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Strictly Private and Confidential Sapphire Integrated Beef Operations (“Sapphire”) Dr Shane Blakeley +61 458 651 659 [email protected]

Sapphire Beef IM

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This presentation provides an overview of the Sapphire Beef project. An opportunity to invest in an integrated beef supply chain in Queensland, Australia.

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Page 1: Sapphire Beef IM

Strictly Private and Confidential

Sapphire Integrated Beef Operations (“Sapphire”)

Dr Shane Blakeley+61 458 651 [email protected]

Page 2: Sapphire Beef IM

Agenda

2

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 3: Sapphire Beef IM

3

Area (ha) Water (ML)

Name Grazing Dryland Irrigation Total Gen security Harvested Storage

Ekari Park 24,633     24,633   n/a  n/a  n/a 

Ballaroo 10,963 500 11,463 n/a n/a n/a

Mt Driven 26,260 700 26,960 n/a n/a n/a

Woodlands 18,700 12,300 31,000 n/a n/a n/a

Murragoran 116 1,434 2,226 1,715 13,757 5,320

Sapphire   959 466 1,712   565 405 2,005

Total 80,556 14,575 1,900 97,994   2,280 14,162 7,325

A high quality property portfolio consisting of 98,000 ha and around 16,000 ML of general security and harvested water . . .

Page 4: Sapphire Beef IM

Property portfolio ...overview and locations

4

Ekari Park

Ballaroo

Mt DrivenWoodlands

Sapphire Feedlot

Murragoran

Area (ha) Water (ML)

Name Grazing Dryland Irrigation Total Gen security Harvested Storage

Ekari Park 24,633     24,633   n/a  n/a  n/a 

Ballaroo 10,963 500 11,463 n/a n/a n/a

Mt Driven 26,260 700 26,960 n/a n/a n/a

Woodlands 18,700 12,300 31,000 n/a n/a n/a

Murragoran 116 1,434 2,226 1,715 13,757 5,320

Sapphire   959 466 1,712   565 405 2,005

Total 80,556 14,575 1,900 97,994   2,280 14,162 7,325

Page 5: Sapphire Beef IM

...... the properties provide scale, security of supply and complementarity

5

Ekari Park

Ballaroo

Mt DrivenWoodlands

Sapphire Feedlot

Murragoran

Area (ha) Water (ML)

Name Grazing Dryland Irrigation Total Gen security Harvested Storage

Ekari Park 24,633     24,633   n/a  n/a  n/a 

Ballaroo 10,963 500 11,463 n/a n/a n/a

Mt Driven 26,260 700 26,960 n/a n/a n/a

Woodlands 18,700 12,300 31,000 n/a n/a n/a

Murragoran 116 1,434 2,226 1,715 13,757 5,320

Sapphire   959 466 1,712   565 405 2,005

Total 80,556 14,575 1,900 97,994   2,280 14,162 7,325

Page 6: Sapphire Beef IM

1.Backgrounding A string of grazing properties to grow out and pre-condition 20,000 head for the feedlot and 3,000 grassfed bullocks per year

Ekari Park, Ballaroo, Mt Driven, Woodlands

2. Dryland farming

14,000 ha of fertile, productive farming country to produce grain for the feedlot, forage crops for crop fattening and a silage reserve for drought mitigation

Woodlands, Mt Driven, Ballaroo

3. Irrigation 1,900 ha of irrigation farming to provide forage for the feedlot and cotton and grain cash crops

Murragoran, Sapphire

4. Feedlot The current 6,000 head feedlot can be expanded to15,000 head capacity, producing 60,000 quality cattle per year to exacting market specifications

Sapphire

. . . forming a robust, reliable supply chain, consisting of four key areas of operations

6

Page 7: Sapphire Beef IM

Secure cattle supply

Strong, widespread buyer network Backgrounding stations enable strategic & tactical buying, according to the market They also provide flexibility in diverting out of spec cattle to the grassfed stream And control the preparation of 40% to 50% of the feedlot’s cattle intake

Secure feed supply

Forage cropping to accelerate the backgrounding cattle Irrigation underpins 100% of the feedlot’s forage demand The dryland farming provides 50% of its grain requirement

Secure markets

Inner circle supplier to Australian Country Choice/Coles Long term supply relationships with the major export abattoirs

Drought mitigation

Option to sell down grassfed bullocks to free up country for backgrounding feeder cattle Silage reserve and drought feedlot on Woodlands Irrigated cotton acreage can be assigned to grain production if necessary

Diversification High value dryland grain and pulse production provide a natural hedge against feed grain price movements

The irrigated cotton production provides a high value, diversified income stream while enabling the flexibility to convert that area to grain in drought years

Strong management

Accomplished, experienced and committed management team Depth of specialist technical advisors and consultants Comprehensive business and reporting systems

with compelling strategic advantages ...

7

Page 8: Sapphire Beef IM

Macro World demand for protein is increasing and as incomes in developing countries continue to improve. A large portion of that demand will be directed towards red meat.

This increase in global demand will be constrained by limitations or even reductions in the world cattle herd and production of beef.

Also driven by structural changes in population growth, urbanisation in the developed worlds, scarcity of available land and water rights and climate change

This combination of increasing global demand and domestic consumption points to a promising future for innovative and professionally managed beef production enterprises

Micro Properties characterised by fertile soils, fertile soils and efficient infrastructure

Substantial irrigation component

Modern feedlot complex

Strategically located in terms of cattle supply, access to feedstocks, services

Established markets and supply relationships

Scope for development and expansion

Capital structure supported by significant land and water assets with strong capital gain prospects

. . . underpinned by strong fundamentals

8

Page 9: Sapphire Beef IM

Establishment pathway

Gro

wth

Est

abli

shm

ent • Property acquisition

• Staff engagement• Buyer network• Marketing alliances• Management

systems

Year 1

TransitionO

per

atio

ns

Ma

rke

tin

g

• Expand feedlot to 8,700 SCU

• Expand irrigation to 2,400 ha

• Consolidate ACC alliance

• Active marketing of 100 day bullocks

Year 2

• 8,700 head feedlot• Intensify grazing

strategies• Irrigation farming ops• Dryland farming ops

• Expand feedlot to 10,000 SCU

• Develop Woodlands drought reserve complex

• Expand supply to Australian Country Choice• Explore direct beef marketing opportunities• Explore direct grain marketing opportunities

Years 3 to 5

• 10,000 to 15,000 head feedlot

• Cattle supply alliances• Irrigation farming ops• Dryland farming ops

• Expand to 15,000 SCU• Explore renewable

energy opportunities• Explore carbon credit

opportunities

• 6,000 head feedlot• Build up cattle stocks• Irrigation farming ops• Dryland farming ops

9

Core growth is expansion of inventory and feedlot capacity from 6,000

currently to 15,000 by Year 4 (2015)

Page 10: Sapphire Beef IM

Indicative capital requirement . . .

10

Property acquisitions (a) Funds required

Ekari Park $11,000,000 Property purchases (a) $100,000,000

Ballaroo $7,000,000 Acquisition costs (b) $5,250,000

Mt Driven $12,000,000 Development capital (c) $4,800,000

Woodlands $32,000,000 Plant & equipment (d) $6,345,000

Murragoran $26,000,000 Cattle inventory (e) $15,484,607

Sapphire $12,000,000 Working capital (f) $10,963,890

Total $100,000,000 Transaction Value (g) $142,843,497

LVR (assumed) (h) 50%

Debt (indicative only)  (i) $50,000,000

Indicative equity amount (j) $92,843,497

Notes (a) Represents capital amounts required to acquire properties (b) Represents stamp duty costs (c) Development capital is capital required to expand the feedlot to 8,700 head expansion. Represents construction of additional

pens and to expand irrigation on the sapphire property (lateral move irrigator). Additional expansion is funded from cashflow(d) Plant and equipment include existing machinery to be purchased from the Gibbs family property and further plant and

equipment (including heave machinery such as tractors etc) required for the other grazing properties (e) Represents acquisition of the Gibbs family cattle [c10,000 head] for $8.6m and additional purchases of $6.9m [12000-14000]

of cattle in the first 12 months. Additional cattle purchases are undertaken from cashflow (f) Working capital represents feedlot working capital and cropping seasonal finance(g) Estimated total transaction value (h) Assumed LVR of 50% only on property capital value at (a)(i) Estimated level of debt (illustrative only)(j) Estimated equity requirement (illustrative only)

Page 11: Sapphire Beef IM

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$51.41

$72.07

$89.06

$103.58 $103.58

$12.64 $16.42

$19.06 $21.43 $21.43

$7.80 $11.45 $14.03 $16.35 $16.35

Revenue Gross margin EBITDA

Summary financials

1111

Feedlot capacity: 6,000

Feedlot capacity: 15,000

Revenue and EBITDA 2012(f)- 2016(f) AUDm

Page 12: Sapphire Beef IM

Agenda

12

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 13: Sapphire Beef IM

Property portfolio ...overview and locations

13

Ekari Park

Ballaroo

Mt DrivenWoodlands

Sapphire Feedlot

Murragoran

Area (ha) Water (ML)

Name Grazing Dryland Irrigation Total Gen security Harvested Storage

Ekari Park 24,633     24,633   n/a  n/a  n/a 

Ballaroo 10,963 500 11,463 n/a n/a n/a

Mt Driven 26,260 700 26,960 n/a n/a n/a

Woodlands 18,700 12,300 31,000 n/a n/a n/a

Murragoran 116 1,434 2,226 1,715 13,757 5,320

Sapphire   959 466 1,712   565 405 2,005

Total 80,556 14,575 1,900 97,994   2,280 14,162 7,325

Page 14: Sapphire Beef IM

Ekari Park

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Carrying capacity: 6,000 AE

• 80% improved pasture; bambatsi, rhodes grass, silk sorghum and buffel

• Balance naturally established buffel

• Well designed subdivision and infrastructure

• New 1,500 head cattle yards, centrally located

• Watered by 35 dams plus 2 bores reticulated to 8 troughs

• Homestead, quarters and outstation cottage

• Bitumen road frontage; triple road train access

Ekari Park is a very well developed backgrounding property, strategically located to

draw cattle from western Queensland.

Property overview Detailed Property Map

Pulled & blade ploughed 6,500 ha

Pulled 13,000 ha

Timber & watercourses 5,133 ha

Total area 24,633 ha

14

Page 15: Sapphire Beef IM

Ballaroo

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Carrying capacity: 3,000 AE

• 2,000 ha brigalow country sown to bambatsi, rhodes grass, silk sorghum, bluegrass & stylo

• Balance well established buffel

• Fifteen main paddocks, mainly new fencing

• New 800 head cattle yards

• Watered by creek, 19 dams plus 2 bores reticulated to 30-odd troughs

• Homestead and two cottages

• 60 km south of Roma; bitumen to within 10 km

Ballaroo is close to Roma saleyards, the largest livestock selling centre in Australia and is

renowned as a very reliable fattening property.

Property overview Detailed Property Map

Cultivation 500 ha

Pulled & blade ploughed 2,200 ha

Pulled 7,900 ha

Timber & watercourses 863 ha

Total area 11,463 ha

15

Page 16: Sapphire Beef IM

Mt Driven

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Carrying capacity: 6,000 AE plus farming

• Brigalow country sown to bambatsi, rhodes grass, digitaria, wynn cassia & stylo

• Balance well established buffel

• Scope for further pasture development/farming

• Thirty-five main paddocks, laneways

• Two sets of 1,200 head cattle yards

• Watered by Moonie River, 44 dams and 3 bores

• Two homesteads, four cottages plus quarters

• Moonie Highway bitumen frontage

A strategically located, productive backgrounding property with potential to

increase numbers by 30% to 50%.

Property overview Detailed Property Map

Cultivation 700 ha

Brigalow/belah pasture development 4,700 ha

Buffel pastures 21,560 ha

Total area 26,960 ha

16

Page 17: Sapphire Beef IM

Woodlands

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Carrying capacity: 6,000 AE plus farming

• Farming country mainly brigalow/belah self mulching clays

• Over 100 main paddocks connected by laneways

• Two main yards (800 & 1,00 head) and two smaller sets (800 head)

• 2,000 SCU feedlot, 6,000 SCU licence

• Moonie Highway bitumen frontage

In addition to the backgrounding function, Woodlands’ farming operation produces much of the project’s grain demand and provides a

crop fattening and drought relief capacity.

Property overview Detailed Property Map

Cultivation 12,300 ha

Pulled & blade ploughed 4,700 ha

Open grazing 14,000 ha

Timber & watercourses 2,871 ha

Total area 33,871 ha

17

Page 18: Sapphire Beef IM

Murragoran

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Level, self-mulching grey/black clay soils

• 1,715 ML general security water and 13,757 ML water harvesting licences

• 5,320 ML on-farm storage in three cells

• Homestead and cottage

• Four machinery sheds, 3,000 tonnes of grain storage and 10,000 tonnes silage storage

• Small 700 SCU feedlot

The irrigation on Murragoran provides silage for the feedlot.

It also supports a substantial cotton enterprise.

Property overview Detailed Property Map

Irrigation 1,484 ha

Cultivation 116 ha

Grazing, storage & support land 676 ha

Total area 2,226 ha

18

Page 19: Sapphire Beef IM

Sapphire feedlot

Ekari Park

Ballaroo

Mt Driven

Woodlands

Murragoran

Sapphire

Location Map

• Land use:

• Chocolate/grey brigalow/belah and wilga soils

• 565 ML general security water and 405 ML water harvesting licences

• 2,005 ML on-farm storage

• Scope to add another 400 ha lateral move irrigator to the irrigated area

• Fully equipped 6,000 SCU feedlot with approval to expand to 8,700 SCU

• Office and weighbridge complex

• Feed mill, hay shed, 1,300 tonnes of grain storage and 25,000 tonnes silage storage

The Sapphire feedlot is the focal point of the project, ensuring a reliable supply of cattle to

high value markets..

Property overview Detailed Property Map

Irrigation 466 ha

Cultivation 959 ha

Grazing, storage & support land 287 ha

Total area 1,712 ha

19

Page 20: Sapphire Beef IM

Agenda

20

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 21: Sapphire Beef IM

Production system

21

Grain

Backgrounding

Entry

Dryland farming

Entry

Irrigation farming

Entry Entry

Grass fed bullocks

Entry

70 day trade cattle

Entry

100 day Jap ox

Entry

Cotton & grain

Entry

Feedlot

Entry

• 21,000 AE capacity

• Supplies 50% of feedlot cattle intake

• 20% of herd as grass fed bullocks

• Supplies grain to the feedlot

• Provides crop fattening for cattle

• Also conserved forage for drought reserve

• Produces 100% of feedlot’s forage

• Also a significant cotton and grain operation

• 8,700 SCU licence

• 6,000 SCU developed

• Reliable supply of cattle for high value markets

• Sold to south-east Queensland meatworks

• Inner circle supplier to ACC/Coles

• Sold to south-east Queensland meatworks

• Diversified income stream

• 5,000 - 10,000 bales/yr

Fod

der

crop

s

Fee

der

catt

leS

ilage

Products Inputs

Page 22: Sapphire Beef IM

Supply chain landscape

22

Page 23: Sapphire Beef IM

Ekari Park 24,633 ha

Ballaroo 10,963 ha

Mt Driven 26,260 ha

Woodlands 18,700 ha

Total area 80,556 haCarrying capacity 21,500 AE

Four key divisions

23

Backgrounding

Properties located to draw cattle from western Qld and northern NSW

Large operations with highly productive pastures, infrastructure designed for low cost, efficient stock management & significant economies of scale

80% of the cattle are managed to produce pre-conditioned feeder cattle

The balance are grass fed bullocks, providing flexibility to free up resources in drought years

Dryland farming

Major grain producer

Fertile brigalow soils, modern technology and infrastructure optimise yields and operating efficiency

Output can be directed to the feedlot

or high quality grain can be sold and cheaper grain bought for the feedlot

Also produces forage crops (oats, sorghum) to fatten cattle

and silage and hay for drought reserves

Irrigation

Primary purpose is to ensure 100% forage self sufficiency for the feedlot

Also a significant cotton operation with planted area adjusted to water availability

The irrigation can also be assigned to grain production in severe drought years

At least another 400 ha of dryland cultivation on Sapphire can be developed to irrigation

Feedlot

Modern feedlot complex with robust environmental and animal welfare management systems in place

Sourcing 50% of its cattle from the backgrounding properties

Balance from alliance suppliers and the established buyer network

Inner circle supplier to ACC/Coles

Long established relationships with other major processors

Ballaroo 500 ha

Mt Driven 700 ha

Woodlands 12,300 ha

Murragoran 582 ha

Total area 14,082 ha

Murragoran 1,434 ha

Sapphire 959 ha

Total area 2,393 ha

General security 2,280 ML

Water harvesting 14,162 ML

Storage 7,325 ML

Current capacity 6,000SCU

Licenced capacity 8,700SCU

Potential capacity 15,000SCU

Page 24: Sapphire Beef IM

Backgrounding: Feeder cattle

24

Backgrounding

Dryland farming

Irrigation

Feedlot

Entry Sourced by buyer team to specifications issued by the pastoral manager Preference is for no more than 5/8th bos indicus Target entry weight of 225 kg Preference for stock sourced direct from breeders with minimal reliance on sale yards Entry vaccinations and treatments in accordance with feedlot policy and requirements

Grow out Monitor feed availability and quality with this stream having priority access Emphasis on water availability and quality Schedule crop fattening if available This group has priority access to the Woodlands silage drought reserve Target 0.6 kg average daily gain over a 200 day period for a total gain of 120 kg/head

Turnoff Target feedlot entry criteria:dentition: milk toothlive weight: 350 kg

Only cattle within the feedlot’s specified weight and definition range are suitable for feedlot entry

Cattle gaining less than 0.4 kg per day are culled as stores Cattle above the maximum weight and definition criteria are transferred to the grass fed

bullock stream This stream will provide about 50% of the feedlot’s annual cattle intake, i.e. 23,000

head per year

Page 25: Sapphire Beef IM

Backgrounding: Grass-fed bullocks

25

Entry Sourced by buyer team to specifications issued by the pastoral manager No restriction on bos indicus content Target entry weight of 350 kg This group can also absorb cattle that do not fit the exact feeder cattle entry and exit

criteria Vaccinated and implanted on entry with minimal co-mingling

Grow out Monitor feed availability and quality with this stream having priority access Emphasis on water availability and quality Schedule crop fattening if available This group can be progressively terminated if seasonal conditions deteriorate,

preserving pasture for the feeder stream Target 0.6 kg average daily gain over a 15 month period for a total gain of 250kg/head

Turnoff Target exit criteria:dentition: 0-4 toothlive weight: 550-650 kgP8 fat: 7-22 mm

Aiming to turn off 3,000 head per year

Backgrounding

Dryland farming

Irrigation

Feedlot

Page 26: Sapphire Beef IM

Dryland farming

26

Backgrounding

Dryland farming

Irrigation

Feedlot

Grain production

Dryland grain production will be focused on the southern section at Woodlands Where insufficient water is available for a full irrigated cropping program on Sapphire

and Murragoran, unused irrigation acreage will be allocated to dryland farming Cropping decisions will be based on soil moisture available with the planting window for

each variety and market prospects for those crops. The mix will be approximatelyWinter cereal 35%Winter pulses 40%Summer coarse grains 25%

• Stubble will be baled and used in the feedlot with any excess sold to other feedlots

Crop fattening The farming areas on Ballaroo, Mt Driven and the northern section of Woodlands will be allocated to fodder crops for grazing; forage sorghum in summer and oats in winter

In favourable seasons, this would enable the fattening of an additional 15,000 cattle for 100 days, gaining 1.0 to 1.2 kg per head per day

The economics of crop fattening versus grain production will be evaluated before committing to a forage cropping program

Silage reserve A silage reserve will be established at Woodlands to enable the Woodlands feedlot to serve as a drought relief facility for the backgrounding operation;

It is intended to establish a reserve of 30,000 tonnes and silage over a three year period requiring an average 500ha per year planted to graze and grain sorghum varieties

This tonnage is sufficient to feed the backgrounding cattle one year in four for 60 days The silage reserve will be replenished as seasonal conditions permit

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Irrigation farming

27

Backgrounding

Dryland farming

Irrigation

Feedlot

Forage Corn silage is the forage of choice, provided water supply is secure If water supply is limited, planting will switch to sorghum silage Silage fields have priority for composted manure Target yields of 20 tonnes silage dry matter/ha for both corn and sorghum silage Annual silage demand is around 5,000 tones dry matter, requiring approximately 250

irrigated ha per year Silage production has first call on irrigation water

Cotton Cotton has second priority for water after forage The crop will be managed under the Australian cotton industry’s Best Management

Practice guidelines Aim to produce 7,500 bales per year

Grain In drought years when grain is scarce, the irrigation operation can be assigned to grain production to support the feedlot

The grain crop will be managed under principles adapted from the Australian cotton industry’s Best Management Practice Stubble from irrigated grain crops will be baled and used in the feedlot

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28

Backgrounding

Dryland farming

Irrigation

Feedlot

Entry 50% of the feeder cattle will come via the backgrounding stream with 50% sourced externally by the buying team to the feedlot manager’s specification

Preference is for no more than 5/8th bos indicus Target specifications:

dentition: milk toothlive weight: 350 kg

• Comprehensive animal health protocol on induction

Grow out Scrupulous attention to feed bunk management and water quality and quantity Rations designed to optimise cost of gain and minimise health problems Cattle inspected everyday with sick animals treated according to feedlot procedures Contingency plans in place for high heat load events Target 2.0 kg/day gain over the 70 day period at a feed conversion ratio of 6.0:1

Turnoff Target exit criteria:dentition: 0-2 toothlive weight: 450-500 kgP8 fat: 4-18 mm

Mouth cattle within 4 days of exit to ensure conformance; Cattle not meeting the ACC spec can be sent to Swifts or can enter 100 Jap ox stream Kill space and pricing will be fixed 4 to 6 weeks prior to the anticipated close out date Aiming to turn off 31,000 head per year

Feedlot: 70 day trade cattle

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29

Feedlot: 100 day Jap oxBackgrounding

Dryland farming

Irrigation

Feedlot

Entry 50% of the feeder cattle will come via the backgrounding stream with 50% sourced externally by the buying team to the feedlot manager’s specification

Target specifications:dentition: 0-2 toothlive weight: 450 kg

• Comprehensive animal health protocol on induction

Grow out Managed under the same procedures as the 70 day cattle Target 2.0 kg/day gain over the 100 day period at a feed conversion ratio of 7.5:1

Turnoff Target exit criteria:dentition: 0-2 toothlive weight: 450-500 kgP8 fat: 4-18 mm

Kill space and pricing will be fixed 4 to 6 weeks prior to the anticipated close out date Aiming to turn off 14,500 head per year

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Australian Country Choice

• ACC process all the beef for Coles stores in Queensland and northern New South Wales at their meatworks at Cannon Hill, Brisbane

• They have very tight product specifications but their prices for in-spec product are the best available

• They process about 5,000 head per week, of which 50% comes from their own feedlots• Sapphire is one of only ten preferred external suppliers

JBS Swifts Australia’s largest meat processor with four plants in Queensland with a combined kill capacity at approximately 6,000 head per day

The Queensland plants kill all the cattle for their Queensland and New South Wales feedlots (4 feed yards with a combined capacity of approximately 90,000 head)

Their main plant in south-east Queensland is at Dinmore near Ipswich Sapphire has been supplying cattle to Swifts for twenty years.

Others Kilcoy Pastoral John Dee Teys Bros Stanbroke Bindaree Beef

 Kilcoy Warwick Beenleigh Grantham Inverell

Export markets

Potential to export frozen quarter beef to China, Indonesia and the Middle East Service kill capacity at Warwick and Casino

Key customers

30

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Output

31

Year 1 Year 2 Year 3 At capacity

Cattle Feeder cattle 13,800 20,300 20,300 20,300 head

70 day trade 15,900 22,400 26,000 39,000 head

100 day Jap ox 8,100 11,500 13,300 20,000 head

Grassfed bullocks 0 2,600 2,600 2,600 head

Farming Silage (dry matter) 4,600 5,300 6,700 7,900 tonnes

Wheat 9,000 9,000 9,000 9,000 tonnes

Pulses 5,500 5,500 5,500 5,500 tonnes

Sorghum 9,700 13,300 10,100 9,500 tonnes

Cotton 7,900 7,900 7,900 7,900 bales

Page 32: Sapphire Beef IM

Critical success factors: Backgrounding

32

Cattle cost Close supervision of the buyer network

Develop supplier alliances

Animal health & welfare

Pre-entry health program

Minimal reliance on saleyard sourcing of cattle

Low stress stock handling and sound infrastructure

Drought management plan and fodder reserve

Pasture production

Rangeland management plan

Pasture monitoring and budgeting

Meeting specification

Compliance with entry weight and age specifications

Manage cattle by weight group

Crop fattening and nutritional supplementation

Backgrounding

Farming

Feedlot

Page 33: Sapphire Beef IM

Critical success factors: Farming

33

Preparation Moisture conservation

Minimum till

Minimise compaction/precision farming

Fertiliser application rates/soil testing

Time of planting

Weather

Contractor availability

Seed varieties

In crop husbandry

Water availability & timing/moisture probes

Fertiliser

Weed control

Pest & disease control

Time of harvest

Contractor availability

Weather

Backgrounding

Farming

Feedlot

Page 34: Sapphire Beef IM

Critical success factors: Feedlot

34

Cattle cost Close supervision of the buyer network Backgrounding/tactical buying Develop supplier alliances Pay for known performance

Animal health Induction health program Minimal reliance on saleyard sourcing of cattle Low stress stock handling and cattle-friendly infrastructure Daily supervision Heat stress mitigation Site hygiene

Feed cost High roughage diets Target low price, feed quality grain Internal supply

Average daily gain

Ration formulation Rigorous bunk management and hygiene Manage shy feeders

Marketing ACC preferred supplier status Forward contracts for Jap ox

Backgrounding

Farming

Feedlot

Page 35: Sapphire Beef IM

Risk management: Production

35

Backgrounding Flexibility to move stock between stations to match feed (pasture and fodder crops);

Use the Woodlands drought reserve feedlot to maintain production

Sell cattle out of the grass feed bullock stream to reduce grazing pressure.

Dryland farming

Crops only planted on adequate moisture profile

Minimum till farming, stubble retention and composting to optimise moisture retention.

Irrigation farming

A full irrigation program requires only 60% of the 16,000 ML water licence.

Forage production has priority use of available water

Feedlot Irrigation guarantees forage supply

Rigorous feeding management practices and ration design underpin performance

Comprehensive animal health procedures minimise disease problems

Biosecurity Animal biosecurity procedures to minimise the risk of animal disease introduction

The cotton industry Best Management Practice methodology to minimise plant disease and pest build up and introduction

Catastrophic loss

Geographic spread minimises the risk of wide spread hail or fire damage;

Crop insurance or self insure;

General property insurance and fire precautions reviewed annually

Production

Market & price

Regulatory

Page 36: Sapphire Beef IM

Risk management: Market and price

36

Grainfed cattle Store cattle and finished cattle tend to move in concert, providing a natural hedge

Emphasis on feeder cattle conformance to entry specification

Maintenance of ACC preferred supplier status is a priority

Ensure conformance to processor specifications before leaving the feedlot, diverting cattle at risk of non-conformance to an alternative stream

Rigorous analysis of non-conformance data to identify areas for improvement;

Look to forward contract where possible and profitable.

Grassfed bullocks

Again store and finished cattle prices tend to move in concert

Use the Woodlands drought reserve feedlot to finish these cattle if necessary

Farming commodities

Prime hard and feed grain prices tend to correlate, providing a natural hedge

Cotton can be forward sold

Agri-commodity marketing expertise will be drawn upon as required

Production

Market & price

Regulatory

Page 37: Sapphire Beef IM

Risk management: Regulatory

37

OH&S Comprehensive induction programs for employees and contractors

Employee manuals and written procedures

Benchmarking and external audit and review

Water licences Scrupulous water use history documentation

Participation in the water reform process

Agricultural practices

Strict adherence to Best Management Practice

Regular review of BMP compliance

Feedlot licencing

Strict adherence to the National Feedlot Accreditation Scheme conditions

Regular review of NFAS compliance

Expand feedlot capacity on Woodlands if unable to secure approval for Sapphire expansion from 8,700 to 15,000 SCU

Production

Market & price

Regulatory

Page 38: Sapphire Beef IM

Sustainability strategy

38

Environment • An environmental management policy will be developed and implemented

• The Australian cotton industry’s Best Management Practice system will be adapted to safeguard the property and surrounding environment

 Innovation • A systems management approach will be applied across the business

• Participation in industry information programs will provide access to the most recent technologies, products and ideas

 Social • Active participation in industry affairs; Agforce, ALFA and Border Rivers Food & Fibre

• Targeted support for local groups and events

• Emphasis on staff training and development

Economic • Cost control and profit focus

• Attention to asset maintenance and enhancement

• Growth strategy

 Regulatory • Policies and procedures to ensure compliance with regulatory standards

Page 39: Sapphire Beef IM

Growth opportunities

39

Internal Expand the feedlot to its licenced 8,700 SCU capacity

Apply to expand to 15,000 SCU or develop the Woodlands 6,000 approved licence

Develop additional 400 ha of irrigation on Sapphire

Expand the improved pasture development on the backgrounding properties

Develop direct markets for beef into China, south-east Asia and/or the Middle East

External Horizontal integration by acquiring additional backgrounding properties

Vertical integration by adding a breeding element to the project

Purchase additional water licences

Explore renewable energy and carbon trading opportunities

Page 40: Sapphire Beef IM

Agenda

40

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 41: Sapphire Beef IM

Organisational chart

41

General Manager

Pastoral manager

Ekari Park

Ballaroo

Mt Driven

Woodlands

Dryland manager

Woodlands

Ballaroo

Mt Driven

Irrigation manager

Murragoran

Sapphire

Feedlot manager

Livestock

Feeding

Logistics

Data collation

Business manager

Shane Blakeley

Ian McLean

Alex Leonard to be appointed Kylie Gibbs Arnel Corpuz

Page 42: Sapphire Beef IM

Key management profiles

42

Name Position Background

Dr Shane Blakeley General manager Shane is is a veterinarian with thirty years experience in managing farming operations in Australia and south-east Asia. He has also provided consulting services to an extensive range of clients including Meat and Livestock Australia and Ray White Rural.

Ian McLean Business manager Ian has worked in various positions in government, industry affairs and livestock production since graduating with a commerce degree in 2005.

Arnel Corpuz Feedlot manager Arnel has managed feedlots in the Philippines and Queensland since 2000. He has worked closely with Shane during this time and has agreed to take over the management of the Sapphire feedlot.

Alex Leonard Pastoral manager Alex has tertiary qualifications in animal science and has held management and strategic planning roles with AACo as well as running his own livestock contracting business. He will be based at Woodlands with responsibility for that site’s cattle operations as well as coordinating the other backgrounding properties’ operations.

Kylie Gibbs Irrigation manager Kylie has a Diploma in Agricultural Science from the University of Queensland. She and her husband have been responsible for the irrigation farming activities on Murragoran and Sapphire for the last seven years and will be invited to continue in this role.

Page 43: Sapphire Beef IM

Name Position Background

To be appointed Dryland farming manager

A suitably qualified manager will be recruited to supervise the dryland farming operations on Woodlands and to assist the Ballaroo and Mt Driven managers with forage cropping programs if necessary

Alternatively, a contractor may be engaged to provide these services

To be confirmed Property managers The property managers on Ekari Park, Ballaroo and Mt Driven will be offered continued employment

A livestock overseer will be recruited for Woodlands, answering to the pastoral manager

To be confirmed Field staff Most field staff on the target properties will be offered continued employment

Suitably qualified staff will be recruited to fill any gaps

43

Key management profiles (continued)

Page 44: Sapphire Beef IM

Buyer network

44

Scope The project requires 500 to 700 cattle per week for the backgrounding properties and a similar number direct to the feedlot

Coverage Sapphire has established arrangements in place with a number of cattle buyers across New South Wales and southern Queensland

One or two new buyers will be commissioned to source cattle from central and northern Queensland

Efforts will be made to develop direct alliances with cattle producers

Process Buyers will be issues weekly instructions, outlining numbers, rates, specifications and delivery points for backgrounding and feeder cattle

Buyer performance will be monitored and reviewed quarterly with regard to conformance to buying instructions and post-delivery cattle performance

Page 45: Sapphire Beef IM

Key advisors and consultants

45

Name Expertise Background

Vincent Posada Nutrition consultant Master degree in animal nutrition and range management from Texas A&M. Client base of feedlots, dairies and stock feed manufacturers in Australia, North and South America and south-east Asia.

Quirindi Feedlot Services

Veterinary consultant Sophisticated beef cattle practice, specialising in epidemiology, disease prevention and performance analysis

Phil Lockwood Agronomist Highly regarded local cotton and forage crops agronomist

Bruce Gunning Property acquisition and valuation

Licenced valuer in Queensland and NSW with forty years experience in high-value rural real estate.

Ostwald Bros Civil engineering Expertise in irrigation and feedlot design and construction.

Devine Agribusiness Land and vegetation management

Innovative business advisors with high level expertise in vegetation management policy and government liaison

Thynne Macartney Legal Legal practice with a specialist focus on rural property and agribusiness issues

Hanrick Curran Accounting Accountancy practice with an agribusiness group focusing on the beef industry

Page 46: Sapphire Beef IM

Agenda

46

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 47: Sapphire Beef IM

Acquisition assumptions.

47

Name Purchase Equipment Cattle Stocks Total

Ekari Park $11,000,000       $11,000,000

Ballaroo $7,000,000 $7,000,000

Mt Driven $12,000,000 $125,000 $4,500,000 $16,625,000

Woodlands $32,000,000 $32,000,000

Murragoran $26,000,000 $3,300,000 $700,000 $30,000,000

Sapphire $12,000,000 $950,000 $3,400,000 $2,500,000 $18,850,000

Total $100,000,000 $4,375,000 $7,900,000 $3,200,000 $115,475,000

Page 48: Sapphire Beef IM

Dryland farming Irrigation farming

Wheat yield 2.0 tonnes/ha Silage yield 60.0 tonnes/ha

Input cost $382 /ha Water use 7.5 ML/ha

Sales $250 /tonne Input cost $2,205 /ha

Chickpea yield 1.7 tonnes/ha Sales $75 /tonne

Input cost $411 /ha Cotton yield 10.5 bales/ha

Sales $450 /tonne Water use 8.2 ML/ha

Wheat yield 2.5 tonnes/ha Input cost $2,993 /ha

Input cost $383 /ha Sales $550 /bale

Sales $180 /tonne

Combined overheads $1,219,500 /year

Budget assumptions

48

Backgrounding 70 day Trade cattle 100 day Jap ox

Purchases 22,696 head/year Purchases 26,500 head/year Purchases 13,800 head/year

$2.00 /kg liveweight $1.95 /kg liveweight $1.70 /kg liveweight

Weight gain 0.60 kg/day Weight gain 2.10 kg/day Weight gain 1.90 kg/day

Mortality rate 0.50% Feed conversion 5.7 Feed conversion 7.2

Feeder sales $1.85 /kg liveweight Feed cost of gain $1.53 /kg Feed cost of gain $1.96 /kg

Grassfed sales

$3.50 /kg carcass wt Mortality rate 0.10% Mortality rate 0.10%

Dressing % 55% Dressing % 56%

Sales $4.00 /kg carcass wt Sales $3.80 /kg carcass wt

Overheads $1,605,530 /year Combined overheads $1,542,500 /year

Page 49: Sapphire Beef IM

EBITDA pre-aggregation

49

$6,000,000 $1,500,000

$2,400,000

GibbsWoodlands

Van Riet

$3,700,000

$4,200,000

$2,000,000

Backgrounding

Farming

Feedlot

2010(a) Proforma by division (pre aggregation)AUDm

Total 2010(a) proforma = $9.9m Total 2010(a) proforma = $9.9m

2010(a) Proforma by Vendor (pre aggregation)AUDm

Page 50: Sapphire Beef IM

with strong forecast growth in sales ...

50

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

Backgrounding DrylandIrrigation Feedlot

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

Cattle Cotton ForageGrain Other

Model Output Revenue by product 2012(f)- 2016(f) AUDm

Model Output Revenue by division 2012(f)- 2016(f) AUDm

Page 51: Sapphire Beef IM

and earnings

51

2012 2013 2014 2015 2016 $0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Backgrounding DrylandIrrigation Feedlot

2012 2013 2014 2015 2016 $0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Backgrounding DrylandIrrigation Feedlot

Model Output Gross margin by division 2012(f)- 2016(f) AUDm

Model Output EBITDA by division 2012(f)- 2016(f) AUDm

Page 52: Sapphire Beef IM

Consolidated financials ($ million)

5252

Year 1 Year 2 Year 3 Year 4 Year 6

Revenue $51.41 $72.07 $89.06 $103.58 $103.58

Gross margin $12.64 $16.42 $19.06 $21.43 $21.43

EBITDA $7.80 $11.45 $14.03 $16.35 $16.35

2012 2013 2014 2015 2016 $0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

Revenue Gross margin EBITDA

Establishment first full year at

capacity

AU

D m

illio

ns

Page 53: Sapphire Beef IM

(AUDm) Year 1 Year 2 Year 3 Year 4 Year 5

Cash Inflows

Equity $95.00

Bank debt $50.00

Nett sales receipts $32.46 $53.10 $69.54 $84.48 $87.38

Total Cash Inflows $177.46 $53.10 $69.54 $84.48 $87.38

Cash Outflows

Property acquisition $105.25

Property development $4.80 $3.80 $3.50 $0.50

Plant & equipment $6.35 $0.21 $0.41 $0.83 $0.86

Cattle inventory $15.45 $2.43 $3.23 $2.96

Total capex $131.84 $6.44 $7.14 $4.29 $0.86

Legals, etc $0.50

Operating expenditure $23.77 $44.43 $57.45 $67.47 $70.44

Interest $3.50 $3.50 $3.50 $3.50 $3.50

Tax $0.94 $1.98 $2.70 $3.40 $3.41

Total cash outflows $160.56 $56.35 $70.79 $78.67 $78.21

Net cash flow $16.90 ($3.24) ($1.25) $5.81 $9.18

Ending cash at bank $16.90 $13.66 $12.41 $18.22 $27.39

Detail: Sources and application of funds

53

Establishment first full year at

capacity

$18m of cash flow from operations is utilised to expand

the feedlot to 15,000 head capacity

Page 54: Sapphire Beef IM

Detail: Profit & loss

54

(AUDm) Year 1 Year 2 Year 3 Year 4 Year 5

Feedlot revenue $29.04 $40.92 $56.75 $71.27 $71.27

Grazing revenue $9.82 $17.40 $17.40 $17.40 $17.40

Farming revenue $12.55 $13.75 $14.90 $14.90 $14.90

Total revenue $51.41 $72.07 $89.06 $103.58 $103.58

Feedlot cash costs ($29.18) ($40.47) ($54.07) ($63.83) ($63.83)

Grazing cash costs ($12.65) ($13.46) ($13.46) ($13.46) ($13.46)

Farming cash costs ($8.23) ($8.75) ($9.34) ($9.34) ($9.34)

Central overheads ($0.60) ($0.60) ($0.60) ($0.60) ($0.60)

Consolidated cash flow $0.75 $8.79 $11.59 $16.35 $16.35

Changes in inventory $7.05 $2.67 $2.44    

Consolidated EBITDA $7.80 $11.45 $14.03 $16.35 $16.35

Depreciation ($1.15) ($1.34) ($1.51) ($1.51) ($1.47)

EBIT $6.64 $10.11 $12.51 $14.84 $14.88

Interest ($3.50) ($3.50) ($3.50) ($3.50) ($3.50)

Taxable Income $3.14 $6.61 $9.01 $11.34 $11.38

Tax ($0.94) ($1.98) ($2.70) ($3.40) ($3.41)

Profit after tax $2.20 $4.63 $6.31 $7.94 $7.96

Represents cattle

purchases

Establishment first full year at

capacity

Page 55: Sapphire Beef IM

Detail: Balance sheet

55

(AUDm) Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Property portfolio $105.25 $110.51 $116.04 $121.84 $127.93

Fixed improvements $4.44 $7.62 $10.29 $9.98 $9.23

Plant & Equipment $5.55 $5.04 $4.77 $4.90 $5.03

Livestock inventory $17.27 $19.94 $22.38 $22.38 $22.38

Accounts receivable $8.11 $11.25 $14.57 $17.48 $17.48

Cash $16.90 $13.66 $12.41 $18.22 $27.39

Total $157.53 $168.02 $180.45 $194.79 $209.45

Liabilities

Bank debt $50.00 $50.00 $50.00 $50.00 $50.00

Trade creditors

Tax $0.94 $1.98 $2.70 $3.40 $3.41

Total $145.94 $146.98 $147.70 $148.40 $148.41

Assets over liabilities $11.58 $21.03 $32.75 $46.39 $61.03

Page 56: Sapphire Beef IM

(AUDm) Farming Grazing Feedlot Total AdjustedRevenue          External sales $10.20 $3.01 $73.01 $86.22 $86.22Internal transfers $3.95 $14.39 $0.00 $18.34 $0.00Total $14.14 $17.40 $73.01 $104.56 $86.22           Costs          External direct costs -$8.12 -$11.86 -$44.54 -$64.51 -$64.51Internal transfers $0.00 $0.00 -$18.34 -$18.34 $0.00Enterprise overheads -$1.34 -$1.61 -$1.66 -$4.61 -$4.61Central overheads -$0.20 -$0.20 -$0.20 -$0.60 -$0.60Total -$9.66 -$13.66 -$64.74 -$88.06 -$69.73           Gross margin $6.02 $5.55 $10.13 $21.71 $21.71% of annual sales 43% 32% 14% 21% 25%           EBITDA $4.48 $3.74 $8.27 $16.49 $16.49% of annual sales 32% 21% 11% 16% 19%

Operating cycle (months) 12 9 4    Annualised GM/Sales 43% 42% 42%    Annualised EBITDA/Sales 32% 29% 34%    

Turnover ratiosExclude payments

for internal transfers

Page 57: Sapphire Beef IM

Agenda

57

• Executive Summary

• Property portfolio

• Operations

• Management

• Financials

• Conclusion

Page 58: Sapphire Beef IM

Conclusion

• Sapphire provides an opportunity to assemble a compelling vertically integrated beef supply chain at a significant capacity of (15,000 head) with compelling strategic advantages including: • Secure cattle supply, Strong, widespread buyer network, Backgrounding stations enable strategic & tactical

buying, according to the market• Secure feed supply Forage cropping to accelerate the backgrounding cattle Irrigation underpins 100% of the

feedlot’s forage demand The dryland farming provides 50% of its grain requirement• Secure markets Inner circle supplier to Australian Country Choice/Coles Long term supply relationships with

the major export abattoirs• Drought mitigation Option to sell down grassfed bullocks to free up country for backgrounding feeder cattle,

Silage reserve and drought feedlot on Woodlands irrigated cotton acreage can be assigned to grain production • Diversification, High value dryland grain and pulse production provide a natural hedge against feed grain price

movement. The irrigated cotton production provides a high value, diversified income stream while enabling the flexibility to convert that area to grain in drought years

• Strong management Accomplished, experienced and committed management team Depth of specialist technical advisors and consultants Comprehensive business and reporting systems

• Favourable Macro thematic World demand for protein is increasing and as incomes in developing countries continue to improve. A large portion of that demand will be directed towards red meat. This increase in global demand will be constrained by limitations or even reductions in the world cattle herd and production of beef. Also driven by structural changes in population growth, urbanisation in the developed worlds, scarcity of available land and water rights and climate change

• High value constituent assets Properties characterised by fertile soils and efficient infrastructure. Substantial irrigation component, Modern feedlot complex, strategically located in terms of cattle supply, access to feedstocks and services. Established markets and supply relationships

• The aggregation consists of motivated vendors (driven mostly by generational change) and is open to discussing acquisition and strategic options with prospective investors

58