IMC-Montan Consulting GmbH Am Technologiepark 1 D-45307 Essen IMC-Montan Consulting GmbH Am Technologiepark 1 D-45307 Essen Germany Germany

EP Investment Advisors, s.r.o. Tel: +49 (0) 201 172 1536 Fax: +49 (0) 201 172 1727 Paížská 130/26, Prague 1, 110 00 email: [email protected] www.imcgcl.com Czech Republic Executive Board: Michael Loos Ulrich Ruppel Berend G.-J. Loois Arif Anwar Chris Wells

VAT ID DE253275653

Essen, 30 September 2011

Dear Sirs,

Competent Person’s Report on the Coal Assets of a German Company

Purpose of Report

EP Investment Advisors, s.r.o. (“EP”) required on behalf of a majority shareholder in a German coal mining company the Consulting Services of a Technical, Environmental, Coal/Mining Engineering Company for a Competent Person’s Report (CPR) for the provision to rating agencies, banks and public bond market investors. On 2nd August 2011 an Agreement was made between EP and IMC-Montan Consulting GmbH (“IMC”) to provide these Consulting Services. As instructed by the Directors of EP, this report has been prepared by IMC for the coal assets of Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG"). This report, which summarises the findings of IMC’s review, has been prepared in accordance with requirements of a Competent Person’s Report as set out in ESMA update of the CESR recommendations 2011/81 of 23 March 2011 (“ESMA Guideline”). The requirements of said recommendation as relevant to this CPR are included in Annex A to this report. IMC has reviewed the practice and estimation methods undertaken by MIBRAG for reporting reserves and resources and has restated the reserves and resources in compliance with § 133 of the ESMA Guideline and in accordance with the criteria for internationally recognised reserve and resource categories of the “Australasian Code for Reporting Mineral Resources and Ore Reserves” (2004) published by the Joint Ore Reserves Committee (“JORC”) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the “JORC Code”). In this report, all reserves and resources estimates, initially prepared by MIBRAG have been substantiated by evidence obtained from IMC’s site visits and observation and are supported by details of drilling results, analyses and other evidence and takes account of all relevant information supplied by the management of MIBRAG.

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It should be noted that lignite mines have been operating in the area for more than 50 years and MIBRAG has maintained lignite exploration and production in the area since 1994. For this reason an excellent knowledge on geology, resources and reserves could be expected.

Capability and Independence

This report was prepared by IMC, the signatory to this letter. Details of IMC’s capability and expertise in due diligence and Competent Person’s Reports were submitted to EP with the IMC offer. Qualifications and experience of the consultants who carried out the work are in Annex B to this report. IMC operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to clients. IMC has received, and will receive, professional fees for its preparation of this report. However, neither IMC nor any of its directors, staff or sub-consultants who contributed to this report has any interest in:  EP and companies associated with EP, MIBRAG and their subsidiaries; or  the assets reviewed; or  the outcome of the financing transaction.

Drafts of this report were provided to EP and MIBRAG, but only for the purpose of confirming both the accuracy of factual material and the reasonableness of assumptions relied upon in the report.

Scope of Work / Materiality / Limitations and Exclusions

IMC has reviewed the documents provided in accordance with the scope of work and any exclusions and limitations. IMC has independently assessed the MIBRAG coal assets by reviewing pertinent data, including, as agreed in the scope of work, that relating to licences and permits, reserves and resources, mining, infrastructure, LoM/current state, labour force, customer base, environment, rehabilitation and abandonment issues, historic operating and cost performance and the future plans relating to productivity, production, operating costs, capital expenditures and sales revenues. The IMC approach includes a critical review of a number of previous due diligence reports and updated information provided, site visits and numerous discussions with key MIBRAG personnel and other advisors. For accomplishing the scope of work IMC could rely on a detailed due diligence report titled “Technical, Environmental, Coal/Mining and Market/Commercial Advisory Services to Potential Lenders in respect of the financing of the acquisition of MIBRAG B.V. and its Subsidiaries” dated 5 January 2010 and issued by TUEV-Nord and IMC, mandated by letter of the Commerzbank AG on 13 July 2009. For said report IMC was responsible, among others, for the coal assets of MIBRAG. It should be noted that the agreed scope of work specifically excluded the valuation of the MIBRAG coal assets, as would be required for a prospectus under the ESMA guideline, Annex

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II, and any cash flow forecast. Key cost data sensitive to ongoing contract negotiations would not be made available by MIBRAG. IMC’s evaluation of the MIBRAG capital costs, operational costs and accruals is based on an independent review of MIBRAG’s long term plan business plan and financial model (“long term plan”) covering the period 2011 to 2026. In agreement with EP the focus of this report is most on the first years (2011-2016) which would be the investment horizon of most of the investors. All opinions, findings and conclusions expressed in this report are those of IMC and its sub-consultants.

Inherent Mining Risk

Mining, processing and power generation are carried out in an environment where not all events are predictable. Whilst an effective Management team can, firstly, identify the known risks, and secondly, take measures to manage and mitigate these risks, there is still the possibility for unexpected and unpredictable events to occur. It is therefore not totally possible to remove all risks or state with certainty that an event that may have a material impact on the operation of a mine and associated activities, will not occur.

Glossary of Terms

Defined and technical terms used in this report are set out in Annex D.

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TABLE OF CONTENTS

1 EXECUTIVE SUMMARY...... 1 1.1 INTRODUCTION...... 1 1.2 MIBRAG ASSETS ...... 1 1.3 MINING LICENCES/PERMITS...... 2 1.4 GEOLOGICAL ENVIRONMENT ...... 2 1.5 RESOURCES AND RESERVES ...... 3 1.6 LIGNITE QUALITIES ...... 4 1.7 MINING ...... 5 1.8 MAINTENANCE AND INFRASTRUCTURE ...... 8 1.9 MANAGEMENT AND MANPOWER ...... 9 1.10 OCCUPATIONAL HEALTH AND SAFETY ...... 9 1.11 ENVIRONMENTAL ISSUES ...... 10 1.12 LIGNITE MARKETS ...... 10 1.13 FINANCIAL ...... 11 1.14 CONCLUSIONS ...... 15

2 MIBRAG ...... 16 2.1 COMPANY HISTORY ...... 16 2.2 COMPANY AND OPERATING STRUCTURE ...... 17 2.3 GENERAL DESCRIPTION OF ASSETS ...... 19 2.4 LEGAL FRAMEWORK ...... 21 2.4.1 Mining Permits - Profen Mine ...... 23 2.4.2 Mining Permits - United Schleenhain Mine ...... 24 2.4.3 Others...... 24

3 GEOLOGY ...... 26 3.1 REGIONAL GEOLOGY ...... 26 3.2 LOCAL AND PROPERTY GEOLOGY ...... 26 3.2.1 Local and Property Geology – Profen Mine ...... 27 3.2.2 Local and Property Geology – United Schleenhain Mine ...... 28

4 RESOURCE AND RESERVES ...... 31 4.1 GEOLOGICAL MODEL DESCRIPTION ...... 31 4.2 DRILL HOLE AND COAL QUALITY DATABASE ...... 32 4.3 QUALITY CONTROL/QUALITY ASSURANCE PROGRAM ...... 34 4.4 RESERVES AND RESOURCES ESTIMATION METHOD ...... 35

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4.4.1 Procedure for Estimating Resources and Reserves ...... 35 4.4.2 Reconciliations of Production to Reserves and Resources ...... 37 4.4.3 Other Prospects ...... 41

5 MINING ...... 43 5.1 MINING GENERALS ...... 43 5.1.1 Lignite Mining in Germany ...... 43 5.1.2 Benchmarking with German Lignite Mines ...... 46 5.1.3 Capacity Verification for the Open-Cast Mines ...... 47 5.2 PROFEN MINE ...... 51 5.2.1 Geographic Setting...... 51 5.2.2 Mine Design and Current Status ...... 51 5.2.3 Mine Production Schedule ...... 53 5.2.4 Mine Equipment ...... 54 5.2.5 Mine Capacity...... 59 5.2.6 Grade Control and Blending Procedures ...... 60 5.2.7 Mine Drainage ...... 61 5.2.8 Investments ...... 63 5.3 UNITED SCHLEENHAIN MINE ...... 63 5.3.1 Geographic Setting...... 63 5.3.2 Mine Design and Current Status ...... 64 5.3.3 Mine Development and Production Schedules ...... 67 5.3.4 Mine Equipment ...... 69 5.3.5 Mine Capacity...... 73 5.3.6 Grade Control and Blending Procedures ...... 74 5.3.7 Mine Drainage ...... 75 5.3.8 Investments ...... 77

6 MAINTENANCE AND INFRASTRUCTURE ...... 78 6.1 MAINTENANCE ...... 78 6.1.1 Organisation ...... 78 6.1.2 Maintenance and Repair Regime ...... 78 6.1.3 Workshops and Warehousing ...... 78 6.1.4 Regular Inspection of Facilities ...... 79 6.2 INFRASTRUCTURE ...... 79 6.2.1 Power Supply Network of MIBRAG ...... 79 6.2.2 Railway Operations ...... 80 6.3 DISPOSAL AND TRANSPORT OBLIGATIONS ...... 80

7 MANAGEMENT AND MANPOWER ...... 82 7.1 MANAGEMENT ...... 82 7.2 LABOUR FORCE ...... 82

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7.3 COLLECTIVE AGREEMENTS ON WORKING CONDITIONS (LABOUR AGREEMENT) ...... 83 7.4 TURNOVER AND RECRUITMENT...... 83 7.5 VOCATIONAL TRAINING AND CONTINUING EDUCATION ...... 83 7.5.1 General...... 83 7.5.2 Vocational Training ...... 83 7.5.3 Continuing Education ...... 84

8 OCCUPATIONAL HEALTH AND SAFETY (OHS) SYSTEM /FIRE AND RESCUE ORGANISATION ...... 85 8.1 COMPANY PHILOSOPHY ...... 85 8.2 ACCIDENT FREQUENCY ...... 85 8.3 HEALTH &SAFETY MANAGEMENT ...... 86

9 ENVIRONMENT...... 89 9.1 CURRENT MINE WATER MANAGEMENT ...... 89 9.1.1 Permits and Contractual Arrangements with Third Parties ...... 90 9.1.2 Impact of Mine Drainage ...... 91 9.1.3 Monitoring and Compliance Records ...... 93 9.2 MEASURES FOR FUTURE MINE WATER MANAGEMENT ...... 94 9.2.1 Endlake Development at Profen Mine ...... 94 9.2.2 Endlake Development at United Schleenhain Mine ...... 95 9.2.3 Measures to manage expected Mine Water Quality ...... 96 9.2.4 Risks associated with Mine Water Quality ...... 98 9.3 ENVIRONMENTAL PROTECTION MINE OPERATIONS ...... 99 9.3.1 MIBRAG Environmental Policy and Legal Obligations ...... 99 9.3.2 Environmental Management during Mine Operations ...... 100 9.3.3 Mine Reclamation and Closure ...... 101 9.4 CONTAMINATED SITES ...... 103 9.4.1 Register of Contaminated Sites ...... 103 9.4.2 Costs and Risk Analysis ...... 103 9.5 WASTE WATER TREATMENT AND DISPOSAL SCHEME ...... 105 9.6 SOLIDS DISPOSAL SCHEME AND DISPOSAL OF COMBUSTION PRODUCTS ...... 105 9.7 SOCIO-ECONOMIC ISSUES ...... 105 9.8 ANTICIPATED FUTURE COMPLIANCE AND ASSOCIATED COSTS...... 106 9.8.1 Endlakes...... 107 9.8.2 Domsen ...... 108 9.8.3 United Schleehain ...... 108

10 GERMAN LIGNITE INDUSTRY ...... 109 10.1 LIGNITE INDUSTRY STRUCTURE ...... 109 10.2 LIGNITE MARKET OVERVIEW ...... 110

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10.3 MIBRAG LIGNITE SUPPLIES AND MARKETS ...... 111 10.3.1 CHP Schkopau ...... 113 10.3.2 CHP Lippendorf ...... 118 10.3.3 CHP Chemnitz ...... 121 10.3.4 Other Customers ...... 122 10.4 TRANSPORTATION FROM MINE TO CUSTOMER ...... 123 10.5 RISKS AND OPPORTUNITIES ...... 124

11 FINANCIAL ...... 128 11.1 MAIN ASSUMPTIONS ...... 128 11.2 PRODUCTION SCHEDULES AND REVENUES ...... 129 11.3 OPERATING COSTS ...... 131 11.3.1 General description ...... 131 11.3.2 Cost Allocation ...... 133 11.3.3 Cost Schedules ...... 133 11.4 CAPITAL EXPENDITURE ...... 135 11.5 TAXATION ...... 138 11.6 OTHER FINDINGS ...... 138

12 CONCLUSIONS...... 140

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LIST OF TABLES

Table 1.1: Lignite reserves of Profen mine (as of 30 June 2011) ...... 3 Table 1.2: Lignite reserves of United Schleenhain mine (as of 30 June 2011) ...... 4 Table 1.3: Main parameters of lignite quality – Profen mine ...... 4 Table 1.4: Main parameters of lignite quality – United Schleenhain mine ...... 5 Table 1.5: Long term contracts according to MIBRAG (*) with a potential extension ...... 11 Table 1.6: Value of Lignite Production ...... 13 Table 1.7: Mine Operating Cost Schedule ...... 13 Table 1.8: Mine Capital Expenditure ...... 14 Table 2.1: Main organisational units of MIBRAG GmbH and number of personnel (as of 31 July 2011) ...... 19 Table 2.2: Key data of MIBRAG Industrial Plants ...... 21 Table 3.1: Explored reserves in the Central German mining area by the former GDR (1983) ...... 26 Table 4.1:  Number of exploration boreholes and drill hole spacing in the mining areas ...... 32 Table 4.2: List of mines and mining fields which are evaluated in this report ...... 38 Table 4.3: Main parameters of lignite quality – Profen mine ...... 38 Table 4.4: Lignite reserves of Profen mine (as of 30 June 2011) ...... 39 Table 4.5: Main parameters of lignite quality – United Schleenhain mine ...... 40 Table 4.6: Lignite reserves of United Schleenhain mine (as of 30 June 2011) ...... 41 Table 5.1:  Comparison of Resources & Reserves (billion tonnes) in the German Lignite Mining Areas ...... 45 Table 5.2: Selected Coal qualities in the main lignite mining areas ...... 45 Table 5.3: Development of Direct Employment by German Lignite Industry ...... 46 Table 5.4: Comparison of key data from top 3 lignite producers in Germany in 2008 ..... 47 Table 5.5: Effective Mine Capacity - Partial Field Schwerzau ...... 49 Table 5.6: Effective Mine Capacity - Partial Field Schleenhain ...... 50 Table 5.7: Planned investment for Profen and United Schleenhain mines until 2016 ..... 63 Table 9.1: Profen Mine – Land use and rehabilitation (ha) ...... 102 Table 9.2: United Schleenhain Mine – Land use and rehabilitation (ha) ...... 103 Table 10.1: Lignite Products (Mt) excluding Lignite for Power Generation ...... 111 Table 10.2: Long term contracts according to MIBRAG (*) with a potential extension .... 112 Table 11.1: Production Volumes ...... 130 Table 11.2: Value of Lignite Production ...... 130 Table 11.3: Cost Allocation Factors ...... 133 Table 11.4: Mine Operating Cost Schedule ...... 134 Table 11.5: Allocation of Capital Expenditure of Service Profit Centers to Mining ...... 136 Table 11.6: Mine Capital Expenditure ...... 137 Table 11.7: Taxes ...... 139

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LIST OF FIGURES

Figure 1.1: Production schedule of Profen mine 2010 - 2026 ...... 7 Figure 1.2: Production schedule of United Schleenhain mine 2010 – 2026 ...... 8 Figure 2.1: Shareholder Structure of MIBRAG as of 30 June 2011 ...... 17 Figure 2.2: Location of MIBRAG offices, mines and industrial plants ...... 18 Figure 2.3: Business Activities and Lignite utilisation of MIBRAG (2010) ...... 20 Figure 3.1: Profen open-cast mine standard section, Schwerzau field ...... 27 Figure 3.2: Stratigraphic standard section of open-cast mine United Schleenhain ...... 29 Figure 4.1: General relationship between Exploration Results, Coal Resources and Coal Reserves ...... 37 Figure 5.1: Lignite mining areas in Germany and their general production rate and market share (2008) ...... 44 Figure 5.2: Mine development at Profen open-cast mine ...... 51 Figure 5.3: Post-mining landscape – Profen Mine ...... 53 Figure 5.4: Production schedule of Profen mine 2010 - 2026 ...... 54 Figure 5.5: Equipment use at Profen open-cast mine ...... 55 Figure 5.6: Prognosis of mine water discharge from Profen mine until 2025 ...... 62 Figure 5.7: Mine development at United Schleenhain open-cast mine ...... 65 Figure 5.8: Post-mining landscape – United Schleenhain Mine ...... 67 Figure 5.9: Production schedule of United Schleenhain mine 2010 - 2026 ...... 68 Figure 5.10: Equipment used at United Schleenhain open-cast mine ...... 69 Figure 5.11: Prognosis of mine water discharge from United Schleenhain mine until 2025 ...... 77 Figure 10.1: Structure of the German Lignite Industry ...... 109 Figure 10.2: The pattern of Lignite production and use in Germany (2010) ...... 110 Figure 10.3: Historic Lignite Supplies to Schkopau CHP, period 1995 to 2010 ...... 115 Figure 10.4: Future Lignite Supplies to Schkopau CHP until 2026 ...... 116 Figure 10.5: Historic Lignite Supplies to Lippendorf CHP, period 1999 to 2010 ...... 119 Figure 10.6: Future Lignite Supplies to Lippendorf CHP until 2026 ...... 120 Figure 10.7: Positioning of CHPs Lippendorf and Schkopau in German Merit Order ...... 126

LIST OF ANNEXES

Annex A Excerpt from ESMA update of the CESR recommendations 23 March 2011 Annex B Qualifications of the Consultants Annex C Location and Mine Permits Annex D Glossary of Terms

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1 EXECUTIVE SUMMARY

1.1 INTRODUCTION IMC-Montan Consulting GmbH (IMC) was retained by the directors of EP Investment Advisors, s.r.o. (“EP”) to issue a Competent Person’s Report (CPR) on the coal assets of Mitteldeutsche Braunkohlengesellschaft mbH ("MIBRAG") for the provision to rating agencies, banks and public bond market investors. MIBRAG is presently owned at equal shares by the EZ Group and the EP Group through JTSD Braunkohlebergbau GmbH. This CPR has been prepared in accordance with requirements as set out in ESMA update of the CESR recommendations 2011/81 of 23 March 2011 (“ESMA Guideline”).

1.2 MIBRAG ASSETS MIBRAG’s premises are located in the central German federal states of Saxony-Anhalt and Saxonia. MIBRAG’s core business is the supply of raw lignite to power plants owned and operated by others. MIBRAG delivers a total of about 16 Mt of raw lignite per year via rail to the Schkopau power plant (Saxony-Anhalt) and directly via belt conveyors to the Lippendorf (Saxony) power plant. The supply of the MIBRAG open-cast mines in Profen (Saxony-Anhalt) and United Schleenhain (Saxony), which matches the life span of the two power plants, is expected to last until about 2030 and 2040 respectively. The mines also provide lignite by truck or rail transport to MIBRAG industrial plants and other clients in the area. MIBRAG also owns and operates some small lignite fired combined heat and power (CHP) plants at Deuben, Mumsdorf and Waehlitz with a total installed capacity of 208 MW. Primary usage of the electricity produced is to run MIBRAGS`s own mining equipment. Surplus electricity is sold to public private networks and thermal heat generated by the combustion process is delivered to consumers nearby. Due to the cogeneration and utilization of electrical and thermal heat these types of plants are called Combined Heat and Power (CHP) plants. In addition, sewage sludge and bio sludge are also combusted to improve economics. At the Deuben location MIBRAG also owns and operates a lignite dust factory where raw lignite is dried and ground to a fine powder and sold as lignite dust mainly to the cement and lime industry. During 2010 MIBRAG accepted a 3 years contract with a trading subsidiary of RWE AG to produce about 65,000 t/year of lignite briquettes. For this purpose MIBRAG re-activated its Deuben briquette factory where raw lignite delivered by RWE is now processed for regional sales by RWE. As of December 2010 MIBRAG also started a renewable energy business when 3 wind turbines of 2.3 MW each net capacity were put into operation at the western rim of the Peres mine. Because of age the Mumsdorf power plant is scheduled for closure by September 2013 and the Deuben power plant, including the associated lignite dust/briquette factory, are scheduled for closure in 2020 according to the MIBRAG long term business plan.

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1.3 MINING LICENCES/PERMITS IMC has not carried out a legal title search, but has reviewed the exploration rights and mining permits together with significant environmental operating permits. MIBRAG performs lignite mining operations on the basis of state approved Frame Work Mine Plans for the coal deposits of the Profen and Schleenhain mines. Both Frame Work Mine Plans are valid until the lignite reserves are exhausted and do not carry a specific end date. Modifications and extensions of the valid Frame Work Mine Plan require a specific approval process. For the Schleenhain mine an additional mining of about 10 Mt (Schleenhain- Suederweiterung) was granted in 2009 and for the Profen mine the approval for another partial mine field (Profen-Draschwitz) allowing excavation of additional 10 Mt of lignite is in process and expected complete not later than 2014. MIBRAG filed a mining permit application for the Luetzen mine field, located north of the Profen mine and representing a potential mine life extension, in 2009 but currently no activities are carried out awaiting decision on the investment for a new power plant at Profen. However the regional development plan of the Saxony-Anhalt state updated in December 2010 includes the outline of the MIBRAG proposed Luetzen mine as an area reserved for mineral exploitation. For the Schleenhain mine a new brown coal plan, which is a legally binding regional development plan within the boundaries of the state of Saxonia, became effective on 25 August 2011. It confirms the Schleenhain life of mine plan to supply coal for the Lippendorf power plant until about 2040 and also qualifies two additional satellite areas (Poedelwitz and Obertitz) as potential exploitation areas (Vorbehaltsflächen). MIBRAG has the right and the obligation to mine and utilize industrial minerals like ceramic clay and quartz gravel, which occur within the area of the Frame Work Mine Plan. Currently such extraction takes place in the area of Profen-Sued/D1. Extraction rates are in the order of 250,000 t/a of sand and gravel and about 50,000 t/a of clay. These activities are also considered in the MIBRAG long term plan. There are in addition further lignite deposits, for which MIBRAG holds rights and options of various rank. All of them lie outside the current operation area and activities are not foreseen within the review period. They may represent some attractive opportunities for MIBRAG to continue lignite mining well beyond the lifetime of the current mines but are not further discussed in this report. IMC has found full compliance of MIBRAG’s mine operations with the terms and conditions of the mineral rights, water rights and environmental permits checked.

1.4 GEOLOGICAL ENVIRONMENT The MIBRAG mining areas are part of the Central German lignite deposit formed during the Upper Eocene. The site geology is well supported by a long working history and very extensive and thorough exploration carried out by GDR state entities. It was estimated that the geological resources around Halle and Leipzig amount to 27,852.3 Mt. Since 1992 every year a minimum of 200 exploration bore holes have been drilled, including quality testing and geophysical logging.

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In the Central German lignite area epirogenic-subrosive processes led to a wide-spread formation of thick layers of lignite divided into three major seams. This lignite succession is covered by the sandy/clayey so-called Rupel sequence. During the Quaternary they were followed by unconsolidated strata of gravel, sand and clay and finally loess. Similar occurrences of lignite are present in the eastern part of Germany (Lusatia) and in the north-western Rhineland.

1.5 RESOURCES AND RESERVES The Reserve / Resource statement in this report is focused on the assets of MIBRAG listed in the tables below. Only those parts of the deposit which are documented in the mine plans of MIBRAG are taken into account. MIBRAG maintains a geological model of the deposits is based on findings from different exploration stages and uses MINESCAPE software version 4.119 for geological, coal quality and mine planning. The existing JORC qualified reserves statement has been found concurrent with state of the art JORC resources and reserves estimation. Performed evaluation of past mine operations as well as technical and commercial feasibility studies allow for classifying all its reserves 181.4 Mt (Profen) and 301.3 Mt (Schleenhain) as proven reserves. As a Competent Person, and on the basis of a review of the exploration data, resource estimates, mine plans and reconciliation studies provided by MIBRAG during the site visit (03.- 04.08.2011), the IMC geologist classifies the resources and reserves in accordance with the JORC classification system as follows:

Lignite Reserves JORC Mine Mining fields Proved Probable (Mt) (Mt) Profen 4.1 - South/D1 Profen Mine Schwerzau 89.3 -

Domsen 88.0 -

Total 181.4 -

Table 1.1: Lignite reserves of Profen mine (as of 30 June 2011)

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Lignite Reserves JORC

Mine Mining fields Proved Probable (Mt) (Mt)

Schleenhain 113.3 - United Schleenhain Peres 120.0 - Mine Groitzsch 68.0 -

Total 301.3 -

Table 1.2: Lignite reserves of United Schleenhain mine (as of 30 June 2011)

1.6 LIGNITE QUALITIES Coal quality measurement and prediction are being performed by state of the art sampling and analysis in certified laboratories. Average raw coal quality parameters can be confirmed to be in the range of 9-11 MJ/kg for heating value, 49-55% for water content, 5.5-12% for ash content and 1.4-2.15 for sulphur content. With reference to standard German lignite quality the Profen lignite is high ranking. The moisture contents of the mixed lignite range between 51% and 53% over the remaining lifetime of the Profen mining fields while the calorific value (raw) will be just under 10 MJ/kg. Table 4.3 provides the band width and long term average data of lignite quality at the Profen mine.

Table 1.3: Main parameters of lignite quality – Profen mine

(Source: MBEG)

At the United Schleenhain mine the Schleenhain mining field is the only one which is currently operating. The calorific value (raw) is about 11 MJ/kg at the moment and will decline to 10.5 MJ/kg when mining will move to the Peres mining field. Table 1.4 provides the band width and long term average data of lignite quality at the United Schleenhain mine.

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Table 1.4: Main parameters of lignite quality – United Schleenhain mine

(Source MBEG)

The lignite quality is continuously controlled by MIBRAG and also at the receiving power plants. Data are regularly used for variance analyses of the quality model. This prognosis tool in combination with the managed lignite blending yards constitutes a sophisticated quality management system that can easily react to any variation in production.

1.7 MINING The two MIBRAG open-cast mines, Profen and United Schleenhain are located in old mining areas and each mine consists of three mining fields. The main mining method is that of continuous mining technology, using bucketwheel/bucketchain excavators combined with conveying belt systems and spreaders. Discontinuous truck and shovel technology is limited to special operations. Mine planning has been performed with MINEX planning techniques and account for the full proven, mineable reserves of both mines. A possible mine life until 2030, respectively 2041 at planned production rates could be confirmed by IMC. For the Profen mine a possible mine life until 2030 is foreseen. Current operation is depleting lignite reserves in the Profen-South/D1 field and produces now mainly from the Schwerzau mine field. A transition from Schwerzau to the Domsen mine field is planned for 2016. Integrated into the Schwerzau mine plan and also part of the MIBRAG long term plan, are two satellite areas: Bandanlagenpfeiler (conveyor pillar) within the Frame Work Mine Plan, and the Draschwitz area, which is still outside the Frame Work Mine Plan and for which the approval process is already advanced. Except for the period until 1999, when overburden was dumped externally into the open void of the old Pirkau mine, mine waste is now dumped in the Profen-North and Profen-South area and will continue so. Operation in Domsen will start in 2016 and last to 2029/2030. Thereafter shaping the final void and forming the Domsen endlake will take place. For this work after mine closure financial reserves for final reclamation have to be built up according to legal regulations. The area of Profen-South and Profen-North and the northern part of Schwerzau will be returned to agriculture and forestry use. Two endlakes will enrich the final landscape.

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The Profen mine has maintained its current level of production for many years. Coal production was affected by repair work at the Schkopau power plant but for the next years coal production is expected to get back to normal. The mine waste production is scheduled (Figure 1.1) at relatively high levels until 2014 in order to facilitate the transfer from the Profen mine field into the Schwerzau field. The long term projection assumes a decrease from current levels. This is in line with the conservative assumption used in the MIBRAG long term plan that the supply contract to Chemnitz is not continued after 2019 and no new customer is available. Taking into account the historic production records and the current situation IMC has no doubt that the planned production schedule for the Profen mine can be accomplished provided mine operations continue at the present professional performance level. IMC has reviewed the status of the equipment and infrastructure used at the Profen mine operations and concludes that a long term lignite production capacity of the Profen mine is realistic at 9.5 Mt per year over the mine life. For the Schleenhain mine a possible mine life until 2041 is foreseen by using the three partial mining fields of Schleenhain, Peres and Groitzscher Dreieck. Mining in field Schleenhain was resumed in 1999, after the mine was re-structured and equipment refurbished or entirely replaced. Current operation is concentrated and will continue until about 2022 in the partial field Schleenhain. Transition of equipment is planned for 2012 and start of overburden stripping in Peres will be in 2013. Preparation for the diversion of the 220 kV power line and the state road (B 176) over a stretch of 5 km are in progress and diversion has started in 2010. Integrated into the mine plan of Schleenhain is the satellite area of Schleenhain- Suederweiterung, which was outside the Frame Work Mine Plan but for which the permit was granted on 18 December 2009 on the basis of a special mine operation plan. Mine waste is dumped internally into the void of the Schleenhain field and will continue so. The Schleenhain void will be entirely filled and the dump will progress into the Peres field without interruption.

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50.000

45.000

40.000

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

MineWasteproductionOpenpitProfenTm³ CoalproductionOpenpitProfenkt

Figure 1.1: Production schedule of Profen mine 2010 - 2026

By 2040, the scheduled closure year of Lippendorf power plant, the reserves of the United Schleenhain mine will be exhausted. Thereafter the financial reserves accumulated for closure costs will be used for final land reclamation. The entire partial area of Schleenhain and part of Peres will be returned to agriculture and forestry use. Two attractive end lakes will be formed in the west of the Peres area and in Groitzscher Dreieck. The Schleenhain mine has maintained its current level of lignite production for many years. The 2010 coal production was affected by a relatively high demand from the Lippendorf power plant but for the next years coal production is expected to get back to normal. The mine waste production was below normal years due to interruptions of mine waste removal from the upper mine level. A mine waste production of about 30 Mm³/a is required for the next years to prepare adequate coal exposure at the Peres mine field. When the Schleenhain mine field is decreasing in coal production the higher stripping ratio at the Peres mine field requires an additional increase in mine waste production starting in 2015 (Figure 1.2). However, the total annual production rates scheduled are well within the capacity of the mining equipment. IMC has reviewed the total mining capacity and considers the production schedule of the United Schleenhain mine realistic provided mine operations continue at the present professional performance level. Considering the current free capacity, IMC considers a long term lignite production capacity of the United Schleenhain mine realistic at 11.5 Mt per year over the mine life.

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40.000

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

MineWasteproductionOpenpitSchleenhainTm³ CoalproductionOpenpitSchleenhainkt

Figure 1.2: Production schedule of United Schleenhain mine 2010 – 2026

1.8 MAINTENANCE AND INFRASTRUCTURE MIBRAG’s maintenance and repair strategy is focussing on the quick rehabilitation of malfunctioning installations and equipment on a day-by-day basis by its own personnel based at the Profen facilities assisted by mobile crews based at secondary workshop facilities in the mines and plants. Large-scale maintenance and repair is preferably outsourced to specialised subcontractors. Furthermore certain repair and maintenance services being steadily and adequately available in the market are provided by third parties. The certificates of inspections and also the site inspection by IMC confirmed well maintained equipment and operations. With reference to the MIBRAG workshop, warehousing and storage facilities IMC received a very positive impression during the site visit. All facilities appeared well organised, well equipped and maintained. MIBRAG operates its own electric energy transmission and distribution grid. The power supply network is controlled and monitored by a modern central control station (Netzleitstelle) located at Profen which commissioned in March 2009 as the last phase of the electrical development of

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COMPETENT PERSON’S REPORT the new Schwerzau open pit. All records viewed demonstrate an adequate power supply management. Lignite from the Profen mine is loaded onto railway cars and trucks at the lignite storage and blending station KMS at Profen. The loading operations are remotely controlled and monitored by the Profen central mine control station. IMC considers this important element of lignite storage, blending and unloading well equipped. There appears no need for any significant changes in the long term. Currently MIBRAG is contractually obliged to take back combustion residues from power plants and industrial boilers supplied with lignite by MIBRAG. MIBRAG has contracted the haulage and disposal obligations to its 50% subsidiary MUEG. IMC is not aware of any significant incident or bottle neck leading to serious disturbance of contractual obligations of MIBRAG. MUEG seems to be well qualified to provide the services in a reliable and environmentally adequate manner. Disposal facilities are equipped with long term permits and abundant capacity. There appears no risk associated with their continued availability.

1.9 MANAGEMENT AND MANPOWER IMC is of the opinion that MIBRAG is well organised and its personnel is very much qualified to cope with the operational requirements. In 2010 MIBRAG’s personnel amounted to 2 000 employees, thereof 151 apprentices and 14 Junior Managers. MIBRAG is undertaking substantial efforts to increase the qualifications of the employees and to generate new skilled personnel. MIBRAG would offer local youth vocational training and its personnel continuing education in order to maintain a high standard of company-specific skills. The Company’s continuing education program would comprise about 300 courses with approximately 2,000 participants annually.

1.10 OCCUPATIONAL HEALTH AND SAFETY MIBRAG’s occupational health and safety management system was originally developed and introduced by its former North American shareholder. The goals and the implementation of this system were and still are not only to comply with German legal and insurance stipulations and standards but to also create a specific corporate OHS culture focussing on the explicit objective to become and stay an accident-free operation. The company’s accident frequency rate – currently 1.75 reportable accident per 1 million hours (2009: 1.75) – amounts to only 50 % of the comparable average accident frequency of the German lignite producing industry (2010: 3.3). The company has so far received numerous domestic and international awards for the quality of its OHS system, the latest prize being the gold award issued in May 2011 by the British Royal Society for the Prevention of Accidents (RoSPA) on the occasion of the Safety & Health Fair at Birmingham.

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MIBRAG’s occupational health and safety organisation also comprises the company’s fire and rescue department. IMC considers the performance of the MIBRAG occupational health and safety organisation excellent and best practice on domestic and international levels.

1.11 ENVIRONMENTAL ISSUES MIBRAG’s environmental policies and programmes are confirmed to be covering all aspects of risk mitigation, including water management, ash handling and mine closure. This includes risk- averse investment projects for e.g. water treatment and provisions for areal rehabilitation measures. In the open-cast mines, various measures have been implemented for the reduction of dust emissions and for noise protection. These measures include, among others, planting of vegetation and surface sealing measures, immission protection planting towards residential buildings, roofing-over or housing-in of conveyor belts and upper level drive stations, operation of sprinkler systems and spraying installations and the fitting of low-noise moving parts in large equipment and conveyor belts and others. IMC is not aware of any material problem in complying with the regulations. IMC has also reviewed the permitting status and considers the situation adequate and not differing from other German lignite mine operations. Where permits have time limits, MIBRAG applies for renewal as required in due time. MIBRAG follows the procedure to reclaim used land as soon as mining activities allow. Consequently landscaping of dumps, construction of final slopes with long term stability, soil stabilisation and preparation for final usage in accordance with agreed closure concepts are ongoing activities and part of the regular mine operations. Costs associated therewith are considered as operating costs. Significant provisions are built up on an annually basis to allow for final reclamation and landscaping after lignite mining will have ceased. MIBRAG’s mine sites are brown filed areas with a large number of contaminated sites. A total of 79 sites were already successfully remediated. IMC believes that total remediation costs included in the MIBRAG long term plan and based on the experience obtained are adequate. IMC is not aware of any significant socio-economic issue facing the current MIBRAG mine operations. Whenever IMC had discussions with local people on a random basis, MIBRAG’s activities were judged very beneficial for the region and full support of MIBRAG was expressed.

1.12 LIGNITE MARKETS Lignite supply for power generation is the major market for MIBRAG. The Company supplies coal to two large lignite fired power plants, Schkopau and Lippendorf, and operates three company-owned lignite fired power plants. The total supply to power plants accounts for almost 92 % of the total lignite production in 2010 and is expected to remain steady in the coming years. According to the recent developments concerning the German energy mix with nuclear energy being shut off by 2022, it can be expected that modern lignite fired power plants will

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COMPETENT PERSON’S REPORT continue to be used to capacity, accordingly, supply volumes will not change significantly from historic records. Table 1.5 provides an overview on all existing contracts and their respective duration. MIBRAG has firm long term contracts for supplies to the plants in Schkopau (until 2021 with practically secured extension to 2031) and Lippendorf (until 2039), and a contract with Chemnitz power plant until 2019, with an extension option for another 5 years (not considered in the long term plan). It is evident that the majority of the supplies are secured by long term off take contracts with the German utilities, which is a quite comfortable situation for MIBRAG.

Total estimated lignite Term until Customer quantity until contract (year) expiry (Mt)

Schkopau power plant 2021 (2031)* 56.8 (107.2)*

Lippendorf power plant 2039 292.8

Suedzucker Zeitz 2016 0.9

Bioethanol Zeitz 2019 2.7

Dessau 2010 0.2

Chemnitz 2019 9.0 FIXED CONTRACTS COAL FIXED CONTRACTS Fixed contracts (lignite) 362.4 (412.8)*

Deuben power plant 2020 8.3

Deuben dust plant 2020 3.9

Mumsdorf power plant 2012/13 2.4

Waehlitz power plant 2035 7.7 CONSUMPTION CONSUMPTION INTERNAL COAL Total internal consumption 22.3

Table 1.5: Long term contracts according to MIBRAG (*) with a potential extension

There are continuous efforts by MIBRAG to expand utilization and sales of lignite. However, the MIBRAG long term plan conservatively does not take any new customer into account although some opportunities exist (new Profen power plant, Czech customers, regional off-takers).

1.13 FINANCIAL The MIBRAG long term business plan keeps all projections in the current price terms (i.e. prices 2011), therefore, no inflation of lignite prices and neither inflation of costs is included in the

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COMPETENT PERSON’S REPORT projected figures. However, if the inflation of costs were reflected in the projection, it would lead to adequate inflation of the revenues due to the lignite price formulas linked to the main cost items of MIBRAG. Revenues of MIBRAG consist of revenues received from lignite production, revenues from other lignite products (e.g. lignite dust and briquettes) and revenues received from power and heat generation. A part of the lignite production is consumed by MIBRAG owned power plants. This portion of the lignite production is not included in the revenues from lignite. Since this report focuses on the lignite activities it was necessary to assign a value to the internally consumed lignite volumes. IMC decided to use the average of the externally sold revenue per tonne for the valuation of the internally consumed volumes. In Table 1.6 the calculated “virtual” pure lignite revenues are shown for 2010, for the forecast 2011 and for the long term plan until 2026. On the base of the existing coal supply contracts and projected supplies, the predicted revenue streams could be confirmed as justified. In the period from 2012 to 2016 a total of 93.63 Mt of lignite will be mined with a calculated value of 1,674 M€. The costs for MIBRAG’s operations have been intensively discussed during the site visit with MIBRAG personnel. IMC is satisfied that the MIBRAG historic operation costs are thoroughly documented to serve as a reliable basis for the financial forecasts. In general, MIBRAG’s assumptions for future mining operating costs are considered to be appropriate. Some of the profit centers within the company are serving both, the power plants and the mines. Since this report is related to the mining activities only IMC defined an allocation system for the relevant profit centers by allocating the costs of the common profit centers to the products lignite and power according to their share in revenues. Based on this approach the resulting operating costs for the mining operations for 2010, forecast 2011 and long term plan until 2026 are shown in Table 1.7. Within the period from 2012 to 2016 the operating costs amount to 1,007 M€. From 2020 to 2021 there is a sharp increase of the “Other Operating Expenses”. This is caused by the requirement of paying the so called “Spitzenbetrag I” which represents an additional fee to be paid by MIBRAG in accordance with the privatization agreement. The increase of mining related “Personnel Expenses” from 2013 to 2014 and 2020 to 2021 is caused by the shut-down of the power plants. The service departments will keep mostly the personnel and therefore the mines have to carry more personnel costs than before. Table 1.8 shows the Capital Expenditures as detailed in the investment schedule of the MIBRAG long term plan for 2010, forecasts for 2011 and the long term plan period until 2026. The majority of the Capital Expenditure projects is connected with the ongoing mining field development and opening/transfers between the mining fields which are also to a great extent independent from the actual volume of lignite mined. Therefore, increases in lignite output (new customers, extension of current contracts) will not cause a material increase of the Capital Expenditures. For the period from 2012 to 2016 the scheduled capital expenditures amount to 254 M€. In summary, IMC has been able to verify the allocation of general operating costs and taxes, as well as capital expenditures, to the MIBRAG mining operations.

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Revenue Fact Forec. TOTAL 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Sales (realized) Lignite Mt 277.99 17.40 17.12 16.48 17.00 17.00 17.00 17.00 16.60 16.00 16.40 16.00 16.00 16.00 16.00 15.60 15.00 15.40 Revenue M€ 4,960.9 304.1 302.8 296.3 301.4 301.4 307.0 304.0 297.8 290.9 297.1 283.2 283.2 283.2 283.2 278.0 271.1 276.3 Value per t sold €/t 17.85 17.48 17.69 17.98 17.73 17.73 18.06 17.88 17.94 18.18 18.12 17.70 17.70 17.70 17.70 17.82 18.07 17.94

Value of lignite production Lignite production Mt 299.84 19.60 19.58 18.84 19.17 18.54 18.54 18.54 18.14 17.53 17.94 17.54 16.31 16.31 16.31 15.91 15.31 15.71 Value M€ 5,350.6 342.6 346.4 338.7 339.8 328.7 334.9 331.6 325.5 318.7 325.1 310.5 288.7 288.7 288.7 283.5 276.7 281.8

Table 1.6: Value of Lignite Production A-22

Operating Costs Fact Forec. Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Raw Materials and Supplies M€ 306.3 20.7 18.0 17.2 17.2 17.5 17.6 18.2 18.1 18.1 18.1 18.0 17.9 17.9 18.0 17.9 17.9 17.9 Cost of Purchased Goods M€ 300.6 17.5 17.4 17.6 18.0 18.0 18.0 18.0 17.5 16.9 17.4 18.0 18.1 18.1 18.1 17.5 17.0 17.5 Cost of Purchased Services M€ 616.7 33.3 36.2 38.8 37.9 37.6 39.6 40.1 38.7 36.9 37.0 36.7 36.4 35.0 34.4 32.7 32.7 32.7 Other Operating Expenses M€ 643.6 37.9 37.5 36.2 35.6 35.8 35.9 35.8 34.4 34.3 36.3 33.6 44.2 43.4 42.3 39.9 39.1 41.6 Personnel Expenses M€ 1,577.6 85.8 88.2 87.7 88.9 92.8 93.2 93.3 93.3 93.3 93.3 93.0 95.7 95.8 95.8 95.8 95.8 95.9 TOTAL M€ 3,444.8 195.2 197.2 197.6 197.5 201.8 204.3 205.4 201.9 199.5 202.2 199.4 212.2 210.2 208.5 203.9 202.4 205.6

Table 1.7: Mine Operating Cost Schedule

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Capital Expenditures Fact Forec. Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Software M€ 5.9 0.3 0.2 0.3 0.3 0.4 0.4 0.3 0.3 0.4 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 Property M€ 73.4 1.2 4.1 10.3 15.4 13.5 7.2 3.0 1.6 1.8 0.6 0.7 0.0 0.0 2.0 2.0 5.0 5.0 Roads M€ 39.2 10.1 11.4 10.9 1.8 0.0 0.0 0.5 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 2.0 Surface Facilities M€ 13.2 0.1 0.7 1.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.0 3.0 3.0 Buildings M€ 7.0 0.0 0.0 1.5 1.5 0.0 0.0 0.6 0.5 0.0 0.4 0.3 0.2 0.0 0.5 0.5 0.5 0.5 Mine development M€ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Excavators M€ 84.0 5.1 2.2 1.4 1.6 1.5 5.0 7.6 9.3 8.2 5.8 2.8 5.5 7.7 5.5 5.0 5.0 5.0 Ast/Ust/AsF (station. drive units etc.) M€ 37.6 4.1 4.6 3.6 3.3 3.7 2.8 0.0 0.8 0.8 2.0 2.0 1.0 1.0 2.0 2.0 2.0 2.0 Belt conveyors moveable M€ 72.4 2.9 2.6 8.2 6.8 3.5 4.2 8.1 7.6 8.3 8.7 1.7 2.0 2.0 1.5 1.5 1.5 1.5 Belt conveyors stationary M€ 35.5 0.6 0.1 0.4 4.9 4.8 3.9 4.2 3.4 2.2 2.8 2.5 1.0 1.0 1.0 1.0 1.0 1.0

A-23 Civil works M€ 12.2 0.0 0.0 3.7 2.0 1.5 2.0 0.0 1.0 0.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Mass distributors M€ 31.9 0.0 0.0 1.5 1.0 8.6 5.6 1.5 5.8 0.0 0.0 5.7 1.2 0.0 0.0 0.5 0.5 0.0 Power supply M€ 34.6 4.0 3.2 3.9 3.3 1.9 0.8 2.1 5.1 2.3 1.8 1.1 0.7 0.6 0.6 1.1 1.1 1.1 Control technology M€ 8.9 0.8 0.3 0.9 1.9 0.5 0.1 0.2 0.7 0.3 0.5 0.3 0.0 0.5 0.0 0.1 2.1 0.0 Mobile equipment M€ 50.9 3.2 3.0 3.4 3.6 3.1 3.0 3.2 3.1 3.3 3.1 3.7 2.6 2.6 2.6 2.6 2.6 2.6 Wells and Drilling M€ 33.3 0.9 1.0 1.6 2.4 3.0 2.7 2.4 2.7 2.6 2.3 2.6 1.5 1.6 1.5 1.5 1.5 1.5 Pump Stations/Mine Drainage M€ 34.3 5.0 0.3 0.6 0.5 0.4 0.6 0.6 0.7 1.6 2.7 5.6 10.5 0.5 0.5 1.5 1.5 1.5 Tube lines M€ 16.0 0.1 0.3 0.4 0.4 3.6 2.0 2.2 1.7 1.2 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Railway Equipment M€ 6.2 0.0 0.3 0.0 0.7 0.4 0.0 2.4 0.7 0.6 0.9 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Workshop Equipment M€ 5.9 0.1 0.2 0.4 0.7 0.3 0.4 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Other Equipment M€ 18.4 0.7 2.7 0.7 0.9 0.8 3.5 0.6 3.2 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 IT. Communications. Business supplies M€ 25.0 1.8 3.1 2.0 1.9 2.0 1.6 1.5 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 TOTAL M€ 645.8 41.0 39.9 56.6 56.9 53.4 45.6 41.2 50.1 35.3 36.4 31.9 29.2 20.4 20.7 25.3 32.2 29.7

Table 1.8: Mine Capital Expenditure

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1.14 CONCLUSIONS In accordance with the scope of work IMC concludes the following as result of this CPR: Resources and Reserves IMC has found the reserve estimates as prepared by MIBRAG as consistent with the practice of the JORC code and IMC can fully endorse the reserves stated as of 30 June 2011 as follows: Profen Mine: 181.4 Mt United Schleenhain Mine: 301.3 Mt. IMC does not see any significant problem for meeting the lignite quality criteria agreed in MIBRAG’s supply contracts.

Mining Based on the review of historic production records, the current status of the mines, the equipment and mode of operation IMC cannot recognize any material problem in MIBRAG meeting the mine production figures as outlined in the MIBRAG long term business plan. The Profen mine is able to produce lignite at an average annual rate of about 9.5 Mt until 2030, the scheduled life of mine. The United Schleenhain mine is able to produce lignite at an average annual rate of 11.5 Mt until 2040, the scheduled end of mine life.

Environment IMC did not notice any environmental or socio-economic issue with any potential to jeopardize MIBRAG’s production plans. Current and planned operations appear to be well received and are in full compliance with permits and regulations.

Financial matters Review of market conditions, historic supplies and current conditions provide satisfactory evidence that MIBRAG’s planned revenues are secured. Operating costs and planned capital costs have been reviewed and could be verified. IMC is of the opinion that MIBRAG’s cost projections are realistic.

In summary, IMC could not identify material risks for the mid-term review period including year 2016. With reference to the Life of Mine plan IMC believes that MIBRAG is well positioned to accomplish the production scheduled until 2030 for the Profen mine and 2040 for the Lippendorf mine and possibly also beyond these dates in case opportunities can be realized.

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2 MIBRAG

2.1 COMPANY HISTORY MIBRAG and its predecessors’ lignite mining operations date back to the early 19th century. During GDR times the state-owned VE Braunkohlenkombinat (BKK) Bitterfeld owned and operated all lignite mines and beneficiation plants in Central Germany. Following the German reunification in 1990, BKK Bitterfeld became Vereinigte Mitteldeutsche Braunkohlengesellschaft AG with all shares held by Treuhandanstalt (state agency for privatisation of East German enterprises; replaced in 1995 by the Bundesanstalt fuer vereinigungsbedingte Sonderaufgaben, "BvS"). In 1994, Vereinigte Mitteldeutsche Braunkohlengesellschaft AG was subdivided into Mitteldeutsche Braunkohlengesellschaft mbH (MIBRAG), ROMONTA GmbH and Mitteldeutsche Bergbauverwaltungsgesellschaft mbH, a predecessor company of todays LMBV, in order to facilitate privatisation.

MIBRAG was formed comprising two mines, Profen (opened in 1941) and United Schleenhain (opened in 1949), three power plants (Deuben commissioned in 1936, Mumsdorf commissioned in 1968 and Waehlitz commissioned in 1994), one dust plant (completed in 1993) and two briquette factories. MIBRAG was assigned as the legal successor of two important lignite supply contracts; the first signed in 1991 for 25 years supply to a power plant at Schkopau and the second signed in 1993 for 40 years supply to the Lippendorf power plant. The sale of MIBRAG was finalised in 1994 under a Privatisation Agreement ("PA") to US firms NRG Energy Inc., Morrison Knudsen Corporation and the British PowerGen plc.

Since its privatisation MIBRAG has continuously invested in its operations and infrastructure to an accumulated amount of more than 1 billion €. High levels of capital expenditures were incurred in the 1990s, attributable to modernisation projects in the mines and refurbishment of plants required under new German regulation. The two briquette factories Phoenix and Deuben were closed due to falling demands in 2000 and 2003 respectively.

The ownership of MIBRAG changed to some extent and in 2008 the then equal shareholders URS Corporation and NRG Energy Inc. decided to go for tender on MIBRAG and the complete Target Group.

On June 10, 2009, the Czech consortium consisting of Severoeské doly Chomutov (a company of the EZ Group) and the J&T Group officially took over the business of MIBRAG as its new owner. The new shareholders own MIBRAG at equal shares each. The shareholder structure as of 30 June 2011 is shown in Figure 2.1. The EP Group now plans to take over the shares of the EZ Group.

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Energetickýa pr-myslovýholding a.s.(EPH) 100%

EPEnergy a.s.(EPE)

100%

EZ,a.s. HCFIN3N.V.

100% 100%

SeveroKeskédoly LigniteInvestments a.s. 1Ltd

50% 50% JTSD Braunkohlebergbau GmbH

100%

MIBRAG

Figure 2.1: Shareholder Structure of MIBRAG as of 30 June 2011

(Source: EP)

2.2 COMPANY AND OPERATING STRUCTURE MIBRAG’s headquarters are located in Theißen, in the federal state of Saxony-Anhalt (Figure 2.2). The Profen mine, the Deuben plants and Waehlitz power plant are also located in Saxony- Anhalt while the United Schleenhain mine and Mumsdorf plant are situated in the free state of Saxony.

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Figure 2.2: Location of MIBRAG offices, mines and industrial plants

The main organisational units of MIBRAG GmbH are listed in Table 2.1 below.

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Mining 663 Management 8 Profen open-cast mine 295 United Schleenhain open-cast mine 237 Exploration & Dewatering 123

Beneficiation 220 Management 6 Mumsdorf CHP 78 Deuben CHP 61 Waehlitz CHP 30 Deuben Dust/Briquette Factory 45

Technical Services 546 Management 6 Work Preparation 12 Electrical Department 150 Mechanical Department 201 Maintenance Beneficiation 64 Civil Construction 4 Railway 109

Engineering 149 Controlling/Marketing/Development 28 Planning 105 Applied Technology 7 Real Estate 9

Management/Central Services 207 Administration 83 Services 124 Total Personnel 1785

Table 2.1: Main organisational units of MIBRAG GmbH and number of personnel (as of 31 July 2011)

(Source: MIBRAG)

2.3 GENERAL DESCRIPTION OF ASSETS MIBRAG’s core business is the supply of raw lignite to power plants owned and operated by others. MIBRAG delivers a total of about 16 Mt of raw lignite per year via rail to the Schkopau power plant (Saxony-Anhalt) and directly via belt conveyors to the Lippendorf (Saxony) power plant. The supply of the MIBRAG open-cast mines in Profen (Saxony-Anhalt) and United Schleenhain (Saxony), which matches the life span of the two power plants, is expected to last until about 2030 and 2040 respectively. The mines also provide lignite by truck or rail transport to MIBRAG industrial plants and other clients in the area. The MIBRAG lignite mines are described in detail in section 5.

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MIBRAG also owns and operates some small lignite fired combined heat and power (CHP) plants at Deuben, Mumsdorf and Waehlitz with a total installed capacity of 208 MW. Primary usage of the electricity produced is to run MIBRAGS`s own mining equipment. Surplus electricity is sold to public private networks and thermal heat generated by the combustion process is delivered to consumers nearby. Due to the cogeneration and utilization of electrical and thermal heat these types of plants are called Combined Heat and Power (CHP) plants. In addition, sewage sludge and bio sludge are also combusted to improve economics. At the Deuben location MIBRAG also owns and operates a lignite dust factory where raw lignite is dried and ground to a fine powder and sold as lignite dust mainly to the cement and lime industry. The utilisation of MIBRAG lignite is shown graphically in Figure 2.3.

Figure 2.3: Business Activities and Lignite utilisation of MIBRAG (2010)

(Source: MIBRAG)

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During 2010 MIBRAG accepted a 3 years contract with a trading subsidiary of RWE AG to produce about 65,000 t/year of lignite briquettes. For this purpose MIBRAG re-activated its Deuben briquette factory where raw lignite delivered by RWE is now processed for regional sales by RWE. As of December 2010 MIBRAG also started a renewable energy business when 3 wind turbines of 2.3 MW each net capacity were put into operation at the western rim of the Peres mine. MIBRAG’s main business activities in 2010 are summarised in Figure 2.3. Main characteristics of the plants are listed in Table 2.2 below. The plant locations are marked in Figure 2.2.

Installed capacity Steam Average raw Additional fuel Industrial Plant MWth/MWel (t/h) lignite used (t/a) used sewage sludge, Deuben CHP 300*/86 352* 830,000 biosludge, light fuel oil sewage sludge, Mumsdorf CHP 300*/85 315* 791,000 biosludge, light fuel oil meat and bone Waehlitz CHP 119/37 150 265,000 meal/blood

Dust production: Deuben Dust 390,000 200.000 t/a Factory (MIBRAG forecast)

Table 2.2: Key data of MIBRAG Industrial Plants

* the installed capacity is higher, but the total capacity of the plant is limited due to government regulations

Deuben and Mumsdorf plants are the 2 oldest lignite fired power plants in operation in Germany but were retrofitted to maintain the technical safety standards, guarantee the required high availability and meet statutory limits, especially in terms of pollution control. Their overall efficiency is low (< 33%) and costs for pollution rights are high. This does not apply for the Waehlitz CHP which is an efficient modern plant commissioned in 1994. The Mumsdorf power plant is scheduled for closure by September 2013 and the Deuben power plant, including the associated lignite dust/briquette factory, are scheduled for closure in 2020 according to the MIBRAG long term plan.

2.4 LEGAL FRAMEWORK IMC has not carried out a legal title search, but has reviewed the exploration rights and mining permits together with significant environmental operating permits. As agreed in the scope of

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COMPETENT PERSON’S REPORT work this report focuses on the currently valid licenses and the description of the licencing procedure. The following describes the nature and extent of MIBRAG’s rights of exploration and extraction including details of the duration and principal terms and conditions. A description is given to which properties these rights apply. In Germany, the Federal Mining Law (Bundesberggesetz, abbrev. BBergG) of 13 August 1980 is the common legal base of mining activities but permits are issued by provincial authorities. The BBergG distinguishes between three permits: Exploration right (Erlaubnis zur Erkundung): It is applied for and granted by the State Mining Authority (Landesbergbehörde). After obtaining this right, field activities are carried out after approving a main operation plan (Hauptbetriebsplan) for drilling, access to sites etc. This, for instance, is the current status of the Luetzen field for which MIBRAG has also applied for a mining permit. Mining permit (Bewilligung): It entitles the permit holder to explore and mine specified deposits in a particular field, to acquire the ownership of the deposits. Mine ownership (Bergwerkseigentum): It is legally identical with the mining permit (Bergbauberechtigung) and, in addition, is subject to the real estate provisions of the German Civil Code (Buergerliches Gesetzbuch). The mining permit is granted by the State Mining Authority, who demands certain operation plans for scrutiny, and control. These operation plans are:  Frame Work Mine Plan (Rahmenbetriebsplan): It is submitted by the mining company, following technical, economical, ecological and a series of other studies and approvals. It is processed and coordinated by the mining department, which cooperates with numerous state and federal departments, communities and interested or involved parties. The Frame Work Mine Plan defines the mine ownership (Bergwerkseigentum) and sets the borders of mining and the relation to and from the geographical, geological and ecological environment. The Frame Work Mine Plan, once granted, is the mining permit. It has been granted for Profen mine in December 1994 and for Schleenhain mine in 1995. Both Frame Work Mine Plans are valid until the lignite reserves are exhausted and do not carry a specific end date. Any mine must be operated within the borders and limitations of the Frame Work Mine Plan. Extensions are possible after application and granting of a mining permit (Bewilligung) of the mining authority. This applies for instance for the satellite areas of Schleenhain-Suederweiterung (granted in 2009) and of Profen- Draschwitz (partial field E2, in process).  Main operation plan (Hauptbetriebsplan): is the operation plan which details the Frame Work Mine Plan. In general it is elaborated for two years by the mining company and is granted and supervised by the mining authority.  Special operation plan (Sonderbetriebsplan): is applied for and granted for possible changes or modifications of the Frame Work Mine Plan. Special operation plans are supervised by the mining authority on the basis of a separate plan for specific operations or projects which were not foreseen at the time the Frame Work Mine Plan was issued.

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 Mine closure plan (Abschlussbetriebsplan): It is drawn up and submitted to the mining authority shortly before ending the mine operation. It covers reclamation and land use as well as the prevention of risks to the neighbourhood and the environment.  The Frame Work Mine Plan is approved in compliance with regional development plans. In the state of Saxony the Frame Work Mine Plan must also observe the so-called brown coal plan (Braunkohlenplan), which is a regional plan elaborated by the federal state. It deals in a wider range with land use, infrastructure, regional planning, geography and hydrology, population and a series of other objectives, which are the subject of state government. The brown coal plan is elaborated with the participation of the public and numerous stakeholders. Once established, it has legal status. In the case of the United Schleenhain open cast the brown coal plan was declared null and void by a Saxony Higher Court (Sächsisches Oberverwaltungsgericht) on 8 December 2003. This was for formal reasons and a new brown coal plan was finally established in December 2010 by the regional planning authority (Regionaler Planungsverband Leipzig-Westsachsen), approved by the Free State of Saxonia and put into effect when officially published on 25 August 2011. This new brown coal plan also integrates the changes caused by the Schleenhain Suederweiterung into the approved regional development plan.

The location of the MIBRAG mines is schematically shown in Figure 2.2. Geographic details on the mine properties (Bergwerkseigentum) and mine permits (Bewilligung) are documented in Annex C of this report. The company elaborates various other plans, like Five-years-plan, Quarterly plan, Monthly plan, and economical, geological, hydrological and other studies. These are internal management tools, which are neither required nor controlled by the authorities. However the mining department and other authorities require from time to time studies, plans, internal and external expert opinions. An example is the external assessment of provisions for final reclamation cost as referred to in section 10 of this report.

2.4.1 MINING PERMITS -PROFEN MINE Mining in Profen is permitted in the Frame Work Mine Plan (Rahmenbetriebsplan) approved in 1994. It covers the partial mine fields of Profen-South/D1, Schwerzau and Domsen. As of 30 June 2011 it has economically minable lignite reserves of 181.4 Mt. There exist three satellite areas to the Profen mine. The Bandanlagenpfeiler (lignite underneath the conveyor interlinking plant) falls into the area of the approved Frame Work Mine Plan and is included in the minable reserves. It will be extracted after the transition into the Domsen mine field is completed in a special operation on the basis of a special operation plan. To include the production of lignite from the Bandanlagenpfeiler (area E1 – total amount of 1 Mt) into the current mine plan is reasonable from an economic point of view. The Draschwitz area was outside the geographical limits of the Frame Work Mine Plan and an application for approval by the mining authority was filed on 17 March 2010. Participation of the public has taken place and MIBRAG plans received full support. On 27 July 2011 a scoping meeting was held between the various authorities involved in the approval process. MIBRAG

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COMPETENT PERSON’S REPORT expects the environmental impact statement to be complete by mid-2012 and timely approval allowing exploitation in 2014. The potential mine field Domsen-West (total amount of 10-24 Mt) is also outside the Frame Work Mine Plan and could be an extension of operation at the end of Profen mine life. There are no application activities so far. MIBRAG filed a mining permit application for the Luetzen mine field in 2009 but currently no activities are carried out awaiting decision on the investment for a new power plant at Profen. However the regional development plan updated in December 2010 includes the outline of the MIBRAG proposed Luetzen mine as an area reserved for mineral exploitation.

2.4.2 MINING PERMITS -UNITED SCHLEENHAIN MINE Mining in United Schleenhain is permitted in the Frame Work Mine Plan approved in 1995. It covers the partial mine fields of Schleenhain, Peres and Groitzscher Dreieck. As of 30 June 2011 it has economically mineable lignite reserves of 301.3 Mt. The new brown coal plan, made effective on 25 August 2011, confirms the life of mine plan to supply coal for the Lippendorf power plant until about 2040. There exist five satellite areas of the United Schleenhain mine. For one, the Schleenhain- Suederweiterung which was originally outside of the Frame Work Mine Plan, an amendmend to the mining permit was granted at the end of 2009. It contains 10 Mt of lignite with a low stripping ratio and good mining conditions. The other 4 satellite areas (Poedelwitz, Kieritzsch, Schnauderaue, Obertitz) are of similar dimensions each but are also outside the original and approved Frame Work Mine Plan. They are not considered in the MIBRAG long term mine plan. Mining there would require relocation of small villages or cause impact of a protected wetland in case of the Schnauderaue. IMC was informed by MIBRAG management that agreement was obtained with the Free State of Saxony to carry out an environmental impact assessment including these 4 satellite areas. The new brown coal plan already qualifies the Poedelwitz and Obertitz satellite areas already as potential exploitation area (Vorbehaltsfläche) with the condition of a future approval process. As result of the environmental assessment the satellite areas shall be ranked in accordance with their degree of environmental impact and socio-economic benefit. This might become important for extending the scheduled lifetimes of the Schleenhain mine and the associated Lippendorf power plant but is not considered in the current life of mine plan.

2.4.3 OTHERS MIBRAG has the right and the obligation to mine and utilize industrial minerals like ceramic clay and quartz gravel, which occur within the area of the Frame Work Mine Plan. Currently such extraction takes place in the area of Profen-Sued/D1. Extraction rates are in the order of 250,000 t/a of sand and gravel and about 50,000 t/a of clay. These activities are also considered in the MIBRAG long term plan. There are in addition further lignite deposits, for which MIBRAG holds rights and options of various rank. All of them lie outside the current operation area and activities are not foreseen

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COMPETENT PERSON’S REPORT within the review period. They may represent some attractive opportunities for MIBRAG to continue lignite mining well beyond the lifetime of the current mines but are not further discussed in this report.

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3 GEOLOGY

3.1 REGIONAL GEOLOGY The Central German lignite deposit was formed during the Upper Eocene. Epirogenic-subrosive processes led to a wide-spread formation of thick layers of lignite divided into three major seams. This lignite succession is covered by the sandy/clayey so-called Rupel sequence. During the Quaternary they were followed by unconsolidated strata of gravel, sand and clay and finally loess. Similar occurrences of lignite are present in the eastern part of Germany (Lusatia) and in the north-western Rhineland (see Figure 5.1) The whole area of Central Germany, where MIBRAG is situated, was well explored by the GDR’s state entities. It was estimated that the geological resources around Halle and Leipzig amount to 27,852.3 Mt (Table 3.1).

Central Degree of exploration of total geological resources Germany Resources Total geological resources (measured/indicated/inferred) prognostic resources resources District A to C1 C2 c1+c2 D1 d1 D2 d2 [Mt] [Mt] [Mt] [Mt] [Mt] [Mt] [Mt] [Mt]

Halle 10459.1 815.8 1244 291.3 4800.4 952.6 6741681

Leipzig 17393.2 2338.1 1762 278 9813 2480.1 580 142

Total 27852.3 3153.9 3006 569.3 14613.4 3432.7 1254 1823

Table 3.1: Explored reserves in the Central German mining area by the former GDR (1983)

3.2 LOCAL AND PROPERTY GEOLOGY The mining fields which are currently exploited by the MIBRAG, Profen and United Schleenhain, both lie in these districts. They comprise proved reserves of 490 Mt. Lignite Reserves in Central Germany generally lie at depths between 80 m and 120 m which allows to excavate them by opencast mining. The current MIBRAG mines can be divided into two regions (see Figure 2.2): the Profen mining area and the United Schleenhain mining area, the Profen area offering 181.4 Mt of lignite and the Schleenhain area 301.3 Mt as of 30.06.2011.

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3.2.1 LOCAL AND PROPERTY GEOLOGY –PROFEN MINE Within the Profen mining area there are three different fields: Profen-South/D1 in the east, Schwerzau in the south and Domsen in the west. The total open-cast area covers 1,618 ha. A typical geological cross-section is shown in Figure 3.1. In the Profen mining area 3 different seams of lignite can be found (from bottom to top):  Seam 1 is between 2 – 5 m thick and in depressions up to 50 m thick. Seam 1 has been partly reduced in the Schwerzau mining area due to glacial effects.  Seam 23 has an average thickness of 8 to12 m and it is compact. It is characterised by syngenetic and post genetic subrosion subsidence which has formed synform and lens- like structures. In the Schwerzau field the originally deposited seam 23 was almost completely removed in its western part by an erosion channel.  Seam 4 was not evenly spread originally and it is mostly split into two layers (4O and 4U) by a clayey parting. It was only exempted from erosion because of post genetic subrosion structures.

Figure 3.1: Profen open-cast mine standard section, Schwerzau field

(vertical scale exaggerated, lignite seams are indicated in brown, sands in yellow, clay is marked in light blue, Zechstein carbonates in dark blue and the top-layer is loess.) (Source: MBEG)

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Relevant aquifers for mine operations in and around the Profen open-cast mine are found in Quaternary (aquifer complex 1) and Tertiary strata. Pre-Tertiary groundwater complexes from Triassic (Bunter) and Permian (Zechstein) are locally used for water withdrawal causing possible pressure relief in higher groundwater levels. There are lateral hydraulic connections between Holocene river gravel and Quaternary highly permeable terrace gravels. In terms of soil physics, the cohesive layers in seam complexes 4, 23O, 23U and 1 (clay in roof/footwall/parting of seam), and grey-brown clay in marine Boehlen layers have to be classified as geologic weakness zones. Subgrade bearing capacity depends particularly on water-susceptible layers which, in the fields consist of silty fine sand, boulder clay, cohesive glacio-limnic debris, mud, loess and cohesive dump soil. Tertiary (aquifer 4 and 5) sands are found on a larger scale, and there is a risk of settlement flow if these non-plastic materials are dumped in concentration and water rises in the inside dump. However, no dangerous water rise is currently expected in the advancing dump slope. Geotechnical and particularly land slide promoting conditions are studied by slope stability experts who make concrete calculations and then propose measures and inspections. The expert reports (stability documentations/assessments) are the technical basis for mining concepts and managing open-cast mines and become part of required operations plans.

3.2.2 LOCAL AND PROPERTY GEOLOGY –UNITED SCHLEENHAIN MINE The United Schleenhain mine consists of three mining fields: Schleenhain in the south-east, Peres in the north and the Groitzscher Dreieck in the west. A typical geological cross section is shown in Figure 3.2 below. Schleenhain mining field is the only one of the three which is currently operating in the Schleenhain area. In the Schleenhain mining district there are four lignite seams (from bottom to top):  Seam 1 which is strongly affected by subrosive processes in the pre-Tertiary subsurface. This has caused the formation of depressions and troughs. Seam 1 has a variable thickness with a maximum of up to 35 m and is often subdivided by several splits.  Seam 23U has an average thickness of approx. 12 meters. It has been eroded by older river sands in the western section of the Groitzscher Dreieck mining field.  Seam 23O has been completely eroded by older river sands in certain areas of the Schleenhain and Peres mining field. The thickness is mostly between 2 m and 10 m.  Seam 4 is mainly formed in the North-East section of Schleenhain and has a thickness of about 5 m.

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Figure 3.2: Stratigraphic standard section of open-cast mine United Schleenhain

(vertical scale exaggerated, lignite seams are marked in brown, sands in yellow, clay is marked in blue and loess in orange-red.)

(Source: MBEG)

Relevant aquifers for mine operations in and around the United Schleenhain open-cast mine are found in Quaternary (aquifer complex 1) and Tertiary strata. Pre-Tertiary groundwater complexes from Triassic (Bunter) and Permian (Zechstein Plattendolomite [plate dolomite]) are normally separated hydraulically from one another by clay aquicludes and lignite seams. However, due to natural as well as anthropogenic influences, there are partly very spacious hydraulic connections between the aquifers. Due to leaching processes in the pre-Tertiary, the stratigraphic conditions of the entire Tertiary strata series are marked by depression and bed formations. This condition as well as the glacial overprint caused a complicated stress situation in the ground. Therefore, all clay strata within and between the lignite seams are classified as slip surfaces. The movements caused additional undirected slickensides (Harnische), which reach large dimensions especially underneath Seam 1. The Tertiary sands in the overburden of the open-cast mine United Schleenhain can generally be classified as sensitive to liquefaction. The geotechnical conditions and especially slip-prone circumstances are assessed by experts for slopes. Appropriate measures and slope stability inspections are defined on the basis of precise stability calculations. Said expert opinions are

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COMPETENT PERSON’S REPORT the basis for developing both the technological mining concept and defining the operations in the open-cast mine. They are part of the compulsory operation plans.

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4 RESOURCE AND RESERVES

4.1 GEOLOGICAL MODEL DESCRIPTION The geological model of the described deposits is based on findings from different exploration stages. Encoded data from the "Exploration Memory" developed for lignite mining in the GDR has been digitized and processed since the mid-1970s using in-house software at first. Since 1994, MIBRAG has used the MINESCAPE software package from MINCOM Ltd. for geological, coal quality and mine planning. The package, a recognized state-of the-art software is used by mining companies worldwide for deposit modelling, open-cast mine planning and production scheduling. At MIBRAG it has applications in the geological, mine planning and surveying departments. Now as before, MIBRAG keeps exploration data in a central memory for geostatistic quality assessment and has retained the data structure of the above mentioned "Exploration Memory". Currently the MINESCAPE software version 4.119 is in use. The MINESCAPE software shall be updated to version 5.2 within the next year. At present, geological, technological and coal quality models exist for the active mining fields. Modelling is based on a. high degree of deposit exploration, with MIBRAG providing and maintaining three models: 1. an overall model, showing all geological strata also for worked-out areas to enable backward calculation, 2. an open-cast mine model, showing all geological strata but limited to the current topography, and 3. a coal quality model, with geological modelling as in the overall model but modified for quality planning. Models are normally updated once per month. The first step in designing them is three- dimensional geological modelling which combines triangulation and trend and thickness calculations. For the coal quality model, the quality data is then interpolated into the geological model, a type of modelling which links quite specific exploration data to broader quality information. By applying this basic MINESCAPE function the results did not meet MIBRAG’s expectations for two reasons:  no allowance was made for quality variations within a face which then could not be visualized, and  different coal quality parameters could only be looked at individually but not in combination. At the initiative of MIBRAG, MINCOM developed another module, the „peels model“, which was jointly applied. The seam is artificially divided into strata ("peels") of minor thickness to which the coal qualities are assigned. Recently another feature has been realised in this software: The erosion planes from younger stratigraphical layers can now be included in the model. These are now regarded as discontinuities which intersect the quality layers. These discontinuities are considered more like faults rather than as normal strata bedding planes. During the modelling process of the “peels model” the program recognises the surface of the upper and lower

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COMPETENT PERSON’S REPORT bedding plane. The quality data analysed for each borehole meter is extrapolated from hole to hole with respect to the 3D orientation of the strata surface. The model is thus basically comparable to a "block model" which is frequently used nowadays. In 2008, the engineering company SST performed a data check by setting up a SURPAC model. The results from this model didn’t show considerable differences from MIBRAG’s “peels model”. IMC has witnessed the model performance and considers the model methodology and data handling of excellent standard.

4.2 DRILL HOLE AND COAL QUALITY DATABASE Already since the beginning of the 20th century, the region which is now used by MIBRAG was intensely prospected. Since 1992 every year a minimum of 200 exploration bore holes have been drilled, including quality testing and geophysical logging. The exploration status is shown in Table 4.1. The table shows the exploration situation in the active mining areas except for the nearly mined out Profen Sued field.

Mining Number of drill holes Drill hole spacing [m] Mines and field area mining fields [ha] geophysical all survey average min max Profen mine: Schwerzau 915 1493 686 80 30 200 Domsen 714 1374 585 75 35 (Profen Sued) 150

Schleenhain mine: Schleenhain 680 845 548 85 20 150 Peres 930 769 530 110 40 280 Groitzscher Dreieck 530 550 430 100 50 280 Table 4.1: Number of exploration boreholes and drill hole spacing in the mining areas

(Source: MIBRAG)

The distances between exploration drill holes vary from 20 to 280 m. This relative narrow spacing reflects the very tight regulations for the power plant supply. MIBRAG keeps exploration data in a central data base for geostatistic quality assessment while encoded data from the exploration archive developed in the GDR for lignite mining has been digitized and processed. Currently, MIBRAG’s borehole data base comprises some 24,000 wells. In the archive all these data are available as paper copies. Random inspections made by IMC show that borehole information e.g. from 1904 and 1948 is existing and is also included in

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COMPETENT PERSON’S REPORT the computerized model. These wells have all been digitized as far as they represent a complete stratigraphic section. For the coding of the geological description, a pre-assigned and well administered 4 digit code inventory is used. This allows the comparability between old and actual descriptions. Every month, an airborne geodetic survey is carried out to confirm the accuracy of the mining survey. With this information geological and quality models are created and constantly updated. To generate the estimated amount of lignite three main rules were followed by MIBRAG:  only seams exceeding 2 m thickness are included in the reserves,  taking into account slope losses, and  taking into account losses of hanging wall and footwall (25 cm).

The resources and reserves are classified by MIBRAG in compliance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore reserves which was established 1971 by the Joint Ore Reserves Committee (JORC) and is the fundamental reporting system in Australia, Canada, South Africa, USA and many states in Europe. The average calorific value (raw) of lignite in the Central German mining district, which also includes MIBRAG’s mines, is 8.5 – 11.5 MJ/kg while the water content lies between 49% and 53%, the sulphur content between 1.5% and 2.1% and the ash content between 6.5% and 10 %. Considering the whole of Germany these are good values (see Table 5.2 for the situation in Germany). The coal quality is one of the central issues in the open-cast mine in Profen. Calorific value and water content are the decisive parameters for lignite used in power plants. Most of the lignite produced in Profen is used by the Schkopau power plant which has high quality requirements for lignite. In 1998, the calorific value of the lignite mined in Profen began to decrease. Reason for this was that production went from a geologically smooth area into the structurally more complex areas of the Elsteraue where the water content of the lignite is more variable. The average water content of the area will be 52% in the future and calorific value will be just under 10 MJ/kg. There is no need to anticipate a further major change in water content and calorific value, as MIBRAG has done a lot of further quality exploration after 1998. Since optimizations of the quality management system have been implemented, no further serious problems supplying the power stations occurred. Variations in coal quality are well managed by controlled mining and blending. It has to be considered, however, that towards the foreseeable end of the lifetime of the Profen South/D1 minefield, expected for 2012, an overlap with new mining fields is necessary in order to ensure sufficient capacities of different coal qualities for adequate blending. On the basis of the MIBRAG coal quality model and data shown, the IMC Geologist came to the conclusion that there are no significant changes in coal quality parameters during the life of the mine. This also applies to the respective forecast based on the coal quality model. All relevant geological and topographical data which are necessary for a successful mine planning and operating are integrated in the MIBRAG database.

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4.3 QUALITY CONTROL/QUALITY ASSURANCE PROGRAM Prior to the introduction of the mature quality model, the quality standards of the supply for the power plants could not always be met which resulted in the payment of penalties. At the time of signing the supply contracts, the production of higher quality coals was anticipated because not all relevant quality data were available area-wide. A narrow band width of possible quality variations had been selected. During mining local quality changes occurred in the various mining fields. It was not possible to take respective countermeasures because for instance, the peculiar structure of the coal fibres did not allow an upstream dewatering of the coal. Subsequently, the sophisticated quality model was introduced and the number of quality drill holes was increased. This allowed a more accurate assessment of coal qualities for the future mining fields. After the adjustment made at the Schkopau power plant, it can now be expected that the implemented measures will lead to the compliance with the supply obligations. Therefore, it is important to continue quality controls by maintaining the program of quality drilling. With its numerous input data and the experienced modellers, the quality model based on the MINEX software is now robust enough to adequately forecast the variations of coal qualities from the different mining fields. A large number of production quality control holes, which are partly drilled at a 50 m grid, a very narrow pattern for lignite deposits, make it possible to set up a detailed quality model as it is described above. For the quality drill holes, various techniques have been introduced to ensure that the samples are not influenced by the drilling activity itself. Problems with flushed drill holes have been overcome by drilling dry holes in parallel where the core is recovered in a plastic tube. A comparison of the results of water flushed and dry holes shows differences of 1 to 2.5 % in the water content between the two drilling methods. Samples for quality measurements are taken in narrow intervals of 1 m each. While the core is pressed out of the core barrel, 1 to 2 cm of the impurified surface of the coal core is stripped off. The core will be stored in core boxes and sealed with a plastic wrap. The actual sampling takes place subsequent to the stratigraphic core description, which is supported by the results of geophysical logging. If core losses exceed 10% of the coal thickness the well is re-drilled. The "peels model" provides initial data for each individual mining block. Even though operation at all planning stages aims at ensuring lignite quality, the systematic use of equipment alone cannot ensure optimum blending. This is why MIBRAG open-cast mines have coal blending yards (KMS) for storage on the one hand, and for homogenising lignite qualities which fluctuate over short periods on the other. Each mine comprises of a blending yard with a capacity of 400,000 tonnes of lignite (raw). The production is transported via belt conveyor to the stockpiles. It is registered, where and in which amount the delivered quality is stockpiled. The volumetric and qualitative composition of the stockpile is represented in a 3D computer model. On the background of this data, the loading of the trains or conveyor belts to the power plants is optimized with regard to the coal quality. Trains and belts delivering the coal to the power plants are also sampled and the quality control data are matched with the quality model. This allows a continuously fine tuning of the mass streams in order to meet quality requirements.

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MIBRAG's lignite quality assurance system (KQSS) helps simulate, monitor and control lignite qualities at coal blending yards and, apart from quality planning data, uses production data from open-cast mines. This enables real-time quality monitoring and control in the production process in keeping with plan targets. In a first step, quality parameters from the model are assigned to the lignite quantity produced using readings for instantaneous equipment performance and equipment position, followed by simulating the transport route of this mass flow to which lignite qualities have been assigned. At transfer points, the mass flows are added up and quality parameters weighted and determined. This data and that for the stacker position makes it possible to simulate stockpile structure. All these techniques which are specifically adapted to the deposit and the required quality standards show the professional approach in the course of the geological data acquisition. The continuous monitoring and variance analysis of the quality model, and the blending yard and power plant supply samples led to a sophisticated quality management system that can easily react to any variation in production. IMC received a very good impression of the quality control program established by MIBRAG.

4.4 RESERVES AND RESOURCES ESTIMATION METHOD

4.4.1 PROCEDURE FOR ESTIMATING RESOURCES AND RESERVES The JORC code is used as a reporting system in international exploration campaigns. The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore reserves was established 1971 by the Joint Ore Reserves Committee (JORC) and is the fundamental reporting system in Australia, Canada, South Africa, USA, UK and Ireland. It is also accepted in many states in Europe following the agreement to incorporate the CMMI (Council of Mining and Metallurgical Institutions) definitions into the International Framework Classification for Reserves and Resources – Solid Fuels and Mineral Commodities, developed by the United Nations Economic Commission for Europe (‘UN-ECE’). One of the main factors in the JORC code reporting is that a ‘competent person’ executes the reporting. A Competent Person must have a minimum of five years’ experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity which that person is undertaking. If the Competent Person is estimating or supervising the estimation of Mineral Resources the relevant experience must be in the estimation, assessment and evaluation of Mineral Resources. The JORC code uses terms and definitions which are described briefly below (see also Figure 4.1 below): (JORC CODE 2004 ed. still unchanged) A Coal Resource is a concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, quality, geological characteristics and continuity of a Coal Resource are known, estimated or interpreted from specific geological

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COMPETENT PERSON’S REPORT evidence and knowledge. Coal Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories: An Inferred Coal Resource is part of a Mineral Resource for which tonnage, quality and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or quality continuity. It is based on information gathered from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. An Indicated Coal Resource is part of a Coal Resource for which tonnage, densities, shape, physical characteristics, quality and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/or quality continuity but are spaced closely enough for continuity to be assumed. A Measured Coal Resource is part of a Coal Resource for which tonnage, densities, shape, physical characteristics, quality and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and quality continuity. A ‘Coal Reserve’ is the economically mineable part of a Measured and/or Indicated Coal Resource. It includes diluting materials and allowance for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Coal reserves are sub-divided in order of increasing confidence into Probable Coal Reserves and Proved Coal Reserves: A ‘Probable Coal Reserve’ is the economically mineable part of an Indicated, and in some circumstances, a Measured Coal Resource. It includes diluting materials and allowance for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. A ‘Proved Coal Reserve’ is the economically mineable part of a Measured Coal Resource. It includes diluting materials and allowance for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified.

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Figure 4.1: General relationship between Exploration Results, Coal Resources and Coal Reserves

The main part of the exploration was made during GDR times and by MIBRAG itself. Random samples viewed by IMC Geologist all confirmed the data of MIBRAG. The abundance of data and demonstrated economic mine operations are convincing evidence that reserves are to be classified as proved coal reserves. This leads to the conclusion that the estimations on reserves and resources made by MIBRAG are precise and trustworthy. The quality measurements are also taken in MIBRAG’s own laboratory but the fact that in addition the power plants which are supplied with MIBRAG’s lignite do their chemical analysis in their laboratory and raise no complaints, is a sign of the good and independent work of the certificated laboratory.

4.4.2 RECONCILIATIONS OF PRODUCTION TO RESERVES AND RESOURCES The Reserve / Resource statement in this report is focused on the assets of MIBRAG listed in Table 4.2. Only those parts of the deposit which are documented in the mine plans of MIBRAG are taken into account.

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Status -Exploration, Licence/ Interest Mine Mining field Holder fully developed or Surface area (%) Production [ha]

United Schleenhain MIBRAG 100 Mine Schleenhain MIBRAG 100 Production 683,8* Peres MIBRAG 100 fully developed 827,5* Groitzsch MIBRAG 100 fully developed 506,6* Profen Mine MIBRAG 100 Profen South/D1 MIBRAG 100 Production 1473* Schwerzau MIBRAG 100 Production 915* Domsen MIBRAG 100 fully developed 1169* Table 4.2: List of mines and mining fields which are evaluated in this report

( * Profen Mine status 31 December 2007 / United Schleenhain status 27 August 2008)

4.4.2.1 Coal Quality and Reserves and Resources Statement – Profen Mine Lignite mining began at the Profen site already in 1944 which is one of the reasons that the Profen open-cast mine is very well prospected today. The average exploration density for detailed exploration is 2.08 holes/ha and 0.66 holes/ha for quality drilling. With reference to standard German lignite quality (see section 5.1.1.3) the Profen lignite is high ranking. The moisture contents of the mixed lignite range between 51% and 53% over the remaining lifetime of the Profen mining fields while the calorific value (raw) will be just under 10 MJ/kg. Table 4.3 provides the band width and long term average data of lignite quality at the Profen mine.

Table 4.3: Main parameters of lignite quality – Profen mine

(Source: MBEG)

The Schwerzau field has the biggest proved reserves with 89.3 Mt, Domsen has 88 Mt and in Profen-South/D1 there are 4.1 Mt still remaining but scheduled to be mined out by 2011/2012.

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This amounts to total proved reserves of 181.4 Mt in the Profen open-cast area as of 30 June 2011 (Table 4.4). The exploration works described in the previous parts of this report were carried out with high value of competence and accuracy. All available reports and documents were provided without any restriction. During the review of the work done and the reports and documents presented by the staff of MIBRAG no gaps or mistakes were found. All documents demonstrate a high standard of exploration knowledge. As a Competent Person, and on the basis of a review of the exploration data, resource estimates, mine plans and reconciliation studies provided by MIBRAG during the site visit (03.- 04.08.2011), the IMC geologist classifies the resources and reserves within these resources in accordance with the JORC classification system as follows:

Lignite Reserves JORC Mine Mining fields Proved Probable (Mt) (Mt) Profen 4.1 - South/D1 Profen Mine Schwerzau 89.3 -

Domsen 88.0 -

Total 181.4 -

Table 4.4: Lignite reserves of Profen mine (as of 30 June 2011)

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4.4.2.2 Coal Quality and Reserves and Resources Statement – United Schleenhain Mine The United Schleenhain mine consists of three mining fields: Schleenhain in the south-east, Peres in the north and the Groitzscher Dreieck in the west (see section 5.3). Schleenhain mining field is the only one of the three which is currently operating. The Schleenhain mine started lignite production in 1953, while in Peres first activities started in 1970 and in the Groitzscher Dreieck in 1977. The calorific value (raw) is about 11 MJ/kg at the moment and will decline to 10.5 MJ/kg when mining will move to the Peres mining field. Table 4.5 provides the band width and long term average data of lignite quality at the United Schleenhain mine.

Table 4.5: Main parameters of lignite quality – United Schleenhain mine

(Source MBEG)

The Schleenhain mining field offers the biggest proved reserves with 113.3 Mt. Peres has 120 Mt and the Groitzscher Dreieck mining field 68 Mt. This adds up to 306 Mt of lignite in the mining district (Table 4.6) as of 30 June 2011. The southern extension of the Schleenhain field has already been included in MIBRAG’s mine plan with the final approval of the respective operation by the mining authorities. The exploration works described in the previous parts of this report were carried out with high value of competence and accuracy. All available reports and documents were provided without any restriction. During the review of the work done and the reports and documents presented by the staff of MIBRAG no gaps or mistakes were found. All documents demonstrate a high standard of exploration knowledge. As a Competent Person, and on the basis of a review of the exploration data, resource estimates, mine plans and reconciliation studies provided by MIBRAG during the site visit (03.- 04.08.2011), the IMC geologist classifies the resources and reserves within these resources in accordance with the JORC classification system as follows:

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Lignite Reserves JORC

Mine Mining fields Proved Probable (Mt) (Mt)

Schleenhain 113.3 - United Schleenhain Peres 120.0 - Mine Groitzsch 68.0 -

Total 301.3 -

Table 4.6: Lignite reserves of United Schleenhain mine (as of 30 June 2011)

4.4.3 OTHER PROSPECTS MIBRAG has the right and the obligation to mine and utilize industrial minerals like ceramic clay and quartz gravel, which occur within the area of the Frame Work Mine Plan. These are economically of lower interest and have not been considered in the resources and reserves statement. There are a number of satellite areas around the approved mine limits (see section 5) which have been explored and preliminary reserve assessments were made by MIBRAG. All these satellite areas have not been considered in the reserves statement due to lack of the legal basis. Of important interest to MIBRAG is the so called Luetzen field where exploration was completed in 2009. If the Luetzen field could be exploited production could be prolonged for the Profen mine complex as the Luetzen field is situated directly next to the Domsen mining field. The mine plans prepared to date estimate the extraction of 133 Mt of lignite from the north and south fields. The quality analyses suggest that the lignite quality is comparable to the quality in the Profen-South/D1 mining field. The IMC geologist checked the MIBRAG reserves assessment during the 2009/10 due diligence and confirmed geological resources in the order of 300 Mt. What might be economically minable will depend on the difficult permitting process in the event MIBRAG and its shareholders come to an investment decision. For the purpose of this report the Luetzen lignite resource has been excluded from the resources and reserves statement. The Luetzen mine field has also been excluded from the MIBRAG long term plan. It might be considered a possible upside potential connected with a positive investment decision for a new power plant at Profen. There are in addition further lignite deposits, for which MIBRAG holds rights and options of various rank. Two deposits which are of interest for MIBRAG are Luebtheen and the Egelner Suedmulde. They are both located at greater distance from MIBRAG's current operations: The Egelner Suedmulde in the centre of Saxony-Anhalt and Luebtheen in the south of Mecklenburg- Vorpommern. Due to the quality of the lignite it could be used for energy generation as well as for chemical processing purposes. Chances to mine these areas are considered very low and for this reason they have not been considered in the resources and reserves statement.

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However IMC noted that MIBRAG makes sure that the options for these exploration areas will still belong to the company.

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5 MINING This section describes the mining activities of MIBRAG. These are the most important activities contributing the greatest share in revenues. The mining technology applied is highly mechanized and required in the past significant investments which need to be amortized over considerable period of time.

5.1 MINING GENERALS

5.1.1 LIGNITE MINING IN GERMANY

5.1.1.1 Lignite Production Lignite has been mined in Germany for more than two hundred years. It was first used as domestic fuel, but in the twentieth century increasingly for electricity generation. Currently, about 90 % of the total lignite production is supplied to power plants. In 2010, 1,042 Mt of lignite were produced worldwide. Germany was the main producer mining 169.9 Mt and 169.4 Mt in 2009 and 2010, respectively. In contrast to hard coal, which is traded internationally, lignite is generally neither exported nor traded on markets but is mostly consumed in power plants located close to the lignite mines. Three lignite mining areas remain in Germany: Rhineland, Lusatia and Central Germany, including the Helmstedt mining area (Figure 5.1).

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Figure 5.1: Lignite mining areas in Germany and their general production rate and market share (2008)

(Source: DEBRIV, modified)

5.1.1.2 Lignite Reserves Under existing permits lignite mining could continue in Germany until around 2050. Presently known reserves are listed in Table 5.1 below.

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Table 5.1: Comparison of Resources & Reserves (billion tonnes) in the German Lignite Mining Areas

(Source: DEBRIV)

Long term operating lignite mines are those of RWE Power in the Rhineland, of VATTENFALL Europe Mining in Lusatia, and of MIBRAG in Central Germany. Smaller deposits in Bavaria and Hessen were exhausted twenty to thirty years ago or became uneconomic. The last mine in Lower Saxony (Helmstedt area) will be exhausted in a few years. In 2010 this mining area produced only 2.0 Mt (1.2 % of total German lignite production). Some 0.4 to 0.5 Mt were mined by ROMONTA in Saxonia-Anhalt for a special product called "Montanwachs".

5.1.1.3 Lignite Quality With regard to its calorific value, lignite is intermediate to peat and hard coal with values between 6.7 – 16.5 MJ/kg. The water content (moisture) varies between 35% and 75%. The quality of typical lignite from active mining areas in Germany is given in Table 5.2. In comparison with hard coal, 1 kg of German lignite is equivalent to an average of 0.29 kg of the hard coal unit SKE (Steinkohleeinheiten) or ce (coal equivalent).

Selected coal quality data (2010) Mining Area Calorific Value Ash Content Water Content Sulphur Content in MJ/kg in % in % in % Rhineland 7.8 - 10.5 2.0 - 8.0 50 - 60 0.15 - 0.5 Helmstedt 8.5 - 11.5 5.0 - 20.0 40 - 50 2.0 – 3.5 Lusatia 7.8 - 9.5 2.5 - 16.0 48 - 58 0.3 - 1.5 Central Germany (MIBRAG) 8.5 - 11.5 6.5 - 10.0 49 - 53 1.5 - 2.1

Table 5.2: Selected Coal qualities in the main lignite mining areas

(Source: DEBRIV 2010)

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5.1.1.4 Employment The importance of the lignite industry for the labour market declined dramatically after German reunification. Many lignite mines and beneficiation plants were closed in Lusatia and Central Germany after state subsidies were discontinued and the demand for briquettes declined. Restructuring and increased efficiencies also resulted in fewer employees in the western part of Germany without significant change in annual lignite production. From 2007 to 2008 further restructuring in the Lusatian and Helmstedt mining areas resulted in a reduction of employee numbers. In 2010, the entire German lignite industry directly employed a total of 22,700 people distributed as shown in Table 5.3 below. Lignite mines are preferably located in rural areas. Therefore individual mines are of great importance to the local and regional labour markets. This situation applies particularly in the eastern mining areas where the unemployment rate remains comparatively high. This is one of the reasons why lignite mining is socially very much accepted in the mining areas.

Mining area 1989*) 2006**) 2009**) 2010**) Rhineland 15,565 11,161 11,562 11,606 Lusatia***) 79,016 8,456 7,982 8,049 Central 59,815 2,610 2,513 2,508 Germany Helmstedt***) 1,693 676 548 541 Small firms 642 6 - - Germany 156,731 22,909 22,605 22,704 *) Annual average – without employees in own public power stations **) including employees in own public power stations ***) not comparable with the year before

Table 5.3: Development of Direct Employment by German Lignite Industry

(Source DEBRIV)

5.1.2 BENCHMARKING WITH GERMAN LIGNITE MINES The lignite of the Profen and United Schleenhain mines is predominantly burnt in electric power plants, and so is the production of RWE Power and of Vattenfall Europe Mining (and Helmstedt as a small player). Clearly, bench marking of production costs should be against the mines of these two other producers.

Table 5.4 compares the three top lignite producers of Germany. The stripping ratio is all- important for the production cost. MIBRAG´s mines show the lowest stripping ratio per tonne of lignite, and it is even lower per Megajoule. Transport from mines to power plants is less important, because all the mines are captive to power plants, and lignite is supplied by belt conveyor or in a few cases by short railway link. Other, less important bench marking factors are mine drainage in terms of m3 water/t of lignite, and reclamation efforts per tonne of lignite in

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COMPETENT PERSON’S REPORT terms of land disturbed by mining and of re-settlement of villages. With reference to mine drainage the three main producers are in the range of about 4 m³ per tonne of lignite mined.

Stripping Calorific Coal Ash Production Moisture Sulphur Mining ratio value Equivalent content Mining area company Mt SKE kg/ kg m3/t kJ/kg % % % lignite/a lignite 0.15- Rhineland RWE 95.8 4.8:1 8,835 0.301 1.5-8.0 50-60 0.50 VATTEN- 0.30- Lusatia 57.9 7.9:1 8,642 0.295 2.5-13.0 50-58 FALL 1.40 Central 1.50- MIBRAG 19.0 3.8:1 10,616 0.362 6.5-8.5 49-53 Germany 2.10 Table 5.4: Comparison of key data from top 3 lignite producers in Germany in 2008

Compared with the mines of RWE and VATTENFALL, MIBRAG´s two mines have lower production capacities and the mining units have smaller throughput capacities. For this reason the economy of scale is in favour of RWE and VATTENFALL and partially offsets the geological and ecological advantages of MIBRAG.

The considerable advantage of MIBRAG lignite as power plant fuel is the by more than 20% higher heat value. While moisture content of MIBRAG lignite is lower, ash content and sulphur content are higher. The latter is of some disadvantage for the commercial value of MIBRAG lignite due to higher requirements for flue gas desulphurisation at the power plants and overall higher costs for ash disposal. All in all it is expected that production costs and revenues per tonne of lignite lie in the same ball park for the top 3 lignite producers. Information cannot be obtained from markets because there is no direct competition between the lignite producers. They each operate in separate regional markets.

Specific costs are not published by any of the big lignite mining companies. MIBRAG’s mining costs are evaluated in section 11 and are considered to be in the same range as the other two big lignite producers, RWE and Vattenfall.

5.1.3 CAPACITY VERIFICATION FOR THE OPEN-CAST MINES In German continuous surface mining two different terms are used to state the production capacity, namely the theoretical and the effective excavator capacities. It is essential to distinguish between the two. The combined production capacity of mine waste1 removal and lignite production is estimated by analysing first the design capacity of the individual excavators (the so-called theoretical capacity Qth) and then the effective capacity (Qeff). The effective production capacity is based on

1 The term „mine waste“ is used for material of no commercial value residing above the lignite seam which by definition is called “overburden”, or between seams which by definition is called “interburden”.

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COMPETENT PERSON’S REPORT historical long-term operation records and in consideration of the particular operation conditions in a partial mine field. This is also considered when distinguishing between the scheduled annual operating hours (tsch) and the effective annual operating hours (teff). By evaluating the shares of mine waste and lignite, finally the effective annual lignite production capacity is determined. This principle is applied in the analyses of Table 5.5 and Table 5.6. Both tables are the key of understanding the assessment of effective overburden and lignite production. Besides the assessment of equipment availability, the utilization is strongly affected by selective extraction of lignite and mine waste on the individual benches. It is to be realized that sedimentation, faults, and other geological irregularities vary from bench to bench und from month to month. That is why these tables have been developed jointly with the operation staff of MIBRAG. In accordance with mining experience there will be annual variations in mass units (MU which is the sum of lignite in t and mine waste in m³) outputs also when all equipment is working at capacity. For example, the figure of 53.2 million MU is to be seen as the realistic maximum capacity of the Profen mine for a longer term period. It is our expert understanding that minor variations should be allowed so scheduled maximum t of lignite and scheduled maximum m³ of overburden do not necessarily add up to 53.2 million MU.

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5 days/week @ 3 shifts 6 days/week @ 3 shifts 7 days/week @ 3 shifts Equipment Utilisation Coal Coal Coal Lignite (%) Q (m³/h) eff Overburden Mm³ Mt Overburden Mm³ Mt Overburden Mm³ Mt 5000 h/year 6350 h/year 6750 h/year

13.500 17.500 18.000 1st Bench SRs 2000 0 3.400 13.500 0 17.500 0 18.000 0 10.000 13.100 13.500 2nd Bench SRs 2000 8 3.400 9.200 900 12.100 1.200 12.400 1.200 5.600 7.000 7.500 3rd Bench ERs 1300 15 1.700 4.800 1.000 6.000 1.200 6.400 1.300 70 % Availability 29.100 37.600 39.000 Total Overburden Stripping 8.500 27.500 1.900 35.600 2.400 36.800 2.500 A-58 2.600 3.300 3.500 4th Bench SRs 710 45 950 1.400 1.350 1.800 1.710 1.900 1.810 4.800 6.100 6.500 5th Bench SRs 1300 30 1.600 3.400 1.660 4.300 2.100 4.600 2.240 1.700 2.100 2.200 6th Bench ERs 560 60 600 700 1.170 800 1.450 900 1.520 2.000 2.000 2.000 7th Bench Mobile Technology 60 2.000 800 1.380 800 1.380 800 1.380 55 % Availability 11.100 13.500 14.200 Total Lignite Mining 5.150 6.300 5.600 7.700 6.600 8.200 7.000

40.200 51.100 53.200 Grand Total Open Pit 13.650 33.800 7.500 43.300 9.000 45.000 9.500 Table 5.5: Effective Mine Capacity - Partial Field Schwerzau

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5 days/week @ 3 shifts 6 days/week @ 3 shifts 7 days/week @ 3 shifts Equipment Utilisation Overburden Overburden Overburden Lignite (%) Q (m³/h) eff Mm³ Coal Mt Mm³ Coal Mt Mm³ Coal Mt 5000 h/year 6350 h/year 6750 h/year

12.000 15.500 16.000 1st Bench SRs 2000 0 3.400 12.000 0 15.500 0 16.000 0 12.000 15.500 16.000 2nd Bench SRs 2000 0 3.400 12.000 0 15.500 0 16.000 0 6.000 8.000 8.000 3rd Bench ERs 1120 0 1.700 6.000 0 8.000 0 8.000 0 70 % Availability 30.000 39.000 40.000 Total Overburden Stripping 8.500 30.000 0 39.000 0 40.000 0 A-59 3.900 5.000 5.300 4th Bench SRs 700 75 1.300 1.000 3.360 1.300 4.310 1.300 4.570 2.400 3.000 3.200 5th Bench SRs 320 100 800 0 2.760 0 3.450 0 3.680 4.500 5.700 6.100 5th Bench SRs 1300 50 1.500 2.300 2.590 2.900 3.280 3.100 3.510 2.600 3.200 3.400 6th Bench SRs 700 50 850 1.300 1.500 1.600 1.840 1.700 1.960 2.600 3.200 3.400 7th Bench Ers 710 50 850 1.300 1.500 1.600 1.840 1.700 1.960 60 % Availability 16.000 20.100 21.400 Total Lignite Mining 5.300 5.900 11.710 7.400 14.720 7.800 15.680

46.000 59.100 61.400 Grand Total Open Pit 13.800 35.900 11.710 46.400 14.720 47.800 15.680 Table 5.6: Effective Mine Capacity - Partial Field Schleenhain

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5.2 PROFEN MINE

5.2.1 GEOGRAPHIC SETTING The mining area permitted in the Frame Work Mine Plan and comprising the partial mining fields of Profen-South/D1, Schwerzau and Domsen lies between the cities of Zeitz, Pegau and Hohenmoelsen in the state of Saxony-Anhalt, except a small north-eastern corner in the state of Saxony (see Figure 2.2 and Annex C). The area drains to the Weiße Elster river in the east and to the Saale river in the west. It covers an area of 1,618 ha. Most of the land is owned by MIBRAG, but some acreage is still to be acquired The mining area is an integrated part of the sub-regional development program adopted by the state government.

5.2.2 MINE DESIGN AND CURRENT STATUS

5.2.2.1 Present Situation The sequence of mining Profen-South/D1, Schwerzau and Domsen is described and permitted in the Frame Work Mine Plan. Mining in Profen is characterized by the fact that there are three open voids in the mining area which are left from former mining and which separate the partial fields from each other. Mining in Profen-South/D1 has been the continuation of the former Profen-North mine which was closed in 1990.

Figure 5.2: Mine development at Profen open-cast mine

(Source: MBEG Report September 2008)

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In Schwerzau mining was resumed in 2004 from the open void of the old Schwerzau mine and Domsen will resume from the old Domsen mine. Except for the period until 1999, when overburden was dumped externally into the open void of the old Pirkau mine, mine waste is now dumped in the Profen-North and Profen-South area and will continue so. The concept of advance and sequence of mining is schematically shown in Figure 5.5

In the partial field Profen/D1 currently overburden removal is finished and lignite production is reduced to a rate of 1.9 Mt/a until about end 2014 using mobile equipment. This coal shall help to control the quality of lignite. Operation is now concentrated in the mining field Schwerzau and will continue there until about 2024.

5.2.2.2 Long-term Mine Plan All long-term mine activities are also part of the approved Frame Work Mine Plan. Start of transition from Schwerzau to Domsen is planned for 2016. Integrated into the Schwerzau mine plan and also part of the MIBRAG long term plan, are two satellite areas: Bandanlagenpfeiler (conveyor pillar) within the Frame Work Mine Plan, and the Draschwitz area, which is still outside the Frame Work Mine Plan and for which the approval process is already advanced.

Shaping the final void of Schwerzau and preparation for filling this void with water (Schwerzau endlake) started in 2010 and continue by flattening the slope system while the mine is operated. Thus, final landscaping is part of the normal mine operation and of operating costs. Consequently for the Schwerzau final void and lake, no provisions for final reclamation are built up.

Operation in Domsen will start in 2016 and last to 2029/2030. Thereafter shaping the final void and forming the Domsen endlake will take place. For this work after mine closure financial reserves for final reclamation have to be built up according to legal regulations (see section 9).

The final land shape of the Profen mining area is shown in Figure 5.3. The area of Profen-South and Profen-North and the northern part of Schwerzau will be returned to agriculture and forestry use. Two attractive endlakes will be formed.

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Figure 5.3: Post-mining landscape – Profen Mine

Source: MBEG Report September 2008

5.2.3 MINE PRODUCTION SCHEDULE The Profen mine has maintained its current level of production for many years. Last year’s coal production was affected by repair work at the Schkopau power plant but for the next years coal production is expected to get back to normal. The mine waste production is scheduled ( Figure 5.4) at relatively high levels until 2014 in order to complete the transfer from the Profen mine field into the Schwerzau field. The long term projection assumes a decrease of the total mass units by about 10% from current levels to year 2020 and another drop of about 10% from

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COMPETENT PERSON’S REPORT thereon. This is in line with the MIBRAG conservative assumption used in the long term plan that the supply contract to Chemnitz is not continued and no new customer is available. Taking into account the historic production records and the current situation IMC has no doubt that the planned production schedule for the Profen mine can be accomplished provided mine operations continue at the present professional performance level.

50.000

45.000

40.000

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

MineWasteproductionOpenpitProfenTm³ CoalproductionOpenpitProfenkt

Figure 5.4: Production schedule of Profen mine 2010 - 2026

5.2.4 MINE EQUIPMENT

5.2.4.1 MAIN MINING EQUIPMENT After privatization the equipment was systematically refurbished and modernized. Over-aged units were scrapped and replaced by carefully selected units from other mines. Conveyor transport of overburden and lignite replaced the cumbersome rail transport in the mine and on the dump. In consequence, the status of equipment is in the Project Team's opinion fully up-to- date in mechanical, electrical and economical terms. The design lifetime of open pit equipment for such operations, regularly maintained, is around 60 years, that means around another 40 years for the equipment in use.

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Most of the equipment, built in the eighties and nineties, has been refurbished to a practically new status after privatisation. Only the two bucket chain excavators No. 299 and 295, which are more than 50 years old, are surplus and will be scrapped. Within the review period there is no need to replace excavators, spreaders, or belt conveyor drive head stations. Only mobile equipment and equipment elements with limited life time are to be replaced in the course of maintenance and repair. This situation is well reflected in the MIBRAG long term plan. The equipment use is schematically shown in Figure 5.5 and follows the established practice in lignite mining.

Figure 5.5: Equipment use at Profen open-cast mine

(Source: Main Mine Plan Profen 2011)

In the Schwerzau field excavators and belt wagons are operated on 6 benches, where bucket wheel excavators dig the overburden and interburden and part of the coal, while the bucket chain excavators dig the rest and operate at the undulating seam boundaries. The two spreaders fill the void in the Profen-North and Profen-South operating on two benches in high dump and deep dump mode. Mine waste and lignite are transported from the excavators on belt conveyors through the conveyor interlinking plant, where they are directed either to the spreaders or to the lignite storage and blending plant (KMS). In total, conveyors within the Profen mine, to the dump, and to the KMS have a length of approx. 45 km. EXCAVATORS MIBRAG is currently operating at the Profen mine  2 slewing bucketwheel excavators with crawler undercarriage SRs 2000

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 2 slewing bucketwheel excavators with crawler undercarriage SRs 1300/1301  1 slewing bucketchain excavator with crawler undercarriage ERs 710  2 slewing bucketchain excavators with crawler undercarriage ERs 560

The bucketwheel excavator model SRs 2000 is the equipment with the highest digging capacity of MIBRAG’s excavator fleet. It can remove up to 17 million m³ of overburden per year. The excavator weighs 2,800 tonnes and has an hourly production capacity of 4,900 m³. Excavator N° 1580 (SRS 2000) was built in 1983 and modernised in 2005/6 when it was relocated from the Sverma open pit (CZ) to MIBRAG’s Profen operation. Excavator N° 1580 is MIBRAG’s most powerful digging machine. The equipment is in excellent condition and no major interventions appear necessary in the foreseeable future. Excavator N° 1511 (SRs 2000) was built in 1976 and since then continuously maintained, repaired and modernised. Approximately 45 % of the components have been replaced. The machine is in good condition. The balance 55 % of the components will have to be replaced within the next 10 – 15 years. Excavator N° 1541 (SRs 1300) was built in 1984. It weighs 1,680 tonnes and has an hourly production capacity of 3,770 m³ (7.3 million m³/year). After being in operation for 24 years the machine was modernised by replacing or refurbishing 100 % of its components. The equipment is again in excellent condition and will not require major interventions in the medium-term. Excavator N° 1553 (SRs 1300) was built in 1986. It weighs 1,700 tonnes and has an hourly production capacity of 3,500 m³. A major number of the components of the machine has been replaced. After the planned refurbishment of the bucketwheel head the equipment will not require major interventions in the medium-term. Excavator N° 351 (ERs 710) was built in 1981. It weighs 1,000 tonnes and has an hourly production capacity of 1,400 m³. The excavator was in operation for 27 years. 95 % of its components have been replaced or refurbished so far. The equipment is in excellent condition and no major interventions appear to be required in the medium-term. Excavator N° 309 (ERs 560) was built in 1963. It weighs 950 tonnes and has an hourly production capacity of 1,100 m³. The unit is one of the oldest machines in MIBRAG’s fleet. The equipment was entirely overhauled and modernised in 2006 and is in excellent condition. No major interventions are expected in the medium-term. Excavator N° 299 (ERs 560) was built in 1960. It weighs 950 tonnes and has a production capacity of 1,100 m³/hour. The equipment is currently showing signs of fatigue. It is intermittently used in the Profen South/D1 field. Excavator N° 295 (Ers 560) was built in 1960. It weighs 950 tonnes and has an hourly production capacity of 1,100 m³. It requires overhaul and is currently only used for re-loading coal from an intermediate stock pile dumped by mobile equipment in the South/D1 field. Excavator N° 309 (ERs 560) It weighs 950 tonnes and has an hourly production capacity of 1,100 m³. It was refurbished in February 2011 and is currently moved to the pit bottom for excavating coal at the pit bottom.

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BELT WAGONS Belt wagons serve as conveying connection between the excavators and the belt conveyors. In the Profen mine MIBRAG operates five belt wagons with crawler undercarriage of the model BRs 1,400. This equipment weighs 506 tonnes and has a haulage capacity of 4,300 m³/hour. Its slewing boom is 90 m long. Belt Wagon N° 810 was built in 1976. 61 % of its components have been replaced or refurbished so far. The equipment is in correct condition. Belt Wagon N° 812 was built in 1979. 85 % of its components have been replaced or refurbished so far. The equipment is in good operating condition. Belt Wagon N° 813 was built in 1981. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition. Belt Wagon N° 819 was built in 1984. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition. Belt Wagon N° 828 was built in 1989. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition.

SPREADERS Spreaders are machines with a crawler undercarriage which dump mine waste mine (or coal). They receive the material from the conveyor belt via a tripper car. In the Profen mine MIBRAG operates two spreaders dumping overburden and interburden. Spreader N° 1104 (A2RsB 8800-110) was built in 1982. It weighs 2,482 tonnes and has an hourly dumping capacity of 10,000 m³. Its slewing boom has a length of 110 m. The unit was entirely refurbished in 2002 and is currently in excellent condition. No major intervention appears to be required in the medium-term. Spreader N° 1112 (A2RsB 10000-150) was also built in 1982. It weighs 3,803 tonnes and has an hourly dumping capacity of 10,000 m³. Its slewing boom has a length of 150 m. The unit was entirely refurbished in 2003 and is currently in excellent condition. No major intervention appears to be required in the medium-term. BELT CONVEYOR EQUIPMENT In open pit mines lignite and overburden/interburden are hauled by high-capacity conveyor belt systems. Belt widths from 1,400 mm to 2,000 mm are used for the main conveying routes. Belt speeds are either 5.85 m/sec or 6.55 m/sec. Conveying capacities can attain 10,000 m³ of loose material. The conveyor system is partly housed in to reduce dust emissions and to protect the material from climatic impacts.

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Six shiftable belt conveyor systems are currently installed at the Schwerzau mining field of the Profen mine which haul the material to the Schwerzau mass distribution plant. The conveyor systems hauling the material from the mass distribution plant to either the coal storage and blending plant or the overburden dumps operate at a speed of 6.55 m/sec with a belt width of 2,000 mm. Belt conveyor systems in the Profen-Sued/D 1 field have belt widths of 1,600 mm and operate at a speed of 5.24 m/sec. All conveyor systems are monitored and controlled by the central control room. Mass distribution plants are in operation at both the Schwerzau and the Profen-Sued/D1 fields. In the Profen-Sued/D 1 field the mass distribution plant which came on-stream in 1973 is already partly dismantled. The mass distribution plant at Schwerzau was commissioned in 2007 in the course of the development of the new mine field. It is currently fully developed.

5.2.4.2 AUXILIARY EQUIPMENT The mine uses a fleet of mobile equipment like dozers, pipe layers, wheel loaders, hydraulic loaders, trucks, graders, compactors for pit maintenance, and off-road cars, mobile cranes, service trucks, tank trucks etc. for transport of personnel and equipment of maintenance and repair. The equipment is employed for various auxiliary activities, e. g. the levelling of bench surface, road construction and repair, excavation of dewatering ditches, shifting of conveyor belts, development work (topsoil removal and storage, scrubbing, etc.), and transport of personnel and equipment. A considerable number of MIBRAG’s on-highway car fleet is licensed and authorised to leave the mine areas and use public roads. The aggregate number of auxiliary equipment in the Profen amounts currently to 226 and includes: - Track dozers: 11 (Caterpillar, Komatsu, Liebherr) - Wheel dozers: 1 (Caterpillar) - Track-mounted excavators: 3 (Komatsu) - Wheel-mounted excavators: 4 (Caterpillar) - Compact excavator: 2 (Volvo) - Surface miner: 1 - Wheel front-end loaders: 12 (Volvo, Liebherr, Zettelmeyer) - On-highway trucks: 35 (Mercedes-Benz, MAN, Steyr,Mazda, Faun) - Dumpers: 8 (Volvo) - Unimogs: 9 (Mercedes-Benz)

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- Cranes: 3 (Liebherr, Demag) - Graders: 3 (Caterpillar) - Water trucks: 2 (Mercedes-Benz) - Conveyor belt shifting machines: 2.

5.2.5 MINE CAPACITY Mine operations are characterised by highly mechanized continuous mining using bucket wheel excavators, bucket chain excavators, spreaders and conveyor belting as the main mining equipment. Presently mine operations work in three shifts from Monday – Friday and five days per week at the Profen-Sued/D1 and Schwerzau fields. Work days are scheduled for an even consumption of electricity throughout the week. Top overburden removal at Schwerzau is also a three-shift operation, and the field generally shuts down on Sundays. This pattern enables successful lignite production using open-cast mining equipment under the conditions of the prevailing overburden-to-coal ratio. The coal blending yard (KMS) at Profen ensures supplies to Schkopau and other customers on weekends and public holidays. In the interest of continuous raw lignite deliveries, the facilities between the yard and power plants work without interruption on three shifts, seven days a week. The necessary operators and maintenance staff are on site. For 24-hour operation at KMS and shift work at the open-cast mine, equipment must be available at all times, requiring maintenance, repair and development work even on Sundays and holidays. In addition, MIBRAG's central departments monitor and assist open-cast mine maintenance, surface drainage, planning, surveying, accounting and related commercial and organisational processes. As of 31 July 2011 the work force assigned to the Profen mine operations was 295 men. MIBRAG is able to organize the operation labour flexibly, albeit in agreement with the labour council, by timing the vacation time and the free weekly working time (4 hours in a 5 days x 8 hours week), so that the weekly shift regime can be coordinated with the lignite demand schedule of the customers, without laying off workers or employing outsiders. In consequence, the flexibility in the Profen mine ranges between 7.5 and 9.5 Mt per year of lignite production. According to information provided by MIBRAG the upper limit would require about 45 operational staff more than the lower limit. The mine operates currently four bucket wheel excavators and four bucket chain excavators and mobile technique in the final phase of Profen-South/D1 field. These excavators feed six conveyor lines to the interlinking plant, from where two lines go to spreaders and one line to the storage and blending plant (KMS). The calculation of the mine capacity is shown in Table 5.5. The excavators have a combined digging capacity of 52.966 million bank cubic meters per year of which about 43.000 Mbm3 are utilized in year 2012. The discount from the theoretical capacity depend in the first place on the shift regime (5, 6, or 7 days per week), the mine operates in 5,000, 6,350, or 6,750 scheduled

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COMPETENT PERSON’S REPORT hours per year (hsch/a). The operation of the excavators is stopped or retarded by mechanical, electrical and operational delays like scheduled maintenance and unscheduled repairs, for operational disturbances like cleaning of belts and transfer points and, very important, for reason of in-pit blending of lignite quality from different loading points. All these delays are assessed in Table 4.1 on the basis of historical operation records and accumulate on the overburden benches to 30 % of scheduled hours and to 45 % on the benches where mine waste and coal are extracted intermittently. These percentages compare well with the experience in other lignite mines. The effective annual operating hours (heff/a) depend to some extent on the down-stream system of conveyors interlinking plant and spreader, to some extent on the particular mining conditions, and in particular on the stripping ratio. Table 5.5 shows the conditions for the Profen mine in year 2011. Applied to the stripping ratio in year 2011, the maximum is 9.66 Mt/a of lignite and 44.546 Mbm³/a of overburden and interburden and 4.097 Mbm³ of not used capacity (7.7 %). MIBRAG is able to organize the operation labour flexibly, albeit in agreement with the labour council, by timing the vacation time and the free weekly working time (4 hours in a 5 days x 8 hours week), so that the weekly shift regime can be coordinated with the lignite demand schedule of the customers, without laying off workers or employing outsiders. In consequence, the flexibility in the Profen mine ranges between 7.5 and 9.5 Mt per year of lignite production. The flexibility is an important mine management tool for evening out the different overburden of the partial mine fields. It was pointed out that the annual lignite production capacity depends heavily on the stripping ratio. It is higher in Domsen than in Schwerzau But the production capacity of Schwerzau may be maintained in Domsen, too, because MIBRAG follows the strategy applied for the transition from Profen-Sued/D1 to Schwerzau and builds up overburden removal well in advance for the mining period of Domsen. In order to maintain a lignite production capacity of 9.5 Mt per year throughout the 10 years lignite operation period of Domsen, pre-stripping must relieve the burden in Domsen by approximately 12 Mbm3, and by increasing overburden removal in Schwerzau will thereby reduce the necessary actual stripping ratio per year in Domsen. This is certainly possible. Pre- stripping would certainly be necessary in case of additional supplies, e.g. for a new Profen power plant. After review of all existing conditions, it is concluded that a long term lignite production capacity of the Profen mine is realistically at 9.5 Mt per year over the mine life.

5.2.6 GRADE CONTROL AND BLENDING PROCEDURES On the KMS, lignite is run through a crushing and screening plant and then deposited in a controlled way by a stacker in layers onto a pile. A bucket wheel reclaimer takes up the lignite from the pile and conveyors transport it to either the rail cars or a small portion to a truck loading station. The Main Central Laboratory which is in charge of all internal sampling, physical and chemical testing, is integrated into the Profen KMS control building. The quality control measures applied by MIBRAG are described in detail in section 4.3.

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5.2.7 MINE DRAINAGE The Profen mine requires operation of an extensive dewatering system to maintain the groundwater level below the mine bottom, to control surface water run-off from precipitation and to keep mine slopes under stable conditions. The mine drainage at the Profen open-cast mine totals some 80 to 90 m³/min, whereof about 70 m³/min are groundwater from dewatering wells and up to 20 m³/min are surface water run-off.

All mine waters are directed towards the central water management facility Predel at the pit bottom and separated into two different portions depending on water quality. One portion of about 40 to 50 m³/min is subjected to some physical treatment in form of aeration and settlement of iron and is pumped into the Weiße Elster. The allowable limits for discharge there are pH: 6.5 – 8.5

Fe (total): < 3 mg/L

Fe (dissolved): < 1 mg/L

Total suspended solids (TSS): < 30 mg/L.

There are no conflicts reported concerning pH and TSS but iron was occasionally exceeded in the past when separation of mine water qualities was not observed.

The other portion of about 40 m³/min is pumped through a large diameter pipeline serving the LMBV lake filling programme. Water quality reportedly does not present any problem.

Some 7 m³/min are used by MIBRAG for own industrial applications.

The mine dewatering system consists of numerous filter wells operating in the mining fields (as of August 2011: 36 wells at Profen Sued/D1 and 65 wells at Schwerzau), mainly in groups along field boundaries, inside fields, and as groups in bed structures and as groups in dump masses. In addition to the central Predel pump station the Profen open-cast mine currently operates about 10 stationary sub-stations handling from 2 - 60 m³/min and being connected by a network of open ditches and retention ponds.

The Profen mine drainage system worked properly during the site visit of the Project Team and the technology applied is well proven. Total mine water drainage is expected to continue at a similar order of magnitude until about 2023 and then will decrease until lake flooding can start (Figure 5.6). The cone of depression caused by the groundwater drainage will shift towards the Elster river and some infiltration is expected from the alluvial plain. MIBRAG is prepared to install compensatory measures to maintain the water levels in the most sensitive areas of the flood plain where currently average groundwater levels are shallower than 2 m below ground.

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Figure 5.6: Prognosis of mine water discharge from Profen mine until 2025

The quality of the mine water is of some concern, but can be dealt with. The mine water originates from different aquifers with worst quality in terms of pH, iron and sulphates being produced in old mine waste dumps. The reason is exposure of naturally inherent sulphidic minerals to oxygen and subsequent washout by seepage or raising groundwater levels. This phenomenon is known as acid mine drainage (AMD) and is well known in lignite mine areas in Germany and elsewhere. The AMD processes are an unavoidable consequence of the mining technology and only limited reduction of AMD is possible by adjusting the operation of excavation and mine waste dumping.

However, other constituents of mine water mitigate the AMD process by providing buffer capacity against acidification. These constituents make up the total alkalinity of water and Profen mine water enjoys a high net alkalinity which causes the pH of the mine water to be neutral. Net alkalinity not only helps to avoid acidic drainage but also fosters the physical treatment of iron rich waters by precipitation once iron is allowed to oxidise, agglomerate and settle. MIBRAG started to react on increased iron concentrations in 2006 by intensifying physical treatment of mine water and separation into partial flows towards the Weiße Elster and towards LMBV, the latter not having problems with elevated iron concentrations. Review of existing mine water quality data and a report on further mine water quality developments demonstrate that for the next years to come the mine water quality will be more or less the same as at present and the existing mine water quality management should be able to cope with minor variations. Higher concentrations in iron are expected for the years beyond 2020. These aspects are dealt with in the context of environmental protection, section 9.

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5.2.8 INVESTMENTS Major investments are required for completing the transfer of mining activities from Profen- Sued/D1 into the Schwerzau field and from 2016 onwards also into the Domsen field. Also the very probable exploitation of the Draschwitz satellite field will require investments into additional mining equipment. Altogether IMC considers the MIBRAG long term plan adequate concerning the investments included. In addition, adequate allowances are made to continuously refurbish and modernize the main mining equipment. The budgeted costs of the overhaul programme, as listed in the Main Operation Plan of year 2012 amount to 5,480,000 € for both Profen and Schleenhain mine. Capital expenses in this order of magnitude are to be reckoned with every year. The planned investments into both mines for the period up to year 2016 are shown in Table 5.7.

2012 2013 2014 2015 2016 Investments in € Plan Plan Plan Plan Plan TotalProfenminefield 16.522,000 10.355,000 6.465,000 4.690,000 8.320,000 TotalDraschwitzminefield 4.000,000 6.500,000 4.500,000 R  R  TotalDomsenminefield 500,000 500,000 500,000 2.800,000 6.370,000 TotalProfenminefield 21.022,000 17.355,000 11.465,000 7.490,000 14.690,000

TotalSchleenhainminefield 19.730,000 19.085,000 21.660,000 22.350,000 11.470,000 TotalPoedelwitzfield 5.000,000 7.600,000 7.700,000 6.100,000 3.100,000 TotalUnitedSchleenhainmine 24.730,000 26.685,000 29.360,000 28.450,000 14.570,000

Totalinvestmentsinmining 45.752,000 44.040,000 40.825,000 35.940,000 29.260,000 Table 5.7: Planned investment for Profen and United Schleenhain mines until 2016

A detailed overview on the mine investments is provided in section 11, Table 11.6.

5.3 UNITED SCHLEENHAIN MINE

5.3.1 GEOGRAPHIC SETTING The mining area permitted in the Frame Work Mine Plan of 1995 and comprising the three partial mining fields of Schleenhain, Peres and Groitzscher Dreieck lies in the state of Saxony, and the south borders the State of Thuringia (see Figure 2.2 and Annex C). The area drains to the Weiße Elster river in the west and to the Pleiße river in the east. Through the centre flows from south to north the Schnauder creek. The area covers 1,855 ha. Land which is not owned by MIBRAG is still to be acquired. Land acquisition is not considered a material issue.

A high-voltage power line (220 kV) and a state road (B 176) run between the partial fields Schleenhain and Peres. After the Heuersdorf village has been evacuated there are 3 small villages, Neukieritzsch, Kieritzsch and Poedelwitz very close to the pit perimeter. These villages are environmentally protected against noise and dust emissions control.

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The mining area is an integral part of the sub-regional development program and the so-called brown coal plan (Braunkohlenplan), which went through a series of drafts and revisions and was finally made effective on 25 August 2011. The brown coal plan is in line with the provisions laid down in the Frame Work Mine Plan of December 1994 and includes the Schleenhain Suederweiterung. There are several protected natural areas (FFH areas) around and at the outside of the permitted mining area, which must not be affected by the mine operation. The decision on the village of Obertitz, possibly affected after the year 2026 planning horizon, is left “conditional” in the new brown coal plan.

5.3.2 MINE DESIGN AND CURRENT STATUS

5.3.2.1 Present Situation In the Frame Work Mine Plan operation is described and permitted in the sequence of mining Schleenhain, Peres and Groitzscher Dreieck. As in Profen, mining in United Schleenhain starts from three open voids in the mining area which are left from former mining. The partial field Schleenhain is separated from Peres by a pillar on which the state road B 176 and the 220 kV power line are situated. Mining in field Schleenhain was resumed in 1999, after the mine was re-structured and equipment refurbished or entirely replaced. Preparatory work has commenced to transfer mining activities into Peres. The surface facilities are already relocated. Preparation for the diversion of the 220 kV power line and the state road (B 176) over a stretch of 5 km are in progress and diversion has started in 2010. Overburden is dumped internally into the void of the Schleenhain field and will continue so. The Schleenhain void will be entirely filled and the dump will progress into Peres without interruption. The concept of advance and sequence of mining is schematically shown in Figure 5.7.

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Figure 5.7: Mine development at United Schleenhain open-cast mine

Source: MBEG Report September 2008

Currently operation is concentrated and will continue until about 2022 in the partial field Schleenhain. Transition of equipment is planned for 2012 and start of overburden stripping in Peres will be in 2013. Integrated into the mine plan of Schleenhain is the satellite area of Schleenhain-Suederweiterung, which was outside the Frame Work Mine Plan but for which the permit was granted on 18 December 2009 on the basis of a special mine operation plan.

5.3.2.2 Long-term Mine Plan Operation in the field Peres will start in 2012 with overburden removal on the top bench. The diversion of 220 kV power line and of the state road over the inside dump of Schleenhain, as well as the crossing in new tunnels of three overburden and coal conveyor lines causes remarkable engineering efforts and costs. Successively the excavators and belt conveyor lines are transferred to Peres, and successively also the conveyor interlinking plant. The service facilities are already in place there. Thus, lignite production will gradually move from Schleenhain to Peres without interruption, and due to the earlier pre-stripping the production capacity will not be affected by the higher stripping ratio.

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The old Groitzscher Dreieck mine was closed in 1991, thereafter the slopes were flattened and stabilized by LMBV. Presently the void is water-filled. Before transition from Peres to Groitzscher Dreieck starting in 2028 the old mine will be drained and the benches will be prepared for installation of mining equipment. The transition itself will take place over six to seven years and will be gradual and smooth like for Peres. Overburden will be conveyed on two overland conveyors to the Peres void and lignite by a third overland conveyor to the existing KMS in Peres.

By 2041, the scheduled closure year of Lippendorf power plant, the reserves of the United Schleenhain mine will be exhausted. Thereafter the financial reserves accumulated for closure costs will be used for final land reclamation. The final landscape of the United Schleenhain mining area is shown in Figure 5.8. The entire partial area of Schleenhain and part of Peres will be returned to agriculture and forestry use. Two attractive end lakes will be formed in the west of the Peres area and in Groitzscher Dreieck.

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Figure 5.8: Post-mining landscape – United Schleenhain Mine

Source: MBEG Report September 2008

5.3.3 MINE DEVELOPMENT AND PRODUCTION SCHEDULES The Schleenhain mine has maintained its current level of lignite production for many years. Last year’s coal production was affected by a relatively high demand from the Lippendorf power plant but for the next years coal production is expected to get back to normal. The mine waste production was below normal years due to interruptions of mine waste removal from the upper

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Figure 5.9). However, the total annual production rates scheduled are well within the capacity of the mining equipment. IMC has reviewed the total mining capacity (see further below) and considers the production schedule of the United Schleenhain mine realistic provided mine operations continue at the present professional performance level.

40.000

35.000

30.000

25.000

20.000

15.000

10.000

5.000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

MineWasteproductionOpenpitSchleenhainTm³ CoalproductionOpenpitSchleenhainkt

Figure 5.9: Production schedule of United Schleenhain mine 2010 - 2026

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5.3.4 MINE EQUIPMENT

5.3.4.1 Main Mining Equipment After closing the old Schleenhain mine, in a 4-years period the mine has been prepared for and equipped with partly new belt conveyors and refurbished and modernized excavators, belt wagons and spreaders. With remarkable efforts and expenses the conveyor system has replaced the over-aged railway transport. Excavators and spreaders from other mines were carefully selected and refurbished. The mine is now fully complemented with conveyors. In consequence, the status of equipment is up-to-date in mechanical, electrical and economical terms. For reason of useful equipment life, there is no need to replace excavators, spreaders, or belt conveyor drive head stations. Only mobile equipment and equipment elements with limited life time are to be replaced in the course of maintenance and repair. The main mining equipment used in United Schleenhain was built in the eighties and nineties and has been refurbished to a practically new status in the period when the mine was closed and restructured between 1995 and 1999. The equipment use is schematically shown in Figure 5.10 and follows the established practice in lignite mining.

Figure 5.10: Equipment used at United Schleenhain open-cast mine

(Source: Main Mine Plan Schleenhain 2010)

Excavators and belt wagons are operated on 4 benches, where like in Profen bucket wheel excavators dig the overburden and interburden and part of the coal, while the bucket chain

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COMPETENT PERSON’S REPORT excavators dig the rest and operate at the undulating seam boundaries. The two spreaders are operated on two benches in high dump and deep dump mode in the field Schleenhain. Mine waste and lignite are transported from the excavators on belt conveyors through the conveyor interlinking plant, where they are directed either to the spreaders or to the lignite storage and blending plant (KMS). In total, conveyors within the United Schleenhain mine, to dump, to the KMS, and up to the Lippendorf power plant have a length of approx. 35 km according to current mine operation plans. The lignite conveyor from the interlinking plant to the KMS crosses the state road in a tunnel and is fully roofed-in for reducing noise and dust emission near the village of Poedelwitz. From the KMS to the power plant a double conveyor line guarantees safe and uninterrupted feed. EXCAVATORS MIBRAG is currently operating at the United Schleenhain mine: 2 slewing bucketwheel excavators with crawler undercarriage SRs 2000 1 slewing bucketwheel excavator with crawler undercarriage SRs 1300/1301 1 slewing compact bucketwheel excavator with crawler undercarriage SRs 702 1 slewing compact bucketwheel excavator with crawler undercarriage SRs 703 1 slewing bucketchain excavator with crawler undercarriage ERs 1120 1 slewing bucketchain excavator with crawler undercarriage ERs 710 The bucketwheel excavator model SRs 2000 is the equipment with the highest digging capacity of MIBRAG’s excavator fleet. It can excavate up to 17 million m³ of overburden per year. The Schleenhain excavators weigh 2,380 tonnes and have an hourly production capacity of 4,900 m³. Excavator N° 1528 (SRS 2000) was built in 1984 and modernised in 1993 and 1998. 90 % of its main components have been replaced or refurbished. The equipment is in very good condition and no major interventions appear necessary in the foreseeable future. Excavator N° 1552 (SRs 2000) was built in 1989 and modernised in the years 2002/3. Approximately 60 % of the components have been replaced or refurbished. The machine is in good condition. The remaining 40 % of the components will have to be replaced in the medium- term. Excavator N° 1517 (SRs 1300) was built in 1981. It weighs 1,680 tonnes and has an hourly production capacity of 3,770 m³ (7.3 million m³/year). The equipment was modernised in the years 2004 and 2008 by replacing or refurbishing 100 % of its components. The equipment is again in excellent condition and will not require major interventions in the medium-term. Excavators SRs 703, SRs 702, are so-called compact bucketwheel excavators. Their booms are operated hydraulically. The advantage of these smaller units is their lower investment. MIBRAG operates this kind of equipment only in coal extraction.

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Excavator N° 1566 (SRs 703) was built in 1992 and weighs 938 tonnes. Its hourly production capacity is 2,500 m³. It was completely modernised and refurbished in 2000. It is in very good condition and no major intervention appears to be necessary in the medium-term. Excavator N° 1554 (SRs 702) was built in 1990 and weighs also 938 tonnes. Its hourly production capacity is also 2,500 m³. It was completely modernised and refurbished in 2005. It is in very good condition and no major intervention appears to be necessary in the medium- term. In the United Schleenhain mine MIBRAG operates two sizes of bucketchain excavators: ERs 1120 and ERs 710. Excavator N° 1701 is the ERs 1120 model. The unit was built in 1985 and weighs 2,300 tonnes. Its hourly production capacity is 2,500 m³. It is MIBRAG’s bucketchain excavator with the highest production capacity. The unit was regularly maintained and partly modernised in 2008. All of its main components have been replaced or refurbished. The unit is in good operating condition and no major interventions appear to be necessary in the medium-term. Excavator N° 353 (ERs 710) was built in 1984. It weighs 1,030 tonnes and has an hourly production capacity of 1,400 m³. The excavator was in operation for 24 years. 90 % of its components have been replaced or refurbished so far. The equipment is in good condition and no major interventions appear to be required in the medium-term. BELT WAGONS In the United Schleenhain mine mine MIBRAG operates 5 belt wagons with crawler undercarriage of the model BRs 1600 (1), BRs 1400 (3), and BRs 1200 (1), respectively. The BRs 1600 model weighs 606 tonnes and has an hourly haulage capacity of 5,500 tonnes. Its slewing boom is 87 m long. The BRs1400 weighs 506 tonnes and has a haulage capacity of 4,300 m³/hour. Its slewing boom is 90 m long. The BRs 1200 weighs also 506 tonnes but has a lower haulage capacity of 3,500 m³/hour. Belt Wagon N° 832 (BRs 1600) was built in 1990. 95 % of its components have been replaced or refurbished so far. The equipment is in good condition. Belt Wagon N° 811 (BRs 1400) was built in 1979. 85 % of its components have been replaced or refurbished so far. The equipment is in good operating condition. Belt Wagon N° 817 (BRs 1400) was built in 1983. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition. Belt Wagon N° 825 (BRs 1400 was built in 1988. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition. Belt Wagon N° 833 (BRs 1200) was built in 1990. 95 % of its components have been replaced or refurbished in the past. The equipment is in very good condition. SPREADERS

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In the United Schleenhain mine MIBRAG operates two spreaders dumping overburden and interburden. Spreader N° 1119 (A2RsB 10,000-110) was built in 1982. It weighs 2,424 tonnes and has an hourly dumping capacity of 10,000 m³. Its slewing boom has a length of 110 m. The unit was partly refurbished in 1999. 75 % of its main components were replaced or refurbished in the past. The remaining 25 % will have to be replaced within the medium-term and it is currently in good operating condition. Spreader N° 1112 (A2RsB 10000-110) was also built in 1990. It weighs also 2,424 tonnes and has also an hourly dumping capacity of 10,000 m³. Its slewing boom has also a length of 110 m. The unit was partly refurbished in 1999. 75 % of its main components have so far been replaced or refurbished. The equipment is currently in good condition. 25 % of its main components have to be replaced in the medium-term. BELT CONVEYOR EQUIPMENT Five shiftable belt conveyor systems have been installed in the open pit. Belt widths are 2,000 mm on the higher benches, and 1,600 mm on the lower benches. The belt conveyors are operated at two different speeds: 5.85 m/sec and 6.55 m/sec. On the dumps after the mass distribution belt widths are 2,000 mm. One coal conveyor system supplying the crushing station and the coal blending plant is 2,000 mm wide and operates at 3.69 m/sec with a capacity of 4,200 t/h. The conveyor system supplying the power station from the stock yard is equipped with two belts with a width of 1,600 mm each operated at 4.19 m/sec. This system has been designed as a redundant element with both conveyor systems attaining 2,400 t/h each. These systems are housed in by a corrugated metal hood in order to minimise dust emissions. The Schleenhain mass distribution plant was also commissioned in 1999. It handles coal and overburden/Interburden hauled on five in-coming and three out-going conveyor belt systems, one for coal, two for mine waste. The conveyor systems and the distribution plant are controlled and monitored by the central control room of the Schleenhain mine.

5.3.4.2 Auxiliary Equipment The mine operates a fleet of mobile equipment like dozers, pipe layers, wheel loaders, hydraulic loaders, trucks, graders, compactors for pit maintenance, and off-road cars, mobile cranes, service trucks, silo trucks etc. for transport of personnel and equipment maintenance and repair. The aggregate number of auxiliary equipment in the Schleenhain mine amounts currently to 126 and includes: - Track dozers: 13 (Caterpillar, Komatsu, Liebherr) - Wheel dozers: 1 (Caterpillar) - Track-mounted excavators: 1 (Caterpillar)

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- Wheel front-end loaders: 11 (Caterpillar, Volvo, Zettelmeyer, Komatsu) - On-highway trucks: 13 (Mercedes-Benz, MAN, VW, Steyr, Mazda, Nissan, Faun) - Rear-dump trucks : 7 (Volvo) - Tractors: 10 (Fendt, Deutz) - Unimogs: 4 (Mercedes-Benz) - Cranes: 4 (Demag, Faun, Kenworth) - Graders: 2 (Caterpillar) - Water trucks: 1 (Caterpillar) - Workshop truck: 7 (MAN, Steyr)

5.3.5 MINE CAPACITY Mine operations at the Schleenhain mine are equivalent to those at the Profen mine using the same type of equipment and degree of mechanisation. Schleenhain mine operates also in a three-shift system on five days per week. Work days are scheduled for an even consumption of electricity throughout the week. This working time regime is sufficient to ensure the required lignite output with the equipment installed in the open-cast mine and at the current overburden-to-lignite ratio. For 24-hour operation at full load, the Lippendorf power plant needs about 35,000 tonnes of lignite. The Peres coal blending and storage stockyard (KMS) with a maximum stock of 400,000 tonnes has sufficient capacity to ensure lignite supplies to the Lippendorf power plant during off-days, national holidays and any unforeseen interruption. Therefore, the equipment complex between the stockyard and the power station is permanently operated in three shifts. The required operator and maintenance staff is available at the same time. The 24-hour rhythm of the coal blending and storage yard, as well as the operating regime of the open-cast mine, call for a high availability of the mine facilities and equipment. Accordingly, as required, it is imperative to perform any service, maintenance, adjustment and renovation work also on Sundays and national holidays. These open-cast mining areas are supervised by complementary structural units of MIBRAG for maintenance, surface drainage, planning, surveying and accounting as well as for commercial and organisational processes. The work force assigned to the United Schleenhain mine is 237 men, 20 % lower than in Profen despite the higher lignite production. According to MIBRAG plans the work force will maintain this level up to 2025. The Project Team considers this number of personnel sufficient for maintaining a current production level in the range of 11 Mt of lignite per year and about 40 Mm³ of overburden. This is on the condition that capacity utilisation can be well balanced, also by flexible use of free shifts and overtime, and organisation is kept very efficient. By increasing the number of shifts the theoretical capacity in the Schleenhain mine ranges between 11.7 Mt and 15.68 Mt per year of lignite production. This is well above the supply requirements for the

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Lippendorf power plant so MIBRAG uses some extra capacity to perform pre-stripping at the Peres mine field where the overall stripping ratio is higher than at the Schleenhain mine field. When estimating the production capability and flexibility of the Schleenhain mine the same concept as for Profen is used and shown in Table 5.6. The excavators have a combined digging capacity of 43.144 million bank cubic meters in year 2012. Depending on the shift regime (5, 6, or 7 days per week), the mine can operate in 5,000, 6,350, or 6,750 scheduled hours per year (hsch/a). The mining conditions for selective extraction and in-pit blending are somewhat better than in Schwerzau and the coal mining capacity is 11.499 Mt/a. Based on operational judgment the delays accumulate to 40 % on the benches where mine waste and coal are extracted intermittently. Since the customer does not absorb the entire production capacity, MIBRAG advances stripping in Schleenhain partial field in preparation for mining in Peres well, thereby reducing the actual stripping ratio per year there for the years to come. It is higher in Peres than in Schleenhain (the geological ratio is 4.2 vs. 1.7 bm3/t of lignite) and theoretically with the combined excavator capacity of 43.144 (Mm3+t)/a the lignite production capacity would drop below the contracted feed to Lippendorf power plant. This will be prevented by using the free stripping capacity in the partial field of Schleenhain and start transition to and overburden stripping in Peres well in advance. In order to maintain a lignite production capacity of 11.5 Mt per year throughout the 10 years operation period of Peres, pre-stripping must relieve the burden in Peres by approximately 32 Mbm3. A similar calculation for the partial field of Groitzscher Dreieck results in about 2 Mbm3 of pre-stripping. In total and including a safety cushion for lost operating time of transferring the equipment from one partial field to the next one, the pre-stripping volume should be approximately 40 Mbm3. This appears realistic. Although pre-stripping amounts to one annual production of mine waste and means early-on operating costs, it is certainly good practice of MIBRAG, because it avoids later-on investment in additional stripping capacity. In conclusion, considering the current free capacity, IMC considers a long term lignite production capacity of the United Schleenhain mine realistic at 11.5 Mt per year over the mine life.

5.3.6 GRADE CONTROL AND BLENDING PROCEDURES The overland conveyor line from the partial field Schleenhain transports the lignite to the KMS which is situated on the bottom of the void of the old Peres mine. From the KMS the lignite is conveyed uphill to the Lippendorf power plant. The KMS is equipped similarly like the one in Profen, except that instead of the bucket wheel reclaimer, in Schleenhain two portal chain scraper reclaimers offer good blending and more flexibility in Peres. The quality control measures applied are equivalent to those at the Profen KMS and are described in detail in section 4.3.

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5.3.7 MINE DRAINAGE The United Schleenhain mine has similar requirements for an extensive dewatering system as the Profen mine. The total mine water from the United Schleenhain mine varies between 20 and 42 million m³/a, with the largest quantities expected at the Groitzscher Dreieck field to be mined from about 2030. Due to frequent bed and depression structures, the approach is similar to that at Profen, with groups of wells for existing geologic structures in areas ahead of mining operation, and for blocking off influx from the surrounding areas using lines of wells around specific fields.

The centre of activities at present is the Schleenhain field with about 90 filter wells in use or ready for operation. A drainage drift run in seam one in 1988-1990 has since taken surface water from various cuts in the pivot point area and served for partial drainage using cartridge filters. It has a remaining length of about 500 m. Apart from the main pump station which presently also functions as a simple physical treatment plant, the Schleenhain mining field has six more stations which receive groundwater quantities of about 15.8 million m³/a (30 m³/min) and surface water at the rate of approximately 5.3 million m³/a (10 m³/min).

In contrast to the Profen mine there is only relatively small inflow from pre-Tertiary formations which is estimated for the long term to maintain a rate of 5 m³/min. Due to only a small amount of alkalinity added by the pre-Tertiary formations and abundance of old waste dumps in the vicinity, there is no net alkalinity presently in the combined Schleenhain mine waters.

A small water treatment facility based on addition of lime was put into operation to treat the poor quality seepage from old in-pit dumps but is not sufficient to improve the overall mine water quality. A study on future water quality developments forecasted further deterioration of the mine waters. Elevated concentrations in ammonia, which is a critical parameter for discharge into the LMBV lake water transfer system, have been monitored in the area of Deutzen and Regis-Breitingen. In case of Deutzen the poor water quality is associated with some contaminated land around the former coal beneficiation plant. The influence of Deutzen and Regis-Breitingen areas will increase in the next years when the Schleenhain mine moves further into the south.

The deteriorating mine water quality was no longer considered acceptable for filling of the LMBV lakes with waters from the Schleenhain mine drainage which was the past water management concept. MIBRAG reacted to this previously unforeseen situation by designing and constructing a dedicated mine water treatment plant close to the village of Neukieritzsch which went into operation on 31 March 2010. The relevant permit for construction and operation was granted by the Saxonian Mining Authority with date of 12 March 2009.

With operation of the treatment plant all mine waters, including those from future developments of Peres (with exception of the perimeter wells which are expected to produce continuously acceptable water quality) and Groitzscher Dreieck mine fields, are treated and finally discharged into the Pleiße river. The minimum quality requirements for regular operation and discharge into the Pleiße river are set at:

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Fe, total: 3 mg/L pH: 6.5 – 8.5 oxygen: > 6 mg/L.

The maximum allowable discharge rate is 60 m³/min. The permit is limited to the end of 2041.

At the Peres mining field, a total of up to 45 filter wells are working or ready for operation in groups on the northern/north-western edge. An average rate of 15 m³/min is pumped and discharged directly into the Schnauder Brook. At present, there is apparently no problem with quantity and water quality. The strategy is to maintain current drainage and bleeding levels, with no need to expand existing edge systems or sink field wells.

The Groitzscher Dreieck residual pit was rehabilitated in recent years on behalf of LMBV, most of its filter wells were shut down and plugged in 1998. Since then the pit has experienced a natural rise of the free water level. The lake level is regularly monitored and was recorded as 107 m NHN in May 2011. An expert report confirmed safe slope stability up to a lake level of 112 m NHN which allows for more than sufficient buffer storage capacity. An average total of 5 m³/min is forecasted to maintain the lake level. The lake water is strongly acidic with pH values monitored in recent years varying between 2.8 and 3.1. The present lake at Groitzscher Dreieck serves as an example of what type of water quality may be expected at other future lakes when located upon and/or close to old mine waste dumps and only fed by groundwater rebound.

Total mine water drainage at Schleenhain and Peres mine fields is expected maintain approximately the same order of magnitude until about 2012 and will then decrease steadily until 2025 (Figure 5.11). After 2012 pumping from filter wells at Groitzscher Dreieck supplying water for the Mumsdorf power plant will cease because the power plant will be shut down.

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Figure 5.11: Prognosis of mine water discharge from United Schleenhain mine until 2025

In summary, the Project Team considers the United Schleenhain mine dewatering system well under control and in compliance with permits as soon as the mine water treatment plant is successfully put into operation. The technology of the treatment plant is good industrial standard and no difficulties should arise in complying the allowable discharge limits. The plant capacity of 60 m³/min is well above the presently observed mine water quantities which provides significant allowance also for exceptionally long periods of high precipitation. In the long run MIBRAG sees an average rate of 50 m³/min to be treated. There would be still considerable reserve capacity under these conditions.

5.3.8 INVESTMENTS Until 2013 the transfer of main mining activities into the Peres mine field require major investments with respect to relocation of the state road and the high voltage line. The satellite field of Poedelwitz needs major acquisitions of land and subsequently investments into new conveyor lines. As in the case of Profen, IMC considers the investment planning (see Table 5.7) adequate for a sustained mining operation.

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6 MAINTENANCE AND INFRASTRUCTURE This section contains a short description of all activities required and company arrangements implemented to maintain efficient and safe operations of the mines mentioned in the previous sections.

Descriptions and assessments are made on maintenance and regular inspections, warehousing, power supply to facilities and lignite loading. MIBRAG’s contractual obligations to take back waste products from their customers are considered.

6.1 MAINTENANCE Adequate maintenance of mining equipment, industrial plants and all other facilities is essential in highly mechanised operations. This is reflected in personnel distribution identifying the number of staff involved in maintenance be second after mine operations.

6.1.1 ORGANISATION MIBRAG’s department Technical Services (Technische Dienste) is in charge of the company’s engineering, construction, maintenance and repair activities concerning its facilities and equipment. The department’s offices and workshops are located at Profen. It consists of five sub-departments and its aggregate staff and workforce amount currently to 546.

Number and significance of equipment failures were low in the past. The overall impression is that efficiency and effectiveness of MIBRAG’s Technical Services department is excellent.

6.1.2 MAINTENANCE AND REPAIR REGIME The company’s maintenance and repair strategy is focussing on the quick rehabilitation of malfunctioning installations and equipment on a day-by-day basis by its own personnel based at the Profen facilities assisted by mobile crews based at secondary workshop facilities in the mines and plants. Large-scale maintenance and repair is preferably outsourced to specialised subcontractors. Furthermore certain repair and maintenance services being steadily and adequately available in the market are provided by third parties.

6.1.3 WORKSHOPS AND WAREHOUSING MIBRAG’s central maintenance and repair facilities are located at the Profen premises. They comprise  the main electrical workshop  the main mechanical workshop  the railway equipment workshop  the auxiliary equipment workshop including the material testing/quality control laboratory, and  the measurement and control technology (MCT) workshop.

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A central workshop in charge of the rehabilitation of all of the crawler base plates of the company is situated at the Mumsdorf premises. Secondary electrical and mechanical workshops are located at the Profen and Schleenhain opencast mine sites. Workshops also exist at the company’s power plants at Waehlitz, Deuben and Mumsdorf. Next to the Profen main workshops are new central warehouse facilities which keep substantial stock of spare parts to foster the equipment maintenance and deliver spare parts in case of scheduled or unscheduled repairs. During the site visit IMC received a very positive impression of the MIBRAG workshop, warehousing and storage facilities. All facilities appeared well organised, well equipped and maintained.

6.1.4 REGULAR INSPECTION OF FACILITIES In order to comply with generally applicable laws, regulations and legal requirements, the mining facilities and equipment of MIBRAG are regularly inspected by both external and internal control groups. This system of quality control apparently contributes to the efficiency of operations. Last time MIBRAG’s mining equipment was inspected and assessed in 2008 by the independent test centre for open pit equipment (Pruefstelle fuer Tagebautechnik, Senftenberg) of DEBRIV (Deutscher Braunkohlen-Industrie-Verein), i.e. the association of German lignite producing companies. The test report certifies that all main mining equipment is in good condition and well maintained by MIBRAG. The certificates of inspections and also the site inspection by IMC confirmed well maintained equipment and operations.

6.2 INFRASTRUCTURE

6.2.1 POWER SUPPLY NETWORK OF MIBRAG MIBRAG operates its own electric energy transmission and distribution grid. Due to the geographical location of MIBRAG’s technical installations this company-owned grid is divided into two operating networks, i.e. Profen and Schleenhain. The MIBRAG power supply network is controlled and monitored by a modern central control station (Netzleitstelle) located at Profen which commissioned in March 2009 as the last phase of the electrical development of the new Schwerzau open pit. Currently MIBRAG’s company-owned electrical supply system comprises:  2 main transformer stations 110/30 kV  34 transformer stations 30/6kV  3 transformer stations 6/0.4 kV  4 stations for the supply of traction current for the company-owned railway system  35 km of overhead lines 110 kV

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 118 km of overhead lines and cables 30 kV  15 km of overhead lines 15 kV  508 km of overhead lines and cables 6 kV.

The network provides electrical energy for MIBRAG’s own requirements and allows transfer and sales of surplus energy into the public power grid system. The MIBRAG grid is connected with the 110 kV grid operated by enviaNetz at the Lippendorf and Mumsdorf power plants. A special agreement with the power company enviaM renders some extra revenues because MIBRAG has established a system to react on peak load variations within minutes to alleviate eventual imbalances within the grids of the utilities.

IMC considers the power supply network well organised and equipped with sufficient redundancy to warrant continuous operation of all major facilities.

6.2.2 RAILWAY OPERATIONS Lignite from the Profen mine is loaded onto railway cars and trucks at the lignite storage and blending station KMS at Profen. The loading operations are remotely controlled and monitored by the Profen central mine control station. The combined equipment used at the KMS allows the application of modern blending techniques. The lignite is hauled on a conveyor belt system from the mine to the KMS where it is dumped into the under-floor storage area (Grabenbunker) using a rail-mounted stacker and its tripper car which were commissioned in 1995 and are in good technical condition. The stacker has a maximum handling capacity of 11,700 m³/h. The storage area is 910 m long and has a capacity of 450,000 t which represents approximately five per cent of the yearly throughput of the stockyard and can be considered best practice on international level. The dump is subdivided into compartments which allow to store different lignite qualities separately. The lignite is reclaimed and blended simultaneously by the rail-mounted reclaimer with an hourly handling capacity of 5,000 m³, i.e. approximately 4,000 t/h. The reclaimer was also commissioned in 1995 and is in good technical condition. The overall capacity of the train loading installation is 4,800 t/h. The truck loading facility can handle two trucks at a time and is equipped with two buffer silos with a capacity of 150 tonnes each. Both rail and truck loading installations are equipped with the necessary weighing installations. IMC considers this important element of lignite storage, blending and unloading well equipped. There appears no need for any significant changes during the review period.

6.3 DISPOSAL AND TRANSPORT OBLIGATIONS Currently MIBRAG is contractually obliged to take back combustion residues from power plants and industrial boilers supplied with lignite by MIBRAG, e. g.

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 the Lippendorf power plant  the Schkopau power plant  the fluidized bed boiler plant of the sugar factory at Zeitz  the fluidized bed boiler plant of CropEnergies Bioethanol Zeitz, and  its own power stations at Mumsdorf, Deuben and Waehlitz.

Combustion residues are:  filter ash stemming from the electric filters of the power plant (Filterasche)  boiler ash stemming from the boiler (Grobasche)  FGD plaster stemming from the flue gas desulphurisation (REA-Gips), and  FGD water stemming from the same process (REA-Wasser).

MIBRAG has contracted the haulage and disposal obligations to its 50% subsidiary MUEG. Details on requirements and contracts were reviewed by IMC. Altogether the specialized services of taking waste products back from MIBRAG customers appear to be well organized and established over a considerable period of time. IMC is not aware of any significant incident or bottle neck leading to serious disturbance of contractual obligations of MIBRAG. MUEG seems to be well qualified to provide the services required. Disposal facilities are equipped with long term permits and abundant capacity. There appears no risk associated with their continued availability. The taking back of waste products from the Lippendorf power station and storage of gypsum in the old Peres open pit is a continuous operation which IMC inspected and found very well functioning. Transport of waste products from other customers and MIBRAG own power plants is mostly performed by silo trucks which are standard in this kind of application. There is abundant capacity of silo trucks available at logistic companies so problems are not envisaged in case a company sub-contracted for transport should fail to perform. In essence, IMC does not recognize any special risk associated with the transport and disposal of waste MIBRAG is obligated to perform in the context of its lignite supply contracts.

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7 MANAGEMENT AND MANPOWER This section briefly describes the MIBRAG management and manpower organisation. IMC is of the opinion that MIBRAG is well organised and its personnel is very much qualified to cope with the operational requirements.

7.1 MANAGEMENT MIBRAG mbH is run by 3 Managing Directors (Geschäftsführer):  1 Chief Executive Officer (Vorsitzender)  1 Chief Operating Officer (Technischer Geschäftsführer), and  1 Director Human Resources (Arbeitsdirektor)

The Board of Directors is controlled by a Supervisory Board (Aufsichtsrat) consisting of 11 members.

7.2 LABOUR FORCE In 2010 MIBRAG’s personnel amounted to 2 000 employees thereof 151 apprentices and 14 Junior Managers. 299 employees were employed under part-time work contracts for older workers, 76 thereof without further assignment. The average age of MIBRAG staff was about 47.6 years in 2010, gently decreasing from previous years. Personnel cost amounted in 2010 to 112.0 M€ (2009: 108.2 M€). In 2010, the Company made the following additional financial contributions to its workforce:  Retirement provisions 0.8 M€  Safety bonus: 0.7 M€  Profit sharing 2.3 M€  Other compensation 0.2 M€  4.0M€

In 2010 MIBRAG’s personnel had the following professional qualifications:  Skilled workers: 70.3 %  University degree: 10.8 %  Foremen (Meister): 10.1 %  Vocational high school degree: 8.0 %  Unskilled workers: 0.7 %.

MIBRAG is undertaking substantial efforts to increase the qualifications of the employees and to generate new skilled personnel. Up to the year 2020 MIBRAG will have to replace about 600 persons due to regular retirements.

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7.3 COLLECTIVE AGREEMENTS ON WORKING CONDITIONS (LABOUR AGREEMENT) The working conditions of the employees of MIBRAG are defined by 4 agreements on working conditions:  The framework agreement on working conditions for the employees of the Lusatian and Central German lignite mining industries (Manteltarifvertrag) of 2002  The collective labour agreement on part-time work for older workers of 2004  The collective labour agreement on the classification of employees of 2010  The collective labour agreement on the remuneration of employees of 2011.

7.4 TURNOVER AND RECRUITMENT In 2010, 7 employees with university degree, 3 foremen and 26 skilled workers left the Company.

7.5 VOCATIONAL TRAINING AND CONTINUING EDUCATION

7.5.1 GENERAL MIBRAG would offer local youth vocational training and its personnel continuing education in order to maintain a high standard of company-specific skills. In autumn of 2011 MIBRAG’s vocational training centre at Deuben employed 10 instructors being in charge of 116 apprentices. Generally the Company’s continuing education program would comprise about 300 courses with approximately 2,000 participants annually. The annual costs of MIBRAG’s vocational training program would amount to 2.6 m€ annually balanced by approximately of 2.0 m€ of internal value added by the instructors and apprentices. MIBRAG’s continuing education would cost about 250,000 € annually. In 2009 the MIBRAG management and the Works Council formally agreed to offer in future all of its former apprentices having successfully completed their vocational training unlimited employment contracts.

7.5.2 VOCATIONAL TRAINING In order to maintain high standards of specific skills required for its operations and maintenance departments MIBRAG undertakes a comprehensive vocational training program for the local youth leaving school. Vocational training is offered for  future industrial mechanics for operations and maintenance,  electronic technicians, and  equipment operators  water well sinking and maintenance technicians

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 construction equipment operators  chemical laboratory assistant

At the end of 2010 MIBRAG employed 151 apprentices. In August of 2011 MIBRAG took on 41 new apprentices, i. e. 12 to be trained in industrial mechanics, 12 future electronics technicians, 12 future equipment operators, 2 future well sinking and maintenance technicians, 2 future construction equipment operators, and 1 future chemical laboratory assistant. Vocational training for industrial mechanics and electronics technicians would last 3.5 years. Future equipment operators are trained at Deuben (1.5 years) and in the mining operations (0.5 years). Technical apprentices would spend their first 2 years of training at the Company’s training centre at Deuben. During the final 1.5 years of their training period they would be assigned to the various technical tasks in production or maintenance. In addition to their specialised training all apprentices would receive comprehensive training as voluntary firemen as part of their regular curricula. Since 2009 until 2013 all of MIBRAG’s apprentices are contractually offered unlimited employment contracts after successful completion of their professional education.

7.5.3 CONTINUING EDUCATION The Company would offer continuing education to its personnel in accordance with a programme established annually in the course of the 4th quarter of the year. The program addresses new issues in connection with new state regulations, or held necessary and brought forward by the respective company departments. These programs are generally focussing on occupational safety, financial basics, data processing or specific technical issues. In principle the courses would be held by external experts at in-house facilities in co-ordination with the specialised departments. Only courses with few participants or dealing with very specific items would take place externally. In 2010, for instance, 307 courses were given for a total of 1,810 participants. Participants were trained internally in fields such as equipment driving, first aid, operation of hoist and lift equipment, operation of switching devices, and data processing.

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8 OCCUPATIONAL HEALTH AND SAFETY (OHS) SYSTEM /FIRE AND RESCUE ORGANISATION

8.1 COMPANY PHILOSOPHY MIBRAG’s occupational health and safety management system was originally developed and introduced by its former North American shareholder and mine operator Morrison Knudsen Corporation and maintained and refined by its successor companies WGI and URS. The goals and the implementation of this system were and still are not only to comply with German legal and insurance stipulations and standards but to also create a specific corporate OHS culture focussing on the explicit objective to become and stay an accident-free operation. To this end MIBRAG developed and is implementing since 2010 a special program with internal guidelines for occupational safety and health, environmental protection and fire fighting called Arbeitsschutzmanagementsystem (AMS). AMS is requiring strong personal involvement from MIBRAG’s management and all its employees with regard to occupational safety. The guidelines were based on a thorough risk analysis of the company’s operations. From the outset of the program the system focuses on avoidance of accidents and stringent documentation of accidents and near-accidents, incidents, risks, safety evaluations, inspections, plans, and implementation of preventative or corrective measures. Training based on these analyses, regular risk assessments and safety audits and meetings aim at ensuring continuous improvement of the company’s safety performance. MIBRAG’s occupational health and safety organisation also comprises the company’s fire and rescue department. IMC is of the opinion that this bundling of activities in a single department, aiming at the same time at the prevention and eventual combating of fires, accidents and/or incidents, is a rare but effective phenomenon in the industry. IMC considers the performance of this AGB (Arbeits-, Gesundheits- und Brandschutz) organisation excellent and best practice on domestic and international levels.

8.2 ACCIDENT FREQUENCY The company’s accident frequency rate – currently 1.75 reportable accident per 1 million hours (2009: 1.75) – amounts to only 50 % of the comparable average accident frequency of the German lignite producing industry (2010: 3.3). A reportable accident corresponds to 3 days and more of absence for sickness. MIBRAG however failed to achieve its ambitious internal goal of 1.25 reportable accidents per 1 million hours as it had to report 5 accidents in 2010. Its sickness absence rate in 2010 increased to 3.94 % and thus is almost in line with the development of the entire German economy. The negative development motivated the Company to look thoroughly into potential measures to improve the current situation. MIBRAG’s continuous efforts to reduce the number of accidents, incidents, and occupational disease are supported by an effective bonus program which includes noticeable financial incentives for all its employees in case the number of accidents and the corresponding accident frequency rate would remain below set target values.

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In June 2010 MIBRAG achieved for the 11th time more than 1 million hours without reportable accident which corresponds to 4 calendar months without accident. In accordance with the company’s award programme the workforce received a contribution for their individual retirement accounts. In the past the company achieved 5 times more than 2 million hours and 3 times (2003, 2005, 2007) in excess of 3 million hours without reportable accident. Low accident frequency and sickness absence rates have resulted in discounts in the order of magnitude of 20 percent on insurance premiums payable to the mining industry employers’ liability insurance association (Bergbauberufsgenossenschaft). Overall annual cost savings generated by MIBRAG’s effective accident and fire prevention program amount to in the order of magnitude of 5 million € compared with the rest of the lignite mining industry. In 2005 MIBRAG’s OHS system was assessed and certified by the mining and quarry industry’s employers’ liability insurance association for its quality and effectiveness (“Sicher mit System”). It was again evaluated and its certification renewed in 2009 for 3 years by the same organisation. The company has so far received numerous domestic and international awards for the quality of its OHS system, the latest prize being the gold award issued in May 2011 by the British Royal Society for the Prevention of Accidents (RoSPA) on the occasion of the Safety & Health Fair at Birmingham. MIBRAG’s OHS concept has in the meantime be adopted by other reputable German mining companies, e. g. Kali + Salz AG. Furthermore a number of foreign organisations have been made familiar with the system in the framework of international capacity building consultancy missions (Kosovo, Vietnam, Hungary, and Russia).

8.3 HEALTH &SAFETY MANAGEMENT MIBRAG’s OHS, rescue and fire prevention and fighting department is run by a high-level company officer illustrating clearly the importance of these activities for the company. The department currently consists of  the occupational safety section with 6 safety officers (Sicherheitsfachkraft) and an additional 60 safety assistants (Sicherheitsbeauftragte) in the operations  the occupational health department comprising one physician and 2 medical assistants (nurses), and  the fire/rescue department with a workforce of 27 professional firemen and paramedics.

The 6 safety officers are either engineers or technicians and are in charge of the supervision of specific operations, i. e. the two open pits, maintenance, beneficiation, administration and organisation. They check regularly on compliance of operations with applicable work location health and safety regulations, e.g. vibrations, noise level and dust concentrations. The activities of the experienced staff are not limited to day-to-day monitoring and the control of equipment and personnel but the department is also regularly consulted for professional advice in the framework of the preparation of new projects. All external contractors working for MIBRAG are instructed by MIBRAG’s OHS department and records are kept to document instructions received and personnel responsible.

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MIBRAG’s 60 safety assistants are appointed in compliance with § 22 of SGB VII (Sozialgesetzbuch), Annex 1 of VGB (Verwaltungs-Berufsgenossenschaft) and the BVOASi state mining ordinance. Safety assistants are normal personnel who assist the employer in the execution of preventative measures in the fields of occupational safety and health. They are focussing on the existence of adequate and/or compulsory safety installations and personal safety equipment (goggles, gloves, etc.), and safe behaviour of their colleagues at work. Earlier service as safety assistant would as a rule be a condition for being promoted to foreman or shift boss (Steiger) at MIBRAG. Safety assistants receive an initial training of 16 hours by experts of the Berufsgenossenschaft and annual refresher courses of 8 hours. MIBRAG’s occupational health service comprising one occupational health physician and two medical assistants situated since 2009 to at the new OH center at Profen. The new 2-story building forms an entity with the Profen central fire and rescue station. It is equipped with an additional first-aid room and all other customary medical examination and testing facilities (hearing, eye and ergonomic tests, blood sampling, etc.). The new building further comprises a spacious fitness center and a practice room for the fire and rescue department. Any new employee receives a medical check before commencing work and additional checks are mandatory in regular intervals thereafter or when work conditions change significantly or on request of the employee. MIBRAG has at its disposal a company-owned and operated fire and rescue department. The central fire and rescue station is situated at Profen. Additional stations are located at Schleenhain, Mumsdorf and Deuben/Waehlitz. The central fire and rescue station at Profen comprises a central alert center which is permanently manned and on duty. MIBRAG’s fire and rescue department is operating in compliance with a special operating plan (Sonderbetriebsplan) approved by the competent mining authorities and the respective fire brigade laws and ordinances of Saxony, Saxony-Anhalt and Thuringia. The fire and rescue department is manned with full-time professional firemen and additional voluntary personnel. The volunteers would work in near-by facilities (workshops, offices, etc.) and can be mobilised at short notice. The department is headed by two engineers specialised in fire prevention and fighting. Full-time professional personnel would work on a 24-hour shift basis including the compulsory rest hours. 7 professional firemen and 30 volunteers are on standby on each shift. A paramedic is on duty on each shift. The professional firemen were trained at a public fire fighting school. The volunteers were trained at the Profen fire station on the basis of courses worked out by the head of the fire department. It is remarkable in the opinion of IMC that all apprentices employed by MIBRAG receive comprehensive training as voluntary firemen as part of their regular curricula. The fire and rescue department is equipped with adequate off-road mobile equipment. All trucks and cars are equipped with radio transceivers and walkie-talkies. The fire and rescue department operates its own radio system.

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The fire fighting and rescue department would be alerted and deployed on the basis of detailed and precise alert and intervention schemes. If considered necessary fire fighting, rescue and disaster control forces of the neighbouring communities can be called in to assist in the fire fighting and rescue operations. In May 2009 MIBRAG’s fire and rescue organisation was re-audited by ABS Allianz Brandschutz-Service (fire prevention service) of the insurance company Allianz Versicherungs- AG. In its report ABS again emphasised the high quality of MIBRAG’s company-owned and operated fire brigade and the high standard of MIBRAG’s automatic fire detection and alarm systems which ABS considered a central element for the minimisation of damages in the case of eventual fire hazards.

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9 ENVIRONMENT When mining lignite in open-cast methods it is unavoidable to impact substantially the environment. This is generally due to extensive use of land for pits and mine waste dumps. Another important impact is the long term withdrawal of groundwater needed to keep pits dry and slopes stable. Also in the case of MIBRAG the most important environmental management activities are related to these two aspects. The present and future mine water aspects, including the important endlake developments, are dealt with in the following sub-sections 9.1 and 9.2. Description and assessment of environmental protection in relation to MIBRAG mining operations are the subject of sub-section 9.3. The sub-section 9.4 discusses how MIBRAG handles contaminated sites. Other environmental issues of general nature like waste water treatment, solid waste disposal and socio-economics are briefly discussed in sub-sections 9.5 to 9.7. The last sub-section includes some considerations on risks concerning future environmental compliance and costs.

9.1 CURRENT MINE WATER MANAGEMENT During 2010 MIBRAG pumped around 87 million m³ of mine water and this is expected to continue at a somewhat decreasing rate during the planned mine operations. Under the specific conditions observed in the MIBRAG open-cast mines, exploitation of one tonne of lignite requires the raising of approximately 4 m³ of water. The water originates from dewatering wells that pump groundwater and from surface water run-off captured within the pit perimeters. This type of dewatering is standard technology and is maintained without major implications. The groundwater levels are lowered by MIBRAG to a maximum of 100 m from pre-mining elevations. The total affected area is approximately 800 km². According to present plans groundwater pumping will last until about 2050. Water pumped out of the mines is: Used for MIBRAG industrial requirements like dust control, cooling (requirements at MIBRAG owned CHPs total about 11.5 m³/min) Transferred via pipeline to LMBV rehabilitation areas in order to fill former lignite residual pits (until end of 2010 MIBRAG had transferred an accumulated total of about 431 million m³ of mine water to LMBV for flooding of rehabilitated residual pits south of Leipzig; a total of 21.3 million m³ in 2010) Discharged via pipelines into the river basin catchment of Weiße Elster and Pleiße for ecological compensation of affected sensitive areas (about 6.5 million m³ in 2010) and for direct discharge into water courses (about 52.4 million m³ in 2010). The mine water management at MIBRAG is closely interlinked with concurrent activities of the LMBV. Both companies are key stake holders in the process of final rehabilitation of a region which was subjected to more than 150 years of lignite mining. Approved regional planning foresees a landscape characterised by a great number of lakes. The technical organisation of water management is the responsibility of MIBRAG's Exploration and Dewatering Department for the two open-cast mines at Profen and United Schleenhain,

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COMPETENT PERSON’S REPORT with outside services used as required. Drainage operations at Profen and Schleenhain open- cast mines and water supplies to the CHPs are supervised by the drainage control centre in the building of the Schleenhain mine water treatment plant. This collects all information necessary to operate filter wells and pump stations and can intervene to control most systems. The Exploration and Dewatering Department is in charge of MIBRAG drilling operations and also involved in project preparation and the identification of medium and short term planning targets, preparation of data, documentation and support for exploration and drainage works.

9.1.1 PERMITS AND CONTRACTUAL ARRANGEMENTS WITH THIRD PARTIES All water management is performed under permits issued by the mining authority in charge and in consent with the water authority in charge. Saxony and Saxony-Anhalt issue permits under federal water resources law and state-specific water law for the use of bodies of water in connection with open-cast mining. IMC has reviewed the permitting status and considers the situation adequate and not differing from other German lignite mine operations. Where permits have time limits, MIBRAG applies for renewal as required in due time.

Profen open-cast mine holds permits for:  discharge into Grunau (limited until 2015)  drainage and discharge into Weiße Elster (limited until 2015)  wastewater seepage on the site of Profen coal blending yard (limited until 2029)  discharge into Floßgraben (limited until 2026). To use bodies of water at the United Schleenhain open-cast mine with mining fields at Schleenhain, Peres and Groitzscher Dreieck, permits/planning permission have been obtained for:  drainage/discharge at Schleenhain field (limited until 2042)  drainage/discharge at Peres field (limited until 2015)  discharge into Rietzschkegraben (no limit indicated in documentation available)  Groitzscher Dreieck field (limited until 2025)  withdrawal from Pleiße river to stabilise Lobstaedter Lachen. The current Schleenhain drainage and discharge permit, granted by a letter dated 12 March 2009 from the mining authority which acted in consent with the responsible water authority, came into effect when the mine water treatment plant became operational by end of March 2010. The permit expires on 31 December 2041.

Water from the MIBRAG mine drainage program is supplied for flooding LMBV rehabilitation projects under a water transfer contract dated March 6, 1997. The transfer is described in detail in a joint special pipe grid operating plan for flooding in the region south of Leipzig. An updated water transfer agreement (Wasserueberleitungsvertrag WUEV09) was signed on 14 April 2009 and made effective as of 1 January 2009. The agreement is valid until 31 December 2018 with an option to continue for another 10 year period.

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The objective was to put more focus on the quality of the water used for lake filling, especially on the alkalinity of the waters used. The most important modifications stipulate that mine water from the United Schleenhain mine will no longer be used for filling of LMBV lakes and some maximum levels of permissible water quality have to be adhered to before discharging into the Pleiße river. MIBRAG complied with the requested modifications when putting the Schleenhain mine water treatment plant into continuous operation.

Profen mine water shall be transferred at a rate of 45+5 m³/min until final LMBV lake water levels are reached and at a rate of 30+5 m³/min for supporting the lake water levels at the final elevations. The Profen mine water shall meet following quality parameters:  pH > 6,0 at all times  Alkalinity > 2.0 mmol/L  Iron (total) < 20 mg/L  Sulphate < 1000 mg/L.

The limits for the last three parameters are meant to be annual averages. MIBRAG is protected to some extent in case iron concentrations are exceeded. The agreement stipulates that MIBRAG shall store the water at their main mine water pumping station at Predel and LMBV would have to take care for any treatment if considered necessary. An additional agreement was signed by both parties on 08 February resp. 22 March 2011 whereunder MIBRAG supplies water from deep drainage wells of the United Schleenhain mine to support LMBV in filling the Haselbach pit lake. The minimum supply rate is 6 m³/min, decreasing to less than 2 m³/min in 2029. The additional agreement expires by 31 December 2030 and carries an option for a 10 years extension. MIBRAG benefits from this additional agreement because all water directed to the Haselbach lake is excluded from otherwise obligatory treatment in the Schleenhain mine water treatment plant.

9.1.2 IMPACT OF MINE DRAINAGE Mine drainage has affected the water resources south of Leipzig for more than 100 years. Groundwater levels are slowly recovering where mining was abandoned and residual holes now become lakes. Impacts caused by MIBRAG’s continued mining and associated mine drainage are simulated in a numerical hydrogeological model,

When drainage ceased in the 1990s in a number of open pits now under responsibility of LMBV, mining voids and final pits were flooded. The groundwater rise to the north and east of MIBRAG mines interfered with lowering effects at the Profen and United Schleenhain mines. Future groundwater lowering at MIBRAG mines will largely be within the current dimensions, with greater effects by mine dewatering expected only in a southerly direction. A large-scale hydrogeological model (HGMS) covers both the groundwater rebound in rehabilitated areas and the impact of drainage at MIBRAG mines and makes forecasts based on numerical simulations. The HGMS is regularly updated and well accepted by authorities. It is also used to forecast the long term recovery of groundwater levels for regional planning taking MIBRAG’s mining concepts and LMBV rehabilitation strategies into account.

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Based on current plans it is expected that by 2070 the effects of mine drainage will have been compensated when the LMBV lake filling program is completed and when the last MIBRAG pits at Peres and Groitzscher Dreieck have been flooded.

9.1.2.1 Effects on Groundwater Use There are no drinking water protection areas within the present or forecasted groundwater lowering districts around Profen and United Schleenhain mines. The protection areas shown in framework mining plans have currently been abolished. Drinking water now comes to the region as a whole through the Elbe-Ostharz long-distance supply system so that mine drainage has no effects on drinking water supply.

9.1.2.2 Effects on Surface Waters As the Schwerzau field of the Profen open-cast mine advances, it will move closer to the river plain of the Weiße Elster where large areas are protected natural reserves. Hydraulic connections to aquifers affected by the mine drainage are known and the situation is being monitored since 1997. Calculations made with the numerical hydrogeological model indicate seepage of river water into the adjacent groundwater aquifer after 2012. At present the groundwater level monitoring is increased by installation of additional observation holes equipped with automatic data loggers. Suitable steps to enrich water flow in the potentially impacted area have been planned to mitigate the effects. Although authorities have not yet reacted on hydrogeological studies submitted, MIBRAG expects to be obligated to supply via a pipeline additional water further upstream into the Weiße Elster. As a precautionary measure investments of 1 M€ each have been allowed for the years 2012 and 2013.

The main receiving waters at United Schleenhain open-cast mine are the Weiße Elster on the western edge of the mine and the Pleiße on the eastern edge slope. No reduction in flow rate is expected for the Pleiße as it has an artificially sealed bed. On the contrary, after putting the Schleenhain mine water treatment plant into operation in April 2010, the Pleiße River started to receive all treated plant effluent which will average around 50 m³/min. The discharge permit issued by the mining authority dated 12 March 2009 allows for a maximum rate of 60 m³/min. With the objective to maintain a certain water level in the protected FFH area Lobstaedter Lachen, MIBRAG continues to pump since 2007 up to 2 m³/min from a pump station located at the Pleiße river near Deutzen.

IMC cannot see any material problems relating to surface waters by the mine drainage.

9.1.2.3 Effects on other Areas to be protected These areas mainly consist of land which is under temporary protection, and protected biotopes in the Weiße Elster (potentially impacted by Profen open-cast mine) and Schnauder (potentially impacted by United Schleenhain open-cast mine) river plains. These effects on protected wetlands could be fully compensated by combining the measures with those considered above for the surface waters. In addition, there is an influx of surface water into a biotope on the Pirkau outside dump. Prevailing water levels do not indicate any potential conflict at the current time. Again, IMC cannot foresee any material problem with the protected areas.

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9.1.3 MONITORING AND COMPLIANCE RECORDS MIBRAG operates an extensive monitoring network in order to control and to provide evidence of mining impacts on water resources. Groundwater observation pipes (level indicators) on site and around the mine perimeters serve to monitor the lowering, re-rising and quality of groundwater. Measuring points are read off on a continuous basis, with levels installed in all aquifer complexes, solid rock aquifers, dumps and stockpiles. Measuring intervals depend on the importance of a measuring point in terms of geotechnical requirements and public security/interests. Readings are normally obtained on monthly, quarterly, semi-annual and annual schedules as agreed with the authorities.

All groundwater level readings are taken by MIBRAG's Exploration and Dewatering Department, whereas LMBV level indicators on MIBRAG territory are read off monthly or quarterly by third parties.

The following monitoring points are currently in use at:

Profen mine: 762 measuring points and 1,434 level indicators

United Schleenhain mining fields: 839 measuring points and 1,623 level indicators.

The number of monitoring points in the United Schleenhain area was recently increased by taking over about 300 groundwater observation holes from LMBV in the Groitzscher Dreieck mine field.

The current network of level indicators is assumed to be sufficient. The network will be gradually extended, and gaps closed, as mining advances.

IMC understands that there is excellent cooperation between MIBRAG, LMBV state authorities and other stakeholders. Measuring points installed by local governments are used under data exchange contracts/understandings between MIBRAG and specialised departments in the states of Saxony, Thuringia and Saxonia-Anhalt. In addition, water levels in open-cast mines which have been or are being flooded are regularly monitored in cooperation with LMBV. All monitoring data are compiled regularly in large-scale contour maps of groundwater levels and level differences between selected time intervals. These maps are accepted tools for regional planning and the control of water resources.

IMC is aware of further requirements of groundwater monitoring which were proposed in the groundwater prognosis studies performed in 2008 by GFI (see next sub-section). According to the MIBRAG Geotechnical Department, works at the United Schleenhain mine were completed in 2010 and work on additional suitable observation pipes at Profen mine started in 2011 by issuing contracts for 7 installations. All work on additional groundwater quality controls is scheduled complete by 2013.

IMC reviewed on a random basis monitoring records on discharge quantities and qualities for compliance with regulatory requirements and no deviations were found. For the United Schleenhain mine water treatment plant all monthly records on discharge quality after treatment

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COMPETENT PERSON’S REPORT were checked. For the period 07 April 2010 to 04 July 2011 all of the quality parameters were in compliance with the discharge permit limits.

9.2 MEASURES FOR FUTURE MINE WATER MANAGEMENT LMBV have already completed the filling of some former open-cast mines creating some lakes south of Leipzig which are well accepted and used for recreational purposes. MIBRAG’s mine closure plans are designed to fit into the regional planning. One important objective is the restoration of balanced water resources that are capable of self-regulation. LMBV has been following this objective since its foundation in 1994 and has gained considerable experience in successful rehabilitation of groundwater and surface water regimes. LMBV also sponsored considerable research work into how to obtain fast and qualitatively acceptable recoveries of a sustainable water regime. MIBRAG benefits from LMBV’s experience and expertise since MIBRAG’s main activities in water restoration will only commence when LMBV’s activities are already completed or well established.

A number of the final lakes are to be connected to existing receiving waters so that their stationary final water levels are already known.

Non-stationary calculations have been made for the entire region with the use of the large-scale numerical groundwater model (Sued HGMS). These have been continued until stationary flow was reached, i.e. groundwater rebound is complete after shutdown of the mine drainage which, under present plans, would be around 2050. From these calculations, the time taken to flood the existing and future final pits was forecasted along with the final water levels. Balanced water resource conditions are expected by the year 2100.

Although this appears to be far beyond the period to be considered in this report, some preparatory measures have to be undertaken by MIBRAG which are included in the long term plan for the period up to 2026.

In addition, MIBRAG has to accumulate substantial financial resources to pay for the future measures required. Accruals are already provided for in MIBRAG’s books and are discussed in detail in section 9.8 of this report.

The following sub-sections provide a brief summary of measures to be taken by MIBRAG in order to allow a better understanding of the order of magnitude of the costs involved.

9.2.1 ENDLAKE DEVELOPMENT AT PROFEN MINE At the Profen open-cast mine two residual lakes will be left - Schwerzau and Domsen (see Figure 5.3 in section 5). Due to the local topography, large distances and differences in elevation will have to be overcome to flood the open-cast mines.

9.2.1.1 Schwerzau Endlake Schwerzau mine is to be filled with drainage water from the Domsen field and will need some 430 million m³ before the final water level is reached. The final water level will be approximately +140 m above MSL, and the lake will not be connected to any receiving water. Flooding is

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COMPETENT PERSON’S REPORT planned for the period 2018–2036, and water supplies for stabilisation will be required until 2050 in order to maintain the proposed final water level.

The slope of the final mining void are prepared as part of the normal mine operation. Lake development costs are part of the operational costs.

9.2.1.2 Domsen Endlake When coal mining ceases in about 2030 the mine dewatering will have to continue for about three years but with decreasing intensity in order to allow preparatory earthworks before the void can be filled. In order to avoid dust emissions and erosion there will be some intermediate recultivation in form of hydro-seeding performed from the air. Around 68 ha are to be recultivated after mining has finished. In addition some 403 ha will receive interim recultivation in the form of seeding of grass mixtures on surfaces specially prepared by marling and tilting which will help stabilize the slopes. About 42 million m³ of mine drainage water from Domsen will be transferred into the Schwerzau lake.

The final Domsen mine void abuts on a number of old mine waste dumps. Only the future northern lake shoreline is made up by untouched ground. The Frame Work Mine Plan already defines a number of protective measures which were detailed in slope stability risk analyses carried out by a certified independent expert.

Considerable dozing work is required to flatten the slopes according to specifications. The necessary work is to be performed by contractors. The largest earth movement is needed at the western pit perimeter where old mine waste dump materials have to be retained. This is to be performed by support masses totalling about 14.3 million m³.

The supply source of water for filling the lake is the Weiße Elster river. Flooding is scheduled in a period between 2034 and 2046.

IMC is of the opinion that plans are reasonable and all requirements have been considered in accordance with present knowledge.

9.2.2 ENDLAKE DEVELOPMENT AT UNITED SCHLEENHAIN MINE At the United Schleenhain open-cast mine a relatively small, so called landscape lake (Großstolpener See) is already completed and has been well received by the local population for recreation and leisure activities. Two larger residual lakes will be created at Peres and Groitzscher Dreieck mining fields (see Figure 5.8 in section 5). Flooding is difficult over large distances and differences in elevation. MIBRAG therefore plans to construct tunnels connecting the mines to the Weiße Elster river. This construction project will need to be undertaken after year 2040. The proposed water transfer rate is 71 m³/min and the mines will be filled successively.

9.2.2.1 Peres Endlake When lignite mining has ceased in 2037 the former Peres mine will continue to serve as a dump area for the Groitzscher Dreieck mine field until about year 2042. Mine drainage at Peres will

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COMPETENT PERSON’S REPORT have to continue until earthworks are completed and allow for lake flooding. Before slopes become submerged they need to be protected against dust emissions and erosion which will be achieved by hydro-seeding of about 290 ha. Interim recultivation involving soil preparation and grass seeding are planned across an area of about 19 ha.

The Peres final pit void is either close to undisturbed native ground or borders old dump areas which are already stabilised, in part by using the ash disposal operation.

Lake filling will start in about 2045 by transferring water from the Weiße Elster river through a tunnel and about 500 m of pipeline with a 1,600 mm diameter. Some additional water will come from filter wells at Groitzscher Dreieck field and stabilisation water from the Weiße Elster river will be supplied until 2055. The stationary final water level at Peres lake will be at +120 m above MSL.

IMC is of the opinion that the plans are reasonable and that all requirements have been considered in accordance with present knowledge.

9.2.2.2 Groitzscher Dreieck Endlake In the abandoned Groitzscher Dreieck open pit, groundwater influx was tolerated after 1998 so that the free water level in the open mining area rose. A maximum water level of +112 m MSL is tolerated in order to meet geotechnical requirements before mining is resumed. Lignite mining is expected to terminate in 2042 and remediation work is scheduled to be completed about two years thereafter. The mine drainage system will be kept in operation during the remediation period. The plans for discharge of this water need to be updated to reflect the requirements for water treatment and discharge into the Pleiße in accordance with the actual permit. IMC does not consider this a difficult technical problem. Mining will leave steep slopes behind which can only in part be turned into long term stable slope geometries by simple dozing. For final filling of the lake a total of about 370 million m³ will have to be pumped from Peres lake into the Groitzscher Dreieck. This is planned for the period 2048 to 2055. When rehabilitation is completed, a stationary final water level of +133 m above MSL is planned which allows connection to the Schnauder Brook. IMC is of the opinion that the plans are reasonable and all requirements have been considered in accordance with present knowledge

9.2.3 MEASURES TO MANAGE EXPECTED MINE WATER QUALITY While the physical aspects of groundwater flow and lake water levels appear to be well planned and under control, the water quality aspects are less clear.

The main issues associated with the present and future water management are the quality of mine water discharge and the quality of lake water. Parameters of concern are those associated with acid mine drainage (AMD): pH, iron and sulphate concentrations. In the past MIBRAG managed to comply with discharge regulations but during the last years the mine water quality at the Schleenhain mine deteriorated. This has been due to an increased contribution of

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COMPETENT PERSON’S REPORT drainage from mine waste dump sites. LMBV did no longer accept the mine water quality from Schleenhain and the installation of a mine water treatment plant at Schleenhain became obligatory. This plant is designed to mainly remove iron before discharging the mine water and started its operation in April 2010 with a treatment capacity of 60 m³/min.

In order to allow adequate planning for the future, MIBRAG ordered reports on mine water quality prognosis for both, United Schleenhain and Profen mines. Reports were produced by GFI Grundwasserforschungsinstitut, Dresden with issue dates:

30 January 2008 on Schleenhain

25 September 2008 on Profen.

GFI is considered a very competent engineering/research company and is also involved in other water management projects at lignite mining areas in eastern Germany. The methodology applied by GFI involves the existing data base, an improved prognosis of the groundwater flow model and calibration of the mine water quality model by simulating the actual quality trends starting in the year 2000. The model follows the future excavation and mine waste dumping activities based on 2008 mine plans which continue to be suitable for the purpose of the prognosis.

For the Schleenhain mine, GFI concludes that water will require treatment until at least the time of mine closure.

For the Profen mine, the prognosis made by GFI confirms that MIBRAG should be able to meet the criteria stipulated in the new water transfer agreement with LMBV until 2020. Despite this, forecasts indicate concentrations exceeding the agreed limits for sulphate and iron for some of the scenarios in the long run. It appears very likely that LMBV might not, or will only for a limited period of time accept this quality of water after the present agreement expires by the end of 2018.

IMC has reviewed the two reports quoted above and considers the results of GFI reports a reliable basis for mine water quality prognosis at present. MIBRAG reacted on the forecast for the Profen mine water quality and has allowed in the long term plan for construction of a mine water treatment plant at a total investment of about 18 million € during the years 2018 to 2021 which are included in MIBRAG's capex plans. The capacity of such a plant would be in the range of 90 m³/min which is 1.5 times of that constructed at the Schleenhain mine. Although details on the Profen mine water treatment plant are not yet available, IMC considers the estimated investment costs to be at the correct order of magnitude taking into account total investment costs for the Schleenhain treatment plant are at 17.7 million € including all piping and ancillary work. Due to higher alkalinity and lower iron concentrations in the Profen mine water, specific operating expenses are expected to be less than for the Schleenhain mine water treatment plant.

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9.2.4 RISKS ASSOCIATED WITH MINE WATER QUALITY Some uncertainties remain as to whether MIBRAG will face additional water management costs to improve water qualities. IMC is of the opinion that MIBRAG, as any other mine operator, will face increased challenges to obtain water discharge qualities better than those accepted and allowed at present. Pressure on mine operators, beyond regulations already included in operating permits, was added since water management is regulated by the European Water Framework Directive (WFD) 2000/60/EC which was implemented into German water resource management acts at federal and provincial levels.

All lignite open cast mining operations in Germany require less stringent objectives for quantity status with reference to groundwater because mining would not be feasible without extensive drawdown of groundwater. This does not appear to be a major concern since operating permits in general already care for conservation of wetlands, protected areas and water rights of third parties. However, groundwater quality is an ongoing concern, especially for the period after mine closure when groundwater rebound leaches mine waste and exposed mine slopes containing oxidised sulphidic materials. This behaviour results in deteriorated groundwater quality, mainly higher concentrations in iron and sulphates, in contrast to WFD objectives requiring a trend to improve groundwater quality status. IMC understands that MIBRAG is in discussion with the authorities responsible for water management at the Weiße Elster and Pleiße river sub-basins. MIBRAG has also placed some R&D work to qualified consultants to improve understanding of AMD generation and efficiency of potential counter action. Some low cost measures have already been presented to improve the groundwater situation. One of these measures is to control the dumping sequence at the Schleenhain field by placing AMD prone materials from the 2nd and 3rd aquifer into the lowest part of the dump while materials from upper excavation levels containing soils with higher alkaline buffer capacity are placed on dump levels which will end up in the range of future groundwater elevations. AMD sensitive materials for which longer term exposure on the dump surface cannot be avoided is covered temporarily by materials hampering oxygen input. Also, highly alkaline sludge from mine water treatment is already placed strategically into the Schleenhain in-pit dump to counteract future AMD. At this time it is not known which measures might be forced on MIBRAG and which additional costs might have to be borne by MIBRAG. One strong argument of MIBRAG is that MIBRAG’s mine sites are surrounded by other former lignite mine areas for which MIBRAG does not carry responsibility. A significant part of old liabilities are old mine waste dumps which continue to produce AMD causing elevated concentrations of iron, sulphates and other constituents which are transported in the groundwater flow. According to MIBRAG the surface area of the regional groundwater body affected by MIBRAG is 37% wherefrom MIBRAG occupies 8% of the total area. Major efforts solely by MIBRAG would improve the water situation only to a small degree. If it were in the public interest to improve the water quality status significantly then the entire region would require remediation at presently unknown but almost certainly very high costs. IMC does not see any political or public forces willing to undertake such efforts. For this reason, it is reasonable to expect that some good will but low cost efforts from MIBRAG’s side are satisfactory.

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9.3 ENVIRONMENTAL PROTECTION MINE OPERATIONS Impacts on groundwater and surface waters require a long term protection strategy which is given due consideration in the sub-section above. The requirement to rehabilitate land for subsequent use by the public is based on German Mining Law (Bundesberggesetz) and defined more precisely in the frame work operation permits, main operation and mine closure permits.

Other environmental protection required at MIBRAG mining and industrial operations is of a more general standard and is well regulated by European, national and provincial legislation. The operation of the open-cast mines may affect adjacent areas through dust formation as well as noise generated by open-cast mining equipment, belt conveyor systems and auxiliary equipment. Moreover, the environment-relevant aspects of the activities in the open-cast mines include the processing and disposal of waste, waste water disposal, handling of water- endangering substances, vibrations and the handling of spillages.

9.3.1 MIBRAG ENVIRONMENTAL POLICY AND LEGAL OBLIGATIONS According to company information MIBRAG has a strict environmental policy that provides not only for compliance with applicable federal, state and local environmental statutes and regulations but also for constant improvement of its environmental performance at every site in operation. MIBRAG provides an open information policy which also includes environmental issues and demonstration of successful land reclamation measures. Updates are regularly given on MIBRAG’s web site. With reference to the local population MIBRAG holds regular meetings where citizens are informed and issues and complaints are discussed. This pro-active attitude of MIBRAG is apparently well received. The MIBRAG internal IT system includes a reporting format on complaints received for immediate attention.

The general requirements for environmental protection, monitoring and reporting are laid down in the various plans filed with the mining authorities.

The legal basis for handling gaseous and dusty atmospheric contaminants and/or noise immission from the operating facilities of MIBRAG is formed by the Federal Mining Law in conjunction with the requirements of the Federal Immission Control Act (BImSchG) including the statutory regulations thereto (Federal Immission Control Ordinance - BImSchV). Further legal bases with regard to environmental protection are essentially the Water Resources Management Law (WHG), the Closed Substance Cycle and Waste Management Act (KrW- /AbfG), the Federal Soil Protection Act (BBodSchG), the Federal Nature Conservation Act (BNatSchG) in conjunction with the statutory regulations thereto as well as the environmental protection laws and regulations under state law.

All permits required for the operation of the open-cast mines, including their technical infrastructures, in accordance with the above mentioned environmental laws were made available to IMC and were found to be valid.

Environmental risks remaining, despite of the precautions taken by MIBRAG, are covered by appropriate insurances pursuant to the Environmental Liability and Environmental Damage Acts (UHG and USchadG).

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9.3.2 ENVIRONMENTAL MANAGEMENT DURING MINE OPERATIONS In the open-cast mines, various measures have been implemented for the reduction of dust emissions and for noise protection. These measures include, among others, planting of vegetation and surface sealing measures, immission protection planting towards residential buildings, roofing-over or housing-in of conveyor belts and upper level drive stations, operation of sprinkler systems and spraying installations and the fitting of low-noise moving parts in large equipment and conveyor belts and others.

9.3.2.1 Profen Mine Area The planting of pollution control belts along the mining boundary of the Schwerzau field as a protection for adjacent villages (Pirkau, Bornitz and Draschwitz) is in progress. The belts, with suitable tree species, are 30 m wide. In addition, green pollution control dams have been built to protect the local population at Reuden / Predel and Draschwitz.

Mine areas which have been open for longer periods are planted with greenery as an intermediate solution. This approach is vital for pollution control, along with the maintenance of existing green spaces. In 2010 temporary greening was applied on an area of 40.3 ha. In support of dust control special water-misters are installed around the mass transfer station. At the KMS special water spray guns and galleries are applied to suppress the coal dust. Watering of roads is applied as necessary during dry periods.

9.3.2.2 Schleenhain Mine Area Pollution control belts have been planted along the mining fields of United Schleenhain opencast mine as a protection for adjacent villages (Neukieritzsch, Deutzen, Kieritzsch, Lippendorf and Poedelwitz). Plans for a pollution control belt at Groitzscher Dreieck field are currently been drawn up.

Mine areas which have been open for longer periods are protected in the same fashion as at the Profen mine. In 2010 temporary greening was applied on an area of 34.6 ha. However, for some interim period up to 2012 sufficient topsoil quantities are not available to directly prepare recultivation of all finished dump surfaces. This requires transport and placement of topsoil when there is surplus in the balance of suitable materials in 2012.

For control of coal dust the conveyor belts to the KMS and to the Lippendorf power plant have covers. The final section of the coal supply conveyors from the Lippendorf village into the power plant is fully closed in. At the KMS special water spray guns and also coal dust binding agents are applied. A local water sprinkling system is installed close to the Neukieritzsch village to keep dust levels below the permissible limits.

Also watering of roads is applied as necessary during dry periods.

9.3.2.3 Monitoring In the surroundings of the open-cast mines, measuring networks for dust and noise levels have been installed at locations agreed with the mining authority. For the Profen mine actually 8

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COMPETENT PERSON’S REPORT permanent control points for dust and 10 permanent control points for noise levels are installed. For the United Schleenhain mine actually 11 permanent control points for dust and 13 permanent control points for noise levels are installed.

The measurement evaluations are submitted to the competent mining authority and, if required, appropriate concepts for the reduction of the emissions are prepared and implemented.

The handling of water-endangering substances, waste and waste water is performed in accordance with the requirements of the respective applicable environmental laws. The required inspections and verifications are executed as scheduled. In the main operations plans, the necessary measures are defined and updated.

IMC is not aware of any material problem in complying with the regulations.

9.3.3 MINE RECLAMATION AND CLOSURE MIBRAG follows the procedure to reclaim used land as soon as mining activities allow. Consequently landscaping of dumps, construction of final slopes with long term stability, soil stabilisation and preparation for final usage in accordance with agreed closure concepts are ongoing activities and part of the regular mine operations. Costs associated therewith are considered as operating costs. Once land has been successfully rehabilitated it can be turned over to new owners for private or public use. This is standard practice in the German lignite industry. Following descriptions of mine reclamation procedures are essentially taken from MIBRAG and IMC could not observe any deviations during the time of the site visits.

Top soil is distributed on the dump areas in a way that subsequent usage both for agriculture and forestry is possible. At first, an agro-geological dump expertise is prepared for each predetermined year interval by an independent engineering office. The results contained therein form the basis of determining the further processing measures required for the final land use.

Farmland is cultivated to high standard and arable land is managed with soil conserving methods by the 100% subsidiary GALA-MIBRAG-Service GmbH for seven years during which no use of crops will be made. After this intermediate period, fields are normally rented and then sold to users.

9.3.3.1 Profen Mine The main target at the Profen mine is the rehabilitation of pre-mining agricultural land. Based on an agro-geological expert report for the area ahead of the mining operation, only selected soil from the 1st stripping face will be used. As a compromise between economic and ecological requirements, the field size has been set at approximately 20 ha. Access is by a system of farm roads, most of them planted with greenery. Shelter belts at right angles to the prevailing wind direction are to reduce wind erosion. Small-scale features such as field shrubbery, hedgerows and border strips will divide up fields to protect nature and the landscape and encourage eco- farming. This type of agricultural rehabilitation foresees seven years of intermediate cultivation with no crop use and a crop rotation designed to enrich the soil with organic matter and improve soil structure.

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A preliminary mine closure and land utilisation concept is part of the Framework Mining Plan. With respect to the proportions of use, the 1994 Framework Mining Plan became out-dated.

Table 9.1 indicates the originally planned areas for different types of land use. The status at the end of 2010 is shown in the lower part of the table.

Arable Item Total Forestry Water Others Land

Rehabilitation by Dec. 31, 1993 496 174 83 0 239

Rehabilitation required from Jan. 1, 4,272 1,694 894 1,770 -86 1994 until closure Total requirement per Framework 4,768 1,868 977 1,770 153 Mining Plan Actual rehabilitation from 1994 until 3,404.5 2,244.5 992.5 84.3 83.2 Dec. 31, 2010

Table 9.1: Profen Mine – Land use and rehabilitation (ha)

(Source: MIBRAG)

Some particular rehabilitation plan for the former Pirkau in-pit dump, located west of the Schwerzau mine field, needed adjustment. In 2009 MIBRAG obtained an agreement with an interested ecologist organisation (BUND) and the administrative authority (Burgenlandkreis) that a foundation should take over this area to preserve it as a special natural reserve. Capital for this foundation was to come from MIBRAG. A risk analysis dated 10 June 2009 recommended that the Pirkau area could be released from mining authority supervision provided access for the public would be restricted by appropriate fencing. Finally, the mining authority did not agree to these plans and the area is still in MIBRAG responsibility. The portion of the Pirkau dump which was prepared for agricultural use is rented out since 1 July 2011. The afforested part including two small lakes and an area of unstable slopes (the reason to fence this area and the habitat for endangered species in consequence) is left untouched and taken care of by the ecologist organisation in agreement with MIBRAG.

9.3.3.2 Schleenhain Mine Area Prior to mining, about 85% of the area was farmland. Soil quality is mostly good to medium, and preliminary plans provide for arable land with field sizes from 70-80 ha for use by cooperative farms. The area will eventually turn into a lake landscape with water areas of approximately 840 ha at Groitzscher Dreieck and 700 ha at Peres. The water will rise gradually and surfaces below future water levels will for the interim period be planted with perennial greenery.

A preliminary mine closure and land utilisation concept is part of the Framework Mining Plan.

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Table 9.2 below indicates the originally planned areas for different types of land use. With respect to the proportions of use, the 1995 Framework Mining Plan became out-dated. The status at the end of 2010 is shown in the lower part of the table.

Arable Item Total Forestry Water Others Land

Rehabilitation by Dec. 31, 1993 187.8 86.5 68.2 30.4 2.7

Rehabilitation required from Jan. 1, 4,093.1 1,026.4 487.1 1,539.3 1040.3 1994 until closure Total requirement per Framework 4,280.9 1,112.9 555.3 1,569.7 1,043.0 Mining Plan Actual rehabilitation from 1994 until 1,670.8 1,114.6 438.8 32.3 85.1 Dec. 31, 2010

Table 9.2: United Schleenhain Mine – Land use and rehabilitation (ha)

(Source: MIBRAG)

9.4 CONTAMINATED SITES

9.4.1 REGISTER OF CONTAMINATED SITES During privatisation MIBRAG negotiated with THA/BvS an agreement that in principle allows MIBRAG to be exempted from costs for the clean-up of contaminated sites. A capping of 5 million € is the theoretical threshold for MIBRAG costs associated with sites which became MIBRAG property and were contaminated prior to the date of purchase. A register is kept and regularly updated by MIBRAG which lists 156 potentially contaminated sites as per 09 August 2011. For most of these sites a first risk assessment was concluded in the mid-1990s. A total of 79 sites were already remediated and for 22 sites subsequent assessments resulted in no action being required. The remaining 55 contaminated sites have been classified by MIBRAG on the basis of conflict with mining activities as follows: 11 sites: no potential conflict

40 sites: low potential conflict

4 sites: substantial conflict.

IMC has no reason to doubt that the contaminated site register is properly kept and considers all sites of relevance for the MIBRAG mine operations.

9.4.2 COSTS AND RISK ANALYSIS MIBRAG Environment Department estimates total costs for remediation of all sites from 2011 to 2026 to reach approximately 28 million €. For the period 2011 to 2020 annual expenditures of

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2.5 million € are considered in the MIBRAG long term plan. This estimate is in line with earlier forecasts on total costs and is based on about 17 years of experience with the rehabilitation of contaminated sites. MIBRAG has introduced this “flat rate” approach because earlier and laborious detailed estimates on costs and timing of individual measures did not alleviate the uncertainty inherent to remediation costs for contaminated sites. MIBRAG also abandoned the idea of hiring an independent engineering company to review and update the cost estimates for all sites listed and relevant in the present register of contaminated sites. The rationale was that accuracy on cost forecasts would not drastically improve the empiric approach taken. Considering the actual experience of MIBRAG and the historic costs, IMC is of the opinion that the MIBRAG overall estimates for remediation of contaminated sites are reasonable. IMC looked at some examples to verify the situation: The largest disposal site listed is that of Boesau tailings pond which contains about 2.6 million m³ of fines including coal fines. The preliminary maximum remediation costs were estimated at 13.344 million €. Actual remediation experience with similar tailings ponds at briquetting plants demonstrated that contamination is negligible. MIBRAG discussed the issue with the mining authority and agreement was obtained to excavate and dump the Boesau tailings ponds together with other mine waste. This requires some additional operational activity for which total costs have been estimated at 2 million €. Profen mine will start this activity in about 2016 assuming that permission will be obtained through the regular main operations permit. The site was inspected by IMC and no restrictions to the plan were observed.

For the removal of standard landfills which contain mostly household refuse substantial experience exists within the MIBRAG group so special risks are not expected. The old landfill Schwerzauer Weg at the Profen mine was remediated in 2009/2010. The preliminary maximum remediation costs were originally estimated at 14.037 million €. Prior to remediation total costs were estimated at 1.7 million € for excavation, processing and adequate disposal at registered landfills. Actual costs were reported as 2.1 million €, including some waste removal at the tailings pond of the Draschwitz briquetting plant.

Site remediation of the chemical plant Draschwitz is required before MIBRAG would be able to mine some additional 5 Mt of lignite in that area. A preliminary evaluation of total costs for remediation was made and estimated at 3.8 million €. These costs are part of the forecasted total costs allowed in the MIBRAG long term plan. MIBRAG is of the opinion that considerably less money will be required because a preliminary site characterization found soil contamination to be negligible because mainly phosphate fertilizer was produced on that site. While the forecast on overall total costs appears to be realistic it remains uncertain to what extent MIBRAG really has to bear all costs for remediation of each of the contaminated sites. Although MIBRAG did not create the pollution, its activities disturb the ground and create waste which would not represent a public risk when left in place. The German soil protection regulations do not only enforce the polluter-pays-principle but also keeps the person/organisation liable that disturbs the soil status. IMC understands that MIBRAG is in discussion with Federal States and BvS on a site by site basis where it is not clear which party is liable for remediation. The possibility that MIBRAG will

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COMPETENT PERSON’S REPORT be relieved from liability for the remediation costs are considered low by IMC. IMC believes that total remediation costs included in the MIBRAG long term plan are adequate.

9.5 WASTE WATER TREATMENT AND DISPOSAL SCHEME Domestic type waste water is generally treated in MIBRAG own biological treatment plants. Two of these water treatment plants are located in the Profen mine (surface facilities and KMS/power net control center) and one is located at the new Peres surface facilities of the United Schleenhain mine. The biological treatment system is operated and maintained by a qualified subcontractor. Treated waste water is controlled for quality and discharged into surface waters. Plants appear to operate properly and violations of discharge permits were not made known.

9.6 SOLIDS DISPOSAL SCHEME AND DISPOSAL OF COMBUSTION PRODUCTS MIBRAG’s solid waste management is organized in accordance with the legal requirements on waste recycling and disposal (KrW-/AbfG of 07 October 1996). Non-contaminated solid waste, other than soil, overburden and interburden but which also originates from mining activities, mainly from demolitions, follows the regulations of the General Mining Law (ABBergV) and is either used for own purposes (road construction, recultivation) or disposed of in assigned locations of the open pits in accordance with the governing main operation plan. Solid domestic type refuse and small amounts of hazardous waste are collected and temporarily stored at MIBRAG facilities and regularly disposed of by specialized waste handling companies carrying the appropriate authorizations. IMC has seen the solid waste disposal system and could not identify any disorderly waste handling situation. The MIBRAG sites all appear clean and well kept. MIBRAG has contractual obligations to take combustion products back from clients. This aspect is dealt with in Chapter 6 of this report. With reference to the mines considered in thjis report, the disposal of power plant combustion products is relevant for the Peres mine field. Disposal and use of combustion products are regulated under special operating plans of 1995 and 1999. The placement of ashes is directed to serve stabilization of an old mine waste dump with critical slope stability at the NW corner of the Peres mine field. MIBRAG has delegated the operation of the ash disposal, the conditioning of ash and the temporary storage of gypsum from flue gas desulphurisation to MUEG, the 50% subsidiary. MUEG is also obligated to observe the environmental conditions and to perform the monitoring of the operations. MUEG is handling the combustion products on behalf of MIBRAG for more than 12 years and IMC is not aware of any incident of environmental significance.

9.7 SOCIO-ECONOMIC ISSUES With about 2,000 employees, of which 165 are trainees (2010 figures), MIBRAG and its subsidiaries are one of the largest employers in the border triangle between Saxony-Anhalt, Saxony and Thuringia. The Company’s investments make a significant contribution to the regional economy. Due to its size of operation MIBRAG’s activities are of very significant socio- economic importance of the region which still suffers from one of the highest unemployment rates in Germany.

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It is MIBRAG’s policy to actively inform employees and interested citizens on company matters. The regularly updated MIBRAG web site reflects this policy. MIBRAG maintains a very good relationship with the surrounding communities, fostered e.g. by turning rehabilitated land over to communities for recreational purposes like parts of the new lake Großstolpen. Substantial social and political stress persisted in the past before a larger community, Heuersdorf located in Saxonia, east of the Schleenhain mine field, could be resettled. Final agreements were obtained and resettlement was concluded in 2009. No further resettlements will be required under the approved mine plans. MIBRAG’s plans to eventually expand the open pit mining into the Luetzen mine field are well known in the public. Political institutions have expressed support of investment into a new lignite fired power plant and the Luetzen open pit. The new Land Development Plan of December 2010 already indicates the outline of the Luetzen mine field as “area reserved for mineral exploitation”. Some small scale public protest by citizens concerned has been noted. Because an investment into the new projects is not decided on, the issue is not in public discussion at the moment. But MIBRAG is confident that a new Luetzen mine field would find a convincing social acceptance. This is based on positive recent experience with public discussions on the Draschwitz extension and by approaches of the Poedelwitz community, located at the Northwest of the Schleenhain mine field where about 25 Mt of lignite could be exploited. The community declared interest in being re-settled. The new brown coal plan is left open to a consensus decision (Kommunalvertrag) of the parties involved concerning the alternatives of continued environmental protection and impact compensation or re-settlement of the Poedelwitz community. Security for the public is provided by numerous signposting, barriers, ditches and road blocks. Accesses by public roads are entrance controlled and services of a specialized security company are used for regular controls. IMC is not aware of any significant socio-economic issue facing the current MIBRAG mine operations. Whenever IMC had discussions with local people on a random basis, MIBRAG’s activities were judged very beneficial for the region and full support of MIBRAG was expressed.

9.8 ANTICIPATED FUTURE COMPLIANCE AND ASSOCIATED COSTS The intensive review of IMC performed in 2009 and repeated in 2011 did not unveil any technical obstacle which would prevent MIBRAG from complying with the current and any foreseeable future environmental obligations. The costs for environmental obligations in the period 2011 to 2016 as foreseen in the MIBRAG long term plan continue to be in line with the historic costs reviewed and no significant extra costs or investments for environmental protection is expected to fall into that period. One overwhelming obligation will materialize well beyond the period of interest defined in this report. During the time of decommissioning the mines, MIBRAG will have to restore the areas for future re-utilization in the interest of the public, all in accordance with the BBergG, regional development plans and the approved Frame Work Mine Plans. Rehabilitation is an ongoing activity at MIBRAG’s mine operations and continuously approved and controlled by the supervisory authorities by means of the main operation plans. IMC has no

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COMPETENT PERSON’S REPORT doubts that MIBRAG is technically in a position to continue compliance with the stipulations set forth in the framework mining plans and the regular main operation plans. Appropriate attention is to be paid to the availability of funds required to perform the major rehabilitation efforts when most or all coal production has ceased. Provisions for ecological restoration and other provisions linked to mining total 102,393,000 € as of 01 January 2011. While equivalent provisions in 2009 totalled about 227 million €, the drastic reduction in provisions was a consequence of new accounting rules forced upon MIBRAG. Because the rehabilitation works for mine areas after the end of lignite production did not change and an updated cost forecast compiled financial requirements of around 344 million €, so called endlake provisions, the annual contributions have increased significantly since fiscal year 2010. The total costs for the mine site rehabilitations and related work activities have been reviewed by IMC under its scope of work.

9.8.1 ENDLAKES Endlake accruals encompass costs that are incurred after mines are no longer productive and rehabilitation and reclamation works are required in compliance with Framework Mine Plans and more detailed mine closure permits. The term endlake is somewhat misleading since a number of general mine closure costs are included. Cost estimates are based on separate independent expert reports which are regularly renewed every six years. In general, costs for lignite mine closure and rehabilitation are well known because about 80% of the former GDR lignite mining area are already rehabilitated or under rehabilitation by LMBV. So expectations are justified that provisions made for future rehabilitation works will be roughly correct. In the case of Profen open-cast mine only the Domsen mining field is considered because practically all rehabilitation/reclamation work at mining fields Profen-South, closing in 2012, and Schwerzau, closing in 2024, will be completed before coal mining at Domsen is terminated. Consequently costs at Profen-South and Schwerzau are to be considered operating costs and no provisions are made for these mining fields. Accordingly, these reclamation costs are part of the operating costs included in the MIBRAG long term plan and are considered reasonable by IMC. In the case of the United Schleenhain open-cast mine the two remaining mining fields, Peres and Groitzscher Dreieck are considered while the Schleenhain mining field will go out of production in 2021. IMC considers the accruals of MIBRAG adequate for the present situation. Figures are regularly updated, so that at the time of commencement of rehabilitation work costs should be reasonably well quantified.

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9.8.2 DOMSEN Provisions include all costs incurred from 2030 onwards. The update considers actual mine developments and modified plans as well as costs current for the year 2008. All items are well described and calculations are transparent. IMC considers the report to be complete, quantities being plausible and unit costs being well based on historic costs or standard construction cost catalogues and sufficiently conservative. The provisions required an updated total of 145.8 million €. The most important single cost items are earthworks that are necessary to guarantee long term slope stability. Costs for dewatering consist of continued pumping of filter wells to allow safe construction of the earthworks. Flooding is mainly done by water pumped at a rate of 47 m³/min from the Weiße Elster river through a 7 km pipeline of DN 1000. Rehabilitation works except flooding of the residual lake are scheduled complete in 2035. It is expected that after 2035 no more MIBRAG administrative and operating personnel are involved in the mine closure measures but services are provided by third parties. Provisions are made until year 2044 inclusively.

9.8.3 UNITED SCHLEEHAIN First provisions are made for two preparatory activities starting in 2041, one year ahead of mine closure. The update considers actual mine developments and modified plans as well as costs current for the year 2007. All items are well described and calculations are transparent. IMC considers the report to be adequate. The provisions required an updated total of 198.8 million €. Relatively high costs for dewatering include continued pumping from Groitzscher Dreieck dewatering wells into the Peres lake concurrently with flooding of Peres by water discharged via gravity from the Weisse Elster river. Again, the most important single cost items are earthworks, necessary to guarantee long term slope stability. Rehabilitation works are essentially complete in 2049. It is expected that after 2049 no more MIBRAG administrative and operating personnel be involved in the mine closure measures but services for final stewardship will be performed by third parties, very likely based on a one-off funding by MIBRAG. To summarise, IMC considers the provisions made for the Peres and Groitzscher Dreieck mining fields to be conservative.

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10 GERMAN LIGNITE INDUSTRY

10.1 LIGNITE INDUSTRY STRUCTURE The German Lignite Industry is dominated by four vertically integrated energy companies whose operations include mining and power generation. These companies are:

 RWE POWER AG  VATTENFALL EUROPE MINING AG  MIBRAG mbH  E.ON BKB.

A smaller company, ROMONTA GmbH mines a special lignite and generates power only for its own consumption. The general structure is shown in Figure 10.1.

JTSD - Braunkohlebergbau GmbH

EP Group (Czech Rep.)

Figure 10.1: Structure of the German Lignite Industry

(Source: DEBRIV, modified)

The Federal Government owned company Lausitzer und Mitteldeutsche Bergbau Verwaltungsgesellschaft mbH (LMBV) is responsible for decommissioned lignite mines and lignite beneficiation facilities which could not be privatised after German reunification. LMBV has

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COMPETENT PERSON’S REPORT especially assumed responsibility for the planning of rehabilitation measures, for project management, and for the control of restoration efforts supporting the future of the Lusatia Region and of Central Germany. LMBV no longer produces lignite.

10.2 LIGNITE MARKET OVERVIEW The producing companies limit their mining activities to one mining area only. The main lignite mining companies, RWE Power and Vattenfall Europe, are also the main consumers of lignite for power generation in the regionalized markets. MIBRAG and E.ON are somewhat different in that at MIBRAG there is a mining emphasis, whilst E.ON concentrates more on power generation.

Figure 10.2 gives a detailed flow pattern of German lignite production in 2010.

FBC coal 0.1Mt

Coke 0.18 Mt 17.5 Mt Briquets 2.02 Mt Rhineland

90.7 PLANTS Coal dust 4.05 Mt PROCESSING PROCESSING Electricity 2.2 TWh

District heat

Lusatia 56.7 CONSUMERS CONSUMERS

Central 151.9Mt Germany CHP's Electricity 19.6 145.9 TWh HOUSEHOLDS, INDUSTRY, TRADES, … POWERPLANTS TOTAL LIGNITE PRODUCTION 169.4 Mt 169.4 PRODUCTION LIGNITE TOTAL

Others 2.4 DISTRICT HEATING PLANTS PLANTS HEATING DISTRICT

Figure 10.2: The pattern of Lignite production and use in Germany (2010)

(Source: Based on DEBRIV)

Of the 169.4 Mt total lignite production in 2010, only about 16.7 Mt were utilised for refined products. These products and their development are given in Table 10.1 below. In the refining

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COMPETENT PERSON’S REPORT process the moisture content of the raw lignite is considerably reduced which results in the lower tonnage of the refined products. Production figures for 2009 and 2010 indicate low sales, but relatively stable market conditions in comparison with 1989, when lignite briquettes were mostly used in the German Democratic Republic (GDR, now part of the Federal Republic of Germany), for heating fuel and coke produced from lignite was used in the metallurgical and chemical industries. Since that time the demand for briquettes has significantly decreased, and the coke production from lignite has been generally replaced by coke made from hard coal.

Table 10.1: Lignite Products (Mt) excluding Lignite for Power Generation

(Source: DEBRIV)

The term “fluidized bed coal” is synonym for lignite crushed and classified for use in fluidised bed combustion facilities. The preparation can be done at the mines or directly at the power plant. Lignite dust is supplied as a substitute for fuel oil for cement plants. The market for the latter product is limited but has been relatively stable over the last 20 years. The total share of lignite mined for power generation in 2010 was about 90 %. The role of lignite in German electricity generation and the lignite markets of MIBRAG are discussed in detail in section 10.2 of this report.

10.3 MIBRAG LIGNITE SUPPLIES AND MARKETS Lignite supply for power generation is the major market for MIBRAG. The Company supplies coal to two large lignite fired power plants, Schkopau and Lippendorf, and operates three company-owned lignite fired power plants. The total supply to power plants accounts for almost 92 % of the total lignite production in 2010 and is expected to remain steady in the coming years. The two large power plants owned by E.ON, EnBW, Vattenfall and Saale Energy are considered base load power plants. According to the recent developments concerning the German energy mix with nuclear energy being shut off by 2022 (see also section 10.5), it can be expected that modern lignite fired power plants will continue to be used to capacity, hence, supply volumes will not change dramatically until 2026. Figure 2.3 in section 2 shows the lignite utilisation of MIBRAG for 2010.

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Table 10.2 provides an overview on all existing contracts and their respective duration. It shows that the majority of the supplies are secured by long term off take contracts with the German utilities, which is a quite comfortable situation for MIBRAG. MIBRAG has a long-term contract with the owners of the Schkopau power plant until 2021 with options of extension by two times 5 years, if not terminated prior to the scheduled expiry date, and a contract with the owners of the Lippendorf power plant until 2039.

Total estimated lignite Term until Customer quantity until contract (year) expiry (Mt)

Schkopau power plant 2021 (2031)* 56.8 (107.2)*

Lippendorf power plant 2039 292.8

Suedzucker Zeitz 2016 0.9

Bioethanol Zeitz 2019 2.7

Dessau 2010 0.2

Chemnitz 2019 9.0 FIXED CONTRACTS COAL FIXED CONTRACTS Fixed contracts (lignite) 362.4 (412.8)*

LZR Baur (gravel) 2017 2.2

Stephan Schmidt (clay) 2010 0.1 FIXED (OTHER (OTHER

PRODUCTS) Fixed contracts (other) 2.3 CONTRACTS CONTRACTS

Deuben power plant 2020 8.3

Deuben dust plant 2020 3.9

Mumsdorf power plant 2012/13 2.4

Waehlitz power plant 2035 7.7 CONSUMPTION CONSUMPTION INTERNAL COAL Total internal consumption 22.3

Table 10.2: Long term contracts according to MIBRAG (*) with a potential extension

There are continuous efforts by MIBRAG to expand utilization and sales of lignite. However, the MIBRAG long term plan conservatively does not take any new customer into account although some opportunities exist (new Profen power plant, Czech customers, regional off-takers). Sales quantities are fixed to current contracts (see following section). IMC shares this position because lignite sales are sensitive to transportation costs and firm commitments for new lignite fired power plants in the region do not exist.

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The following sections briefly describe MIBRAG’s main customers and the main characteristics of their respective supply contracts.

10.3.1 CHP SCHKOPAU With around 900 MW of net electrical output, the Schkopau lignite fired power station is an important part of the Central German energy supply. It not only provides power for the public supply; it also provides electrical energy for the Deutsche Bahn AG (DB), as well as electrical and thermal energy for a neighbouring chemical plant. The innovative features of the Schkopau power plant are its unusually high operational flexibility for a lignite-fired power plant and an efficiency of approximately 40 percent. Alongside E.ON Kraftwerke GmbH, Saale Energie GmbH is co-owner of the power plant with a share of 41.9 percent. The shares of Saale Energie GmbH are held by NRG Energy Inc./USA. The approval procedure for the two blocks of the 900 megawatt lignite-fired power plant was started at the end of 1991. The primary work on the construction site began in January of 1993 with the first partial construction permit. Operational approval was awarded in the middle of 1995 and first coal was delivered from the Profen mine on 27 September 1995. After a construction and installation period of only about three years, Unit A came online at the end of 1995 and Unit B was first connected to the public electrical grid in the summer of 1996. The power plant was officially inaugurated in July of 1996.

10.3.1.1 Contracts The Schkopau Contract was entered into on December 5, 1991 between MIBRAG (then Vereinigte Mitteldeutsche Braunkohlengesellschaft AG) and E.ON Kraftwerke GmbH. The Schkopau power plant concept originally envisaged the construction of a hard coal fired power plant. On the basis of the Schkopau Contract and due to the fact that the state government of Saxony-Anhalt covered the expenses to build a lignite power plant, the customer decided to build a lignite fired power plant instead. The customer of MIBRAG has been granted an option for a prolongation of the Schkopau Contract for a term of 10 years. The option was exercised by registered letter dated July 14, 2008, so that the fixed term of the Schkopau Contract is prolonged until 2021. The Schkopau Contract contains, in addition, an automatic renewal clause, pursuant to which the contract will, upon expiration of its fixed term, prolong for terms of five years each if not terminated earlier.

10.3.1.2 Off-Takers According to information provided by MIBRAG, the Schkopau power plant is virtually divided into three parts: DEUTSCH BAHN - TRANCHE: 110 MW The Deutsche Bahn receives 16 2/3Hz traction current from the generators. The power is used to power its East German railway network. Historically the traction power uses the frequency of

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16.7Hz and is generated as at Schkopau. In addition extensive transformer and converter plants are necessary to produce the direct current. The Deutsche Bahn in general and its subsidiary Deutsche Bahn Energy are responsible for an efficient and reliable supply of traction power 19,000 km of electrified railway line and the 7,700 km long 110-kV-/ 16.7-Hz-high voltage grid in Germany. In this context IMC views the Deutsche Bahn tranche in Schkopau as a very reliable long term off-taker. DOW-TRANCHE: 200 MW The Schkopau plant is supplying electricity to Dow Chemicals' modern chemical facilities close to the power plant and also process steam to the industrial park. The Dow Chemical Company took over economic responsibility in the 1990s for the chemical sites also at Schkopau. Now, the sites in Central Germany belong not only to the most modern and safest chemical operations in the world, they have also become a highly integrated unit. The largest production volumes are handled by the plastics production plants in Schkopau and Leuna. With a production volume of more than 1.5 million tonnes a year, Dow is the largest producer of synthetic materials in the new federal states. More than 30 % of the products manufactured here are processed by the residents of the ValuePark® in Schkopau. Since 1998, 13 national and international companies from the synthetic material processing industry and other industry branches have occupied premises on the theme-oriented business park established by Dow. So far a total of 300 million Euros has been invested in the ValuePark® and more than 600 jobs have been created. VATTENFALL-TRANCHE: 590 MW The electricity is fed into the Vattenfall transmission grid. One of the major costumers is the nearby city of Leipzig with more than half a million inhabitants. In comparison with other Vattenfall power plants like Jaenschwalde, Schkopau’s advantage is the higher efficiency and the lower specific requirements for emission rights.

10.3.1.3 Supply Quantities and Qualities According to the first supplemental agreement dated June 22, 1992, the customer may demand and MIBRAG, as the supplier, has a maximum output obligation of, 2.2 Mt hard coal equivalents (SKE) per year which corresponds to 6.45 Mt of lignite.

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Supply to CHP Schkopau History 7,0 6,07 5,82 5,80 6,0 5,64 5,75 5,17 5,10 5,09 5,0 4,71 4,14 4,0 3,70 3,46 3,17 3,00 3,10 3,0

2,0 Yearly Supply in Mt in Supply Yearly 1,0 0,07 0,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 10.3: Historic Lignite Supplies to Schkopau CHP, period 1995 to 2010

(Source: MIBRAG)

The Schkopau CHP started at relatively low annual electricity production rate because it was originally designed as a hard coal fired power plant supplying power according to diurnal variations (Mittellast). Beginning in 2001 an upgrading in the merit order status became effective and the Schkopau CHP is operating as a base load plant since then. The historic lignite supply figures reflect this development (Figure 10.3) where the last 5 years confirm a stable production. The “normal” supply rate is expected at 5.6 Mt per year. Years 2006 and 2008 were slightly above that rate while year 2007 was lower because of unscheduled equipment modifications. Figure 10.4 shows the expected future lignite supplies up to 2026. There is a 7 year cycle for major revisions to the plant which are normally completed within periodic cycles of about 2 years. Within this time frame both blocks should be refurbished, which should be reflected by the lignite sales to the different tranches. Revisions in 2010 and 2011 took longer than generally scheduled. This is because one turbine had a complete downtime of 4 months and this occasion is taken to perform also further revision work beyond those regularly scheduled. Otherwise the normal annual supply volumes are expected.

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Supply to CHP Schkopau Forecast

5,3 5,25 5,25 5,25 5,25 5,25 5,25 5,25 5,25 5,25 5,25 5,25 5,18 5,2

5,1

5,0

4,9 4,85 4,85 4,85 4,85

4,8 Yearly Supply in Mt in Supply Yearly 4,7

4,6 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Figure 10.4: Future Lignite Supplies to Schkopau CHP until 2026

(Source: MIBRAG long term plan)

10.3.1.4 Prices The determination of prices for supplies to E.ON operated Schkopau power plant is based on the import price for hard coal at German border (so called BAFA Price). The reason for this was the original plan of VKR (one of the predecessors of E.ON) to set up the Schkopau power plant on an import hard coal basis. By intervention of the Federal State of Saxony-Anhalt the plan was changed and VKR switched to lignite as fuel. The action was supported by the Federal State of Saxony-Anhalt with a subsidy of about 300 million €. The price determination considers the cross border price for 1 tonne of SKE (hard coal equivalent). In order to compensate a higher specific freight rate of lignite compared to imported hard coal an adjustment of freight is included in the formula. Prices are different for the 3 tranches mentioned above. The prices for Tranche A (110 MW) and Tranche B (200 MW) are calculated according to the provisions of the original Schkopau Contract, except for some modifications for Tranche B. A separate price model, the so called two-step model, has been agreed and introduced in 2005 with respect to Tranche C (590 MW) which is in principle based on a base load operation lignite price model with a term of two years. The Schkopau agreement contains a best price clause, MIBRAG guarantees that at the time of conclusion of the contract, no better prices or conditions were granted to other energy producers in comparable cases. From a technical point of view, sales prices shall vary with efforts for lignite handling and transport and/or subsidies granted, so a comparability is not given. IMC cannot see an application of the best price clause at the moment.

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TRANCHE A (110 MW) AND TRANCHE B (200 MW) The pricing (BK) for Tranches A (Deutsche Bahn) and B (Dow Chemical) is in principle based on prices for import hard coal (G) and transportation costs (T) minus additional operational costs (MK) for the use of lignite instead of hard coal base value of 10.33 €/t SKE). The prices are escalated in accordance with MIBRAG personnel costs, Producers Investment Goods Index , High Voltage Electricity prices and costs of limestone powder . This mechanism protects MIBRAG well against own production cost increases. For tranche B the value of the hard coal is determined according to a separate formulae with an additional price cap at 50 €/t SKE. In a separate contractual arrangement the contract parties agreed on introducing a malus to compensate for lignite quality problems.

TRANCHE C (590 MW) The term of the pricing for the 590 MW share corresponds to the term of a framework agreement (Eckpunktevereinbarung) from January 1, 2008 to December 31, 2009. The pricing agreement was terminated by MIBRAG with a letter dated September 28, 2009. IMC has not reviewed the new framework agreement MIBRAG and Vattenfall but understands that a pricing formula applies that also protects MIBRAG against cost increases. IMC was not provided with the current pricing agreements for the 3 tranches but understands that prices did not change significantly from those reviewed during the 2009/10 due diligence.

10.3.1.5 Risks for MIBRAG IMC considers that the Schkopau CHP is well established in the market with prime customers as Vattenfall, Deutsche Bahn and Dow Chemicals. The supply to the industrial clients, Dow and the industrial park, are subject to some market risks. IMC would expect risks more likely associated with supply of thermal energy since surplus electrical energy could be fed into the public grid. To this end, risks are considered marginal only since Schkopau CHP is a modern lignite power plant which is well positioned in the market. In the past the Schkopau CHP experienced some difficulties due to change in lignite quality delivered from the Profen mine. Modifications in the CHP were required and MIBRAG had to compensate for the additional work. Due to change in lignite quality in the past MIBRAG agreed with E.ON an amended pricing mechanism better reflecting the estimated future quality. Further plant modifications became necessary due to changes in ash fusion properties of the lignite and additional equipment was installed to cope with a certain variation in lignite properties. Agreement on a lump sum payment by MIBRAG for the plant adaptation was obtained and the amicable settlement confirmed by E.ON Kraftwerke GmbH letter dated 19 August 2009. IMC considers the lignite quality problems solved in general. MIBRAG undertakes significant efforts in selective mining and mixing different coal qualities in the Profen mine. Special attention is paid to ash content, iron concentrations in the ash and heating value. So far MIBRAG managed to stay within the quality parameters specified in the contract and expects to do so in future. IMC also considers these difficulties manageable.

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The risks in long term supply quantities are very limited and refer to the extension of the Schkopau Supply Contract after 2021 only. Since there is no alternative supplier the risk to “loose” this contract can be regarded as theoretical. To the contrary, the recent drastic change in German energy policy (see section 10.5) will generally improve the position of lignite fired power plants in the energy market, so all suppliers of lignite are expected to deliver their full production to their own captive power plants.

10.3.2 CHP LIPPENDORF The Lippendorf CHP, 15 km south of Leipzig, was the second power plant in a new series in the lignite fields of the new German federal states. Employing new high-temperature technology and with a 42.4% design efficiency, the units set new standards for lignite fired power plants.

The plant also has a district heating capability of 330 MWth. The investment costs for the plant were about 2.3 billion Euro. The plant was the biggest private building project in Saxony. The new 933 MW R and S units replaced the former Lippendorf and Thierbach power plants. Lippendorf was built jointly by a group of German utility companies made up of VEAG, Bayernwerk AG, Munich, Energieversorgung Schwaben AG (EVS), Stuttgart, and Badenwerk AG, Karlsruhe. VEAG took power from unit R, while unit S supplied southern German utilities Bayernwerk, Badenwerk and EVS. Block R is now owned by Vattenfall Europe, while Block S was jointly owned by E.ON and EnBW until 29 May 2009 when E.ON sold its share to EnBW. Vattenfall and ENBW are 2 of the 4 main players in the German power generation. EnBW owns power plants with a total installed capacity of 11,000 MW. Vattenfall is operating open-cast mines in Lusatia, lignite fired power plants and nuclear power plants with an installed capacity of 13,000 MW as well as 11,000 km of transmission grid in Germany.

10.3.2.1 Contracts and Off-Takers The lignite supply is regulated in a long term supply contract between MIBRAG and the CHP owners. The total annual lignite requirements account for approximately 11Mt per year. The Lippendorf CHP is producing around 13 to 14,000 GWh of electrical power per year MIBRAG has entered into two identical contracts for the two Lippendorf power plant blocks R and S. According to information provided by MIBRAG, its contractual partners are Vattenfall Europe Generation for block R and EnBW Kraftwerke AG for block S. The contracts were entered into on March 8, 1993. Under the Lippendorf contracts MIBRAG guaranteed a supply term of 40 years beginning with the start of the continuous commercial delivery of lignite after a testing period, which was not further defined. The agreement also extends to the disposal of residual materials stemming from the operation of the power plant (e.g. gypsum and ashes from the power plant) for the same term. The contract extends from 2039 for terms of one year, if not terminated by MIBRAG or the customer by observance of a notice period of five years by registered letter prior to the expiration of the respective term (i.e. for the first time after expiration of the 40 years term).

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As the intended start date of the first block of the power plant, according to the Lippendorf Contract, should fall in the year 1999, the contract would thus expire in 2039. Thermal energy is supplied to the City of Leipzig via a new 15 km pipeline system with a transfer capacity of 330 MW. Also some communities close to the CHP location are supplied with thermal heat. Details of the supply contracts were not available. Electrical energy is fed into the Vattenfall transmission grid. One of the major customers is the nearby city of Leipzig with more than half a million inhabitants.

10.3.2.2 Supply Quantities and Qualities The Lippendorf CHP was directly designed for base load electricity supply and shows relatively minor variations in lignite volumes used after the initial operation period. The “normal” supply rate is expected at 10.8 Mt per year. Historic lignite supplies (Figure 10.5) were effected by revisions and repair in the plant and also by some external factors like in 2007 (3.15 % below normal) when a sharp increase in wind power generation reduced temporarily the normal access into the power grid system. Year 2008 (6.3 % below normal) was indirectly affected by this situation because additional repair work was needed caused by multiple on-off situations when high wind energy peaks got into the power grid. This situation has reportedly been cured. During 2009 (about 3.2 % above normal) lignite supplies were relatively high because the Lippendorf power was in great demand, presumably due to outage of other power plants owned by Vattenfall. In summary, total variations in lignite supply over the last years are only minor and confirm the stable position of the Lippendorf CHP as a base load power plant.

Supply to CHP Lippendorf History 14,0

11,68 12,0 10,96 11,08 11,22 11,14 11,11 10,60 10,46 10,26 10,12 10,0 8,75

8,0

6,0

4,0

Yearly Supply in Mt in Supply Yearly 1,71 2,0

0,0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 10.5: Historic Lignite Supplies to Lippendorf CHP, period 1999 to 2010

(Source: MIBRAG)

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Supply to CHP Lippendorf Forecast 12,0

10,20 10,30 10,30 10,30 10,30 10,30 10,30 10,30 10,30 10,30 10,30 9,70 9,70 9,70 9,70 9,70 10,0

8,0

6,0

4,0 Yearly Supply in Mt in Supply Yearly 2,0

0,0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Figure 10.6: Future Lignite Supplies to Lippendorf CHP until 2026

(Source: MIBRAG long term plan)

The future lignite supplies are shown in Figure 10.6. As in the case of Schkopau CHP major revisions are scheduled in 7 year intervals each being performed within a period of 2 years. The revisions schedules are presented to MIBRAG well in advance so lignite production and overburden stripping can be adjusted accordingly.

10.3.2.3 Prices MIBRAG has entered into two identical contracts for the two Lippendorf power plant blocks R (owned by Vattenfall) and S (owned by EnBW). The pricing mechanism is based on the calorific value of the lignite and as second price influencing parameter the content of sulphur. 75 % of the originally negotiated sales price is subject to adjustments following various indices on an annual basis as per January 1 of each year according to a formula taking into account MIBRAG personnel costs, Index of Producer Prices for Industrial Products (Domestic Sale) Germany and High Voltage Electricity prices. This mechanism protects MIBRAG well against own production cost increases. Finally the price is determined by a bonus/malus system for sulphur. The monthly average sulphur content to be supplied without impact on the price is 1.7% on as received basis. Lower sulphur content causes a bonus for sulphur less than 1.7%. Higher sulphur impacts the price negatively. Current lignite supplies are at 1.6 % sulphur and are expected to slightly decrease to 1.4% in 2015. When the Peres mine field come on stream in 2016 the sulphur content is forecasted to increase again up to 1.7 %. Higher increases are not expected also due to extensive lignite quality control management applied by MIBRAG.

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MIBRAG is obliged, under the terms of the contract, to dispose of the residual materials stemming from the operation of the power plant, e.g. gypsum and ashes of the power plant. MIBRAG receives payments for the orderly disposal of the residual materials. The price for disposal and recycling of residuals by MIBRAG except for FGD-Gypsum shall amount to EUR 1.60/t raw lignite maximum for the basis year 2005 (=R0). The price shall change yearly as of January 1 according to the price escalation clause. MIBRAG has subcontracted the disposal to its 50 % subsidiary MUEG. IMC understands that MIBRAG retains some profit from this business. IMC was not provided with the current pricing agreement but understands that prices did not change significantly from those reviewed during the 2009/10 due diligence.

10.3.2.4 Risks for MIBRAG IMC believes that the Lippendorf CHP is indispensable for supply of electrical and thermal energy. The Lippendorf CHP is a modern lignite power plant and well positioned in the German Merit Order system (see section 10.5). The owners, Vattenfall and EnBW, are strong and stable players in the international energy market. The Lippendorf CHP is designed for and exclusively supplied with lignite from United Schleenhain mines. There is no risk that Lippendorf CHP could be economically supplied by any competitor also because there is no facility for delivery by rail. Lippendorf is supplied directly from United Schleenhain mine by belt conveyors

10.3.3 CHP CHEMNITZ MIBRAG entered into an agreement with Stadtwerke Chemnitz AG (now “eins energie in Sachsen GmbH & Co. KG”) on the delivery of lignite from the Profen mine to the combined heat and power plant Chemnitz on July 22, 2008. The CHP Chemnitz Nord is a lignite fired plant with a capacity of 185 MW. It consists of 3 boilers, two are designed for lignite burning and the third one can be dual-fired with either natural gas or fuel oil. The contract was fulfilled over several years by MIBRAG and their predecessor, starting in times of the former GDR up to 31.12.2004. The following years the Chemnitz CHP was supplied by Vattenfall under a 5 year contract but MIBRAG won the contract back for the period 2010 to 2019. The Chemnitz CHP is the one of the few cases were a competitor for the lignite supply exists. The last contract was lost due to a dumping price offer by Vattenfall. The new supplies to Chemnitz started in 2010 with total deliveries of about 926,200 t of lignite for that year and the contract is valid for a period of 10 years. The total maximum annual supply is determined as 1.4 million tonnes per year. The lignite is hauled by unit trains from the Profen mine. The transportation distance between Profen mine and the Chemnitz CHP is 131 km by rail. The transport costs are included in the sales prices. Details about the Chemnitz lignite contract are subject to strict confidentiality and therefore not disclosed. IMC had seen and evaluated the Chemnitz prices and formulas during the 2009/2010 due diligence. The pricing escalation for the Chemnitz supplies is similar to that of the Lippendorf CHP. IMC considers MIBRAG well protected with the indexed factors against inflation related risks.

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The Chemnitz CHP is a vital source for supply of electrical and thermal energy in the city of Chemnitz. IMC cannot recognise any serious risks associated with this lignite supply contract until 2019. The MIBRAG long term plan assumes conservatively no extension of the Chemnitz contract beyond 2019. An extension is possible due to the recent developments in the energy market. Nevertheless, there is also the possibility that e.g. due to the age of the Chemnitz power plant, this contract might not be extended after 2019.

10.3.4 OTHER CUSTOMERS

10.3.4.1 Suedzucker/Bioethanol Two contracts exist between MIBRAG and Suedzucker GmbH/Suedzucker Bioethanol GmbH at the industrial park Zeitz on the supply of fluidised bed lignite to the new fluidised bed firing plant of the customers. Suedzucker AG have built up in 1993 a new factory in replacement of the original operation and have invested in 2003/2004 further 225 M€ in a new Bioethanol plant. Under the first coal supply agreement with Suedzucker GmbH, MIBRAG is obliged to deliver and the customer is obliged to take off 170,000 t of fluidised bed lignite per year with an expiry date of 2017 according to MIBRAG. Under the second coal supply agreement entered into with Suedzucker/Bioethanol GmbH MIBRAG is obliged to deliver and the customer is obliged to takeoff a maximum of 350,000 t of fluidised bed lignite. The contract expires in 2020 according to MIBRAG. The original base price includes disposal of ashes and is adjusted annually as of January 1 and July 1 taking into account price of imported hard coal free German border. This pricing mechanism has no direct relationship to variations in MIBRAG’s own costs. Based on the expected hard coal price development and the favourably high constant component, IMC is of the opinion that this clause will not represent a risk for MIBRAG’s profits. IMC was not provided with the current pricing agreement but understands that prices did not change significantly from those reviewed during the 2009/10 due diligence. IMC sees here as well a risk of not extending the lignite supply contracts beyond the scheduled expiry dates. This situation is considered in the MIBRAG long term plan. However, there is a good opportunity that contracts may be extended.

10.3.4.2 Dessau A lignite supply contract with Dessauer Versorgungs- und Verkehrsgesellschaft mbH for the operation of their CHP with 57 MW installed capacity was signed in1993. The contract provides for an annual delivery obligation of MIBRAG of 130,000 t lignite The customer is in principle obliged to take-off such annual volume. Although the contract expired in December 2010, MIBRAG forecasts supplies of 80,000 t per year for 2011 and 2012. In principle the lignite price shall be adjusted on an annual basis in accordance with an escalation clause, however, the parties had separately agreed on a fixed price free of the transfer station Dessau for the year 2009. The contract had a fixed term until December 31, 2010.

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IMC was not provided with the current pricing agreement but understands that prices did not change significantly from those reviewed during the 2009/10 due diligence.

10.3.4.3 Other Supplies In addition to the main customers with supplies under long term contracts MIBRAG delivers lignite and so called lignite dust to a number of individual customers. In 2010 MIBRAG delivered about 60,000 t of lignite to ROMONTA on short term notice and deliveries continue also in 2011. Lignite dust sales depend mostly on activities in the German building industry because main customers are cement plants. The MIBRAG sales forecast for the following years translate into about 390,000 t/a delivery of raw lignite from the Profen mine to the Deuben dust factory. The lignite dust supplies are regulated in short term contracts and have to be renegotiated on a yearly basis with cement factories such as Lafarge etc. IMC considers it reasonable that contracts will be renewed as in the past. In any case the lignite dust production is only of subordinate relevance in relation to the overall lignite mining. Market opportunities are apparently limited and dust production is scheduled to phase out in 2020 because of closure of the Deuben CHP.

10.4 TRANSPORTATION FROM MINE TO CUSTOMER MIBRAG has concluded four major transportation contracts with Deutsche Reichsbahn (DR), DB, its affiliates and other private railway operating companies for the supply of its own power station at Mumsdorf and the power stations at Schkopau, Chemnitz and Dessau. The transportation contract covering the supply of the Schkopau power station was originally concluded with DR on May 28,1993 for a period of at least 15 years. MIBRAG obtained the right to ask for an extension of the contract for a period of another 10 years. Deliveries commenced in November 1995. The contractual tonnage was originally set at 6.0 Mt/a, i. e. 22,000 tonnes/day. DR employed trains with a capacity of 1,600 net tonnes between the Waehlitz transfer yard and the power station. A train – a so-called double train (Doppelzug) - consisted of 36 heatable FaI bulk haulage cars. The original contract was amended in November 2002 and covers the period from January 1, 2002 to September 30, 2020, i. e. 18 ¾ years. MIBRAG’s contractual partner is DB Cargo AG as successor of DR. The transport is performed by Mitteldeutsche Eisenbahn GmbH (MEG), a subsidiary of Schenker Rail Deutschland AG being an affiliate of DB. The contract covers the haulage of a basic tonnage of 4.7 Mt/a and of an optional additional tonnage of 1.1 Mt/a, i. e. 18,000 tonnes/day. The daily supply would be hauled by 16 trains/day consisting of 18 coal cars Falqqs with a capacity of 62 t/car. The net load of the train is 1,116 tonnes. MEG employs 10 dedicated diesel-powered locomotives G 1206 for the coal transport. The trains normally run at 90-minutes intervals. The DB Cargo/MEG contract covers an aggregate tonnage of 109 million tonnes, the transportation cost being contractually settled by an advance payment.

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IMC opines that the cost for the transportation of coal from MIBRAG is likely to change in line with inflation as the long-term contract contains a price indexation clause. On April 21, 2008 MIBRAG concluded a transportation contract with Heavy Haul Power International GmbH (HHPI) of Erfurt, Germany, governing the supply of Stadtwerke Chemnitz. The contract runs from January 1, 2010 to December 31, 2019. It covers the transportation of up to 1.4 Mt/a of lignite (145,000 t/month) from the Profen transfer yard to the Stadtwerke Chemnitz connecting track at Kuechwald (131 km). The trains have a net load of 2,650 tonnes. The locomotive and the Fal bulk cars are provided by HHPI. The future development transportation costs of this long-term contract will in the opinion of IMC remain in line with inflation as the contract contains a price indexation clause. The haulage of coal from the Profen switch yard to Meuselwitz/Mumsdorf power station is out- contracted to Veolia Cargo Deutschland GmbH, Berlin which employs Regionalbahn Bitterfeld Berlin GmbH (RBB) as its sub-contractor. The contract with Veolia is a short-term contract covering the period July 17, 2008 to December 31, 2011. The annual tonnage is set at 800,000 tonnes. The regular operation uses 2 trains per day, with an eventual 3rd train in times of peak demand. The Fal coal cars are provided by Veolia, the diesel-powered V 100.4 locomotive is provided by MIBRAG. The trains have a minimum net load of 1,100 tonnes.

10.5 RISKS AND OPPORTUNITIES MIBRAG is in a very comfortable position for the future. They have firm long term contracts for supplies to the CHPs in Schkopau and Lippendorf, and a contract with Chemnitz CHP until 2019 with an option for another 5 years. Overall, these three clients already account for almost 90% of the actual MIBRAG lignite mine production with a further relative increase as MIBRAG’s own consumption declines as scheduled. The potential risks associated with the main existing customers have been described above. Potential risks may also originate from changes in national and European energy and climate policy. As a consequence of the Fukushima disaster the German Government decided backed by a broad consensus of all political parties and other stakeholders to conclusively abandoning nuclear energy. Political opinions may change, but it appears very unlikely that the government would change their mind again, after having revised the abandoning of nuclear energy decided by the previous government after taking over the power in October 2009. The new law commits the abandoning of the last nuclear reactor now for the year 2022. The nuclear plants built before 1980 will not go online any longer and decommissioning starts immediately. The other remaining plants will be switched off from 2015 onwards until 2022. The capacity gap occurring by stepping out of nuclear energy is actually 21.5 GW and cannot be replaced by renewable energies only. According to Prognos, a renowned advisor in the field of European Energy Politics, a capacity of 11,610 MW by means of conventional coal or lignite power plants is presently under construction to overcome occurring gaps in capacity. Further to this additional capacity of approximately 4,000 MW will be required based on lignite and/or hard coal. Although lignite and

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COMPETENT PERSON’S REPORT coal is regarded as a bridging technology in the power generation discussion the power plants will demand lignite on a long term. A serious indicator is the intention of the government to provide financial incentives for investments in coal and gas power plants from 2013 onwards This indicates that the situation for the lignite industry has significantly improved after the political decision to step out from nuclear power generation. It seems that the lignite industry will be a beneficiary of the revised German energy policy. Another major risk for lignite based power generation in Germany is the climate protection policy of the European Union and Germany. This risk is mainly expressed by the costs of CO2 certificates which are a burden on the total generation costs of the produced power. Currently the value for a tonne of CO2 emitted is traded between 14 and 16 €/t (average 2010 and 2011). Anyhow the European Commission stated already in 2008 that a step out from nuclear energy in Germany will not have negative impact on the climate and the effects on CO2 pricing can be neglected. Summarizing the above it can be stated that today the political risks for power generation based on lignite are significant lower compared to the energy scenarios before the political decision to abandon nuclear energy in Germany. This will have also positive effects on the economic situation of the lignite industry. With regard to the merit order of German power plants the lignite will have a more stable position for the base load power generation which was held by the nuclear plants. With abandoning the latter the base load lignite plants have to take over, which will improve the economics for the lignite industry. Figure 10.7 below indicates the so called merit order for the power plants Lippendorf and Schkopau which are supplied by MIBRAG lignite prevailing for the energy supply situation prior to the decision on shutting down the nuclear power plants. The lignite fired power plants will significantly move to the left side of the abscissa, where today the nuclear plants are positioned.

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Figure 10.7: Positioning of CHPs Lippendorf and Schkopau in German Merit Order

(Source: Prognos, 2009)

With reference to opportunities, MIBRAG’s marketing department is engaged to increase lignite sales. Activities are ongoing to conclude new major additional lignite supply contracts, among others with a planned new power plant at Profen, continued supplies to Romonta, various new potential lignite off-takers from the greater region and an opportunity to supply power plants in the Czech Republic. Supplies to the new Profen power plant depend on an investment decision which is considered by MIBRAG’s shareholder. The project is well advanced and finds support from the local communities as well as from the Government of the Saxonia-Anhalt province. The plant would burn up to 4.2 million tonnes of coal per year, which would be fully supplied by MIBRAG. Supply for the Profen power plant would require extension of mining in the Domsen field and probably also opening up a new Luetzen mine field. The Profen plant could only be supplied without the Luetzen mine field in the unlikely event that the Schkopau supply contract would not be extended beyond 2021. Other opportunities for the utilisation of the MIBRAG lignite basically depend on the development of the world energy situation. Main indicator in this regard is the oil price development. Should oil prices stabilise in the long term above 100 US$/bbl, then the gasification and liquefaction of lignite would become more economic. According to various technical publications the break-even price may even be lower at an oil price of around 70 US$/bbl. Technologies exist which were developed during World War II (Fischer Tropsch Synthesis) and extensive research and development work has been spent during the period after the oil price shocks in the seventies. In 2009 a potential investor signed a non-binding letter of intent to buy up to 2 million tonnes per year from MIBRAG for a period of 30 years for

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COMPETENT PERSON’S REPORT the purpose of coal gasification. In the opinion of IMC this opportunity for MIBRAG appear fairly remote. In support of future supply opportunities, MIBRAG is working with various research and scientific institutions on innovative technical solutions involving usage of lignite. The company participates in the innovative lignite integration in Central Germany (ibi), as well as at the German energy resource center (DER). IMC recognises that potential opportunities exist for MIBRAG to increase lignite sales but these have not been included in the MIBRAG long term plan projections.

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11 FINANCIAL The main objective of this report is to provide an independent review of the company’s capital costs, operational costs and accruals as an information basis for the investor. A valuation of the coal assets including sensitivities and cash flow analyses were not part of IMC’s scope. IMC’s findings are summarised in the following sub-sections. Emphasis is given to viable and stable conditions for the Company’s business so IMC’s judgement is intended to be taken as realistic and conservative. In accordance with the scope of work the review period considered covers the years from 2010 to 2026 inclusive. IMC had access to information provided by representatives of MIBRAG prior to and collected during a site visit in August 2011. The reference document reviewed and evaluated by IMC is the MIBRAG long term plan (Langzeitplan LZP, 2011- 2026) which in essence is a powerful financial model and was made available to IMC in form of xls-files including latest updates as of June 2011 The IMC technical review has, in line with the agreed scope of work, focused on the technical aspects of the long term plan and in particular on:  Production forecasts;  Mine forecast operational lives;  Mine forecast operating costs,  Mine capital expenditure forecasts;  Operational liabilities and accruals for such as pre stripping provision and site restoration/decommissioning costs. The main technical assumptions within the MIBRAG long term plan are summarised in the following sections. IMC’s comments on those assumptions are discussed and summarised below.

11.1 MAIN ASSUMPTIONS Following main assumptions form the basis for the long term mine plan (base case scenario) prepared by MIBRAG: Power plant Mumsdorf will be closed in 2013 and Deuben including all facilities located there will be closed in 2020 No additional/replacement power plant will be built by MIBRAG MIBRAG sets a conservative scenario as a basic scenario for its long-term planning with no new customers considered in the plan and all contracts are considered until the currently valid end date, considering extensions only where after critical evaluation extensions are realistic.

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11.2 PRODUCTION SCHEDULES AND REVENUES Table 11.1 shows the actual lignite production and mine waste removal for each open pit for 2010, forecast 2011 and the long term plan period until 2026. In the period from 2012 to 2016 a total of 93.63 Mt lignite will be mined with a calculated value of 1,674 M€. MIBRAG has firm long term contracts for supplies to the plants in Schkopau (until 2021) and Lippendorf (until 2039), and a contract with Chemnitz power plant until 2019, with an extension option for another 5 years (not considered in the long term plan). In total, these 3 clients already account for about 90 % of the actual MIBRAG lignite mine production. The long term planning tool of MIBRAG keeps all projections in the current price terms (i.e. prices 2011), therefore, no inflation of lignite prices and neither inflation of costs is included in the projected figures. However, if the inflation of costs were reflected in the projection, it would lead to adequate inflation of the revenues due to the lignite price formulas linked to the main cost items of MIBRAG. Revenues of MIBRAG consist of revenues received from lignite production, revenues from other lignite products (e.g. lignite dust and briquettes) and revenues received from power and heat generation. A part of the lignite production is consumed by MIBRAG owned power plants. This portion of the lignite production is not included in the revenues from lignite. Since this report focuses on the lignite activities it was necessary to assign a value to the internally consumed lignite volumes. IMC decided to use the average of the externally sold revenue per tonne for the valuation of the internally consumed volumes. In Table 11.2 the calculated “virtual” pure lignite revenues are shown for 2010, for the forecast 2011 and for the long term plan until 2026.

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Production Fact Forec. TOTAL 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Mine Waste Removal Profen Mine Mm³ 711.32 48.34 51.15 50.75 48.71 43.57 43.57 42.17 41.52 41.31 42.67 40.60 34.93 36.93 36.63 35.98 35.88 36.63 United Schleenhain Mine Mm³ 694.13 30.47 38.36 38.30 38.86 38.86 41.76 43.66 43.46 42.54 42.34 42.66 42.36 41.66 42.66 42.56 41.84 41.84 TOTAL Mm³ 1,405.45 78.81 89.51 89.04 87.57 82.43 85.33 85.83 84.98 83.84 85.00 83.26 77.28 78.58 79.28 78.54 77.71 78.46

Lignite Production (ROM) Profen Mine Mt 126.94 8.41 9.38 9.14 8.87 8.24 8.24 8.24 7.84 7.83 8.24 7.24 6.01 6.01 6.01 5.61 5.61 6.01 United Schleenhain Mine Mt 172.89 11.19 10.20 9.70 10.30 10.30 10.30 10.30 10.30 9.70 9.70 10.30 10.30 10.30 10.30 10.30 9.70 9.70 TOTAL Mt 299.84 19.60 19.58 18.84 19.17 18.54 18.54 18.54 18.14 17.53 17.94 17.54 16.31 16.31 16.31 15.91 15.31 15.71

A-139 Table 11.1: Production Volumes

Revenue Fact Forec. TOTAL 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Sales (realized) Lignite Mt 277.99 17.40 17.12 16.48 17.00 17.00 17.00 17.00 16.60 16.00 16.40 16.00 16.00 16.00 16.00 15.60 15.00 15.40 Revenue M€ 4,960.9 304.1 302.8 296.3 301.4 301.4 307.0 304.0 297.8 290.9 297.1 283.2 283.2 283.2 283.2 278.0 271.1 276.3 Value per t sold €/t 17.85 17.48 17.69 17.98 17.73 17.73 18.06 17.88 17.94 18.18 18.12 17.70 17.70 17.70 17.70 17.82 18.07 17.94

Value of lignite production Lignite production Mt 299.84 19.60 19.58 18.84 19.17 18.54 18.54 18.54 18.14 17.53 17.94 17.54 16.31 16.31 16.31 15.91 15.31 15.71 Value M€ 5,350.6 342.6 346.4 338.7 339.8 328.7 334.9 331.6 325.5 318.7 325.1 310.5 288.7 288.7 288.7 283.5 276.7 281.8

Table 11.2: Value of Lignite Production

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11.3 OPERATING COSTS The costs for MIBRAG’s operations have been intensively discussed during the site visit with MIBRAG personnel. IMC is convinced that the MIBRAG historic operation costs are thoroughly documented to serve as a reliable basis for the financial forecasts. In general, MIBRAG’s assumptions for future mining operating costs are considered to be appropriate. The operating expenses of MIBRAG are classified as follows:  Cost of raw material for maintenance material, diesel, chemicals and combustibles  Cost of purchased goods means practically the complete ash disposal including transport  Cost of purchased services includes external repairs, external drilling, power purchase or any other external service  Other operating expenses include transport, consulting services and royalties  Personnel expenses.

11.3.1 GENERAL DESCRIPTION The operating cost assumptions used by MIBRAG have been compared with cost records of recent operation years and are judged reasonably founded. MIBRAG´s cost forecast, which is based on recent purchases and expenses, excludes any price escalation. For forecasting the variable operating cost items MIBRAG uses the key of mine waste plus lignite production (so- called mass units, MU). Projection of variable costs by using fixed and variable costs together with the mass units as key is an accepted method. Costs of raw materials The variable costs comprise consumables, spare parts and material costs, depending on total MU removed. The fixed costs are recurring costs and adjustments due to decreased output. Costs of purchased goods The variable part is connected to disposal of residuals from customers plants, depending on the lignite volumes delivered. Costs of purchased services The variable part of the purchased services contains costs of maintenance and repair and is derived from MU removed. The fixed costs contain mining maintenance with respect to overhauls, remediation, drilling services, other recurring costs. Due to the gradual decommissioning of the Mumsdorf (2013) and Deuben (2020) power plants, the electricity supply for the mines and affiliated company parts have to be ensured by external power purchases starting in 2021. Based on the actual figures, some 180 GWh are furthermore necessary for the supply of the MIBRAG mines and periphery per year from 2021 on top of the generated power from the Waehlitz power plant. The fixed costs are decommissioning costs.

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Other operating Costs The variable part of the operating costs involves revaluation of mining provisions, additions to mining provisions, transportation costs, post BvS fees and other costs. The transportation costs derive from delivered tonnages of lignite to the Schkopau, Zeitz, Dessau and Chemnitz plants. The fixed part consists of consulting fees, insurance/claims, rentals/leasing, security, external services and experts and other costs. According to the Privatisation Agreement with BvS MIBRAG will have to pay 1 Deutschmark or 0.51 € for every mined tonne up to 15 million tonnes per year starting October 2020. For every further mined tonne the company has to pay 5 Deutschmark or 2.56 € (both prices in 1997 terms). This so-called “Spitzenbetrag I” has to be paid for the complete tonnage of lignite produced. These costs have been allowed for in the MIBRAG long term plan base case scenario due to the high probability of their occurrence in 2020. Theoretically the base prices per tonne might be escalated by the increase of average sales price for raw lignite with the year 1996 as a base year. However, BvS has never demanded this in the past when the Spitzenbetrag I payments were paid by MIBRAG. IMC considers the escalation of the Spitzenbetrag I very unlikely. In Germany royalties are applicable also for the lignite industry. According to § 31 of the BBergG the federal states are generally entitled to 10 % of the market value of the mineral mined but application is left at the discretion of each individual state (§ 32 BbergG). So far none of the federal states ever raised royalties on lignite mined. The BBergG contains two exemptions from royalty payment obligations with respect to lignite mined under a mining concession (Bewilligung) or lignite mined under mining ownership (Bergwerkseigentum). Pursuant to Section 151 BBergG, mining ownership (Bergwerkseigentum), which was acquired prior to the enactment of the BBergG in 1982 (Section 149 BBergG, so-called "Old Rights"), is exempted from royalty payment obligations. Profen mine and United Schleenhain mine do to a large extent fall under the "old rights" classification. According to MIBRAG's internal planning and calculations, MIBRAG will mine more than 60 million tonnes of lignite under non-exempt mining concessions until 2026. The respective lignite may then become subject to royalty payment obligations in the amount of approximately 10% of the average market price for lignite mined in Germany The federal state Saxonia already announced that it will refrain from claiming a royalty on lignite. Saxony-Anhalt, the other federal state where MIBRAG operates, announced that it will only claim royalty for newly opened mining fields. However, changing political and/or fiscal conditions may hypothetically lead to claiming of royalties for non-exempt mining concessions in future. MIBRAG management considers royalty payments as very unlikely and they are not included in the long term planning.

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Personnel Costs Actually both mines together employ 532 people (not considering central departments which provide services to the mines). Wages and social security payments have been considered in the personnel.

11.3.2 COST ALLOCATION The mining and power business of MIBRAG is integrated within one company. Some of the profit centers within the company are serving both, the power plants and the mines. Since this report is focused to the mining activities IMC defined an allocation system for the relevant profit centers. The cost of the common profit centers will be allocated to the products lignite and power according to the share in revenues. The following table shows the allocation factors for each year of the long term planning.

Allocation factor (Revenue bas Fact Forec. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Factor Calculation Revenues Total M€ 387.1 389.7 391.3 390.0 359.4 364.7 361.0 354.9 346.7 353.5 339.3 303.7 303.0 303.0 297.8 290.2 295.5 Revenues from lignite (realized) M€ 304.1 302.8 296.3 301.4 301.4 307.0 304.0 297.8 290.9 297.1 283.2 283.2 283.2 283.2 278.0 271.1 276.3 Factor % 78.6 77.7 75.7 77.3 83.9 84.2 84.2 83.9 83.9 84.0 83.5 93.2 93.4 93.4 93.4 93.4 93.5

Table 11.3: Cost Allocation Factors

Following Profit Centers will be allocated accordingly: Maintenance/Networks Railway operation Technical Preparation Service Administration General Company Expenses The Dewatering department will be fully allocated to the open pits.

11.3.3 COST SCHEDULES Based on the above described allocation method the resulting operating costs for the mining operations for 2010, forecast 2011 and long term plan until 2026 are shown in Table 11.4. Within the period from 2012 to 2016 the operating cost amount to 1,007 M€. From 2020 to 2021 there is a sharp increase of the “Other Operating Expenses” This is caused by the requirement of paying the so called “Spitzenbetrag I” (section 11.3.1). The increase of mining related “Personnel Expenses” from 2013 to 2014 and 2020 to 2021 is caused by the shut-down of the power plants. The service departments will keep mostly the personnel and therefore the mines have to carry more personnel costs than before.

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Operating Costs Fact Forec. Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Raw Materials and Supplies M€ 306.3 20.7 18.0 17.2 17.2 17.5 17.6 18.2 18.1 18.1 18.1 18.0 17.9 17.9 18.0 17.9 17.9 17.9 Cost of Purchased Goods M€ 300.6 17.5 17.4 17.6 18.0 18.0 18.0 18.0 17.5 16.9 17.4 18.0 18.1 18.1 18.1 17.5 17.0 17.5 Cost of Purchased Services M€ 616.7 33.3 36.2 38.8 37.9 37.6 39.6 40.1 38.7 36.9 37.0 36.7 36.4 35.0 34.4 32.7 32.7 32.7 Other Operating Expenses M€ 643.6 37.9 37.5 36.2 35.6 35.8 35.9 35.8 34.4 34.3 36.3 33.6 44.2 43.4 42.3 39.9 39.1 41.6 A-143 Personnel Expenses M€ 1,577.6 85.8 88.2 87.7 88.9 92.8 93.2 93.3 93.3 93.3 93.3 93.0 95.7 95.8 95.8 95.8 95.8 95.9 TOTAL M€ 3,444.8 195.2 197.2 197.6 197.5 201.8 204.3 205.4 201.9 199.5 202.2 199.4 212.2 210.2 208.5 203.9 202.4 205.6

Table 11.4: Mine Operating Cost Schedule

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11.4 CAPITAL EXPENDITURE The capital expenditures detailed in the investment schedule in the long term planning of MIBRAG are split into following main items: Software Mass distributors Property Power supply Roads Control technology Surface Facilities Mobile equipment Buildings Wells and Drilling Mine development Pump Stations/Mine Drainage Excavators Tube lines Ast/Ust/AsF (stationary drive units, Railway Equipment stationary return pulleys, moveable drive Workshop Equipment units) Other Equipment Belt conveyors moveable IT, Communications, Business supplies Belt conveyors stationary Civil works The dominant investments are foreseen for the mining activities. MIBRAG´s planning department has elaborated an investment schedule on the basis of the Frame Work Mine Plan dated 1994. The Frame Work Mine Plan is conceptual as well as the important conveyor layout. The resulting investment cost schedule is based on the conceptual mine plan and may have a margin of estimated +/-25 % for individual years. The investment and re-investment costs are in line with purchases of recent years. Investments peak in preparation for transfer into other mining fields. The maximum investment at Profen mine is foreseen for the period from 2014 to 2018 when mining activities are transferred from Schwerzau into the Domsen mining field. At United Schleenhain mine the maximum investment period is ongoing and will taper off after 2013 when Peres mine has achieved production. IMC has looked into the plans and received explanations for the costs associated. There appear no flaws or costs neglected so IMC is confident that mining transfers will be realised as planned. The equipment is in a good shape and is maintained on a regularly basis. The lifetime of the main equipment like bucket wheel excavators or spreaders is with approximately 60 years a long period. Nevertheless regular refurbishment and overhaul (repairs are included in the operating expenditures) of the main mining equipment, such as bucket wheel excavators, bucket chain conveyors and spreaders is foreseen in the investment schedule. Furthermore is the relocation of belt conveyors capitalised or the construction of a new mass distributor as example during the transition from the Profen mine field to the Schwerzau field. Other main

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COMPETENT PERSON’S REPORT items are the permanent purchase of property, expenditures connected with the relocation of the Federal Road B176 together with the relocation of the high voltage line (Roads and Property until 2013). A new water treatment plant for Profen mine will increase capital expenditure from 2018 to 2021 (Pump Station and Drainage). Refurbishment of major mining equipment is planned between 2016 and 2019 and 2021 and 2023. Until 2018 there is the continuous need for land purchase for the new mining fields Draschwitz and Domsen (Profen Mine) as well as Poedelwitz (United Schleenhain mine). The investment schedules for the Profen and United Schleenhain mines are appropriate and in line with historic costs of recent years. The Capital Expenditures are planned according to Profit Centers and Types. The Capital Expenditures of the profit centers serving both, mines and other activities, have been assigned to mining activities as shown in Table 11.5.

1 Software Rev.* 12 Mass distributors 100%Mining 2 Property 100%Mining 13 Power supply 100%Mining 3 Roads 100%Mining 14 Control technology 100%Mining 4 Surface Facilities 100%Mining 15 Mobile equipment 100%Mining 5 Buildings 100%Mining 16 Wells and Drilling 100%Mining 6 Mine development 100%Mining 17 Pump Stations/Mine Drainage 100%Mining 7 Excavators 100%Mining 18 Tube lines 100%Mining 8 Ast/Ust/AsF (station. drive units etc.) 100%Mining 19 Railway Equipment 100%Mining 9 Belt conveyors moveable 100%Mining 20 Workshop Equipment 100%Mining 10 Belt conveyors stationary 100%Mining 21 Other Equipment 100%Mining 11 Civil works 100%Mining 22 IT, Communications, Business supplies Rev.* *Rev. = based on revenue share Table 11.5: Allocation of Capital Expenditure of Service Profit Centers to Mining

Table 11.6 shows the Capital Expenditures for 2010, forecasts 2011 and the long term plan period until 2026. It has to be stated that majority of the Capital Expenditure projects is connected with the ongoing mining field development and opening/transfers between the mining fields which are also to a great extent independent from the actual volume of lignite mined. Therefore, increases in lignite output (new customers, extension of current contracts) will not cause a material increase of the Capital Expenditures. For the period from 2012 to 2016 the scheduled capital expenditures amount to 254 M€.

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Capital Expenditures Fact Forec. Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Software M€ 5.9 0.3 0.2 0.3 0.3 0.4 0.4 0.3 0.3 0.4 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 Property M€ 73.4 1.2 4.1 10.3 15.4 13.5 7.2 3.0 1.6 1.8 0.6 0.7 0.0 0.0 2.0 2.0 5.0 5.0 Roads M€ 39.2 10.1 11.4 10.9 1.8 0.0 0.0 0.5 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 2.0 Surface Facilities M€ 13.2 0.1 0.7 1.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.0 3.0 3.0 Buildings M€ 7.0 0.0 0.0 1.5 1.5 0.0 0.0 0.6 0.5 0.0 0.4 0.3 0.2 0.0 0.5 0.5 0.5 0.5 Mine development M€ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Excavators M€ 84.0 5.1 2.2 1.4 1.6 1.5 5.0 7.6 9.3 8.2 5.8 2.8 5.5 7.7 5.5 5.0 5.0 5.0 Ast/Ust/AsF (station. drive units etc.) M€ 37.6 4.1 4.6 3.6 3.3 3.7 2.8 0.0 0.8 0.8 2.0 2.0 1.0 1.0 2.0 2.0 2.0 2.0 Belt conveyors moveable M€ 72.4 2.9 2.6 8.2 6.8 3.5 4.2 8.1 7.6 8.3 8.7 1.7 2.0 2.0 1.5 1.5 1.5 1.5 Belt conveyors stationary M€ 35.5 0.6 0.1 0.4 4.9 4.8 3.9 4.2 3.4 2.2 2.8 2.5 1.0 1.0 1.0 1.0 1.0 1.0 A-146 Civil works M€ 12.2 0.0 0.0 3.7 2.0 1.5 2.0 0.0 1.0 0.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Mass distributors M€ 31.9 0.0 0.0 1.5 1.0 8.6 5.6 1.5 5.8 0.0 0.0 5.7 1.2 0.0 0.0 0.5 0.5 0.0 Power supply M€ 34.6 4.0 3.2 3.9 3.3 1.9 0.8 2.1 5.1 2.3 1.8 1.1 0.7 0.6 0.6 1.1 1.1 1.1 Control technology M€ 8.9 0.8 0.3 0.9 1.9 0.5 0.1 0.2 0.7 0.3 0.5 0.3 0.0 0.5 0.0 0.1 2.1 0.0 Mobile equipment M€ 50.9 3.2 3.0 3.4 3.6 3.1 3.0 3.2 3.1 3.3 3.1 3.7 2.6 2.6 2.6 2.6 2.6 2.6 Wells and Drilling M€ 33.3 0.9 1.0 1.6 2.4 3.0 2.7 2.4 2.7 2.6 2.3 2.6 1.5 1.6 1.5 1.5 1.5 1.5 Pump Stations/Mine Drainage M€ 34.3 5.0 0.3 0.6 0.5 0.4 0.6 0.6 0.7 1.6 2.7 5.6 10.5 0.5 0.5 1.5 1.5 1.5 Tube lines M€ 16.0 0.1 0.3 0.4 0.4 3.6 2.0 2.2 1.7 1.2 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Railway Equipment M€ 6.2 0.0 0.3 0.0 0.7 0.4 0.0 2.4 0.7 0.6 0.9 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Workshop Equipment M€ 5.9 0.1 0.2 0.4 0.7 0.3 0.4 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Other Equipment M€ 18.4 0.7 2.7 0.7 0.9 0.8 3.5 0.6 3.2 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 IT. Communications. Business supplies M€ 25.0 1.8 3.1 2.0 1.9 2.0 1.6 1.5 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 TOTAL M€ 645.8 41.0 39.9 56.6 56.9 53.4 45.6 41.2 50.1 35.3 36.4 31.9 29.2 20.4 20.7 25.3 32.2 29.7

Table 11.6: Mine Capital Expenditure

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11.5 TAXATION MIBRAG’s activities are subject to different taxes. These are: Electricity tax (for consumption of electricity) Real Estate Tax Motor Vehicle Tax. Since a profit transfer agreement with JTSD Braunkohlenbergbau GmbH exists no corporate income tax and trade tax incur for MIBRAG. However, for the purpose of this report MIBRAG provided a “virtual” tax calculation estimating the taxes which would incur if the profit transfer agreement would not exist. There MIBRAG allocates 0.3 M€ of the total corporate income tax and trade tax to the subsidiaries MBEG and GALA. Since the other than mining activities (especially power generation) are, according to the management, relatively unprofitable, all income taxes of MIBRAG without subsidiaries will be allocated to the mining business. Electricity tax will be 100% allocated to the mines, since the mines are the main consumers of power. Real Estate Tax and Motor Vehicle tax will be distributed in the same way as the taxes on income. Table 11.7 shows the taxes for the mining activities as planned for the years 2011 to 2026. In the period from 2012 to 2016 the total mining related taxes amount to 83.2 M€. Currently the possibility of using accumulated deficit in the years 2012 to 2016 is investigated. If this will take place tax payments in the given period will be reduced by 22.4 M€. It can be seen that the taxes on income will decrease continuously until 2021 which is caused especially by the reduced lignite production resp. reduced revenues.

11.6 OTHER FINDINGS IMC reviewed also the balance sheets of the recent years and identified 2 major changes from 2009 to 2010. Pre-Stripping Provisions Pre-Stripping Provisions (termed “Vorabraum” in German terminology and termed “overburden” in the English translation of the MIBRAG balance sheet) have been re-evaluated in the balance sheet of 2010 which lead to a reduction of the Pre-Stripping Value by around 141.4 M€ to 23.1 million € as of 31.12.2010. Arguments provided by MIBRAG for re-evaluation are considered to be reproducible by the IMC team. Accruals for old environmental litigations and mining related obligations Due to changed legal conditions (BilMoG – Balance Sheet modernisation law, in force since 1.1.2010) all the accruals had to be revised. Accordingly also the accruals for old environmental litigation and mining related obligations were revised and reduced by 128.6 M€ to 102.4 M€ as of 31.12.2010.

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Taxes Forec. Total 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Corporate Income Tax M€ 41.51 6.51 5.14 4.34 3.74 3.94 3.14 2.64 1.54 1.94 1.04 -0.25 0.94 0.94 1.74 1.84 2.34 Trade Tax M€ 35.33 5.22 4.46 3.76 3.16 3.36 2.76 2.26 1.36 1.66 0.86 -0.25 0.77 0.86 1.46 1.56 2.06 Electricity Tax M€ 135.31 8.36 9.04 8.96 8.82 8.36 8.49 8.71 8.67 8.63 8.67 8.59 7.91 8.04 8.06 8.02 7.98 Real Estate Tax M€ 2.78 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.17 0.17 0.18 0.18 0.19 0.19 0.19 0.20 0.20 Motor vehicle tax M€ 2.90 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 0.18 TOTAL M€ 217.82 20.43 18.98 17.40 16.06 16.01 14.73 13.96 11.92 12.59 10.93 8.45 9.98 10.21 11.63 11.79 12.76

Table 11.7: Taxes

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12 CONCLUSIONS MIBRAG performs lignite mining operations on the basis of state approved Frame Work Mine Plans for the coal deposits of the Profen and Schleenhain mines. IMC has found full compliance of MIBRAG’s mine operations with the terms and conditions of the mineral rights. The existing JORC qualified reserves statement has been found concurrent with state of the art JORC resources and reserves estimation. Performed evaluation of past mine operations as well as technical and commercial feasibility studies allow for classifying all its reserves 181.4 Mt (Profen) and 301.3 Mt (Schleenhain) as proven reserves. Coal quality measurement and prediction are being performed by state of the art sampling and analysis in certified laboratories. Average raw coal quality parameters can be confirmed to be in the range of 9-11 MJ/kg for heating value, 49-55% for water content, 5.5-12% for ash content and 1.4-2.15 for sulphur content. Mine planning has been performed with MINEX planning techniques and account for the full proven, mineable reserves of both the Profen and Schleenhain fields. A possible mine life until 2030, respectively 2041 with a total production decreasing from 19.6 to 15.7 Mt/a of raw lignite and from 90 to 77 Mm³/a of mine waste could be confirmed by IMC. The choice of mining method (bucketwheel / bucketchain excavation combined with conveying belt systems) and proper dimensioning of the equipment for production, transport, material dumping, and auxiliary services, including dewatering, have been checked by IMC and been found reasonable. Reinvestment and maintenance schemes as well as infrastructure planning have also been analysed and found appropriate. Mine management, manpower and OHS management systems have been concluded to be of high standard and to be robust to the challenges of sustainable organisatory and human resources development. MIBRAG’s environmental policies and programmes are confirmed to be covering all aspects of risk mitigation, including water management, ash handling and mine closure. This includes risk- averse investment projects for e.g. water treatment and provisions for areal rehabilitation measures. IMC considers the most important risk being the uncertainty in long term price developments of CO2 emission certificates, however this is a political risk beyond the control of MIBRAG. Although no information on asset specific operational costing was provided, IMC has been able to verify the allocation of general operating costs and taxes, as well as capital expenditures, to the MIBRAG mining operations. On the base of the existing coal supply contracts, the predicted revenue streams could be confirmed as justified. Based on the current mine operations and plans presented IMC could not identify material risks for the mid-term review period including year 2016. With reference to the Life of Mine plan IMC is of the opinion that MIBRAG is well positioned to accomplish the production scheduled until 2030 for the Profen mine and 2040 for the Lippendorf mine and possibly also beyond these dates in case opportunities can be realized.

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