Imc Cpr 2011
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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. A-1 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 A-2 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. A-3 EP INVESTMENT ADVISORS, S.R.O. COAL ASSETS OF MIBRAG COMPETENT PERSON’S REPORT 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 ..................................................................................................