First Supplementary Target’s Statement

First Supplementary Target’s Statement 1

First Supplementary Target’s Statement

This Target’s Statement has been issued in response to the Offers by Metro Mining Limited (ACN 117 763 443) for all of the Gulf Shares.

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt about how to deal with this document, you should contact your broker, financial advisor or legal advisor immediately.

ACN 108 086 371

Gulf Alumina Limited ACN 108 086 371


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(ACN 108 086 371)

First Supplementary Target's Statement

1 Introduction This document is a supplementary target’s statement under section 644 of the Corporations Act 2001 (Cth). It is the first supplementary target’s statement (First Supplementary Target’s Statement) issued by Gulf Alumina Limited (ACN 108 086 371) (Gulf) in relation to the off-‐market takeover bid to acquire all the ordinary shares in Gulf by Metro Mining Limited ACN 117 763 443 (Metro). This First Supplementary Target’s Statement supplements, and should be read together with, Gulf’s Target’s Statement dated 6 January 2016 (Target’s Statement). This First Supplementary Target’s Statement is dated 23 March 2016, which is the date it was lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for its contents. This First Supplementary Target’s Statement was approved by a resolution of the Gulf Board and includes corrective disclosure required by the Takeovers Panel. Gulf Shareholders should refer to the Target’s Statement as corrected by this First Supplementary Target’s Statement for detailed information on the Offer and why the Gulf Board recommend that Gulf Shareholders reject the Offer. If you are in any doubt as to the action which you should take in relation to the Offer, you should consult your legal, taxation or financial adviser. If you have any queries, please contact the Gulf office on +61 2 9221 4689. Further information in relation to the Offer can also be found on Gulf’s website (www.gulfalumina.com.au). Unless the context otherwise requires, capitalised terms used in this First Supplementary Target’s Statement but not defined have the same meaning given to them in the Target’s Statement. The First Supplementary Target’s Statement prevails to the extent of any inconsistency with the Target’s Statement.

2 Retraction of Previous Statements Gulf refers to the letter to Gulf Shareholders dated 3 December 2015 and advises that any express or implied statements therein that go to the value of Gulf (value statements) are hereby retracted.

The Gulf directors are not relying on such value statements and Gulf Shareholders should ignore such value statements.

3 Directors Recommendations The Gulf Directors continue to recommend that Gulf Shareholders reject the Metro Offer, but note that as a consequence of commissioning an Independent Expert’s Report, as advised in Section 7 below, this recommendation could change (but may not necessarily do so) in light of the Independent Expert’s assessment and the reasons for it.

4 Shareholders Intentions

Section 3.2 of the Target’s Statement referred to statements provided by Non-‐participating Gulf Shareholders dated between 15 December 2015 and 3 January 2016 (“First Intention

2 Gulf Alumina Limited ACN 108 086 371

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Statements”). The First Intention Statements have been replaced with further intention letters between 17 February 2016 and 24 February 2016 (“Second Intention Statements”). The First Intention Statements are retracted and Shareholders should disregard them.

Fourteen of these fifteen Non-‐participating Gulf Shareholders have now advised Gulf that they will not accept the takeover offer from Metro Mining Limited for all of the ordinary shares in Gulf as announced to ASX on 2 December 2015, “nor will they accept any improved offer from Metro Mining Limited other than a substantially improved offer, taking account of whether it has been recommended to Gulf Shareholders unanimously by the Gulf Board, and the reasons for that recommendation”, with Edale Capital Pty Limited stating that “nor will it accept any revised offer from Metro Mining Limited unless that offer is an improved offer”.

The Non-‐Participating Gulf Shareholders may not act inconsistently with their statements in accordance with the “truth in takeovers” principles.

The composition of the shareholdings of the Non-‐participating Gulf Shareholders in the Company, and their relation with Gulf, are set out in the below table.

Name of Non-‐participating Gulf Shareholder

Number of Shares

Percentage of Shares in the Company

Relationship with Gulf, if any

1. Cheng Wang 3,700,000 4.30% Director

2. Weidong Zhang* 5,695,000 6.61% Director

3. Wenzhen Zhang 6,714,760 7.80% Associate of Director

4. Quiyun Shen** 6,060,372 7.04%

5. George Birch 600,000 0.70%

6. George Gaal * 111,667 0.13% Consultant

7. ACT 2 Pty Limited*** 500,000 0.58%

8. Mathew (Jun Jie) Gu 1,000,000 1.16%

9. Hong Jiang 3,654,920 4.24%

10. Aulis John Keppo * 100,000 0.12% Company Secretary

11. Yanhua Liu 4,140,460 4.81% Beneficially owned by associate of Director

12. Amanda (Yitong) Li 6,771,240 7.86% Beneficially owned by associate of Director

13. Edale Capital Pty Ltd**** 11,247,843 13.06%

14. John Wardman & Associates Pty Ltd 500,000 0.58%

15. Shandong Nanshan Aluminium Co. Ltd ***** 10,316,146 11.98% Associate of Director

Total 61,112,408 71.0%

* Provides services to Gulf. ** Is the lender referred to in Section 5.1. *** Director provides services to Gulf. ****Has an interest in the royalty described in Section 7.4 of the Target’s Statement. *****Has entered into a Heads of Agreement with Gulf (refer to Section 5.4).


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The Non-‐participating Gulf Shareholders have not been provided with information concerning Gulf which has not been made available to all Gulf Shareholders.

5 Financing 5.1 Updated Financial Position of Gulf

The Company’s current cash position is approximately $252,000. During December it drew down a $200,000 unsecured term loan facility (interest rate 8% and repayable in August 2016) provided by a shareholder holding approximately 7% of the Company’s shares. An additional $50,000 was drawn down in March 2016. Funds were also supplemented by $268,500 received in December 2015 on exercise of options by 2 Directors. Mr Zhang and Mr Wang being directors of the Company will exercise additional options if required to meet the Company’s short term funding requirements. Creditors aged more than 30 days currently total $210,000 of which the Managing Director is owed $169,400 in respect of his remuneration. Mr Zhang has not invoiced an aggregate of $48,400 (inclusive of GST) for his services pending the receipt of additional funding by Gulf. Arrangements to raise additional capital are progressing. The Directors have received a proposal to provide Gulf with additional funding of $2.5 million (before expenses) for the issue of shares. The Directors are currently evaluating this proposal together with the possibility of conducting a rights issue or a pro rata placement to sophisticated investor shareholders in each case to raises up to $2.5 million (before expenses).

5.2 Exercise of Options

We refer to the Gulf Options detailed in section 6.1 of the Target’s Statement. A total of 895,000 of Gulf Options have been exercised at $0.30 by Gulf Directors to raise $268,500. The table of Relevant Interests of the directors of Gulf and their associates are varied as follows:

Director, and/or their Associates

Number of Gulf Shares

Number of Gulf Options

* Weidong Zhang 16,606,700 695,000 exercisable at $0.30 expiring on 8/1/17 895,000 exercisable at $0.30 expiring on 10/3/19 1,000,000 exercisable at $0.30 expiring on 10/3/19****

** Cheng Wang 10,414,760 150,000 exercisable at $0.30 expiring on 10/3/19

*** Jianbo Song 10,316,146 200,000 exercisable at $0.30 expiring on 8/1/17 150,000 exercisable at $0.30 expiring on 10/2/19

Stephen Lonergan Nil Nil Zhaohui Wu Nil Nil

* 5,695,000 Shares held beneficially by associate, 4,140,460 Shares in the name of Yanhua Liu and 6,771,241 Shares in the name of Amanda (Yitong) Li. All Options held beneficially.

** 3,700,000 Shares and all Options held beneficially. 6,714,760 Shares held by an associate, Wenzhen Zhang.

*** All Shares held by an associate, Shandong Nanshan Aluminium Co. Ltd. All Options held beneficially.

**** Exercisable as a result of Metro’s Takeover Offer in accordance with Gulf’s Executive Option Plan Rules

5.3 Agreement to Grant Security

As referred to in Section 7.4 of the Target’s Statement, Gulf is contractually obliged to enter into a security agreement over all the assets comprising the Project pursuant to a Mineral Royalty Deed


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between Gulf, RSI (QLD Bauxite) Pty Ltd and Royalty Stream Investments Pty Ltd dated 20 May 2014 as security for royalty payments, payable by Gulf after commencement of the export of bauxite. The terms of the security agreement have now been agreed by the parties and were executed and entered into on 9 February 2016.

It is a prescribed occurrence under the Offer if Gulf charges a substantial part of its business or properties. Accordingly the execution by Gulf of the security agreement may constitute a Target’s prescribed occurrence under the Offer.

5.4 Heads of Agreement with Shandong Nanshan Aluminium Co. Ltd

On 4 August 2014, Gulf entered into a Heads of Agreement with Nanshan under which Gulf granted to Nanshan first right to the supply of a minimum of 2 million metric dry tonnes per annum (representing a proportion of the Project’s output) of bauxite on a take or pay basis, provided that Nanshan still owns all of the shares in Gulf that it currently holds and has advanced project funding to be used for financing the construction of the Project.

The parties agree to negotiate an offtake agreement and, once the scope and cost of the Project has been established, Nanshan agrees to advance a project loan for the purpose of financing construction capital as required by the Project, subject to Gulf and Nanshan’s respective board’s approval. Gulf is not bound to accept funding from Nanshan and may obtain alternate project funding including from other off-‐take parties.

The offtake price is to be based on a recognised independent bauxite pricing index and adjusted for quality. The amount of the project funding in the form of a loan is to be agreed based on the outcome of the final feasibility study. Security will be granted against the project assets and applicable interest rate will be consistent with market rates.

Gulf and Nanshan are currently negotiating an offtake agreement on the basis that Gulf agrees to deliver and sell and Nanshan agrees to purchase and receive a minimum of 2 million dry metric tonnes per annum of bauxite. If Nanshan does not purchase the full amount of the product, it is required to pay the price for product that it does not purchase. However, off-‐take arrangements will not be in place unless a legally binding agreement is signed.

6 Retraction of Value Statements in Shareholder Letters

We refer to our letters to Gulf Shareholders dated 3 December 2015 and 12 February 2016 respectively (Shareholder Letters) and advise that in determining whether or not to accept the Offer, Gulf Shareholders should ignore these Shareholder Letters and solely rely on the contents of the Bidder’s Statement, Metro’s Supplementary Bidder’s Statement dated 4 February 2016 (Supplementary Bidder’s Statement), Target’s Statement as corrected by this First Supplementary Target’s Statement along with any further Supplementary Bidder’s Statement or Supplementary Target’s Statement.

In particular Gulf Shareholders should disregard any and all express or implied statement as to the value of Gulf or its assets in the Shareholder Letters, and all such statements are revoked. The Gulf Directors are not relying on any such statements in recommending to Shareholders not to accept the Metro Offer.


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7 Independent Expert’s Report

The directors of Gulf have mandated Grant Thornton Corporate Finance Pty Ltd to provide an independent expert’s report (IER) on the Offer. The IER is expected to be finalized by 15 April 2016 and will then be provided in the form of a further supplementary Target’s Statement to each Gulf Shareholder.

8 Gulf’s DFS Since issuing the Target’s Statement Gulf has updated its Final DFS with the results of the mining contract tendering.

Project highlights

Ø Robust project economics in line with Interim DFS

Ø Initial 3mtpa rising to 5mtpa in Year 3 of DSO bauxite produced over a 13 year mine life

Ø Development capex of $52.4m with a capital payback of 1.9 years

Ø Annual EBITDA of $96.0m

Ø Post tax NPV of $547m (at 10% discount rate)

The DFS is based on a start-‐up of 3.0 million tonnes per annum (mtpa) production with plans to increase it to 5.0mtpa in Year 3 over a 13 year mine life based on a mine schedule completed by independent mine consultants, Australian Mine Design and Development Pty Ltd (AMDAD). The DFS is based on mining all of the Direct Shipping Ore (DSO) quality bauxite that was considered feasible as part of the DFS findings and has avoided the need to beneficiate (wash and screen) the ore. A total of 63.5mt of Mineral Resources (see Table -‐ Ore Resources on page 7) have been estimated within the tenements in compliance with the JORC Code. Of these Mineral Resources, 48.3mt have been estimated as Ore Reserves.

The DFS confirmed that the Skardon River Bauxite Project will have robust project economics with a moderate pre-‐production capex and low opex and an attractive life of mine operating margin of $31.32/tonne. The DFS calculated a post-‐tax Net Present Value (NPV) of $547 million and an Internal Rate of Return (IRR) of 135%.

Project Description

The Skardon River Bauxite Project (SRBP) covers an area over 70 square kilometres at Skardon River situated 80kms north of Weipa, on western Cape York in North Queensland. Western Cape York is world-‐renowned for its deposits of high quality, export grade bauxite. Gulf became the sole holder of the tenements in 2011 inclusive of various improvements embracing the airstrip, the haulage and access roads and barge ramp and hard stand at the Port. There is no useable road to the site and as such all equipment and supplies must be bought in by barge. Personnel can access the site by air.

The forecast quality and nature of the bauxite on the tenements are suitable for export as Direct Shipping Ore having identified Mineral Resources with insitu grades high enough in alumina and low enough in silica that will require no processing other than simple sizing. As a result, the DFS considers a simple mining operation as follows:


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Ø Free-‐dig mining of bauxite using front end loaders (no drilling or blasting required)

Ø Transport of the bauxite by haul trucks to the wharf loading facility

Ø Sizing of bauxite at the Port to a maximum of 100mm

Ø Transhipment of the bauxite down the Skardon River using self-‐propelled barge(s) to the ocean going vessels located off-‐shore for shipment to the customer

The simple mining operation facilitates a quick production start-‐up and assumes rehabilitation to occur progressively with the replacement of topsoil and overburden to assist revegetation in the mined areas. The mining activities are to be carried out over the 9 month dry season window between April and December but the period may be extended or varied to optimise production.

The DFS considers a 13+ year mining operation producing 60.9 million tonnes of quality bauxite for shipment. This production is based on mining all of the DSO Resources considered to be feasible having modelled a range of loss and dilution thicknesses over a range of maximum silica grades to identify saleable DSO bauxite product over a number of scenarios. This definition was used to develop the mining plan. A total of 63.5mt of Mineral Resources have been estimated across the tenements (refer to Table below – Ore Resources) with 48.3mt of Ore Reserves (refer to Table below – Ore Reserves) at Skardon River.


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Reserves and Resources

Using information from the JORC based DSO Resource Estimation Study completed by independent geologists, Geos Mining, the mine plan was subsequently developed by an independent mining consultant AMDAD and a DSO Ore Reserve compliant with the JORC Code was estimated.

The results of the Study show that the evaluation of the analysis results from samples taken from the sonic drilling campaign in August 2014 and the resource modelling have indicated a DSO Resource (comprised of the categories indicated in the table below) of 63.5mt with an average 50% alumina content (assuming a 20% silica cut-‐off grade). Some 75% of the Mineral Resource is in the Measured and Indicated categories.

The Mineral Resource estimation carried out by Geos Mining in compliance with the JORC Code and their report for the DSO Resource Estimate Update was issued on 21 May2015. The Ore Reserves estimation conducted by AMDAD was issued in a report Skardon River DSO Project – Ore Reserves Estimate in May 2015. Table – Ore Resources

Resource Category *

Dry Tonnes (mt)

DSO Bauxite Qualities

SIO2 (%) Al2O3(%)

Reactive SiO2 (%) at

148⁰C

Available AI2O3 (%) at 148⁰C

Measured Resource 16.6 13.9 50.2 5.9 41.7 Indicated Resource 32.3 14.15 49.4 6.2 40.0 Inferred Resource 14.6 14.3 49.4 6.1 39.8 Total Resource 63.5 14.3 49.6 6.1 40.4 * Based on minimum thickness of 0.5m (20% SiO2, 40% Al2O3 and 8% Reactive SiO2 cog)

Table -‐ Ore Reserves

Category Dry tonnes (mt) Al2O3 % SiO2 % AAl2O3 % RSiO2 % Proved 16.6 49.8 14.3 41.4 6.1 Probable 31.8 49.2 15.0 39.8 6.4 Total 48.3 49.4 14.7 40.3 6.3

Mining and transhipment operations

The mining and transhipment operations will be undertaken over a 9 month per annum program with sufficient flexibility to increase the period to suit operating conditions. Operating on a 24 hour per day basis, exported ore is expected to achieve 3 million dtpa (dry tonnes per annum) for the first 2 years of operations and 5 million dtpa for the remaining mine life. Providing their own mobile plant and equipment, the mining, haulage and wharf out-‐loading activities is to be contracted to a mining operator while the transhipment contractor is responsible for the transport and discharge of the bauxite onto the shipping vessel.

Front end loaders suited to working in the variable DSO zones together with road trains will be used at the mine site and front end loaders of the same specification also used at the Port for product reclaim and loading onto the wharf conveyors. The trucking fleet will deliver run of mine (ROM) product to the Port where it will be crushed and stockpiled adjacent to the barge loading conveyor.


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The mine schedule and grade control will be managed by the geological team responsible for selection of the optimum mining sequence over the bauxite deposits and product testing. Mining is planned to commence in the northern part of the resource and around the airstrip area to achieve some blending from different locations for consistent DSO quality specifications.

Loading at a rate of 2,000 tph, the transhipment contractor will complete the river and sea barging to the ocean going vessel anchored at the designated transhipment point approximately 15 km west of the Skardon River mouth. The total barging distance is 25 km. Barges will anchor adjacent to the bulk carriers for the unloading of bauxite ore using self-‐discharging equipment.

Operating initially with one barge and increasing to two barges in full production, each barge will have a capacity of about 4,000 to 7,000 tonnes per barge. Barges would work 24 hours per day with barge volumes adjusted depending on the river depth at the time of the crossing. As cost saving in transhipping occurs when barge loads are increased, bathymetric and hydrological studies confirm that barge loads can be increased if some degree of bed-‐levelling of the shallow zones at the river mouth is conducted to retain a minimum water depth of LAT -‐2.2m.

A marine survey found no environmentally sensitive sea grass habitat where bed-‐levelling is proposed and this enhances the likelihood of obtaining necessary permitting for bed-‐levelling operations. The environmental impact assessment of the proposed bed-‐levelling has been included in the Project EIS.

The project requires an approximate workforce of 160 personnel engaged on a shift roster as not all personnel will be at site at any one time. Mining will operate on 2 x 12 hours shifts and operations personnel are assumed to work on a 14 day on -‐ 7 day off roster and other personnel on a 9 day on – 5 day off roster flying back to Cairns.

Bauxite market overview

Bauxite is the main material used in the production of alumina that is then smelted to produce aluminium. The Chinese alumina refining capacity over the past decade continues to be robust with Chinese bauxite from Australia likely to replace declining quality and availability of Indian, Indonesian and Vietnamese ore as these countries increasingly reserve bauxite for domestic value adding and to supply local rising aluminium consumption. Indonesia’s ban to export its low temperature bauxite as a raw material has seen Malaysia step into the void to supply bauxite in the past 18 months. The Malaysian export potential will curb as raw material resources decline and Australia’s expanding bauxite reserves, if developed, can capture much of the future growth.

Securing reliable supplies of imported bauxite is vital for the Chinese alumina refiners resulting in the industry policy makers declaring bauxite a strategic resource. New refineries recently constructed have relied on the low temperature energy efficient gibbsite enriched ore which can displace more costly domestic supply of diaspore enriched ore that require higher temperatures (450ºC cf. 150ºC) to extract alumina from the bauxite. Accordingly, Gulf is well placed as its bauxite is predominantly a low temperature product.

Bauxite price forecast

Bauxite pricing has traditionally been negotiated on a fixed price per volume basis linked to the aluminium price. In recent years, and with the emergence of independent raw material bauxite suppliers, pricing using an independently published index-‐linked pricing system founded on pricing adjustments for variability in the alumina grade and reactive silica content, is emerging.


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Based on CRU’s bauxite and aluminium outlook reports, various updates on the bauxite market and other generally available market information, Gulf has used this to determine the US Dollar per tonne outlook for the Skardon River Bauxite Project taking into account the quality specifications (available alumina content and level of reactive silica at low temperature) of the bauxite expected to be mined over the mine life.

Sensitivity Analysis

A sensitivity analysis of the key assumptions of the DFS was completed.

NPV Effect -‐15% -‐10% -‐5% +5% +10% +15%

Price $404 m $452 m $500 m $595 m $643 m $691 m

Capex $554 m $552 m $550 m $545 m $543 m $541 m

Operating Costs $624 m $598 m $573 m $522 m $496 m $471 m

FX $716 m $654 m $598 m $502 m $460 m $423 m

Compilation methodology

The DFS was compiled by Gulf management from the various studies undertaken based on the bauxite market information, potential off takers, discussions with third party contractors, consultants and tendered information. Independent consultants were engaged by Gulf to prepare the wharf study, the transhipment contractor proposals, the mine scheduling and mining activity study, the engineering, infrastructure and construction study, etc. The financial information from these sources was included in the project’s financial model together with other pertinent information relating to royalties, projected exploration activity, corporate costs, etc. Gulf reserves the right to amend the project’s financial model in the future to allow for any timing reassessments, and for negotiation outcomes, final design, product offtake, financing, marine logistics and the mining contracts. This process ensures that Gulf maintains an updated working financial model for tracking progress and for Gulf Board reporting purposes. Gulf Shareholders were updated with project progress and financial highlights of the interim DFS during July 2015. Since that time, Gulf has tendered the EPC contract and obtained preliminary pricing for the mining contract both of which have enhanced the accuracy of the project estimates, culminating in the update of the capital expenditure and operating cost estimates. Tender submissions for the EPC contract (for completing the wharf and other infrastructure design, carrying out and project managing the construction) were received mid-‐November 2015 from a number of shortlisted contractors capable of completing the works and likely to provide a conforming tender. The quotes are inclusive of a 10% contingency allowance at the time to provide a measure of assurance in the project model. The analysis of the comparative likely fixed lump sum quotes formed the basis for updating the financial model with a high level of assurance. A select number of contractors responded to the mining contract request for budget pricing tender where the scope of works covers the mining, haulage and all wharf activities through to loading the transhipment barge. Budget pricing was conducted in sufficient detail that significant changes are not expected in the final tender. The project assumes Gulf would remain responsible for mine scheduling and quality control.


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Comparison between Interim DFS and Final DFS

The following table, all in Australian dollars, is a comparison of the interim and the latest DFS to highlight the improvement of the project economics.

Interim DFS Final DFS

Annual production rate – Years 1 & 2 3.0mt 3.0mt Annual production rate – Year 3 onwards 5.0mt 5.0mt LOM production tonnes 60.9mt 60.9mt Mine life 13.2 years 13.2 years Total LOM Revenue $3.54b $3.45b Average bauxite price (FOB) $58.23 /t $56.67 /t Average operating costs $28.34 /t $25.36 /t Average operating margin $29.89 /t $31.32 /t Average annual EBITDA $134m $143m Average profit after tax $ 89m $ 96m After tax NPV (10%) $485m $547m After tax IRR 97% 135% Payback period 2.6 years 1.9 years Exchange rate 80 cents 75 cents Total funding through to start-‐up $90.1m $60.5m Development capex $74.8m $52.4m Deferred and sustaining capex $15.4m $14.5m Working capital $16.3m $ 7.4m

In addition to the above assumptions, the DFS financial model was based on the following assumptions:

• Royalty – a statutory 10% royalty on FOB Sales ex-‐port of Skardon River, a financial benefit royalty payable to the native title claimants and a funding royalty payable on FOB Sales

• Operating Season – production to be based on a 9 month dry season operation (to be reviewed at Gulf discretion)

• Infrastructure Relocation – the airstrip relocation in Year 9 to allow mining to be carried out on current locations

• Mining Tonnage – based on the Direct Shipping Bauxite Ore Reserve of 48.3mt @49.3% total alumina, 40.3% available alumina at 148C and 6.3% reactive silica at 148⁰C as disclosed in Gulf’s Target’s Statement and LOM schedule includes 12.6mt of Inferred Resources (the tonnage assumed is less than the Inferred Resources of 14.6mt taking into account risks of converting inferred resource to reserve).

Analysis of Gulf’s DFS

The latest project NPV1 has improved by $62m over the interim DFS. Although the analysis demonstrates some softening in the sales price in recent times, together with the improved 1 Of future cash flows discounted at a 10% rate


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USD:AUD exchange rate this has been offset by the approximate $25m reduction in upfront capex and an average $3.00 /t reduction in the opex cost.

The upfront capex reduction of $25m represents an improvement of more than 30%, significantly lowering the funding to be raised by the Company to complete mine setup. The working capital allowance represents the funding to bring the project into production inclusive of corporate office expenses. The significant reduction from $16.3m to $7.4m follows a reassessment of these costs and higher confidence from negotiations with prime contractors. The reduction flows from the initial conservative estimate for start-‐up production costs and a higher allowance for the transhipment security deposit in the interim DFS.

The DFS continues to be based on a 9 month dry season operation with an initial start-‐up production of 3mtpa for the first 2 years before ramping up to a 5mtpa production rate. Practically and subject to securing the product offtake, Gulf may increase the production rate over a shorter than 2 year period.

Capital Expenditure

Capital Cost Item Final DFS $m

Project design, EPC contract & mobilisation $ 6.0m

Construction – non marine $14.2m

Construction – marine $ 7.1m

Camp setup & operations $9.5m

Transshipment mobilisation and asset deposit $3.2m

Other infrastructure $6.5m

Contingency $4.0m

Owners costs $ 1.9m

Total $52.4m

Operating Cost Estimates

Operating Cost Item Final DFS Average /t

Mining, haulage & loading $10.74

Transhipment $ 5.17

Site & Cairns administration $ 2.57

Royalties $6.88

Total $25.36

Project Development Schedule (February 2016 estimation)

Event Scheduled Dates

Preliminaries (EA approval, recruitment, etc) June 2016 – October 2016

Mine and wharf loading construction July 2016 – March 2017

Mobilisation to site July 2016

Site infrastructure July 2016 – March 2017

Commence mining April 2017


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The Table above shows the development timeline estimation assuming all regulatory approvals are granted by June 2016 and project funding is obtained prior to the commencement of project development. The project development is expected to take 9 months to involve the following activities:

Ø Completion of preliminaries, final design, construction planning and mobilisation

Ø Construction of a new wharf loading facility consisting of dolphin piers north of the cargo ramp

Ø Acquisition and upgrade and expansion of the camp and related services

Ø Construction of other site infrastructure around the port for run of mine (ROM) stockpiling and processing, warehousing, workshops, water supply and site communications

The estimation of the SRBP Ore Reserves has been made in accordance with the requirements of the JORC Code (2012) by John Wyche, a Competent Person who is a member of The Australian Institute of Mining and Metallurgy. He is a full time employee of Australian Mine Design and Development Pty Ltd and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.” . John Wyche has consented in writing to the inclusion in this First Supplementary Target’s Statement of the information set out above, in the form and context in which it appears.

The estimation of SRBP Mineral Resources has been made in accordance with the requirements of the JORC Code (2012) by Jeff Randell, a Competent Person who is a member of The Australian Institute of Geoscientists. He is a full time employee of Geos Mining, an independent geological consultancy, and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.” Jeff Randell has consented in writing to the inclusion in this First Supplementary Target’s Statement of the information set out above, in the form and context in which it appears.

The DFS referred to in this section was complied by Weidong Zhang, the Managing Director of Gulf, and George Gaal, a Business and Commercial Consultant to Gulf.

Weidong Zhang obtained a Ph.D in Chemical and Materials Engineering from Auckland University in 1992. He has over 20 years of aluminium industry experience which includes the technology and project development division of Comalco Limited, now part of Rio Tinto Group from 1992 to 1997. In 1998 he joined Sino Mining International Limited in Sydney specialized in resource project development targeting the demand of the Chinese market and the associated project financing and product marketing. Since 2000 Weidong was involved in the development, implementation and management of Sino Mining’s US$240 million investment project in Alcoa worldwide bauxite and alumina production facilities until 2008. Weidong Zhang was engaged by Gulf in 2008. George Gaal (B Bus, Dip CM, FGIA, CPA) was engaged by Gulf in September 2009 to provide advice and support to executive management covering a range of pre development activities involving commercial, general management issues and financial matters. Prior to this role, George Gaal was the CFO of the ASX listed Minerals Corporation Limited that operated the kaolin business at Skardon River.


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9 Retraction of statement regarding Skardon River North Tenement

The Skardon River North Tenement has not been explored by Gulf and has not been valued. The statement in Section 2 of the Target’s Statement that Gulf will also endeavour to increase the Skardon River Mine life by mining at Skardon River North Tenement should be ignored and such statement is retracted. The Gulf Directors are not relying on such statement in recommending to shareholders not to accept the Metro Offer.

10 Retraction of statement regarding Convertible Notes

In Section 3.2 of the Target’s Statement Gulf stated that convertible notes were purchased by a party on an arm’s length basis for the equivalent price of $0.2756 per share (including transaction costs) and not $0.15 as claimed by Metro. Gulf was not involved so the purchase was arms length from Gulf but Gulf is not certain whether the Notes were in fact purchased on an arm’s length basis between the seller and the buyer, and accordingly the statement that they were purchased on arms lengths basis should be ignored and is retracted. Gulf Directors do not base their recommendations on this statement.

11 Update on EIS Approval and Project Timeframe

Submissions on Gulf’s EIS were received on 21 December 2015. Key issues in submissions have been identified and, where required, specialist studies are underway to respond to particular technical aspects of submissions. These technical aspects can be summarised as providing greater detail on particular design issues and impacts of the Project, rather than fundamental issues with the assessment of Project impacts. The response to the majority of submissions requires clarifying information already presented in the EIS, the provision of minor additional information or additional commitments from Gulf on environmental and social management.

The amended EIS and submission response document is expected to be submitted by not later than 24 March 2016. The Queensland Department of Environmental and Heritage Protection (EHP) will then review the EIS responses for adequacy and, if satisfied with responses, prepare an EIS Assessment Report. The EIS Assessment Report may be finalised in May 2016. This will form the basis for the Project’s EA, in approximately June 2016. Note that the estimated timeline is dependent on EHP’s process in finalising the EIS Assessment Report and the EA.

The EA is prerequisite for Project construction to commence which is also subject to adequate funding for the project capital expenditure being secured in time.

12 Consents

The following persons have given and have not, before the date of this First Supplementary Target’s Statement, withdrawn their consent:

a) To be named in this First Supplementary Target’s Statement in the form and context in which they are named;


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b) For the inclusion of their respective reports or statement’s (if any) noted next to their names and the references to those reports or statements in the form and context in which they are included in this First Supplementary Target’s Statement; and

c) For the inclusion of other statements in this First Supplementary Target’s Statement which are based on or referable to statements made in those reports or statements, or which are based on or referable to other statements made by those persons in the form and context in which they are included.

Name of person Named as Reports or statements

ACT2 Pty Limited Mathew (Jun Jie) Gu Cheng Wang Weidong Zhang Hong Jiang George Birch George Gaal Aulis John Keppo Quiyun Shen Amanda (Yitong) Li Yanhua Liu Wenzhen Zhang John Wardman and Associates Pty Ltd Shandong Nanshan Aluminium Co. Ltd

Non-‐Participating Gulf Shareholders

As to their intention not to accept the Offer other than a substantially improved offer, taking account of whether it has been recommended to Gulf Shareholders unanimously by the Gulf Board, and the reasons for that recommendation.

Edale Capital Pty Limited Non-‐Participating Gulf Shareholder

As to its intention not to accept the Offer other than an improved offer.

The Directors of Gulf Alumina Limited

Directors or Gulf Board Statements of Opinion and Intention.

John Wyche Competent Person Information relating to Gulf’s mineral reserves

Jeff Randell Competent Person Information relating to Gulf’s mineral resource

George Gaal Consultant Information contained in Section 8

Weidong Zhang Managing Director of Gulf Information contained in Section 8


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13 Authorisation

This document has been approved by a resolution passed by the directors of Gulf. Signed for and on behalf of Gulf Alumina Limited Weidong Zhang Director


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Target’s Statement


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Documents

First Supplementary Target’s Statement