian Renewable Energy Agency (ARENA) for proof of concept well drilling and testing at its flagship Koroit geothermal project.

For more detail on Assets, see the Assets and Projects section of this report.

Hot Rock’s Portfolio and Company Premiums Hot Rock benefits from its strong position in the volcanic geothermal space in Chile and Peru, along with holding the largest HSA projects in the Otway Basin in Australia. A highly experienced management team conducts and channels the company’s strategy for expansion and development. – The company is one of the largest holders of volcanic geothermal projects in Chile and Peru. This region is still underexplored and with the availability of high temperature volcanic geothermal systems within economies that have a high need for electricity to support rapid growth in large mining sectors and country modernization programs, Hot Rock is in a very attractive commercial position. – EDC mobilized a reconnaissance team to Peru ahead of executing the shareholder and ancillary agreements to commence detailed exploration and early development activities at the Quellaapacheta and Chocopata projects after signing the joint venture deal.

Hot Rock Ltd. – Arrowhead BID 4 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

– The company’s tenements in Chile and Peru are situated near to grid and local markets. This gives it an added advantage over its competitors. – Hot Rock’s Koroit Project in the Otway Basin, Victoria, Australia, is in a unique position because of the presence of an extensive database derived from previous petroleum exploration, with more than 14 wells having intersected the target geothermal reservoir with back-up from extensive 2D seismic coverage of the project area; this substantially reduces exploration risk. The estimated resource temperature at Koroit Project is in the range of 140°C at reservoir top to as high as 185°C at 4,000m. Recently announced clean energy initiatives by the Australian government add to the commercial attractiveness of the project. – Geothermal projects have a long life cycle of more than 30 years with low annual operating cost. – The company has a management team with proven track record in growing its business. Dr. Mark Elliott, Executive Chairman, has over 35 years of experience in the minerals and energy sectors. Peter Barnett, Managing Director, has over 35 years of extensive experience in the global geothermal industry, working on 40 geothermal projects in over 24 countries which today account for some 40% of the world’s geothermal generation capacity.

Hot Rock’s Portfolio and Company Risks – Hot Rock is currently at an initial stage of its lifecycle. All of its projects are in an exploration stage with nearest implementation expected to occur two to three years from now. At this stage, where the company has not started generating revenues, any significant change in the project plan can adversely affect the future prospects. – There are significant risks associated with the financing of Hot Rock’s projects. The adverse market conditions prevailing for renewable energy investments in Australia due to regulatory framework for carbon pricing remain a big challenge. All the projects need a significant development capital outlay during the installation period. – The recently signed JV with EDC is expected to considerably reduce the financing pressure on Hot Rock for its development stage projects in Peru. Following transfer of the two tenements into the project companies formed after JV with EDC, Hot Rock is expected to receive an initial US$0.8MM cash payment and a further US$1.2MM subject to certain conditions. EDC is expected to acquire a 70% interest in each project company and will likely sole fund the exploration stage up to US$12MM per project with the total expenditure for sole funding of the two projects up to US$24MM. – In the subsequent resource development stage, EDC (70%) and Hot Rock (30%) will contribute to the joint venture for each project on a pro-rata basis. Hot Rock can contribute its own funds or request EDC to advance a loan to Hot Rock to fund evaluation and production drilling through to securing project finance for each project. The estimated cost of the evaluation stage for each project is in the order of US$38MM. If all projects proceed from exploration stage to financial close, an estimated total of US$100MM could be spent over the two projects. – Under each shareholders agreement, Hot Rock will maintain its 30% stake in each project if it contributes its pro-rata share in funding the resource development stage. If Hot Rock does not contribute any funds during the resource development stage, it can still elect to retain an 18% minimum project interest at financial close by repaying EDC 18% of the resource development costs plus interest. – Development plans in Chile and Peru are highly dependent on government regulations and local demand for power. Any significant change in regional laws can adversely affect these projects.

For a detailed risk assessment, please refer to the Risk profile analysis section.

Hot Rock’s Corporate Strategy Hot Rock is currently focusing on its portfolio of volcanic geothermal prospects in Chile and Peru with the primary objective of having a good blend of resource types. It plans a medium to long term power

Hot Rock Ltd. – Arrowhead BID 5 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

target of 3000MW through its projects in Chile, Peru and Australia. HRL strategy for the next 12 months and beyond is to: - In Peru, to proceed with surface exploration of the Quellaapacheta and Chocopata projects under the EDC JV agreement, leading to assessment of exploration drilling options in early 2013, and undertake a similar program at its 100% owned project at Turu in a similar time frame - In Chile, to proceed to further investigate the development potential of the Calerias and Longavi geothermal prospect and to team with a new JV partner to take these two projects into an exploration drilling stage, and continue with exploration programs at its other granted exploration concessions.

- In Australia, to focus on retaining the tenements where HRL has discovered and declared geothermal resources (i.e. within Geothermal Exploration Permits 23, 6, 7 and 8) and pursue ARENA funding over the next 6 to 12 months for advancing proof of concept well drilling and testing at its flagship HSA project at Koroit in the Otway Basin.

Hot Rock Ltd. – Arrowhead BID 6 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

News – EDC commencing exploration on JV projects in Peru (19 July 2012) Hot Rock announced that EDC is incorporating the Peruvian Quellaapacheta and Chocopata joint venture companies as required in accordance with the agreements signed in May and that EDC intends to soon commence detailed field work programs, including geological, geochemical and geophysical magneto-telluric (MT) surveys, at Quellaapacheta followed by Chocopata. – Update on Joint Venture Contracts for Chile and Peru Projects (4 July 2012) Hot Rock advises that EDC has elected not to proceed with the JV at HRL’s Longavi project in Chile. The project will now revert to being 100% owned by HRL and the company will investigate alternatives for its development. – Hot Rock finalize and execute Joint Venture contracts on three projects in Chile and Peru (May 03, 2012) Hot Rock and Energy Development Corporation, signed detailed agreements for incorporating JV companies in Chile and Peru covering Longavi in Chile and Quellaapacheta and Chocopata in Peru. Following transfer of tenements into the project companies, Hot Rock will receive an initial US$1.8MM cash payment and a further US$1.2MM subject to certain conditions. EDC will acquire a 70% interest in each project company and will sole fund the exploration stage up to US$12MM per project. The estimated cost of the evaluation stage for each project is in the order of $US38m to complete financial close. – Hot Rock publishes its March 2012 quarterly reports (Apr 30, 2012) The company published its quarterly activities report for the March 2012 quarter and gave an update on its projects. The company reported that applications have been filed over the quarter to extend the granted Galo, Sta Sonia and Sta Antonia exploration concessions which were awarded with two year tenures in Chile. These can be extended upon application for a further two years provided that 25% of the committed work program expenditure can be demonstrated. – Hot Rock publishes its Half Yearly results for H1 FY2012 (February 29, 2012) The company announced its half yearly results for the half year ending on 31st December 2011. The company during the period successfully raised AU$1.9MM through the issue of 75.7MM shares. The company reported the loss of AU$1.04MM for the half year and EPS of AU$ (0.57). The company as on 31st December 2011 had accumulated losses of AU$7.22MM. – Hot Rock announces commencement of exploration at Calerias, Chile (February 20, 2011) Hot Rock JV with EDC has commenced field activities at the Calerias project in Chile in less than three weeks since signing a joint venture deal. A team of EDC geothermal experts has arrived on site to commence detailed geological and geochemical surveys as the precursor to identifying drilling targets. Soon thereafter, an MT survey is expected to commence to further delineate and extend the resource, which is open to the northeast. – Hot Rock signs JV agreement with Energy Development Corporation (February 3, 2011) Hot Rock has signed a binding joint venture agreement covering four of Hot Rock’s project with Energy Development Corporation covering funding of each project up to financial close. Following transfer of tenements to the project companies Hot Rock will receive an initial US$2.5MM cash payment and further US$1.5MM subject to certain conditions. – Hot Rock publishes its December 2011 quarterly reports (January 31, 2012) The company published its quarterly activities report for the December 2011 quarter and gave an update on its projects. The company reported that it raised US$1.9MM of capital through a combination of placements and a share purchase plan with the issue of 75.7MM shares. Hot Rock is finalizing two joint venture agreements with the Energy Development Corporation. Hot Rock will receive up to US$4MM cash with the first US$2.5MM cash payment on the transfer of tenements for the two Chilean projects and the two Peruvian projects into their respective JV project companies. A

Hot Rock Ltd. – Arrowhead BID 7 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

further US$1.5MM will be payable to Hot Rock by EDC following the renewal of the Calerias concession in Chile and after 15 months from the transfer date of the Peru tenements. – Hot Rock expands Geothermal portfolio in Emerging South America markets (January 18, 2012) Hot rock announced expansion of its geothermal exploration portfolio in South America, with the recent granting of the “Turu” geothermal tenement located in Southern Peru. The Turu tenement is associated with a volcanic caldera complex and shows good field evidence for a geothermal reservoir with subsurface temperatures suitable for electrical power generation. Hot Rock now holds 4 granted tenements in Peru, in addition to 13 tenements in Chile. Six more tenement applications for volcanic geothermal prospects in Southern Peru remain in processing and are expected to be granted in 2012. – Hot Rock proposes JV on four Hot Rock projects in Chile and Peru (November 29, 2011) Hot Rock Limited announced that it has entered into a Heads of Terms with Energy Development Corporation, which is subject to the satisfaction of certain conditions, including finalization of farm- in/joint venture documentation and confirmatory due diligence. The agreement sets the framework and main commercial principles for the acquisition by EDC of a 70% interest in the granted volcanic Calerias and Longavi geothermal projects in Chile and the Quellaapacheta and Chocopata geothermal projects in Peru through the sole funding of certain resource development costs in respect of each of the Projects. Hot Rock currently holds a 100% interest in the Projects. – Hot Rock announces extension of closing date for share purchase plan (November 21, 2011) On 31 October 2011, Hot Rock Limited announced a Share Purchase Plan to holders of fully paid ordinary shares in Hot Rock in Australia and New Zealand. The Plan was offered to shareholders at the same price as the recent placement of shares made by the Company to institutional and sophisticated investors. Hot Rock extended the offer period for the SPP from 25 November 2011 until 9 December 2011, to allow eligible shareholders more time to consider accepting the offer and to realize the benefits of any material developments during this period. Listing Information Hot Rock is listed on the Australian Securities Exchange (HRL.ASX) and is headquartered in Brisbane, Queensland, Australia.

Contacts

Registered office Level 5, 10 Market Street, Brisbane, Queensland, Australia, 4000 Telephone +61 7 3212 6200 Website http://www.hotrockltd.com E-mail [email protected]

Major Shareholdersvii

Equity Holder No. of Shares Held (MM) Percentage Holding

WF Asian Reconnaissance FD 14.32 6.17% Elliott Stanley Mark 13.50 5.82% Bizzell Stephen Grant 8.96 3.86% Barnett Peter 5.40 2.33% Sandy Michael John 4.20 1.81% BCP Alpha Inv Pty Ltd 2.80 1.21%

Hot Rock Ltd. – Arrowhead BID 8 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Management and Governance

Hot Rock’s management team consists of experienced professionals with a proven track record.

Personnel Designation Current and total experience Prior experience Dr. Mark Elliott has a proven track record in corporate management and growing successful businesses in the resource sector. He holds a Diploma in He commenced his career with Anaconda Applied Geology from the Ballarat Australia as an exploration geologist. From School of Mines and a Doctor of 1993 to 1998, he served as a founding Philosophy from the University of New executive director of Burdekin Resources Ltd South Wales. He is a chartered Dr. Mark Executive and developed a gold mine. In 2007, he professional geologist and a Fellow of Elliott Chairman became the founding director of tungsten the Australasian Institute of Mining and explorer Hawk Resources Ltd. In the same Metallurgy and a Fellow of the year, as managing director of China Yunnan Australian Institute of Company Copper Australia Ltd., Elliott floated the Directors (FAICD). He has more than company on the ASX. 35 years of experience in the minerals and energy sectors. He is also a non- executive director of Hemisphere Resources Ltd. Peter Barnett has 30 years of experience in the global geothermal industry. He holds a Bachelor of Science and a Master of Science Peter has worked on 35 projects in 24 degree from the University of countries, on mostly an in-country residency Auckland. He is a board member of the basis. Over this time he has been involved in New Zealand Geothermal Association, Mr. Peter Managing development projects that aggregate to a member of the International Barnett Director 40% of the world's current geothermal Geothermal Association, and a member capacity. In the past six years, he has been of the Geothermal Reporting Code and heavily involved in South America and Geothermal Economics Subcommittees Australia's emerging geothermal industries. of the Australian Geothermal Energy Association. He is also a Member of the Australian Institute of Company Director (MAICD). Mr. Mike Sandy has considerable international experience in energy He has held senior executive roles including related roles with various companies asset management (Australia, SE Asia, and including Oil Search, Novus Petroleum Middle East, USA) and business Non- as a geologist, consultant and energy Mr. Mike development for Novus, the company he executive analyst. Hot Rock has benefitted Sandy established in 1994 which was taken over in Director considerably from his corporate and 2004. He is a Director of Tap Oil Limited, technical experience in the global Caspian Oil and Gas Limited and Burleson petroleum and energy sector in Energy Limited. reaching a better understanding of its HSA geothermal targets in Australia. Mr. Stephen Bizzell is a Chartered Accountant. His early career He has extensive experience in the fields of experience was in the Corporate corporate restructuring, debt & equity Finance division of Ernst & Young and financing and mergers & acquisitions. He the Corporate Tax division of Coopers also has over 20 years' corporate finance & Lybrand. He holds a Bachelor of and public company management Non- Commerce degree from the University Mr. Stephen experience in the resources sector in executive of Queensland and is a member of the Bizzell Australia and Canada. He is a Chairman of Director Australian Institute of Company boutique investment banking and funds Directors (AICD). His pioneering management group Bizzell Capital Partners participation in the development of the and has been an Executive Director of Arrow new Coal Seam Gas (CSG) energy Energy since 1999 and a Non-Executive industry in Australia has direct parallels Director of Armour Energy since 2011 to geothermal energy and this is proving invaluable to Hot Rock.

Hot Rock Ltd. – Arrowhead BID 9 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Personnel Designation Current and total experience Prior experience He worked in Ernst and Young for 10 years Mr. Paul Marshall is a Chartered and subsequently 15 years in commercial Accountant with more than 25 years of roles as Company Secretary and CFO for a Chief experience. He also holds a Bachelor of number of listed and unlisted companies Financial Mr. Paul Law, a Post Graduate Diploma in mainly in the resources sector. He has Officer and Marshall Accounting and is a member of the managed company financial reporting, Company Institute of Chartered Accountants in corporate regulatory and governance areas, Secretary England and Wales. acquisitions and disposal due diligence, capital raising and company listings and company secretarial responsibilities. Mr. Luis Urzua is both a qualified geologist and a civil engineer with 13 years of experience in the geothermal industry. He manages the exploration He initially worked for Empresa Nacional del and reservoir engineering functions Petroleo (ENAP) in Chile. Later, he was within Hot Rock at all of its geothermal employed by Mighty River Power in New Geothermal Mr. Luis projects. He holds a Bachelor of Zealand where he undertook exploration Resource Urzua Science degree in civil engineering and assessments, including geophysical surveys Manager a degree in Geology from the and drilling programs along with drilling and University of Chile, and a Diploma in testing reservoirs for geothermal plant Geothermal Energy Technology and a operations and new developments. Master’s of Science with first class honors in Geology, both from the University of Auckland. He has served in a variety of public and Mr. Gonzalo Salgado joined Hot Rock private organizations, including: the Chile Chile S.A. as Country Manager in July Ministry of energy, where he was Chief of 2012. He is a qualified lawyer with 13 Staff to the Minister of Energy; the Chilean years’ experience in commercial law National Oil company (ENAP) where he including company formations, worked in the legal area in the natural gas mergers, project finance and and geothermal sectors and on new renewable energy legislation in Chile. business in which he oversaw project Today he remains one of the most structuring, including project finance for a experienced geothermal lawyers in major coking plant with a US$430MM Chile. investment budget. He has a Bachelor of Law degree His entry to the geothermal power industry Chile awarded by the University of Chile, a was with ENAP in 2000 where he worked Mr. Gonzalo Country Master of Law degree awarded by with an international team of geothermal Salgado Manager Universidad de los Andes in experts in establishing a government led conjunction with Northwestern geothermal energy development sector. He University (IL) and a Master of Public has advised a variety of domestic and Administration (MPA) from Columbia international geothermal companies on the University, New York under a Luksic geothermal industry in Chile. He was in Fellowship awarded in April 2011. He charge for several years in the was awarded a United Nations administration and development of an Scholarship in 2002 to attend an international venture capital geothermal Environmental Advanced Course on exploration company, the first in Chile, Geothermal Energy at the University of where he successfully raised exploration Auckland in New Zealand. He has been funds from overseas sources. a pro bono volunteer Board Member for

the Habitat for Humanity.

Ms. Adriana Lituma is a qualified She has worked in finance for Scotiabank in economist with experience in finance strategic planning and management control. and community programs. She has a She then turned to social economics Ms. Adriana Bachelor in Economics degree with Peru Country becoming involved in projects aimed at Lituma Honors awarded by the Universidad de Manager improving living conditions and reducing Canepa Lima. She has recently completed a poverty in the Sierra of Peru within the Masters in Applied Environmental framework of the River Basin Management Economics from the University of program initiated by the government. London.

Hot Rock Ltd. – Arrowhead BID 10 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Assets and Projects Overview Hot Rock Limited is an Australian energy company formed to develop geothermal energy in Australia and overseas. Company’s Asset Portfolio The Company is focused on exploring and developing its extensive portfolio of volcanic prospects in Chile and Peru complimented with Hot Sedimentary Aquifer (HSA) geothermal prospects in Australia. South America Assets Overview Asset Overview

South America Chile /Peru •Chile: Hot Rock Chile SA holds 13concessions covering 7 projects. •Peru: Hot Rock Peru SA has filed applications for 10 volcanic projects. Four of these have been granted

Australia Victoria/Queensland •Victoria: Five permits of the prospective Hot Sedimentary Aquifer

Energy Development coprporation Interest Dilution •EDC will have a 70% interest and Hot Rock will have a 30% in the Quellaapacheta and Chocopata projects in Peru

Source: Company filings Source: Company filings

applications covering exciting volcanic prospects CHILE in Chile. The high-quality geothermal resources and attractive regulatory environment in Chile Location: Chile, South America has enabled the company to operate in a secure and commercial manner. Hot Rock equity: 100% The government has mandated that 5% of power Resource type: Volcanic in Chile is to come from renewable sources by No. of Tenements: 13 granted geothermal 2010, increasing to 20% by 2024. This reflects exploration concessions covering 7 projects the recognition by government of geothermal power as a potentially large contributor towards Estimated Temperature range: 180°C to the development of Chile. The increase in activity 300°C in geothermal sector in Chile is to a good extent License area: 5,660 km² attributed to the government initiatives. Regional geology: Hot Rock expanded its By May 2011, Hot Rock had acquired 100% geothermal operations into South America in interest in 13 granted and approved Chilean 2009, with the establishment of offices in exploration tenements for exploration; spread Santiago and Lima and lodging of exploration over 5,660km2 in seven project areas. These

Hot Rock Ltd. – Arrowhead BID 11 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

projects contain surface thermal features The Calerias project is located 100km south east consisting of hot springs, silica sinter deposits and of the capital city Santiago, covering three fumaroles, all indicative of the presence of active tenements (Galo, San Carlos and Calerias). It has geothermal systems below surface. Three of nine groups of thermal springs with discharge these tenements are included in the Calerias temperatures averaging 50 to 60oC and ranging project, four in the Longavi project and two in the up to 75oC. The project is located near the El Copahue project. All are 100% owned by Hot Teniente copper mine and the large commercial Rock. Seven tenement applications covering a electricity market in Santiago. Based on the further 4 projects are currently under technical assessment in July 2011, the temperature of the evaluation by the Chile Ministry of Energy. deep reservoir is estimated to range between 160°C and 250°C and with a most likely Land access approval has been recently obtained temperature of 230°C. for the granted Sta Macarena prospect and geo- scientific exploration surveys are now in progress. In July 2011, the company declared an Inferred Land access approvals are being sought for the Geothermal Resource containing 7,400PJ of in- Copahue, San Cristobal and San Jorge projects to place heat energy at an estimated P50 level of enter these tenements for undertaking pre-drilling probability, with an estimated electrical power geoscientific studies, including MT surveys. generation capacity of 185MWe for 30 years. It is assessed that for a recovery factor of 15% and a The Chile Ministry of Energy has approved the power plant thermal efficiency of 14% operating applications to extend two exploration with a capacity factor of 90%, a resource of 7,400 concessions for a further two years at the 100% PJ would be sufficient to support geothermal held Calerias and Longavi projects. Also, a power plant of 185MWe generating capacity for a reconnaissance field investigation program has period of 30 years. been completed at HRL’s Santa Macarena project. Applications to extend a further three The project was included in the Head of Terms concessions- San Carlos (at Calerias) and Sta agreement signed with EDC for JV in November Edita and Sta Alejandra (at the Longavi project) 2011. EDC however, didn’t proceed with the JV at for further two years each have been recently Calerias project and have instead focused their submitted. geothermal exploration and development interests with Hot Rock in Peru rather than in Calerias Chile. Under the Chilean legislation HRL still has the capacity to apply for an exploitation or Hot Rock equity: 100% production license over the Calerias resource until

2 the end of 2014. The company is currently Region: VI to VII 1400 km reviewing its options for advancing this project. CALERIAS Longavi Hot Rock equity: 100% Region: VI to VII 2195 km2 The Longavi project is located 300km south of Santiago consisting of four contiguous tenements (Santa Sonia, Santa Alejandra, Santa Edita and San Roman) located to the south and south east of a large basaltic-andesite stratovolcano, Nevado de Longavi. The type and topographic distribution of surface thermal features at the Longavi geothermal project is diagnostic of a hot volcanic geothermal system operating at depth. As per the last assessment, temperatures in the deep geothermal resource at Longavi are estimated to range from 180°C to 220°C. The presence of impressive thermal spring features over a large surface area and the close alignment of these

Hot Rock Ltd. – Arrowhead BID 12 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

with surface faults indicate that the geothermal active over the past 11 million years, and to the system at Longaví is probably large. Also, the south of Urruputuncu volcano which has solfataric presence of these tenements close to electrical fumaroles. There are several groups of thermal transmission grids and market provides a springs located on the western edge of the San competitive advantage. A 500kV major electrical Jorge tenement. These are mixed chloride- transmission system runs within 20km of the sulphate springs and may represent an outflow western boundary of the project and a 254kV from a geothermal system(s) associated with the system within 40km. volcanic complexes to the north and south. A high Longavi flow geothermal surface spring occurs in the prospect area. Tuyajto Hot Rock equity: 100% Region: II 403 km2 The Tuyajto project is located in the Antofagasta region in northern Chile, 1000 km to the north of Santiago. The project area lies at the southern end of the Puntas Negras volcanic range where there has been intense volcanic activity in Pleistocene-Holocene times. The tenement is located near a large potential power market within the major copper mining belt of northern Chile, including the Escondida and Spence copper mines. Currently, field data and results from

surface exploration studies carried out in 2011 From Monte Carlo modeling, the size of an are under evaluation for defining the next stages Inferred geothermal resource identified at in the exploration program at this tenement. Longavi is estimated at a P50 level of probability to have a volume of 33km2, containing an Copahue estimated 5400 PJ of in-place heat energy. It is Hot Rock equity: 100% assessed that for a recovery factor of 15% and a Region: VIII 552 km2 power plant thermal efficiency of 14% operating with a capacity factor of 90%, the geothermal The project is 500km south of Santiago, resource of 5400 PJ would be sufficient to associated with the Copahue-Callaqui volcanic maintain 135MWe of continuous power generation complex, located on the Chile - Argentina border. for a period of 30 years. It is comprised of two tenements (Santa Antonia & San Guillermo). The area contains a wide Energy Development Corporation signed a caldera, and a long line of nine craters with a detailed agreement for incorporating a JV number of lakes formed from condensed company for Longavi in Chile in which EDC would geothermal steam. The company’s tenements in have acquired a 70% interest in Project the Copahue project are considered to be highly Company. EDC however, did not proceed with the prospective for future geothermal development. JV at Longavi project and have instead focused Current work program at this project involves their geothermal exploration and development detailed consultation and information programs interests with Hot Rock in Peru rather than in with local indigenous communities, in seeking to Chile. obtain land access agreement for undertaking San Jorge surface exploration studies including MT resistivity surveys. Hot Rock equity: 100% Region: II 600 km2 San Cristobal The San Jorge is located around 350km north Hot Rock equity: 100% east of Antofagasta and close to the Chile-Bolivia Region: XIV 50 km2 border. It lies immediately to the north of the The San Cristobal tenement is located in the Aucanquilcha volcano, which is at the center of a Lakes District of southern Chile on the lower cluster of more than 15 volcanoes that have been southern flank of the Villarica volcano. This is a

Hot Rock Ltd. – Arrowhead BID 13 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

large mid Pleistocene to Holocene composite Revenue: Electricity sales at US$95-$100/MWh. volcano, which has been active in recent times. Carbon credits at US$ 15/Mt of CO2 and with 1 The volcanic field includes a group of about 50 MWe geothermal power avoiding 0.65Mt CO2. basaltic to basaltic-andesite scoria cones, maars and a small stratovolcano that are broadly aligned PERU along the regional Liquine-Ofqui fault zone Location: Peru, South America (LOFZ), a major arc-parallel strike slip fault which controls the location of many of the larger Hot Rock equity: 30% -100% volcanoes in the Southern Volcanic Zone of Resource type: Volcanic central-south Chile. The San Cristobal project has No. of Tenements: Ten applications filed, a range of surface thermal springs with (approval granted for four) temperatures up to 60oC. It is considered to have Temperature range: Greater than 230°C good prospects for geothermal development. Currently, detailed consultation and information Hot Rock established a wholly owned subsidiary programs with local indigenous communities are company, Hot Rock Peru S.A. (HRP), in Peru in underway in seeking to obtain land access March 2010. Since then, it has been awarded four exploration tenements covering an area of agreement for surface exploration studies 2 including MT resistivity surveys. 666km and has applied for a further six tenements. The company is actively seeking high- Santa Macarena temperature volcanic geothermal projects in Peru suitable for the development of electricity Hot Rock equity: 100% 2 generation plant. The volcanic/geothermal setting Region: XIV 420 km in Peru is very similar to Chile where the company The Santa Macarena concession is located 70 km successfully established Hot Rock Chile SA (HRC) to the west of a 220kv transmission line and in 2009. The company believes that Peru has 100km to the NE of the main city of Osorno. impressive geothermal opportunities due to the Potential geothermal heat sources in the project high quality geothermal resources, the Peru area are related to Nevado Las Agujas and Renewable Energy Law 1002 of 2008 which Nevado de Queni volcanoes. Nevados Las Agujas supports geothermal energy development and is a pyramidal peak in the Andes close to the strongly increasing demand for power in the border between Chile and Argentina. Termas del region from the rapidly developing mining sector Queni lies on the Argentina side of the border, in particular. 7km east of Nevado el Queni and 16km east of PERU Termas Chihuio. This makes the geothermal setting of this area similar to Copahue, where high temperature thermal features outcrop on both sides of the Andes. Santa Macarena has mixed secondary thermal springs at surface with discharge temperatures ranging up to 61°C. It is considered to have good prospectivity for geothermal development. The company has obtained land access approval for the Sta Macarena prospect and reconnaissance scale geo- scientific exploration surveys were completed just prior to the onset of winter. Hot Rock production and revenue estimates for each of the above projects: Production: Each successful geothermal power project is expected to be developed, as follows, to a total of four power plants in three stages to produce 200MW of power: No. of MWe production Stage IRR units capacity Stage 1 1 50 17% Stage 2 1 50 20% Stage 3 2 100 25%

Hot Rock Ltd. – Arrowhead BID 14 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Key features of the Prospects: EDC is sole funding up to US$12MM at each - Extensive geothermal features such as project for surface exploration and deep surface hot springs, sinters and fumaroles exploration drilling activities before the EDC indicating underlying geothermal reservoirs (70%) and HRL (30%) pro-rata joint venture likely occur at depth. contribution commences for any future resource development phase. - Interpreted chemistry analyses from surface features indicating reservoir temperatures of Following this, the subsequent resource greater than 230oC. development stage is expected to involve completing production well drilling and testing, a - Most of the prospects have surface features definitive feasibility study, environmental impact indicating they are classic high temperature study, power sales contracts and securing project volcanic geothermal systems financing. EDC estimates that around 50% of the - Nearby transmission lines and markets steam requirement for a proposed geothermal The Company has filed applications for plant will need to be tested and available at exploration authorizations at ten volcanic wellhead in order to secure project finance. geothermal prospects in Peru. Four of these have The estimated cost of completing the resource been granted to HRP and the earliest of these development stage, including drilling and testing were in the first batch of geothermal exploration of a further five production wells for each project, tenements awarded in Peru. Approvals have been is US$38MM for a project designed for a plant obtained for land access at each of the two capacity of about 50MWe. If both of the Peru geothermal authorizations (Quellaapacheta and projects proceed from exploration through to Chocopata). financial close, the JV could spend up to The company has recently announced that EDC US$100MM. has commenced exploration on its two JV projects Work is currently in progress on securing land - Quellaapacheta and Chocopata as per the access approvals at Hot Rock’s two wholly owned, agreement signed in May 2012. EDC intends to granted geothermal exploration authorizations at soon commence detailed field work programs at Turu and Rupha. Broad scale geological work has Quellaapacheta and Chocopata including been undertaken at each of these two prospects geological, geochemical and geophysical and interpretation of surface thermal activity magneto-telluric (MT) surveys. which has been sampled for geochemical analysis These two projects are included in the JV with is currently underway. Hot Rock has a further six EDC in Peru and are ready for detailed surface exploration authorization applications currently exploration studies to commence as soon as the under process with the Peru Ministry of Mines and joint venture companies have been formed and Energy. These should be granted before year end. the tenements transferred to them; this is Quellaapacheta expected to occur in 3Q 2012. Drilling is planned to commence in 2013 subject to exploration Hot Rock equity: 30% results. Potential: 200MWe Upon the transfer of the tenements into the joint The Quellaapacheta tenement covers 125 km2 venture companies, the escrow agent will release and is located 100 km south-east of Arequipa and to Hot Rock US$0.4MM for each of the Peru 60 km north-east of the city of Moquegua. projects. If EDC withdraws from a Peruvian Geologically, Quellaapacheta is in the Andean project within 6 months, Hot Rock will refund the volcanic belt on the northwest flank of the Ticsani US$0.4MM. If EDC continues with a Peruvian volcano. project past 15 months, Hot Rock will be paid a The tenement lies 13km to the east of a 220kV further US$0.6MM per project. transmission line and a separate 138kV Under the JV agreement, HRL will likely maintain transmission line passes through the tenement. its 30% stake if it contributes its pro-rata share in Additionally, the tenement is located close to funding the additional resource development three major copper mines: Cuajones (30km costs. If it does not contribute funds during the distance), Quellaveco (40km) and Toquepala resource development stage it can still elect to (50km), providing the opportunity for future retain 18% minimum project interest at financial direct sales of electricity to these large industrial close by repaying EDC 18% of the resource customers. At least four fumaroles are located development costs plus interest. close to the top of the Ticsani volcano. These

Hot Rock Ltd. – Arrowhead BID 15 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

confirm an active geothermal system to be electricity grid, highlight the excellent present, associated with the volcano. Thermal prospectivity of this tenement. features around the basal periphery of the Ticsani The project is expected to be ready for volcano consist of at least 12 chloride bicarbonate exploration studies after completing agreements springs with discharge temperatures between 54 from local communities and landowners to access to 89°C and with some of them actively the project areas and obtaining environmental depositing silica sinter. clearances from the Peru Environment Ministry The company sold its 70% interest in the (DGAAE). Quellaapacheta project to EDC who will solely The company in May 2012 finalized the fund the US$12MM expense initially and any agreement for dilution of its interest in project to further expenses will be divided between Hot 30% in a JV agreement with EDC similar in all Rock and EDC on pro rata basis. Following the respects to the Quellaapacheta project. successful completion of the exploration stage, resource development will commence, involving Turu completing production wells and studies Hot Rock equity: 100% necessary to bring the project to financial close, where project finance documents for a first stage Potential: 100MWe 50MW plant are ready to execute. This program The Turu geothermal tenement is located in would normally cover definitive feasibility study, Southern Peru, 130 km north of Arequipa city in environmental impact study, permitting, power the provinces of Caylloma (Arequipa Region) and contract and negotiating finance. This stage is Espinar (Cusco Region), 100 km northwest of estimated to cost US$38MM and take up to 2 HRL’s Chocopata project (granted) and 50 km years to complete. north of HRL’s Achumani prospect and comprises land area of 170 km2. Chocopata Geologically, the tenement is located in the Hot Rock equity: 30% Andean volcanic belt, within the Caylloma Caldera Potential: 100MWe on the northern flank of the Cosana volcanic center and comprised of tuffs, andesites and The Chocopata tenement is located in Lampa pyroclastic flows, from the de Caylloma event Province in Southern Peru, some 120km north- with an age of Plio-Pleistocene. east of the city of Arequipa and 90km north-west of Puno. The tenement comprises a land area of With the tenement there are a number of thermal 170km2. springs with temperatures ranging from 36ºC to 56ºC, with mature chloride chemistry. These Geologically the area lies between the Andean include hot springs located around the margins of Volcanic Belt and the Altiplano plateau. The the Caylloma Caldera and several areas further to volcanic complexes of Sollipaca and Turputa are the northwest showing sulphate-rich precipitates located inside the tenement area. and clay alteration products at surface. The main thermal area of Pinaya is located close The geological setting, impressive surface thermal to the southern edge of the Chocopata tenement activity and spring chemistries indicative of a high and is characterized by numerous surface hot temperature geothermal resource at depth springs with temperatures ranging between 40 highlight the good prospectivity of the Turu and 90ºC. project. Two further thermal areas have been so far The Turu project has good access to power identified within the tenement area, at Quebrada markets for the sale of future geothermal Jarpana and Chupahuito. The Quebrada Jarpaña, electricity via: springs have measured temperatures above 50ºC with active deposition of silica which indicates • an existing 138kV electrical transmission high fluid temperatures in a liquid dominated line within 30km of the project and a planned geothermal reservoir at depth. Chupahuito, future 220kV transmission line that will run within located north of Jarpana, has hot springs with 20 km distance of the project measured temperatures exceeding 60ºC. • close proximity (within 40km) of a The tenement is flanked to the north, east and substantial local mining industry comprised of at west by three 138kV electricity transmission lines. least 5 mine sites either in production or under The geological setting, the quality of the surface development, with estimated copper metal thermal activity and the proximity to the national reserves in excess of 10MMT.

Hot Rock Ltd. – Arrowhead BID 16 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

HRL has received formal advice from DGAAE AUSTRALIA granting environmental clearance to proceed with all required surface exploration works. HRL is now Location: Victoria, Australia programming to undertake detailed geo scientific Hot Rock equity: 100% field studies over 4Q2012. Accordingly, Resource type: HSA community consultation activities are continuing at the Turu project in advance of the HRL field No. of Tenements: Five exploration program. Temperature range: 150°C to 180°C (to 3,500m) Rupha License area: 27,521 km² Hot Rock equity: 100% Regional geology: Hot Rock holds a large Potential: 100MWe portfolio of geothermal resources in the Otway The Rupha geothermal prospect is located 350km Basin situated in the state of Victoria. This Basin north of Lima in the Ancash region. Geologically it has been heavily explored for oil and gas during is contained within the Coastal Batholith (CB), a the past thirty years which has produced a large regionally extensive, massive rock body that has database of exploration data. been intruded into the rifted western continental The Otway Basin is located in the middle of a margin of Peru. The batholiths forms the Western large population base of 5MM people with a major Cordillera, a well-defined linear structure present 500 kV electrical transmission system nearby. along the entire coastal region of Peru over a The geothermal resources in the Otway Basin are distance of 1600km, running parallel to both the of the Hot Sedimentary Aquifer (HSA) type. Andes mountain trend and the offshore Hot Rock presence in Otway Basin subduction zone. Hot Rock holds five Geothermal Exploration The last intrusive phase of the CB formed the Permits (GEP's) in Victoria. These total 27,521 Cordillera Blanca around 3MM years ago. The km2 in area and were granted for five year terms Rupha geothermal prospect is located on the NW in two releases in May 2007 and November 2008, flanks of Nevados Champiro, the most northern and have been recently extended to May 2013. peak in the Cordillera Blanca. The geothermal HRL tenements in the Otway Basin, (GEP 6, 7, 8 system at Rupha appears to be associated with and 9) reached the end of 5 year exploration the relatively young intrusive rocks of Nevados terms on 13 May 2012. Champiro and probably underlying deeper In order to further promote the geothermal magmatism. Rupha is a well-known thermal area industry in Australia, the Department of Primary in Peru and considerable use is made of the hot Industries in Victoria has agreed for HRL to geothermal waters discharging at surface for extend these 4 tenements for a further 12 baleonological purposes. There are four major months. groups of geothermal spring discharging over the greater prospect area, with the most impressive Hot Rock has identified geothermal resources in being mixed chloride- sulphate-bicarbonate the Koroit (GEP-8), Penola (GEP23 and 6) and springs in the Pacatqui and Aquilina areas issuing Tantanoola (GEP-6) tenements. Resource at 89oC and 66oC respectively. temperatures of at least 152°C are assessed at 3,700m depth in the Penola trough from The geological setting of the Rupha project and measurement made in petroleum well Glenaire-1 the impressive surface thermal activity are in GEP-23. excellent indicators for the prospect to have good 2 potential for a commercially exploitable Hot Rock holds 16,541km or 57% of the entire geothermal system. target geothermal reservoir rock contained in the Pretty Hill Formation within the on-shore Otway HRL is about to commence surface exploration Basin in Australia. An independent review by programs to define the lateral and vertical extent global geothermal energy consultants Sinclair of the geothermal system at Rupha, assess Knight Merz (SKM) showed that there is scope for geological permeability controls on the flow of hot generation of up to 1,750 MWe (approximately water within it, and assess likely deep 35% of Victoria's base load electricity needs) temperatures and the most likely source of the from four of Hot Rock's five GEP's. geothermal heat.

Hot Rock Ltd. – Arrowhead BID 17 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

AUSTRALIA Hot Rock is working closely with the Australian Geothermal Energy Association and the Australian geothermal industry in formulating a broad package of geothermal resource drilling and testing activities Australia wide. HRL strategy for the next 12 months and beyond is to: - Focus on retaining the tenements where HRL has discovered and declared geothermal resources (within GEP’s 23, 6, 7 and 8).

- Pursue ARENA funding over the next 6 to 12 Resource information: months for advancing its HSA projects in the The company has estimated and declared Otway Basin. geothermal resources at three of its tenements. Koroit Project Area Volume Indicate Inferred Name Total PJ km2 km2 d PJ PJ Koroit is located northwest of the township of Koroit 450 387 7,600 59,000 66,300 Warrnambool in south-west Victoria. Hot Rock Penola 440 490 6,700 84,000 90,700 considers that its flagship geothermal project at Tantanoola 180 130 22,000 22,000 Koroit has high potential to generate electricity. Total 1,070 1,010 14,300 165,000 180,000 The interpretation of historical data from the petroleum and groundwater industries and Based on a 5% recovery factor of heat from the appreciation of the geothermal significance of geothermal resource, 180,000 PJ represents a these data have enabled the company to potential generation capacity of 1,300MW for 30 accelerate its geothermal program at GEP-8, years utilizing organic Rankine cycle (ORC) power directly into a Proof of Concept drilling and testing plant. stage. Recent development and future plans Key features The company is in discussions with both potential The Koroit geothermal resource has been joint venture partners and the Federal delineated in detail, prior to the drilling of Government on funding options for advancing the dedicated geothermal wells, through the Koroit HSA project to the drilling and testing availability of extensive historical seismic and well stage of two deep geothermal wells, with the plan data from the petroleum industry. to commence drilling in 2013. The company is The geothermal resource at Koroit is associated ready to drill and test two deep exploration wells with Lower Cretaceous aged sandstones of the at Koroit resource to prove potential generation Pretty Hill Formation. These rocks: capacity provided proper funding commitments are made. These two wells have been designed to - Occur throughout the onshore Otway Basin intersect an optimum combination of primary and - Are highly prospective for HSA development secondary permeability in the geothermal - Are comprised of predominately fractured, resource and it is anticipated that the results of clean, coarse to fine-grained sandstones and geological evaluation and flow testing of these minor intercalated siltstones and mudstones. wells will confirm the characteristics of the Koroit The Koroit resource is located in the hottest part geothermal resource with sufficient certainty to of the Otway Basin. Temperatures measured in oil allow for the procurement and installation of a and gas wells in the Koroit area are in excess of small pilot power plant (of about 5MWe capacity) 130°C at a depth of 2,800m, and temperatures of at Koroit by 2014. at least 160°C are estimated from the results of The Federal government has recently imposed a temperature modeling studies to exist in the carbon tax of AU$23/T of emitted CO2 and has deeper geothermal resource at 3500m and announced various renewable energy funding beyond. initiatives through the recently created Australian Hot Rock submitted in February 2012 an Renewable Energy Agency (ARENA) which gives expression of interest to the Emerging Hot Rock’s geothermal project at Koroit strong Renewables Program of the Australian Centre of potential for near term development. Renewable Energy for funding assistance with

Hot Rock Ltd. – Arrowhead BID 18 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

proof of concept well drilling and testing along characteristics of the Koroit geothermal resource with pilot scale power generation at Koroit. Hot with sufficient certainty to allow for the Rock is submitting a similar funding proposal procurement and installation of a small pilot document to ARENA which has assumed power plant at Koroit in 2014. responsibility for the ACRE ERP funding program According to Hot Rock management, the pilot from 01 July 2012. plant will provide critical information on the Resource Estimates technical and commercial viability of geothermal Hot Rock has assessed stored heat in the Koroit power generation at Koroit and provide the geothermal resource, and two grades of pathway for scale-up to achieve commercial scale geothermal resources have been determined at geothermal generation at 50MWe plant size for the P50 level of confidence: commissioning by 2015-16. The project is ready to drill and test and is awaiting the outcome of - An "Inferred Geothermal Resource" containing ongoing discussions with the Federal government 59,000 PJ of in-place heat, where resource and potential joint venture partners to fund this temperatures are not directly measured but project. estimated from thermal modeling, and The scope of work for the two well Proof-of- - An "Indicated Geothermal Resource" Concept program at Koroit includes: containing 7,600 PJ of in place heat, where actual geothermal resource temperatures - Preparation of drill sites with well pad, cellar, have been measured in-situ where drilling water sump pond and water supply at geothermal resource has been intersected each of the KHR-1 and KHR-2 sites. within the Pretty Hill sandstones in existing - The two wells will be drilled some distance petroleum wells apart to allow for the assessment of sufficient Future Plans geothermal resource volume for the first commercial scale development. With the geothermal resource at Koroit now well delineated from existing data, the company is - The two wells will be drilled as standard sized planning to proceed with the drilling of two Proof geothermal production wells (with 9-5/8 inch of Concept wells, codenamed KHR-1 and KHR-2, production casing and 8 inch open hole within provided funds can be sourced from either the reservoir). government or incoming partner(s). These two - A short duration flow test will be conducted at wells have been designed by geothermal experts each Proof-of-Concept well immediately upon to intersect an optimum combination of primary completion of drilling and secondary permeability over sections of - A longer-term flow test of each well will be reservoir rock with at least 1000m thickness. achieved after completion of the second well It is anticipated that the geological evaluation and A small pilot power plant will be installed between flow testing of these wells will confirm the the two wells during the longer-term test.

Hot Rock Ltd. – Arrowhead BID 19 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Technologies and Markets

Geothermal Energy - Sector Overview markets including countries like Chile, Peru, Australia and Germany. We have seen growth in Definition both conventional hydrothermal resources in Geothermal energy is produced by exploiting the volcanic regions and Enhanced Geothermal natural internal heat of the earth to generate System (EGS) projects in non-volcanic regions. steam and create electricity. Technological innovations have facilitated the Most of the geothermal plants operating today are expansion of geothermal into areas with lower associated with volcanic terrains near continental temperature, restricted water access, and boundaries. In volcanic geothermal systems, constrained surface utilization. The US currently intrusive rocks associated with the roots of has six active EGS developments. o volcanoes heat ground water in excess of 200 C According to the International Geothermal o and can be as high as 350 C. The hot water is Association (IGA) estimates, 10.7GW generation extracted from the geothermal resource through capacity was on line in 2010 generating deep drill holes and flashed at the surface to form approximately 67TWh of electricity. The current steam water. The steam is separated from the installed capacity is spread across 26 countries. water and the steam piped into a steam turbine The United States is the global geothermal leader coupled to a generator to produce electricity. The with 3.1GW of installed capacity, and seven separated water from the flash process and the countries represent 88% of the world market. condensed steam from the turbine are then re- EIA's 2012 Outlook's projections show geothermal injected back into the geothermal reservoir. power growing from 2.6GW of capacity to The second type of commercial geothermal 6.41GW, and production increasing from 16.42BN system is commonly found in large sedimentary KWh to 47.4BN KWh. In 2035, geothermal basins in which water contained in the pores and is projected to provide 6 percent of the total U.S. factures in the sedimentary rocks is heated by renewable power produced, making it the third elevated regional heat flow from underlying largest non-hydro source of renewable basement rocks. These systems commonly power generation, behind wind and biomass. operate at lower temperatures of between 120 to In 2005, there were 8,933MW of installed power o 180 C and use a binary cycle power plant rather capacity in 24 countries, generating 55,709GWh than steam cycle plant to generate electricity. In per year of green power, representing a 20% a binary plant the hot water heats a secondary increase in geothermal power on line between working fluid in a heat exchanger. The secondary 2005 and 2010. The increase in the installed o fluid boils, having a low boiling point (e.g. 30 C), capacity (MW) and the percentage growth for the forming a superheated vapor that drives a turbine top five countries is as follows: and generator to produce electricity. Increased MW’s Rank Countries Geothermal Energy during 2005-2010 1 US 530 2 Indonesia 400 3 Iceland 373 4 New Zealand 193 5 Turkey 62 Source: Geothermal Energy: International Market Update, Geothermal Energy Association

% CAGRxi 2005- Rank Countries 2010 1 Germany 96% 2 Papua-New Guinea 56% 3 Australia 49%

4 Turkey 32% Global Growth Patterns viii ix x : Geothermal 5 Iceland 23% energy is enjoying significant growth and in the Source: Geothermal Energy: International Market Update, past five years has seen accelerated development Geothermal Energy Association and Arrowhead Research in countries like New Zealand, Indonesia and the By early 2011, U.S. installed capacity had US. Geothermal now is also growing in new increased to 3,102 MW, and as of December 2011

Hot Rock Ltd. – Arrowhead BID 20 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

up to a further 5,745MW is in development and built, operational and maintenance costs are low. much more capacity is in project pipelines around This feature of geothermal energy makes it highly the globe. Japan and Indonesia are relaxing rules desirable in the areas where it is both available on developing geothermal projects on protected and feasible, along with its base-load capacity of land, which should open up more sites for + 90% availability compared to wind of 30% and development, and Australia has passed clean hydro-electric plants of 50% to 60%. energy future legislation to put a price on carbon According to Renewables Global Status Report, by emissions, providing a policy backbone and clear 2009, over 85 countries had some kind of pricing signals. The Kenyan government Renewable Energy policy target, up from 45 anticipates that geothermal power will make up countries in 2005. Many national targets are for 30% of its additional electricity by 2030. At least some share of renewable energy in total 11 countries that did not have operating electricity production, typically 5%–30%, but geothermal power plants by early 2010, all in range as high as 90%. Europe and the Americas, are projected to add capacity by 2015, with the global total reaching Other targets are for a share of total primary or 18.5GW. Kenya, Iceland, Mexico and countries in final energy supply of typically 10–20%, specific South America – where new exploration installed capacities of various technologies, or concessions have been awarded in Argentina, total amounts of energy production from Chile, Colombia and Peru – will see high rates of renewable sources. growth in geothermal power development, according to NRG’s research.xii Low Cost Advantage 50 Countries Generating Geothermal Power 45 in 2010 40 35

30

25

14.0 – 18.0 20.0 – 50.0

US Cents US 20

10.0 – 14.0

5.0 – 12.0 5.0 – 12.0

15 4.9 – 10.5

5.5 – 9.4 2.9 – 7.8 5.0 – 9.0

15.0 – 30.0 4.0 – 7.0

10 3.0 – 5.0

5

0

Gas CSP

Coal

Nuclear

Small Hydro Small

Large Hydro Large

On-shoreWind

Off-ShoreWind Power Biomass

Rooftop Solar PV Solar Rooftop Geothermal Power Geothermal PV Solar Scale Utility Source: Renewables Global Status Report, 2010, Pacifcorp data Source: Geothermal Energy: International Market Update, and World Nuclear Association study Geothermal Energy Association; Company Reports Most recent targets aim for 2020 and beyond. According to Pike Research, escalating investment Europe’s target (20% of final energy by 2020) is in geothermal power could result in a 134% prominent among the OECD countries. Among increase in total geothermal capacity between developing countries, examples include Brazil 2010 and 2020, from 10.7GW to 25.1GW, under (75% of electricity by 2030), China (15% of final a high-growth forecast scenario. A more energy by 2020), India (20GW solar by 2022), conservative scenario estimates that geothermal and Kenya (4GW of geothermal by 2030). Many power capacity would increase 34% to 14.3GW by targets also exist at the state, provincial, and 2020. Asia Pacific is expected to achieve the local levels. highest capacity among world regions, with 5.9GW (41%) of geothermal power of worldwide Hot Rock Limited’s Geothermal Markets xiii capacity. Australia: Australia’s geothermal resources are Low Cost Advantage: With the recent plentiful and fall into two categories: conventional development in technology, geothermal energy is hydrothermal or hot sedimentary aquifer (from becoming more cost-competitive with both hot groundwater) and unconventional hot conventional (except nuclear) and renewable fractured rock. The Australian Geothermal Energy sources (except large hydro) of energy. Association estimates Australia’s industry could Geothermal power plants are characterized by potentially provide up to 2,200MW of electricity high investments (exploration, drilling, and by 2020. The Australian geothermal industry is installation) but once a geothermal power plant is still in its development phase and the only working power station so far can be found in

Hot Rock Ltd. – Arrowhead BID 21 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Birdsville Queensland. It uses hot water from the geothermal energy sector expects projects to Great Artesian Basin and is rated at 120KW. come online after successful drilling results are Currently, approximately 48 companies nationally obtained. Geodynamics commenced drilling its have applied for 400 licenses to work on Habanero-4 well in Q1 2012, taking it toward geothermal exploration in Australia. Most producing power at Innamincka. Petratherm has companies have elected to explore drilled a deep well at its Paralana project north of unconventional projects for Hot Fractured Rocks the Flinders Ranges and completed a successful or Enhanced Geothermal Systems focusing on fracking operation. Petratherm plans to begin deep (4 to 5km) metamorphic or granitic rocks. drilling on a second deep well in the Paralana Only three geothermal companies have project were still on track for later in 2012 despite xv commenced deep drilling. TRUenergy’s exit. xvi According to Geoscience Australia estimates, hot Chile, South America : Subduction of the rocks within 5km of the earth’s surface contain Pacific Tectonic Plate beneath the continental energy sufficient to deliver 2.6 million years margin of Chile and Peru has produced an almost worth of energy to Australia, based on the continuous line of active and dormant volcanoes. nation’s total current energy supply. If just 1% of These volcanoes amount to more than 10% of all this energy could be tapped, it would be the active volcanoes in the Circum Pacific "Ring of equivalent of 26,000 times Australia’s annual Fire". Within this volcanic belt in Chile, more than power consumption. It is believed that even if 300 geothermal areas have been identified. Chile, Australia were to only use 2% of its geothermal therefore, has a huge potential for the potential using today’s technology, it could development of volcanic geothermal resources for produce 395,092 MW – about ten times more both electricity generation and direct use in the than Australia’s total coal and gas production.xiv same manner as has been undertaken over the past 50 years around the Circum Pacific Rim in In Australia, Hot Sedimentary Aquifer (HSA) countries such as New Zealand, Papua New systems occur in sedimentary basins near Guinea, Indonesia, Philippines, Japan, Russia, the existing transmission lines and markets and have western USA, Mexico and Central America, where potential for near term development. HSA 9,000MWe of geothermal power is now installed systems have operated commercially for 25 years and operating. in the USA and similar fractured sedimentary systems are likely to be discovered in Australia, In spite of the large geothermal energy resource particularly in the Otway Basin. base in Chile and an active interest within Chile in geothermal power development since the 1960s, The future success of geothermal power in no geothermal prospects have yet been Australia will be closely dependent upon developed for generation of electricity. The main government policies to support drilling programs reason for this is that historically power demand followed by the development and deployment of in Chile has been relatively low and the power these emerging technologies. market has been well supplied with generation Outlook: The Government’s Renewable Energy from a combination of indigenous hydro power Target (RET) of 20% by 2020 supports growth in resources and imported natural gas from Australia’s renewable energy sector by Argentina. encouraging uptake of the cheapest available However, over the past 40 years, new hydro energy sources currently available (i.e. wind and resources for further development have been biomass). The recent announcement of the gradually exhausted, compounded by concerns government’s Emerging Renewables Program and over the loss of agricultural land and especially the Government’s recently announced Clean environmental and cultural minority issues. More Energy Future package, which includes a carbon recently, and more importantly, there have been price and $13.2BN in clean energy funding periodic interruptions in the delivery of natural initiatives, is set to benefit the Australian gas from Argentina to Chile which has eventually geothermal projects. The current intention of the led to an almost complete cessation from mid- government to impose a carbon tax of $23/T of 2007. As a result, the national energy market in CO will in the longer term, make carbon 2 Chile is going through a crisis today due to both intensive fossil fuels more expensive and clean the lack of the large amounts of natural gas renewable energy more attractive. However, formerly imported from Argentina and the need base-load renewable energy such as geothermal for much greater reliance on international fossil misses out in the short term. The Australian fuel markets with the highly variable pricing that

Hot Rock Ltd. – Arrowhead BID 22 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

has occurred in recent times. This gives great have been identified. It is clear that similar to impetus to the development and large scale use Chile, Peru also has a huge potential for the of geothermal energy in Chile to service a high development of volcanic geothermal resources for cost and power scarce market. both electricity generation and direct use. As a result of the pressing national need for According to Peru’s Ministry of Energy and Mines, power security, the very limited reserves of fossil Peru has a potential of exploitable geothermal xix fuel, the need to reduce dependence on imported energy capacity of 3,000 MW. fossil fuels and the need to continue to develop The regulatory and commercial environment in new generation capacity in pace with the rapid Peru has been progressively developing over the industrialization in Chile, the development and past decade and Peru is now seen by the utilization of renewable energy are vigorously international community as a rapidly modernizing promoted by the Chilean Government, particularly economy which is following a similar development geothermal power given the abundance and path that has led Chile to make spectacular evident high quality of volcanic geothermal economic and social advances over the past two systems in Chile. decades. Chile wants to become a leader in geothermal Currently, electricity generation in Peru comes energy and has witnessed increased investment largely from fossil fuels (52%) and hydroelectric for geothermal exploration. The commitments (48%). A recent report from the national grid made by different companies amount to about operator in Peru, CUES, states that the annual US$250MM covering an area of 1MM hectares for energy demand and generation capacity studies of potential geothermal reservoirs. requirement over the next ten years will grow at Two geothermal bid tender rounds have been 6.2% to 75TWh and 10,500MWe. This would held by the Chile Ministry of Energy. In the most require the doubling of generation capacity over recent round of 2010, 13 companies submitted 70 the next 6 years. bid offers for 20 geothermal concessions and At the end of 2008, the country had a total awards of these were notified to the companies in installed plant generation capacity of 7,200 MWe December 2011. Chile has an outstanding natural from which 33 TWh of generation was achieved. potential of geothermal energy resources and Since 2006, with increased awareness of global considering preliminary estimates, the minimum climate change, the impact of gas-fired thermal potential for electricity generation is in excess of electricity generation on the environment, and xvii 3,500MW. estimates that electricity demand will increase With this convergence of the need for new power between 6.1 to 8.5% per annum between 2010 to generation, a rapidly growing government 2017, Peru has been vigorously promoting the appreciation of the value of indigenous renewable generation of electricity through non-traditional energy sources, the quantity and quality of renewable energy generation processes. In 2008, geothermal prospects in Chile and a power price the government passed the Renewable Energy structure that is able to meet the cost of Law 1002 which provides for priority connection geothermal power development, Hot Rock has to grid, 20 year take or pay contracts for similar recognized the potential for power generation in renewable energy technologies and tax benefits. Chile and the commercial opportunity this Hot Rock’s entry into Peru’s geothermal power presents. market is very strategic and builds upon the Chile has the highest cost of power in South strong technical, logistics and knowledge base America averaging US$150MWh in 2011. that the company has developed in Chile over the Peru, South America xviii : Subduction of the past three years. Anzac tectonic plate beneath the South American Of particular significance is the first mover plate has produced an almost continuous line of advantage for securing and developing active and dormant volcanoes along most of the geothermal prospects that appear to be as good length of both Chile and Peru. Within the volcanic as some of the best volcanic geothermal systems belt of Peru, more than 500 geothermal springs anywhere in the world.

Hot Rock Ltd. – Arrowhead BID 23 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Project Risk Profile Analysis drilling at Longavi in 2013 after a further program of MT to more precisely delineate the resource We believe that Hot Rock has a low - medium risk and select drill targets. In Peru, the company profile compared with its peers in Australia and plans to start with MT surveys over at least three South America. Given the exploration potential in of its four granted tenements, leading to initial Chile and Peru, Otway Basin resource resource determinations. These programs are characteristics, company’s management expertise designed to provide data suitable for estimating plus equity dilution to the world’s largest geothermal reservoirs and selection of exploration geothermal energy producer EDC in three of its drill targets to test the development potential of South America projects, Hot Rock is expected to the reservoir. Equity interest purchased by quickly advance projects to define resources for Energy Development Corporation signifies the development. Cash obtained from the deal is resource potential of the Company. expected to reduce pressure on the operating Exploration risk is reduced by the number of cash flow needs of the company for other projects projects held in diverse markets. in South America. This is in sync with the company’s robust business model to pursue LOW Hot Rock is currently ready to drill two Proof-of- RISK investments and convert them into MATURE Concept wells at Koroit Project which will projects capable of generating business value. commence once additional government and joint venture partner funding is secured. Peer Risk Analysis: We have evaluated the risk profile of Hot Rock compared with other global These wells are expected to confirm the geothermal players based in South America or characteristics of the Koroit geothermal resource Asia Pacific. We identified the risk as to allow for installation of a small pilot power Low/Medium/High and assigned a score of 1/2/3 plant at Koroit in 2014. respectively based on the risk profile of the major Hot Rock plans to establish commercial scale projects pursued by the companies. The risk geothermal generation at 50MWe scale for categories considered for the study include commissioning by 2015-16. - Project Maturity Risk: LOW - Near feasibility; Financing/Capex Risk- Low HIGH- Proof of Concept Stage Company has sold interest in two projects in - Financing Risk: LOW - Near negotiations / South America for a cash down payment of lower exploration capex; HIGH - Funding US$1.8MM and can potentially receive a further needed for exploration or no well-known US$1.2MM subject to certain conditions. funding sources. Furthermore, its operating expenses at these - Geothermal Type Risk: LOW – Volcanic & projects are expected to reduce as EDC will solely HSA; HIGH - HDR/EGS fund the exploration up to US$12MM. The cash generated from the dilution will also help - Resource Characteristics Risk: LOW - High company ramp up exploration from other 100% temperature at lower depths with high controlled projects. pressure; HIGH – Lower temperature at higher depths. Company is in discussion with the Australian government and potential joint venture partners Peer Risk Profile for the drilling and testing program at the Koroit Total Project Resource Financing Geothermal Geothermal project. Company Risk Stage Characteristics Risk Type Risk Score Risk Risk We expect the Company to incur substantial HRL AU 1.8 2.3 1.3 1.3 1.5 capex in years 2013-2016. Funding would come RPG CN 1.4 1.5 1.3 1.0 1.5 GTH CN / from partners, government grants, and equity 1.2 1.3 1.0 1.0 1.3 HTM US and debt placement. Given the level of project NGP CN 1.6 2.2 1.2 1.0 1.0 equity, resource characteristics and management PAX AU 1.9 2.0 2.0 1.0 1.5 EHR AU 1.8 2.0 2.0 1.0 1.0 expertise in the field, we are of the view that the GDY AU 2.0 2.0 2.0 2.0 2.0 company would successfully secure the needed Hot Rock Risk Assessment capital. Geothermal Type Risk- Low Project Stage Risk –Medium: The geothermal resources in Chile and Peru are Hot Rock has completed major exploration predominately volcanic, of the same type from programs on two 100% held exploration which approximately 96% of the world’s tenements in Chile, the Calerias and Longavi geothermal generation is obtained. Most of the projects, and expects to commence exploration

Hot Rock Ltd. – Arrowhead BID 24 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

projects in Chile and Peru display classic volcanic at US$2.5m to US$3.5m per well to a drill depth geothermal features, such as hot thermal springs, of 1,500m to 2000m. fumaroles and sinter deposits. Construction Stage: A positive feasibility study The type of geothermal resources in the Otway is the first domino that allows for project Basin is known as HSA systems. The resources at production permitting, and this enables a long- the Koroit Project have shown production term (20 years or more) PPA to be established temperature of 150oC from depths of between with the local grid operator or private client, 3,000m to 4000m and high porosity and which in turn enables financing to be completed. permeability reservoir rocks are indicated to be A geothermal plant will take from 18 to 24 present. A deep well recently drilled in the months to begin power generation from the extension of Otway Basin into South Australia had commencement of construction. o a temperature of 171 C measured at 4000m. We consider a project to have a low risk profile if The Koroit project would use a binary cycle plant the drilling is complete and a feasibility study has to produce the electrical power rather than a been conducted as the uncertainty regarding the steam cycle plant. sustainability of the project is then reduced Resource Characteristics Risk- LOW significantly. - Conservative volumetric stored heat Project Financing Risk: The financing risk in calculations indicate a potential for generating geothermal projects is evident in both the up to 1,750 MWe of electricity within four of exploration and construction phase. the Company’s five GEP's The funding for exploration is generally - Given the likelihood of decreasing primary available through private offering or JV permeability with greater depth, the evidence partners or endowments provided by at Koroit Project is, nonetheless, that the government. Government or partner funding is permeability will still be sufficient to give commonly given to a company in stages commercial geothermal well flows from contingent upon the success of the phases. The primary and secondary reservoir permeability. construction capital expenditure is availed of Well depth would range from 2500 meters to through mezzanine and development banks 3700 meters. depending up the geography and risk profile of Risk Parameters – Definitionxx - the project. We consider a project to be of Project Stage Risk: Stages in a project are: lower risk profile if the feasibility study has - Confirmation Stage: Geothermal reservoirs been conducted and the exploration are typically discovered through visible expenditure is low. surface evidence such as hot springs, Geothermal Type Risk: Today only naturally fumaroles or geysers, or by chance during occurring hot water and steam from hydrothermal mineral or petroleum drilling. MT resistvity sources in the volcanic and HSA environment are surveys are then undertaken at surface to being utilized for power generation economically. map the geothermal reservoir at depth and Exploitation of other types of geothermal energy exploratory slim-hole wells are drilled to resources still requires technological confirm the resource characterisics. The advancements for techno-economic viability. resource confirmation stage ends with an Geothermal power plants are divided into the independent consultant’s report verifying the following types depending on the different fluids existence of the reservoir and the minimum types produced from wells: MWe it can likely support. Superheated steam type: Dry steam resources - Drilling and Feasibility Study Stage: are rare but are the simplest and least costly to Exploration wells for HSA targets to a depth of develop. Naturally occurring steam can be used in 3,700m cost between US$10M and US$12M per a standard steam turbine to generate electricity. well (drill rig and crew US$35k-US$40k per day). The steam produced from geothermal wells is fed This stage ends with a feasibility study by the directly to the steam turbine using thermally company’s staff and independent consultants insulated pipelines. which defines well flow rates and resource size and adds an economic / financial assessment. For Hot water type: Liquid dominated resources are slim hole exploration drilling programs in volcanic more common. If resource temperatures are terraines in South America, costs are anticipated fairly high (> 180°C ), the liquid can be partially flashed to steam in a tank maintained at a much

Hot Rock Ltd. – Arrowhead BID 25 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

lower pressure than in the wells, for use in a We consider a project to be of lower risk profile if steam turbine. If temperatures are moderate the temperature is high and available at (100°C to 180°C), the heat in the liquid can be moderate depths typically in the range of 1000 to used to vaporize a secondary organic working 2000m. fluid, and produce power using a binary cycle Peer Valuation and Risk Profile plant. We have also evaluated the companies based on We consider a project to be of lower risk profile if the value per geothermal resource and the risk it is based on either a dry steam vapor dominated profile. Enterprise Value per Peta Joule of natural reservoir, or based on flashed steam Resource has been used (AUD$/MW) as a proxy from a hot water type resource with for the valuation measure. temperatures > 230oC compared to Enhanced The Risk Profile has been assessed as a weighted Geothermal Systems (EGS). blended score based on the project maturity risk Geothermal Resource Risk: For a geothermal (40%); financing risk (40%), geothermal type energy development project to be commercially risk (10%) and geothermal resource viable, the parameters listed below have to lie characteristic risk (10%). The individual risk within acceptable ranges. scores have been provided in the risk profile table - Temperature – Useful geothermal in the Peer Risk Profile table in the previous temperatures ranges from 100°C at the section. lowest end at which geothermal electricity can Valuation vs. Risk Profile be geneated with organic Rankine cycle binary Enterprise Market Total power plant to more than 300°C for high Value/ Enterprise Cap/ Company Risk Resource Value Resource grade electricity generation in steam plant. Score The higher the temperature the better the (AU$/MW) (AU$m) (AU$/MW) economics for generating electricity. HRL AU 1.8 847 3 1,313 RPG CN 1.4 166,051 246 40,485 - Energy Production Rates – The amount of GTH CN / HTM US 1.2 304,595 81 105,047 energy that can be economically extracted NGP CN 1.6 152,658 75 5,971 from geothermal is based on the fluid’s PAX AU 1.9 2,047 3 2,810 EHR AU 1.8 38,986 16 42,391 temperature, flow rate, and the energy GDY AU 2.0 9,915 20 22,355 conversion technique. The useful output per Valuation vs. Risk Profile Chart well can range from a few kilowatts to tens of megawatts for deep high-temperature, highly The analysis clearly indicates our assertion that productive wells. Hot Rock commands a significant premium compared to its peers considering the Medium - Well Depth – The deeper a geothermal well, risk profile of its projects. We believe that Hot the more it costs. However, wells as deep as Rock would move in to the next valuation bracket 3,000m can be drilled economically, provided as it has moved into the next stage of that the energy production rates from the implementing its geothermal projects. wells are high. Wells in current use range in depth from 60m to 3,000 m. Risk Profile Chart - Energy Transport – Electricity can be 350,000 transported over long distances. Thus, a GTH CN / HTM geothermal power plant can serve distant 300,000 US customers. Hot water can be transported over 250,000 moderate distances (typically 1km to 2km, 200,000 RPG CN

but up to 50km if the system capacity is 150,000 large), depending on resource and end-use NGP CN 100,000

temperatures, terrain conditions, and local AU$/MWEV EHR AU 50,000 climatic conditions. Geothermal steam can be HRL AU PAX AU - GDY AU piped over considerable distances from 1.0 1.2 1.4 1.6 1.8 2.0 2.2 prodction wells of as much as 10 or more km. Company Risk Score

Hot Rock Ltd. – Arrowhead BID 26 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Tick Major Resource EGS/HSA/ Company Project Stage Temp ©/Depth Financing Information er Projects Characteristics Volcanic The company announced Inferred Resource statement for two of its Numerous hot Fields advanced exploration springs with characterized by projects, Calerias and Volcanic Chile temperatures hot springs, sinter Longavi, and is seeking JV from 75oC to deposits and partners with which to local boiling point fumaroles. finalize detailed exploration and to start exploration drilling. Approvals have been Following transfer of obtained for land access at tenements into the Quellaapacheta and project companies Chocopata. These projects formed after JV with are included in EDC / Hot EDC, Hot Rock will Rock joint ventures in Peru receive an initial and are ready for detailed US$0.8MM cash surface exploration studies payment and a further Fields to commence after the joint Numerous boiling US$1.2MM subject to characterized by venture companies have springs, Volcanic certain conditions. EDC Peru hot springs, been formed. fumaroles and will acquire a 70% sinter deposits Hot Rock HRL Land access approval steaming ground interest in each project and fumaroles negations are at an company and will sole advanced state at a third fund the exploration project – Turu, 100% stage up to US$12MM owned by Hot Rock. per project with the total Detailed geoscientific work expenditure for sole plus a MT survey will be funding of the two undertaken at this project projects is up to before December 2012. US$24m. Transmissivity Temperatures in (kH) values of HRL is expected to receive existing oil and 10Dm + final approvals for its two gas wells range In discussion with reasonably well Proof of Concept from 126°C to Potential for potential joint venture expected from drilling and testing program 152°C b/w the partners and the primary at the Koroit HSA resource 2400m to 3700m development Australian government Victoria permeability alone and is applying for and 171oC has of Hot about funding to carry within high quality additional grant funding been measured Sedimentary out a drill and test reservoir rocks. from the Federal at 4000m depth Aquifer (HSA) program at its Koroit Secondary Government under the ERF in a geothermal geothermal project. permeability will 2011 program recently drilled in be additional to the Otway Basin this Panax owns Penola the only two (150-200°C at Panax is currently Project - Currently in the process of HSA Panax depth 3,500m to Flow of '150 – 175 focused on Indonesia PAX Australia, securing Federal “Measured Geothermal 4,000m) - Penola l/sec projects and is looking Indonesia, Government ACRE Funding Geothermal Project to further raise equity India Resources” in Australia 'Commence bankable Received letters of feasibility studies for 4 deep wells Vapor based support for financing Argentina February Temperature 230- drilled tested and reservoir, construction and 2011.Full feasibility study 250ºC. Shallow produced steam; discovered by development of Copahue was completed reservoir, top Copahue Completed first steam at from Inter-American by the Japanese intersected 600- Project - stage EIA and surface. Development Bank and International 900m below Argentina increased Located on FMO (Netherlands Cooperation Agency (JICA) surface and resources 150%; edge of an Development in 1992. In July 2011, extends to around BFS to come out inactive Bank). Meeting stage 1 Environmental 1400m in 2012 volcanic requirements in terms of Impact Assessment (EIA) Earth Heat caldera data and reports EHR completed. Resource Progressing On the 16th March 2011, Pre-feasibility study was discussions with Drake and Scull completed recently. On JV Partners and Temperatures Field International (‘DSI’) 16th March 2011, Drake potential Co- have been characterized signed a Memorandum and Scull International Developers of recorded up to by fumaroles of Understanding Djibouti (‘DSI’) signed a (‘MOU’) critical 359 ºC at 2000m and free (‘MOU’) with the Project with the Company, path projects; (commonly flowing hot Company, agreeing to agreeing to jointly evaluate Activity to ramp >250ºC at vapor and jointly evaluate opportunities to develop up with a 1000m). steam opportunities to develop projects in Africa and the resource review projects in Africa and the Middle East. in the first Middle East.

Hot Rock Ltd. – Arrowhead BID 27 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Tick Major Resource EGS/HSA/ Company Project Stage Temp ©/Depth Financing Information er Projects Characteristics Volcanic quarter of 2012

Sedimentary Development of a Commercial geothermal demonstration EGS •Shallows < 3,000 geothermal power plan - m Enhanced Origin Energy JV partner in Cooper Drilling of Habanero 4 well •Moderate Geothermal Cooper Basin (ORG 30%: Basin, has commenced and good temperatures (135 - Geodynamics GDY System (EGS)/ GDY 70%) Southern progress to date with current 150C) Hot Fractured REDP grant funding (A$89 Australia drill depth at 13600m. Enhanced Rock (HFR) m undrawn) Multiple early stage 250-300°C at Geothermal Geothermal projects in South >4,000m, 130- •Deeps > 4,000 m Australia, Queensland and 150°C at •High temperatures NSW <3,000m. (250 –300C) The Company is currently reviewing plans to increase Faze I steam flow through in commercial operation well stimulation (San and performing. Phase II efforts, including Jacinto - construction near completion. deflagration, and Tizate) Much Reduced drilling full integration of • Raised $77 million of risk associated with project the gathering and equity on May 2011 injection systems • Accessed $160 million for both Phase I and Phase II Phase II Credit Facility in August of The concession is 2011 Ram Power RPG Survey conducted part of the • Restructured $50 million Company commenced drilling in the slim hole at Nicaragua National credit facility December in June 2011 of the first slim depth of 842 m has Expansion Plan for 2011 Casita hole well as a step towards indicated electricity • Cash flow from San proving the Casita resource temperature generation which Jacinto to cover operations viability readings exceeding contemplates up to and corporate debt service. 230° Celsius 140 MW from the Casita project The project could be 25 year PPA secured, in service between Geysers production wells drilled, late fourth quarter permits in hand 2013 and second quarter 2014 GeothermEx Inc. Commercial power generation Measured has estimated that was achieved on January 3, temperatures vary the site has a 50% 2008. The power is being between 275°F to probability of a Raft River purchased by Idaho Power 300°F at depths power production Company under the terms of between 4,500 to capacity of 15.6 a 25 year PPA. 6,000 feet. megawatts per square mile. The Neal Hot Power plant is under Commercial Production Springs project construction starting in April already in operation Estimated distal currently consists of HTM 2011. A 25 year term PPA has which is expected to US Neal Hot source temperature 9.6 square miles of / been executed with Idaho reduce external financial Geothermal Spring of 347ºF to 356ºF geothermal energy GTH Power Company to purchase dependence generate at 2,500-3000 feet and surface rights the full output from the cash-ins and fund future leased by U.S. power plant exploration projects Geothermal Inc. Construction of a new binary cycle power plant started in The project is Sam August 2010. Startup of the comprised of Emidio new plant is scheduled for the approximately

Power 4th Quarter of 2011. Well 22,944 acres of Plant drilling for a second power private and BLM plant to expand the resource administered land began in August 2011. The property covers 11,126.46 acres Faulkner 1' geothermal power (17.4 square miles), First of geothermal Blue plant was placed in service located 21 miles developers to receive an Nevada Mountain October 12, 2009, four NGP (34 km) from the ITC grant ($57.9M) Geothermal months ahead of schedule. state electrical transmission grid. Crump NGP entered into a joint The water The Crump Geyser Crump Geyser received a

Geyser venture with Ormat in temperature of the area is located US$1.76 M DOE grant for

Hot Rock Ltd. – Arrowhead BID 28 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Tick Major Resource EGS/HSA/ Company Project Stage Temp ©/Depth Financing Information er Projects Characteristics Volcanic November 2010 to develop a original "Crump within the moderate innovative exploration and 30MW plant by 2013 Geyser" reached a to high thermal drilling. Ormat to arrange maximum 251°F activity zone, which construction funding for (122°C) below 32 extends from 2013 completion ft. (10 m) depth Washington State and covers much of central and eastern Oregon. In 2011, NGP commenced The property covers applications for 10 square miles Previously drilled confirmation/development (6267 acres) of New test wells found drilling permits, water Federal and private Truckhave temperatures from requirements, transmission geothermal leases n 350-375°F (177- line access, and power located on the west 190°C) purchase agreements as part side of the Salton of an overall feasibility study. Sea. Pumpernickel's geothermal potential is The Pumpernickel The Pumpernickel shown with a project has geothermal site is number of NGP submitted a power bid to produced reservoir 100% leasehold Pumpernic active near- NV Energy for a power temperature covering 10.34 kel boiling purchase agreement estimates from square miles (26.79 geothermal 302°F (150°C) to square km) of hot springs 424°F (218°C) geothermal lands. along the western edge of the Valley Deepest test hole recorded a The property covers Immense heat The next steps at North temperature of 10 square miles (26 anomaly over North Valley received a Valley are to proceed with 262°F (128°C) at square km) and 10 sq. miles North US$1.6M DOE Grant for delineation drilling and to drill 1810 ft. (552 m) interconnects with (26 sq. Valley innovative exploration and a confirmation/discovery well with temperatures four separate power kilometers) drilling to define a large resource. still increasing at transmission lines defined by 20 the bottom of the across the region. gradient holes hole The property covers The next step at Edna an 11.05 square Mountain is to continue an mile parcel of land exploration program including and is a few miles detailed geological mapping, Blind resource Geothermal northeast of NGP's NGP received US$58M extended 2-m probe survey, with a thermal reservoir Pumpernickel Valley Federal ITC/Grant and geophysical surveying and anomaly Edna temperatures of project, two miles $98.5 million JH loan DOE thermal gradient drilling. significantly Mountain 385°F - 397°F south of Interstate loan guarantee under the Additionally, a series of slim larger than (196°C - 203°C) at Highway 80, and Financial Institution holes are expected to be previously 345m nine miles west of Partnership Program drilled to a nominal depth in recognized the Valmy coal-fired order to intercept the range power plant owned front fault and any permeable by NV Energy and production zones. Idaho Power.

Hot Rock Ltd. – Arrowhead BID 29 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Value The Fair Market Value for all of Hot Rock shares stands at AU$186MM to AU$318MM

The Fair Market Value for a publicly traded share stands at AU$0.80 to AU$1.37

Hot Rock Resources Balance Sheet Forecast

Consolidated Balance all figures in '000 AU$, Low bracket estimates Sheet unless stated differently year beginning July 1st 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Total Current Assets 24,694 28,268 (56,291) (100,806) (61,856) (18,535) 27,275 84,917

Total Non-current Assets 6,114 20,583 204,742 387,179 399,603 411,916 424,122 427,113

TOTAL ASSETS 30,808 48,851 148,452 286,373 337,747 393,382 451,397 512,029

Total Current Liabilities 190 200 210 221 232 243 255 268

Total Non-current Liabilities 32 32 32 32 32 32 32 32

TOTAL LIABILITIES 223 232 242 253 264 275 288 300

Total Shareholder's Equity 30,585 48,618 148,209 286,120 337,483 393,106 451,109 511,729 TOTAL LIABILITIES & EQUITY 30,808 48,851 148,452 286,373 337,747 393,382 451,397 512,029

Important information on Arrowhead methodology

The principles of the valuation methodology employed by Arrowhead BID are variable to a certain extent depending on the subsectors in which the research is conducted, but all Arrowhead valuation research possesses an underlying set of common principles and a generally common quantitative process. With Arrowhead Commercial and Technical Due Diligence, Arrowhead extensively researches the fundamentals, assets and liabilities of a company, and builds solid estimates for revenue and expenditure over a coherently determined forecast period. Elements of past performance such as price/earnings ratios, indicated as applicable, are present mainly for reference purposes. Still, elements of real-world past performance enter the valuation through their impact on the commercial and technical due diligence. Elements of comparison such as multiple analyses may be to some limited extent integrated in the valuation on a project-by-project or asset-by-asset basis. In the case of this Hot Rock report, cash-flow forecasts are derived from the expected advertising revenue in coming years, with a high discount applied. Arrowhead BID Fair Market Value Bracket

The Arrowhead Fair Market Value is given as a bracket. This is based on quantitative key variable analysis, such as key price analysis for revenue and cost drivers or analysis and discounts on revenue estimates for projects, especially relevant to those projects estimated to provide revenue near the end of the chosen forecast period. Low and high estimates for key variables are produced as a tool for valuation. In principle, an investor who is comfortable with the high brackets of our key variable analysis will align with the high bracket in the Arrowhead Fair Value Bracket, and likewise in terms of low estimates. The investor will also take into account the company intangibles – as presented in the first pages of this document for the analysis on strengths and weaknesses and on other essential company information. These intangibles serve as supplementary factors for adding or subtracting a premium in the investor’s

Hot Rock Ltd. – Arrowhead BID 30 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

own analysis. The bracket should be understood as a tool provided by Arrowhead BID for the reader of this report and the reader should not solely rely on this information to make his decision on any particular security. The reader must also understand that global capital markets contain inefficiencies, especially in terms of information, and that, on the other hand, corporations and their commercial and technical positions evolve rapidly: this present edition of the Arrowhead valuation is for a short to medium-term alignment analysis (one to 12 months). The reader should refer to important disclosures on page 33 of this report. Information on Hot Rock valuation

Hot Rock Valuation Methodology: The Arrowhead fair valuation for Hot Rock is based on the discounted cash flow (DCF) method of the six projects namely Koroit in the Otway Basin, the Calerias and Longavi projects in Chile, and the Turu, Chocopata and Quellaapacheta projects in Peru. The cash flow projections are derived using DCF. The other relevant valuation method is the sale of similar assets by two unrelated parties. Time Horizon: The time period chosen for valuation is ~118 months (2012-2022).While revenue is expected to ramp up significantly during the period 2015-19 due to the discount factor used, the later years are heavily discounted and have a marginal effect on the valuation. They are included to present a full project cycle situation.

Underlying Business Plan:

Hot Rock is pursuing a strategy of securing and developing advanced conventional geothermal projects, in Australia and South America. The following initiatives are testimony towards the company’s accomplishment of its objective: - Hot Rock has recently won permission to explore three probable geothermal energy sources in Peru at Quellaapacheta, Chocopata and Turu, together spanning 468 km2. - In January 2010, the company’s wholly owned subsidiary, Hot Rock Chile S.A., was formally awarded three initial volcanic geothermal concessions in Chile covering 1,650 km2 in total, by the Chile Ministry of Mining. These are the Galo, Santa Sonia and Santa Antonia concessions. - By May 2011, the company’s wholly owned subsidiary, Hot Rock Chile S.A., had been formally awarded thirteen tenements totaling 5,660km2 covering seven projects. - The company intends to advance exploration at its South American projects as well as its Australian projects. - The Company has secured two high quality exploration and development JV agreements in Peru with the Energy Development Corporation, the largest integrated geothermal steam supply and power generator in the world. The Company remains in discussion with potential partners to fund ongoing exploration in both Chile and Peru at 100% owned HRL projects. The Australian Otway Basin projects are on hold until satisfactory funding can be secured from the Australian government and/or a suitable partner.

Terminal Value: Terminal value is estimated to depend on a terminal growth rate of 0%, representing the maturity, technology change and prospective competiveness in the business.

Prudential Nature of Valuation: It should be noted that this Arrowhead Fair Value Bracket estimate is a relatively prudential estimate, the reasonable production from one of these assets, if completed, is heavily discounted (see Key Variables section). The valuation also discounts the eventuality of any of Hot Rock’s projects, which would be developed by the projects.

Key Variables in Determining Hot Rock’s Revenue Estimates - Probable Geothermal capacity in MWe from the six projects namely, Koroit in Otway Basin, Calerias and Longavi in Chile, and Chocopata; Quellaapacheta and Turu projects in Peru. - Operating Efficiency of the plants during the course of operation - Selling price per MWh - Exchange rate

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Key variables in Hot Rock revenue estimations The key variables are the main quantifiable variables which influence the valuation of the company. Key variables can be exogenous (exchange rate, product price, etc.) or endogenous (production rates and costs of production) to the company performance. A low and high forecast is determined by Arrowhead for each variable. Each of the variables is considered independently for the purpose of this report because the final goal of the Arrowhead Due Diligence and Valuation Report is to state what the company is worth at least and at most. Variable 1 – Geothermal Power Capacity of the Projects Arrowhead has considered six projects namely Koroit in Otway Basin, Calerias and Longavi in Chile and Quellaapacheta, Chocopata and Turu in Peru, to arrive at potential installed capacity of the company. Based on company reports, Arrowhead forecasts the following installed capacity and timeframe in which the projects will start production. Project MW capacity (low-high) 2015 2016 2017 2018 2019 Koroit - Otway Basin 35.00-36.00 40.00-41.00 45.00-46.00 45.00-46.00 45.00-46.00 Calerias - Chile 35.00-37.00 35.00-37.00 35.00-37.00 35.00-37.00 35.00-37.00 Longavi – Chile 31.25-33.75 31.25-33.75 31.25-33.75 31.25-33.75 31.25-33.75 Turu – Peru 12.50-13.50 12.50-13.50 12.50-13.50 12.50-13.50 12.50-13.50 Chocopata – Peru 12.50-13.50 12.50-13.50 12.50-13.50 12.50-13.50 12.50-13.50 Quellaapacheta – Peru 23.00-25.00 23.00-25.00 23.00-25.00 23.00-25.00 23.00-25.00 Variable 2 – Operating Efficiency of the Plants We forecast that conversion efficiency would be 92.5% for all the five projects at lower end of forecasts while a prudent upper estimate would be 97.5%. Variable 3 – Price per MWh We have forecasted the following low end and high end range for selling price of electricity for the six projects:- Project Low end High end Koroit - Otway Basin 105 110 Calerias – Chile 105 115 Longavi – Chile 105 115 Chocopata – Peru 105 110 Quellaapacheta – Peru 105 110 Turu – Peru 105 110 Variable 4 – Cost Price per MWh We have forecasted the following low end and high end range for cost price of electricity for the six projects:- Project Low end High end Koroit - Otway Basin 42.5 47.5 Calerias – Chile 36.5 41.5 Longavi – Chile 22.5 27.5 Chocopata – Peru 25.0 30.0 Quellaapacheta – Peru 25.0 30.0 Turu – Peru 25.0 30.0 Variable 5 – Currency Movement between the AU$/ US$ Pair Arrowhead forecasts AU$/US$ pair to trade at parity for the valuation horizon, a comfortably low estimate would be 0.95, whereas a prudent high estimate would be 0.975.

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Analyst Certifications and Important Disclosures

own financial advisors as they deem necessary. Analyst Certifications Investors are advised to gather and consult multiple information sources before making I, Mohanarangam Purushothaman, certify that all investment decisions. Recipients of this report are of the views expressed in this research report strongly advised to read the information on accurately reflect my personal views about the Arrowhead Methodology section of this report to subject security and the subject company. understand if and how the Arrowhead Due I, Vishal Pasari, certify that all of the views Diligence and Arrowhead Fair Value Bracket expressed in this research report accurately integrate alongside the rest of their stream of reflect my personal views about the subject information and within their decision taking security and the subject company. process. Past performance of securities described directly Important Disclosures or indirectly in this report should not be taken as Arrowhead Business and Investment Decisions, an indication or guarantee of future results. The LLC received fees in 2011 and 2012 from Hot price, value of, and income from any of the Rock Limited for researching and drafting this financial securities described in this report may report and for a series of other services to Hot rise as well as fall, and may be affected by simple Rock Limited, including distribution of this report and complex changes in economic, financial and and networking services. Neither Arrowhead BID political factors. nor its partners own any position in Hot Rock Should a security described in this report be Limited equity. denominated in a currency other than the Aside from certain reports published on a periodic investor’s home currency, a change in exchange basis, the large majority of reports are published rates may adversely affect the price of, value of, by Arrowhead BID at irregular intervals as or income derived from the security. appropriate in the analyst’s judgment. This report is published solely for information Any opinions expressed in this report are purposes, and is not to be considered as an offer statements of our judgment to this date and are to buy any security, in any state. subject to change without notice. Other than disclosures relating to Arrowhead This report was prepared for general circulation Business and Investment Decisions, LLC, the and does not provide investment information herein is based on sources we believe recommendations specific to individual investors. to be reliable but is not guaranteed by us and As such, any of the financial or other money- does not purport to be a complete statement or management instruments linked to the company summary of the available data. and company valuation described in this report, Arrowhead Business and Investment Decisions, hereafter referred to as “the securities”, and may LLC is not responsible for any loss, financial or not be suitable for all investors. other, directly or indirectly linked to any price Investors must make their own investment movement or absence of price movement of the decisions based upon their specific investment securities described in this report. objectives and financial situation utilizing their

Hot Rock Ltd. – Arrowhead BID 33 ASX: HRL Due Diligence and Valuation Report See important disclosures on page 33 of this report.

Valuation WACC Risk-free rate 3.26% xxi Production capacity Price Exchange rate Beta 0.54 xxii Risk premium 9.50% Max value 2.00% Additional Risk Premium Please refer to the Key Variable Section Cost of Equity 9.41% Min value Terminal Growth Rate 0.00%

FCFE (High) Time Period -- > 8.00 0.88 1.88 2.88 3.88 4.88 5.88 6.88 7.88 Year beginning 1st July 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Net cash from operating activities (1,889) (955) (1,063) 67,490 66,838 72,030 75,181 78,503 82,283

Capital Expenditure (1,300) (14,550) (186,000) (186,000) (16,100) (16,100) (16,100) (6,900) (6,900)

Net Debt Addition 25 ------

Free Cash Flow to Equity (3,164) (15,505) (187,063) (118,510) 50,738 55,930 59,081 71,603 75,383 Discount Factor 0.49 0.92 0.84 0.77 0.71 0.64 0.59 0.54 0.49

Present Value of FCF (1,541) (14,332) (158,030) (91,503) 35,806 36,074 34,828 38,578 37,121

FCFE (Low) Time Period --> 8.00 0.88 1.88 2.88 3.88 4.88 5.88 6.88 7.88 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Net cash from operating activities (1,889) (955) (1,063) 56,480 55,045 59,416 61,904 64,535 67,597

Capital Expenditure (1,300) (14,550) (186,000) (186,000) (16,100) (16,100) (16,100) (6,900) (6,900)

Net Debt Addition 25 ------

Free Cash Flow to Equity (3,164) (15,505) (187,063) (129,520) 38,945 43,316 45,804 57,635 60,697 Discount Factor 0.49 0.92 0.84 0.77 0.71 0.64 0.59 0.54 0.49

Present Value of FCF (1,541) (14,332) (158,030) (100,005) 27,483 27,938 27,002 31,053 29,889

ARROWHEAD FAIR VALUE BRACKET AU$ Value Contribution by Key Variables

High Low 350,000

Terminal Value (TV) 813,175 640,901 300,000

Present Value of TV 334,501 263,636 250,000

Present Value of FCF + TV 318,688 186,661 200,000

+ Cash 60 60 150,000

Equity Value Bracket 318,748 186,721 100,000

Shares Outstanding (in '000) 232,035 232,035 50,000 Fair Value Bracket AUD 1.374 AUD 0.805 - Low Koroit Calerias Longavi Turu Chocopata Quellaapacheta Other High Current Market Price AUD 0.017 AUD 0.017 (50,000) Current Market Capital 3,945 3,945 (100,000) Target Market Capital 318,748 186,721 (150,000)

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Notes and References

i Arrowhead Business and Investment Decisions Fair Value Bracket - AFVBTM. See information on valuation on pages 27-33 of this report and important disclosures on page 32 of this report. ii Source: Bloomberg as of 13th August 2012 iii 52 weeks to 13th August 2012. Source: Australian Stock Exchange as of 13th August 2012 iv 3 months to 13th August 2012. Source: Bloomberg as of 13th August 2012 v Source: Bloomberg as of 13th August 2012 vi Arrowhead Business and Investment Decisions Fair Value Bracket - AFVBTM. See information on valuation on pages 27-33 of this report and important disclosures on page 32 of this report. vii Source: Bloomberg as of 13th August 2012 viii Source: http://www.solarfeeds.com/geothermal-energy-market-forecast-for-2012/ ix Source: http://www.renewableenergyworld.com/rea/news/article/2011/12/geothermal-outlook-2012-despite-difficulties-industry-will-forge-ahead x Source: http://www.renewableenergyworld.com/rea/news/article/2012/03/robust-geothermal-growth-expected-even-if-tax-credits-expire-eia-reports xi Compound Annual Growth Rate: y-o-y growth rate over a specified period of time xii http://www.triplepundit.com/2011/11/clean-energy-resource-large-be-ignored-geothermal-power-gains-steam/ xiii Source: http://www.pikeresearch.com/newsroom/geothermal-power-capacity-could-more-than-double-by-2020 xiv Source:http://www.forbes.com/sites/alexknapp/2011/11/21/australia-could-be-a-geothermal-powerhouse/ xv Source: http://thinkgeoenergy.com/archives/9597 xvi Source : Company’s Website xvii Source: http://thinkgeoenergy.com/archives/10727 xviii Source : Company’s Website xix Source: http://thinkgeoenergy.com/archives/9407 xx Source: Arrowhead estimate of ‘Heat in Place’ for both the projects based on volumetric method. It is a potential variable and is subject to the company publishing a competent person compliant number, as have their peers, for accurate comparison. xxi Source: Bloomberg as of 13th August 2012 xxii Source: Bloomberg as of 13th August 2012

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