2014 12 01 Nova Scotia Diligence Report - Web Ready

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SALE OF

THE

DONKIN

Submitted to:

Submitted

by:

Donald

I

James Ph.D.,

P.Geo.

Executive Director

Geoscience and Mines

ranch

Department

of

Natural

Resources

4th

Floor,

Founders

Square

1701 Hol li s Street

P0 Box 698

Halifax, Nova Scotia B3J

2T9

Golder

Associates

Ltd.

33

Alderney

Drive, Suite 460

Dartmouth, Nova

Scotia

Canada B2Y 2N4

T [+1]

902 466 1668

F

[+1] 902

466

1669

Dr. Donald

T.

James

Golder Associates Ltd.

Golder

Associates Inc.

Project

No. 1408858

F

Golder

Associates

TECHNICAL

DUE

DILIGENCE

OFTHECLINE

GROUP

PROJ

ECT

Distribution:

Electronic

opy

Electronic

opy

Electronic opy

December

2014

Golder Golder Associates and

the

GA globe

design are

trademarks

of Golder

Associates

corporation

Obtained through a Freedom of Information Act request

by Global News, 16x9


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December 2014

Project

No.

1408858

Table

of Contents

EXECUTIVE SUMMARY

ES I

1.0

INTRODUCTION

I

2.0

EXPLORATION DEVELOPMENT TECHNICAL OPERATING

EXPERIENCE OF

CLINE 3

2.1

Exploration

3

2.2 Development

3

2.3 Technical

Operating

Experience

4

2.4

Site

Visit Summary 5

3.0

CLINE’S HEALTH

SAFETY QUALIFICATIONS 8

3.1

Violations 9

3.2 Injuries

19

3.3 Overview

November

4 201 3

Fatality

at

MC I

21

3.3.1 Root Cause Analysis

21

3.3.1.1

RootCause

21

3.3.1 .2

Corrective Action 21

3 3 2

Enforcement

Actions

22

3.4

Overview May

14

2014 Fatality

at

MC I 22

3.4.1 Root

Cause

Analysis

22

3.4.1 1

Root Cause

22

3.4.1 .2

Corrective Action

23

3.4.1

.3

Root Cause

23

3.4.1 .4

Corrective

Action

23

3.4.1

.5

Root

Cause

23

3.4.1

.6

Corrective

Action

23

3 4 2

EnforcementActions

23

3 4 3

Notice to Provide Safeguard

24

3.5

Contractor

Fatalities

25

3.6

Violation Assessments

25

3.7

Respirable Dust

26

3.8

MSHA Plans

28

3.9

Safety

Awards

29

3 1

Environmental

29

3.11

Health

Safety Commitment

30

4

CLINE’S

EXPLORATION

DEVELOPMENT RECLAMATION PROPOSAL FOR

THE

PROJECT

31

5.0

CLINE’S

SENIOR MANAGEMENT

TECHNICAL

TEAM QUALIFICATIONS

TO DEVELOP

OPERATE

THE PROJECT 33

6.0

CLINE’S

BUSINESS OPERATIONS MANAGEMENT

PERFORMANCE OVERALL

CONDITION PROSPECTS

34

6.1

Business

34

6.2

Operations

35

Golder

Technical

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Donkin Project

Assodates




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December

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Project

No

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6 2 1

Contract Mining Agreement

35

6 3

Management

37

6 4 Performance

38

6 5

Overall Condition

Prospects 4

7 COAL MARKET

INDUSTRY INFORMATION IMPACTS

TO

TH E PROJECT

4

8

PROJECTBID

43

9 CLOSING

44

List

of

Tables

Table

2 1

Mining Complex

Development Timeline

Table 3 1 Cline’s

MSHA Identification Data

Illinois

Table

3 2 :

Top

Five Violations

per

Standard Last 15

Months

Table 3 3 :

Standards

Represented by

Violations per Inspection Da y

Table

3 4 :

Operator

NFDL

Incident

Rate

Table 3 5 : Current Penalties

Table 3 6 : Cline Environmental

Violations

Table

4 1

General Mining

Environment Differences

Between Cline’s

Illinois

Basin Mines and Donkin

Table 6 1

Foresight

Energy LP

Selected

Financial

Data

Table

6 2 : Foresight

Energy LP

Position and Planned Growth

List

of

Figures

Figure

3 1 :

Cline

Violation

History

Figure 3 2 : Cline

Violations per Million Tons

Mined

Figure 3 3: U S

Longwall Violations History

Figure

3 4 : U S

Longwall Violations per Million

Tons Mined

Figure

3 5 : Illinois

Basin

Underground

Mine

Violations

2 14

Figure 3 6 : Illinois Basin

Underground Mine Violations per

Million

Tons Mined 2 14

Figure

3 7 : Violation Types

Figure

3 8 : 2 13 Dust Samples

Figure

3 9 : 2 14 Dust

Samples

Figure

6 1 :

Cline

Group Organization Chart

Figure 6 2 :

Top

US

Longwall Productivity 2 12 through 2 14

Q3

Figure 63: Top US Room and Pillar Mine

Productivity

2 12 through

2 14

Q3

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December 2014 2 Project

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1408858

eview information related to the business

operations

management

performance

overall condition

and

prospects of Cline

eview coal market and industry information and conduct

other

analyses

as

relevant

and

appropriate

Assist in evaluation

of

the

bid for

the Project

presented

by Cline to

Glencore

eview the Bid

document

Provide

any other

ancillary

mine engineering advisory and consulting services as the

government and the consultant agree are appropriate

This

report is

structured with respect to the SOW topics but

discussions

that

are redundant between

topics

have not been repeated

Associates

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December

2014

3

Project

No

1408858

2.0

EXPLORATION

DEVELOPMENT

TECHNICAL,

OPERATING

EXPERIENCE OF

CLINE

2.1

Exploration

The

Cline Group

has

presented no specific

documentation

with

regard

to

exploration

of

existing

projects or their

relevant capabilities related to exploration n

general. The properties upon which

Cline

either

built

new mines or acquired an established mine in Illinois had

been extensively explored

by

other

mining

companies

p rio r to C lin e obtaining the properties. Also,

the major economic

coal

seams in

Illinois have been mapped and

described in great detail by the

Illinois

State Geological

Survey;

therefore the

need for extensive

exploration

is

minimal.

However, during the site

visit to

the Deer Run

Mine, the

long t erm m in e p la n map was

reviewed.

This

mine is

located in an area where

the

Herrin No.

6

Seam did not

fully

develop

due to

a

contemporaneous

river channel

named

the Walshville Channel which was an

ancient river

as large

as

the current Mississippi River

that prevented

peat

accumulation. While the main

channel

had

been

identified and well known

for many years smaller

tributary

channels

are also common. Recent

exploration

drilling

at Deer Run identified the location of

such

a

tributary channel

which

was

unknown

at the time of initial

mine development. The channel’s

location

has impacted

the

layout of the

first

longwall mining

district

causing the elimination of one

panel and the reduction

in

width of a second

panel. The identification of this

feature

which

was discovered through

exploration

drilling

of the site

and not whi le

actively mining, indicates a willingness and

understanding on the

part

of Cline to

engage

in more detailed

drilling prior to finalizing

its

short

to

medium term

mine layouts.

2.2

Development

Foresight has

managed

the

permitting

and construction and has also initiated

production

at four

mining complexes in Illinois.

Organizationally

each

complex is managed

by a

wholly owned

subsidiary of Foresight. The subsidiaries

and

mine

names

follow:

Williamson

Energy

LLC

Mach 1 Mine

Sugar

Camp Energy LLC MC 1 Mine

Sugar

Camp

Energy LLC

Viking

a Hillsboro Energy

LLC

Deer

Run Mine

Macoupin Energy LLC

Shay 1 M ine

The Sugar

Camp complex has two longwall faces

which operate

as

two separate mines with a

single

Mine

Safety Health Administration

(MSHA) identification number and

coal

processing

plant. Table 2.1

on

the

following

page

provides mining complex development timelines

from

permitting

through

production over

a

10 year period, culminating in production

from

four

Iongwall faces

and

a two section

room and pillar mine. The data was provided by

Foresight and has no t

been verified.

Other than the

Shay 1 Mine, lease

acquisition

dates

were not provided.

Golder

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December

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Project

No

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flat

management

structure

and productive

non union

workforce is

critical to keeping costs low

Both

mines also

have

good

mining conditions and what appear

to

be dedicated

workforces

Cooperation

by Cline Foresight personnel was

very good during

the

visit

Foresight’s

two

other

operations

located

in southern

Illinois

Mach Mine and M lass Mine were

not

visited due to

scheduling

conflicts

on

the

part of Cline

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—

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9

Project No. 1408858

,

Mine ID Operator

Mine

Name

Controller

Type Mine1

1103182 Patton

Mining

LLC

Deer

Run

Mine

Coalileld Transport Inc LW

1100726

MaRyan

Mining

LLC Shay 1

Mine

Coalfield Transport

Inc

CM

1103141 MachMiningLLC

Mach 1 Mine

CoalfieldTransportinc

LW

1103189

M-Class

Mining

LLC MC 1 Mine CoaMeld

Transport Inc LW

Note:

1)

LW = Iongwall, CM continuous miner

Source: MSHA data

Although numerous

attempts were made

to

contact

MSHA officials

at

both the district and field

office

levels, only one Electrical

Supervisor in the Marion, Illinios, field

office

would take a

call.

However,

when asked how

Foresight mine personnel were to work with, he

would only direct Colder to the

MSHA website and

the publically

available

information

contained

there. He stated

that he was not at

liberty to discuss anything

other than the facts

shown for

operators

on the website.

3 1 Violations

Most

violations of

Title 30 are

referred to

as

violations of Section 04 a),

which is defined

as

follows:

SEC.104. a)

If,

upon

inspection or investigation the Secretary

or his authorized

representative

believes that

an operator

of

a

coal or other mine

subject

to this Act has

violated th is Act, or any

mandatory

health

or safety standard, rule, order, or

regulation

promulgated pursuant to

this

Act,

he

shall, with

reasonable promptness, issue a citation to

the operator. Each citation shall be

in writing

and

shall

describe with

particularity

the nature

of

the

violation,

including a reference

to

the

provision of the

Act, standard,

rule, regulation

or

order alleged to have been violated In addition, the

citation shall fix a reasonable time

for

the abatement of the violation. The

requirement for the issuance of a citation with

reasonable promptness

shall

not be a

jurisdictional prerequisite to the enforcement

of any

provision of

this Act.

Each

violation refers to a specific standard o f T it le 30. Each violation

is

listed as

either Significant and

Substantial S

5)

or

not Significant and

Substantial

not

S

5 , which is

a guide to the perceived

severity

of

the

violation MSHA

inspectors and

operators

opinions

differ).

In the

following

graphs there

has been no

attempt by Colder to differentiate between the

two

types

of

violations

because

of this

potential ambiguity. Although listed and included as a statistical

number, recently

issued

violations are

subject to

legal challenge by

the operator.

The operator

violation histories for

Foresight’s active Illinois

mines are

compared

in Figure

3.1

on

the

following page.

Golder

Associates

Table

3.1

Cline’s MSHA Identification

Data

Illinois

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December 2014 10

Project

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1408858

Figure

3.1

Cline Violation History

600

500

C

300

z

200

100

Source:

MSHA data

“[

2012

2013 2014

S

Deer Run

Mine

s

Shay

1 Mine a

Mach

1 Mine MC 1

Mine

Taken

at

face value,

Deer Run

tends to

have the fewest violations, and based

solely

on

violations,

might

be

considered

the

safest

mine,

with MC 1

being the

least safe

of

the

four

mines The number

of

violations

does no t

reflect the amount or

type

of work

that

is taking place at the mine,

the number

of

people employed

the

type of

underground mine, the

safety culture

nor the

mining

conditions to list a

few). Although

no t

a

perfect

representation

the tonnage

produced

is

directly related to w ork,

employment mine type

and mine conditions

Figure

3.2

on

the following page is an

attempt

at

normalizing the

comparison

based on

violations per

million

clean tons produced

While run-of-mine

ROM)

tons provides

a

slightly better

comparison ROM tons

are not

publically

reported; in the case of

Foresight’s

Illinois mines

the yield

of

clean

tons

per

ROM

ton

is

approximately

equivalent

so

the

relative comparison between these four

mines would

remain roughly identical.

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December 2014

11

Project

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1408858

Figure 3.2:

Cline

Violations per Million Tons

Mined

30

25

10

2012

2013

Deer

Run

Mine

u

Shay 1

Mine

s

Mach 1

Mine

a

MC 1

Mine

Source:

MSHA data

5

0

I

Except for 2012

Deer Run

has

the fewest violations per

million

clean

tons of production.

Again, taken

at

face

value,

this

is

an

indication

that Deer

Run,

as compared

to

the other

three

mines

is

well-

managed and the workforce pays

attention

to the details of mining.

Shay 1 has

the most

violations

per million

clean tons of production. Although not an

absolute

continuous

miner room and pillar

mines tend to have

higher violation rates

than longwall

mines

primarily

because

of the significantly

higher

production capability of one

longwall

section as compared to one

continuous miner section.

Of

the three

longwall mines MC 1 has

the

poorest violation

history.

n

Figure

3.3

and Figure

3.4

in the coming pages Foresight’s

longwall

operations

highlighted in red)

are

compared with

other

US

Iongwall mines on total violations

2014

year-to-date

and

violations per

million

tons

on

an

annualized

basis

covering

the

third

and

fourth

quarters

of

2013 and the

first

and

second

quarters

2014. Based

on

total violations, Deer

Run ranks with

the

mines

that received the

fewest

violations,

while

MC 1

ranks

with

the mines that received

the

most violations.

Based

on

violations

per

million

tons Deer Run ranks with mines

that produced the most

tons

per each

violation

received

while the

other two Foresight longwall mines

are

toward the middle

of the

grouping.

While each MSHA district enforces

the

same

federal laws and regulations nonetheless each district

is staffed by

a unique group

of

inspectors

that

likely

place emphasis on

different

standards

within the

law. Sometimes this

emphasis reflects the unique

mining

conditions associated

with

the

mines being

regulated

within

that

district.

In

Figure 3.5

and

Figure

3.6

in

the

coming

pages

Foresight’s

operations

Golder

WAssociates

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16/50

I

December2014 12 ProjectNo. 1408858

highlighted in

red

and listed as

Foresight

or

by

mine

name

are

compared with

other mines

listed

by

Controller) within the Illinois Coa l Bas in Illinois, Indiana, and Western Kentucky) on

total violations

2014 year-to-date and violations

per

million

tons third and fourth

quarters

2013

and

first and second

quarters 2014

respectively.

Based

on

total

violations Deer Run and Shay 1 rank with

the mines

that received the

fewest violations, while

MC 1

ranks with

the

mines that receive the most violations.

Based on violations

per million tons, Deer Ru n has the

fewest

violations

per

million tons,

while

the

other three

mines

rank with

mines having fewer violations per million

tons.

Golder

Associates

Technical Due Diligence

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Group

Sale ofthe Donkin

Project




17/50

‘

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21/50

E E =E

December2014

17 Project

No.

1408858

As

noted,

the preceding graphs are based

on total Section 104

(a)

violations. As

a

comparison,

Figure 3 .7

below shows the breakdown by “S

5”

and

not

S

5”

fo r

the years 2012 to 2014 year to

date (YTD)

for the Foresight mines

and the two The American Coal

Company mines.

Because

violation data

is regularly

updated,

the

totals will no t match the preceding graphs.

As

calculated

and

shown,

the

“S 5”

violations

range

from I

5

to 35 of the total violations

by mine.

Figure 3.7:

Violation Types

ource:

MSHA data

MSHA also maintains statistical information

for

each

mine’s violations per Code

of Federal Regulation

(CFR) standard. The

top

five CFR

standards

along

with the

number of

violations

of

each standard

for

each of the

Foresight mines, two American Coal

Company longwall operations (Illinois Basin

longwall

operations

for comparison purposes), and

the

definition

ofthe CFR standards

are shown Table 3.2

on

the

following

page

and Table

3.3

in the

coming

pages.

Golder

Associates

500

450

400

350

300

U)

0

250

0

5

200

I 50

I 00

1*’

I .d1:’

s s

NotS S

S S

NotS S S S

NotS S

2012

2013

2014

YTD

sDeer

Run

Mine

.Shay 1 Mine Mach 1

Mine aMC 1 Mine aNew Era

Mine

sNew Future

Mine

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December

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18

Project

No. 1408858

Table 3.2: Top

Five Violations

per Standard

Last

15 Months

Operator Mine Name

MSHA 1D

CFR Standard Instances

M-Class

Mining LLC MC 1 1103189 75.400 67

75.370 a) 1)

62

75.342 a) 4) 38

75.503 34

75.403 33

MachMiningLLC Mach 1 Mine

1103141

75.400 55

75.342 a 4 25

75.503

17

75.403 16

75.604 b

15

Patton Mining LLC

Deer

Run

Mine 1103182 75.400

26

75.370 a 1

15

75.503

12

75.342 a 4 8

75.333 h

7

MaRyanMiningLLC

Shay 1 Mine

1100726

75.400 49

75.370 a) J)

14

75.202 a) 14

75.503 9

75.512

8

AmeñcanCoalCompany

NewEraMine 1102752 75.400 81

75.370 a 1

35

75.202 a)

31

75.1403

18

75.342 a 4 16

American

Coal

Company

New

Future

Mine

1103232 75.400

45

75.370 a 1

21

75.202 a) 13

75.1403

12

75.503 11

Source:

MSHA data

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19

Project No.

1408858

Table

3.3: Standards

Represented

by

Violations

per

Inspection

Day

CFR Standard

Standard Definition

30

CFR

75.400

Coal

dust,

including float

coal

dust

deposited

on

rock-dusted

surfaces, loose coal, and

other combustible materials,

shall

be

cleaned

up

and

not

be permitted

to

accumulate

in

active workings,

or

on

diesel-

powered and electñc equipment therein.

30

CFR

75.370 a 1

Th e operator

shall

de.elop and

follow a

ntilation

plan

ppro

by

the

district manager.

30

CFR

75.342 a 4 Methane

monitors shall be maintained

in permissible

and proper

operating

condition and shall

be

calibrated

with

a

known air-

methane

mixture

at

least once e’.ry 31

days.

30 CFR

75.503

The

operator of

each

coal

mine

shall maintain in

permissible

condition all electric

face equipment required by §75.500, 75.501,

75.504

to be

permissible which

is

taken into

or

used

inby the

last

open

crosscut

ofany such mine.

30

CFR

75.403

Maintenance

of incombustible

content of

rock dust.

30

CFR

75.604 b

When permanent splices

in

trailing

cables are made, they shall be:

Effectily

insulated

and sea led so as

to

exclude

moisture;

30

CFR

75.333 h

All ventilation

controls,

including

seals, shall be

maintained to serve

the

purpose for which they

were

built.

30

CFR

75.202 a

The

roof, face

and ribs

of areas where persons w ork o r tra.el shall

be

supported

or otherwise

controlled

to

protect persons from

hazards related to

falls of the roof, face or

hbs

and coal

o r r oc k

bursts.

30

CFR

75.1403

Other

safeguards

adequate, in

the

judgment

of an

authorized

representative

ofthe

Secretary, to

minimize

hazards

with respect

to

transportation

of men and materials

shall

be

proAded.

Source: MSHA

data

CFR 75.400,

which is

related

to accumulations

of coal

dust,

is the

most

often

cited standard for

the six

Illinois

mines.

This

is

a

standard

that

MSHA emphasizes that

is difficult

to

quantify

and

requires

constant operator

diligence

in order to stay

in compliance. The other

top

five cited standards

are also

common

among

the

mines. Each

of these

standards represents a condition that

could contribute

to a

mine incident

or

accident.

As

shown,

all

of

the operators are

cited

for

violations

of

the

same

or

similar

standards.

Operators with

fewer

violations tend to have

established

attention

to detail

and

regulatory

compliance as

standard

rungs in

their safety programs

and have instilled in the

workforce their

importance.

3.2 Injuries

MSHA also

maintains statistics

associated with mine related

injuries, which

is

referred

to

as the Non

fatal with

Days Lost

NFDL

rate in addition to fatalities.

A NFDL injury is

a

nonfatal injury that results

in days away

from

work,

statutory

days

charged, or days

of

restricted work

activity. The number of lost

Golder

ssociates

echnical

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Donkin

Project




24/50

December

2014

20

Project

No.

1408858

days is

no t

included in

the calculation. Both

are

represented by “ in cidence r at es ,” which

MSHA

defines and

calculates

as

follows:

Number of

reportable

iniuries

x 200,000

Number of

employee-hours

The

operator

incidence rates at

the Cline mines are shown compared to

the

US National

rate for all

underground coal mines. Fo r most

previous years and 2014

YTD,

the Foresight mines are below

the

national

incidence rate. Refer to Table 3.4

below.

Table

3.4: Operator NFDL Incident Rate

Mine 2012 2013 2014 YTD

Deer Run Mine 2.00

4.89 3.02

Shay 1

Mine 2.07

1.56 1.96

Mach 1

Mine

3.60

0.45 2.64

MC 1 Mine

2.78 4.77 1.07

National Rate

3.33 3.28 3.15

Note:

NFDL = Non-fatal with Days Lost,

YTD =

‘rear to

Date

Source: MSHA data

M Class

Mining

LLC at

the

MC 1 Mine suffered

a single fatality in each of 2013 and

2014. Each is

summarized in the

following:

1)

MC 1 M ine is

listed

as

the mine and M Class Mining, LLC is listed as

the

operator

on b oth

Reports

of

Investigation.

MSHA

enforcement

citations

and orders)

are

directed

to

the

operator.

Golder does

have not

access

to information that shows

charges or

enforcement

by

other regulatory

agencies or within the

criminal

or civil court

systems.

2)

Although

orders

or citations

have been

issued by MSHA,

fines have no t yet been

assessed.

Typically citations are

not

issued and fines assessed until the

Report

of

Investigation has

been

completed.

The reason for the penalty assessment delay on the

November

4,

2013

fatality

is

unknown.

3)

The investigations list

both the “Root Cause s)” and “Corrective Action s). n

both

cases,

the

operator developed and implemented

corrective

action. The

specifics are included below.

4)

For both fa ta l it ies , MSHA,

n

general,

stated

that the mine operator

did

no t have effective

policies,

programs, procedures, or controls in place. Golder cannot

comment on the legal

history

or specific

legal

meaning of th is word ing

but

similar wording is common

in

many

MSHA

accident investigation reports.

Effectively, th is word ing

places

responsibility

on the

operator. The specific wording is

included in

the below descriptions.

Below are summaries from

the Reports of Investigation.

Golder

Associates

echnical

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ofthe Donkin

Project




25/50

December

2014 21

Project No.

1408858

Overview

November

4

201 3, Fatality

at

MC 1

Fatality— November4 2013

Report of Investigation

— Fall of Face Accident

—

November 4, 2013

MC 1

Mine,

M-Class

Mining LLC Signed June 5,

2014)

The

following

information

has been

extracted

from

the Report

of

Investigation:

“On

November

4, 2013 at

approximately 1:50 p.m., CST),

Dallas

Travelstead

victim),

Longwall Chief,

was

fatally injured

when

shoveling coal and

loose rock

between the coal face

and the

longwall panline. The accident

occurred atthe No.

123 shield

on

the South

District

1,

Headgate

of the

No.

2 Longwall. Travelstead

received crushing

injuries

when

a

solid piece of

coal and

cap

rock

fell

from

the

coal face

s tr ik ing his

mid

to

lower

back,

pinning

him against

the working face side

of the panline.

The mine operator did

not

have effective policies,

programs

procedures

or

controls

in place

to

protect miners from a fall

of the

longwall

roof, or face

while miners are positioned on

the

panline,

or

between

the panline and the

longwall face.”

3.3.1 Root Cause

Analysis

“An analysis was

conducted to

identify

the

underlying

cause

of the accident

that was

correctable

through reasonable management controls.

Lis ted below are the root

causes

identified

during

the analysis and

the

corresponding corrective

action

implemented

to prevent

a

recurrence

of

the

accident.”

3.3.1.1 Root Cause

“The mine operator did not

have effective policies, programs

procedures or controls in

place

to

protect

miners from

a

fall of roof, or the

longwall

face

while miners are positioned

on the

panline,

or

between the

panline

and

the

longwall face. Therefore

the miners were

not

adequately

trained

with

regard to

working

on the panline

or between the

panline and the

longwall

face.”

3.3.1.2

Corrective

Action

“The mine operator

submitted

a

roof control p lan

revision that details the required

equipment

procedures

and precautions

in order to le ve l the

longwall

panline.

The revision stipulates

procedures

for

leveling

the panline

which

include blocking

the panline from the

shield side

removing materials from

under the panline from

the shield side and undercutting the

mine

f loor t o

allow the

panline

to

level

properly.

n addition, i any

work is

required between

the

panline and the face horizontal jacks will be installed to

the face the face will be

scaled

the

number of

miners exposed

will

be

limited, proper testing and examinations

will

be

done and

certified foremen will be

present at

all

times. The affected

miners were

trained

in

the revised

roofcontrol

plan requirements.”

Technical

Due

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dine

Group Sale ofthe Donkin Project

Associates




26/50

December

2014

22 Project

No.

1408858

3.3.2 EnforcementActions

‘A 104 d) 2)

order

was issued

for viola tion of

3

CFR

75.202 a),

which is defined

as

follows:

30 CFR

§

75.202 Protection from falls of

roof,

face and ribs

a)

The

roof,

face, and r ib s of

areas

where persons work or travel shall be supported

or

otherwise controlled to

protect

persons

from

hazards

related to

falls of

the roof,

face

or r ib s,

and

coal

or rock bursts.

The

order

was

issued on

June

17,

2 14

and

as

of November 18, 2 01 4, a

fine has no t

been

assessed”

3.4

Overview May 14, 2014, Fatality at

MC 1

Fatality

May 14, 2014

Report

of Investigation

Machinery

May

14,

2014

MC 1 Mine

M-Class Mining,

LLC

Signed October 29 , 2014)

The

following

information

has been extracted from

the Report

of Investigation:

“On Wednesday, M ay 14, 2 14 at approximately 2:15

p.m., William-Daniel Hans

Payne

victim), a roof

bolting machine operator, was killed when he was caught between

a

roof

bolting machine and the coal rib. Payne and another roof bolting machine operator

were

tramming

the

roof

bolting machine in

the

outby

direction.

The pair had trammed

the

roof

bolting machine approximately 60 crosscuts when the accident

occurred. Payne

was

found

lying on

the side

of

the

entry

between the

roof

bolting

machine and the

coal

rib.

The accident occurred because the mine operator did

no t have effective policies, programs,

procedures,

or

controls

place

to

protect miners from the hazards related

to m ov in g ro of

bolting machines

in outby areas

and

the

mine operator

failed

to provide

a

remedy

for

the

limited visibility

of the machine operator. In addition, the mine operator failed to

maintain the

roof bolting machine in safe

operating

condition.”

3_4

I

Root Cause Analysis

“An analysis

was

conducted to

identify

the underlying

cause

of the accident that

was

correctable through reasonable management controls.

Listed

below are

the

root causes

identified during the analysis and the corresponding corrective

action

implemented to

prevent

a

recurrence

of

the

accident.”

3.4.1.1

Root

Cause

“The

mine operator did

no t have

effective policies,

programs, procedures, or controls

place

to

protect miners from

the

hazards

related

t o mov ing roof bolting

machines in

outby areas of

the

mine,

and

therefore,

miners

were

not

trained

properly

on

this task.”

Golder

Technical

Due

Diligence

ofthe dine

Group

Sale

ofthe Donkin

Project

Associates




27/50

December

2014

23

Project No.

1408858

3.4.

.2 Corrective Action


submitted a roof

control

plan

revision that details the required equipment,

procedures,

and precautions in

order

to

move roof bolting

machines

in outby

areas. The roof

bolting

machine

operators were

trained the

precautions necessary

when

moving the roof

bolting machines the outby areas

of the mine.”

3.4.1.3

Root Cause

“The mine

operator

failed

to

maintain the

roof bolting machine in safe operating condition. A

hydraulic control

valve in

the

tramming

circuit

had

been

tied

place, which made tramming

difficult to control when

both electric motors

for the

hydraulic system are

operating

simultaneously.”

3.4.

.4 Corrective Action

“The

mine

operator

removed the

nylon

rope that

was

holding

the

‘split/combine’

valve

in the

‘combine’ position. The

roof

bolting machine operators

were trained in safe operating

procedures

for the roof bolting

machines,

including the

hazards associated with tying

a tram

control

valve circuit.”

3.4.1.5

Root Cause


failed

to

provide administrative

or engineering

controls

or train the miners

properly to

prevent

miners from entering areas of limited visibility

around

machinery when the

machinery is being moved along

haulage roads and other areas.”

3.4. .6 Corrective

Action


provided additional

communication,

lighting,

and established a protocol

for moving machinery on haulage

roads.

The roof bolting

machine operators were task

trained

the protocol for

moving

machinery on

haul

roads ”

4 Enforcement Actions

A 104 a

citation was

issued

for viola tion of 30 CFR

75.1725 a , which

is

defined as

follows:

“75.1725

Machinery and

equipment; operation and

maintenance

a

Mobile and stationary machinery and

equipment shall

be

maintained

in

safe

operating

condition

and machinery

or equipment in unsafe condition

shall

be

removed from service

immediately.”

A

citation

was issued on October 31, 2014,

and

as

of November

18,

2014, a

fine

has

not been

assessed.

A

104 a

citation was issued for a viola tion of 30 CFR

§

48.7 a ,

which is defined

as follows:

Golder

Technical

Due

Diligence ofthe

dine Group

Sale ofthe Donkin Project

AssoCiates




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29/50


30/50


31/50

—

December

2014

27 Project

No. 1408858

implementation

at

Donkn the biggest

ventilation challenge as compared

to

the Illinois Basin

mines.

Initially ventilation

design and

implementation

at Donkin are

dependent

on the two access tunnels.

Because

of

the

undersea

mine

location an additional

ventilation

tunnel is a high

cost and

long

lead

time

consideration.

In

the

Illinois Basin

additional

ventilation infrastructure

is relatively

easy

to add.

All

of

the other dust management requirements mentioned are common amongst underground

coal

mining operations.

Figure

3.8:

2013

Dust

Samples

ocurce:

MSHA data

Golder

Associates

8

6

b—

4

—

120

1

20

0

F--

F— j

Deer Ru n

Shay

1

.

:

Mach 1

MC 1

Sample Concentrations

NewEra

New

Future

s>=2.0 •>= 9to


32/50

Figure 3.9: 2014 Dust Samples

120

00

80

U

C

E

c

60

II

t

40

20

ach

1

Sample Concentrations

•>=2.0

u>=0.9to


33/50

Although these

plans are specific to US regulatory

requirements

Cline

would

have

to develop similar

plans

that

meet Canadian

regulatory requirements

to

support

the Donkin mining operation

which

would

likely be of similar

quality and

content.

Safety Awards

The

following awards

have

been

received by Foresight’s operations in recognition of each

operation’s

safety

record:

Hillsboro

Energy

Joseph A.

Holmes

Safety

Award,

2011

Over

700 consecutive days without

an employee lost time accident 2012

Sugar Camp Energy

John

E. Jones SafetyAward

QI

2012

Macoupin

Energy

MSHA National

Safety Award, 2009

Joseph

A. Holmes SafetyAward

2010

Over 600 consecutive days

without an employee lost time accident

2011

Joseph A. Holmes Safety Award,

2012

These

awards

are

typical

of larger

well-managed mining

complexes.

3.10

Environmental

Foresight

provided

a

summary

by

operating

subsidiary

of

their

environmental compliance history. The

summary provided

a

list of violations

issued

by

the

IDNR and Illinois

Environmental

Protection

Agency

IEPA .

The

statute

date

of

issue brief

violation

description and status are included

in the listings.

The

numbers of violations by

source and date are summarized

Table

3.6

below.

Table 3.6:

Cline Environmental Violations

IDNR

IEPA

Subsidiary

I

I

-2012

2013 2014

-2012

2013

2014

Hilisboro

Energy

LLC 6 2 6

0

Macoupin Energy

LLC

2

0 0

0

Sugar

Camp

Energy

LLC

6 2

0 2

Williamson

Energy LLC 10

2

0

0

Note:

1 -2012 includes

2012

and

years prior.

Source: dine

provided data.

Most

of

the violations are

related

to

failure to follow

approved mining plans failure to report water

discharge

excursions discharge

excursions and

failure

to

pass drainage

through approved

structures.

Other

than

the series of violations

in 2014 associated with Hillsboro,

most

of

the

violations

are

2012

or

earlier,

and are associated

with

new

mine

growing

pains. Other than the

violation

f or n ot

Golder

Associates

echnical Due

Diligence ofthe dine Group Sale

ofthe Donkin

Project



December 2014

30 Project No. 14 8858


34/50

submitting

a

renewal application

on time,

Hilisboro’s

2014 remaining

violations are

all

water

related

All

of

the violations

have been

corrected and abated

The Supervisor

of the

Illinois

Department of Natural Resources

Land Reclamation

Division LRD)

was

contacted

to

discuss

their

interactions

with Cline. LRD

has

the

responsibility

to

review

mining

permit

applications and act

accordingly

with

approval and issuance of permits, requests

for additional

information, or denial of permits . The

Supervisor

stated that

Cline

has been very cooperative

in the

permit processes

and

that n

his perception Cline has

been somewhat understaffed to

handle

the

multiple permits n

process He

also stated

that

Cline

has been quick to respond when

additional

information

was

required

by

LRD and

that Cline has been generally cooperative during the

multiple

permit

processes

31 I

Health

Safety Commitment

As

stated

by

Foresight

“Foresight is fully committed to the health and safety

of

our miners We believe

that safety

is

of paramount importance not

only

because

we care

about the health and

welfare of our

workforce, but also because

we

believe placing a high

priority on

safety

is

good

business

Ou r management team shares

the

belief

that a workplace that stresses careful compliance

with

safe working practices leads to compliance with

other

details

such

as

operational

methodologies roof control,

housekeeping equipment maintenance etc.”

Although

the relationships between Foresight and the

mine

operators are contractual

t

appears

that

Foresight

has

selected contractors

that

are

committed to Foresight’s safety goals

Although

a

mine

operator contract has not been reviewed

most

contract

mining agreements include safety

performance provisions The general

contractual relationships between Foresight and the contractors

are discussed

on Pages

32

to 35

of the

Foresight IPO Prospectus and parts are paraphrased

in

Section

6.2.1

t

is

likely

that

a

similar relationship will

be

established

for the contactor at

Donkin.

Golder

Technical

Du e Diligence of the dine Group Sale ofthe

Donkin Project

Associates




35/50

E_f:zE

December 2014 32 Project No

1408858


36/50

selectively

cut to

plies. The geomechanical properties

of

the coal plies help in the analysis of the

ply

strengths

as

related to

equipment traffic carrying capability and

to

ground

control. Golder

is unaware

of the

availability of coal ply geomechanical

data.

Although selective mining

is

not as common in

today’s mining environments,

where everything

tends to

go to

a preparation

plant,

is

possible

given

suitable

mining

conditions.

The

dipping

strata at

Donkin

are

a significant

challenge; geomechanical

properties need to be

determined.

The

relatively high methane gas content of the

coal

seams is

another

challenge

to Cline’s

development plans for the project. In a

subsequent

inquiry Cline

has

stated that they are aware

of

the

gas issue and are discussing it

internally

but

have

no

firm or actionable

plans as

of this time. Also

Cline is aware

of

the mostly

unknown geology

of

the Donkin coal block but again,

Cline

has stated

that they have no

firm

or

actionable plans as

of

this t ime and that the issue is the subject of internal

discussion.

Table 4 1 below provides an

overview

of the

significant

differences between the

general

mining

environments in Cline’s

Illinois Basin mines and the potential

Donkin environment.

Seam

dip

and

methane

management

ventilation)

will likely

present

the greatest challenges.

Table

4 : General Mining Environment

Differences Between Cline’s Illinois Basin

Mines

and

Donkin

Characteristic

Cline’s

ILB Mines Donkin

Project

Seam

Dips 0

to 2 degrees 5

to

15

degrees

Overburden Depth

100

m

to

275

m

150 m to

600

m

Faulting

Minimal

Yes

Methane

2 m3/tonne 10 5 m3/tonne

Spontaneous combustion

Yes No

data

Paleo

Ri’ er Channels Yes Possible

Gas Outbursts

No

Possible

Finally although

the

declines access the Harbour Seam, Cline stated that

both the

Hub and Lloyd

Cove seams would be considered for

future mining consistent with coal quality and the market.

Golder

Technical

Due

Diligence ofthe dine

Group

Sale

ofthe Donkin

Project

Associates



December 2014

33 Project No. 1408858


37/50

5M

CLINE’S SENIOR MANAGEMENT

TECHNICAL

TEAM QUALIFICATIONS

TO

DEVELOP

OPERATE

THE PROJECT

Cline has

provided no specific information related

to

Senior

Management and Technical Team

qualifications

to develop

and operate

the

Donkin Project During the conference

call previously

mentioned

did

state

that and had

visited

the

Project

site and traveled down the

declines. From that

statement

Golder assumed that

the

people on this site

visit would

be

the primary team

to

develop and operate

the

Project at least initially.

A subsequent message

from stated

that only were

part

of the

start up

team

and

the other experienced

people

would

be needed to focus on

their current

positions

inside

Foresight.

stated

“Please note

that

neither

will

be

a

part of

the

Donkin development

team. They

have their own

jobs

to do inside Foresight.

think that

you should probably assume

that no Foresight personnel will

be involved in the

development of

Donkin

rather

than the inverse. As we discussed there are

a number

of

very

talented

people that

are

available and

interested

in

Donkin.

Ou r

Donkin

team

will

be

solely focused on

making

Donkin

a

success and growing the

company. As

a

subsidiary

of Cline the Donkin team will draw

on the

deep

industry contacts and

network.”

He also

stated

that they

were

in process of hiring former

Xstrata/Glencore manager

who

has

first hand

knowledge

of

the

Donkin

Project and specific

experience

with Firs t Na tion’s

requirements and

that

they will

continue

to

work

with Stantec

through

the permitting

process

as they

have

performed

the environmental impact work

for

the project.

Golder

Technical

Due Diligence ofthe dine

Group Sale ofthe

Donkin

Project

Associates

S.20(1)

S.20(1)

S.20(1)

S.20(1) S.20(1)

S.20(1) S.20(1) S.20 1 S.20(1) S.20 S.20(1



December

2014 34

Project

No. 1408858


38/50

6.0

CLINE’S BUSINESS,

OPERATIONS,

MANAGEMENT, PERFORMANCE,

OVER LL

CONDITION,

PROSPECTS

Information

and

data

on Cl ine’s

Business,

Operations, Management,

Performance,

Overall

Condition,

and Prospects

has been mainly

obtained through their

various US

Securities and Exchange

Commission

SEC)

filings

as

a publically

traded

company.

6.1

Business

The

Cline Group

and its affiliated

companies

and operating

subsidiaries are in the

general

business

of

controlling,

mining, and

supplying coal to various

users.

The

business

includes subsidiaries

related

to

the mining,

manpower, beneficiation

sales, and transport of coal,

as well

as

the development of

new

mines, construction

of

facilities,

and rebuild

and maintenance services

for equipment.

Figure 6.1

below

shows the

Cline

Group business

relationships

as

presented

in

the

Foresight

P0 prospectus.

Figure

6.1 Cline Group Organization

Chart

Source:

dine-provided

data

Golder

ssociates

L .. . .

N /

tt

\

/

K i .ZJ

s Mtmhr t

f

FEI E ;NE

.1

I Mk iihl4r

N

:

\

,,//

/

/

“

,,iI

/1

=

The

iur

Vørig t Eury I

thv ‘Pcrhp

_ _ :_E

I I

_ b_r

c,.

‘

h• .

L

‘

B

;.H’

i

i

•

‘,,,‘ -

‘k

1k

, , s —

q,

,

Technical Due

Diligence ofthe dine

Group

—

Sale ofthe Donkin

Project



December

2014

35

Project No 1408858


39/50

6.2

Operations

The

Cline

Group

operates four mining

complexes

in

Illinois which

include

the

following:

Macoupin Energy LLC:

Shay

No.

Mine

Williamson

Energy

LLC:

Mach No.

I

Mine

S

Sugar Camp

Energy LLC:

M Class

No.

I Mine and Viking

Portal

B H illsboro Energy

LLC: Deer

Ru n

Mine

Each

mine is operated

through

a

contract mining agreement

by

the

following contractors:

Shay No. I Mine:

MaRyan

Mining

Co.

Mach

No. I Mine:

Mach

Mining

Co .

M-Class No. I

Mine

and

Viking

Portal : M Class Mining

Co .

Deer

Ru n

Mine:

Patton Mining Co .

The

following

description

of Cl ine’s

Contract

Mining Agreement

is

excerpted from their Initial

Public

Offering Prospectus.

6.2.

1

Contract

Mining

Agreement

‘Each

of

our

mining complexes described

below is party to a

contract mining agreement with

an affiliated contractor that

we

account

for

as

a

‘variable

interest

entity”

each a “Contract

Mining

Agreement” .

Pursuant

to each Contract Mining

Agreement such contractor is

required to furnish all manpower

parts security services machinery

tools

power fuel

explosives

water materials supplies and all

other items necessary to i

construct maintain

and

periodically

rehabilitate a

mine site on the

premises

specified

in

the

contract ii

mine the

premises specified

in the

contract

by modern and efficient deep

mining methods and

iii

to

load deliver

and

transport

the coal from the

premises.

Although

each Contract Mining

Agreement

permits us to

require the contract miner

to provide

parts

and equipment

we

have

not

historically invoked

this provision. A contractor is entitled

to

use

all mine

infrastructure

and

fixtures

belonging to us

in

the

performance of labor services

under the applicable

Contract

Mining

Agreement

as well

as

mobile

non-mobile and semi-mobile

equipment

located

on

the

mine premises.

A contractor has the right with our

approval to construct

operate

and

maintain on

the mine

premises

or

adjacent

property

owned

by us such

buildings equipment

improvements

and

roadways

as

may

be

required to perform

the services.

Each Contract

Mining

Agreement provides

the

applicable

contractor with

a non-exclusive

r ight to mine

ou r

coal

on the

premises

in

amounts

designated by

us .

Each Contract Mining Agreement

is for

an initial

term of one year with

the

term

thereafter

automatically extended

for

successive

one-year

periods unless

sooner terminated by us

or

the contractor. We

have

the

right to terminate each

contract at any time

with

or without

cause by

giving not

less

than 10 days’

prior written

notice

to the contractor.

Each contractor

GoMer

Associates

echnical

Due Diligence

ofthe

dine Group Sale





40/50


41/50

dE

December

2014 38

Project

No 1408858


42/50

Christopher

Moravec

is

a Senior Vice

President of the Company.

Before joining Foresight in June

2012 Mr Moravec was

the

Executive

Vice

President

of

Rhino

Resource Partners LP from

2007

to

2012. During this

period

Mr

Moravec also

served

on the board of directors for

Rhino

Eastern

a West

Virginia based

metallurgical coal operation structured

as

a joint venture

with

Patriot

Coal Corporation.

Prior to joining Rhino

Resource Partners

LP

Mr

Moravec worked

f or P NC Bank providing both

direct

and

investment banking services exclusively to

the

coal

industry Mr

Moravec received his

undergraduate

degree in Mining

Engineering from

West

Virginia University and

a

Master’s in Business

Administration from the

University

of Pittsburgh.

Rashda M

Buttar is the Senior Vice

President—General

Counsel

Corporate

Secretary. Before

joining Foresight in September

201

Ms

Buttar served

as

Vice President

Associate General

Counsel and

Corporate

Secretary

of Patriot Coal Corporation from 2007 to August 201

P ri or t o

joining Patriot

Coal Corporation

Ms

Buttar served as

the

Assistant General

Counsel and

Assistant

Corporate

Secretary

of

TALX

Corporation

from

2003

to

2007.

Ms

Buttar

received her Juris

Doctor

from Saint Louis

University

School of Law and

her undergraduate degree in

Russian

and

Eastern

European

Studies

and Political Science from Saint

Louis University

Mr Cline Mr

Beyer and Mr Moravec are

the

senior

managers

wh o

oversee the contract mine

operators

and other

facility operators. The executive officers of the

contract mining

operators

include

a

president

of

underground operations and a president

of

surface

operations

each of

which is

employed

by Coal

Field Construction Company LLC

Golder believes that

each

of these senior mine

managers and

executives has the relevant experience and qualifications

necessary

to

ensure the

efficient

and safe operation of each

of

the mines.

6.4 Performance

With the

exception

of

the previously operated Shay

No

Mine acquired

from ExxonMobil in

2009

all

other

operating mines

have

been designed

for

full

longwall

operation. The Cline longwall

mines in

Illinois

are the first

mines where the

longwall mining

method was buil t into

the design and

layout

ll

other Iongwall operations

were

originally

designed

for

room and pillar mining

with longwalls

retrofit

into

the operation.

Since

their inception

the Cline longwall

mines

have performed

well

being at or near the top of all US

longwalls in

tons mined per

man hour worked.

See

Figure 6.2 on the following page.

Golder

Technical

Due Diligence of the Cline Group

Sale

ofthe

Donkin

Project

Associates

Obtained through a Freedom of Information Act requestby Global News, 16x9

;

December 2014

39

Project

No

1408858


43/50

Figure

6 : Top

US

Longwall Productivity

2 12 through 2 14 Q3

Source:

MSHA

data

Likewise the Shay No.

M in e is among the

most productive room and pillar mines

in

the

US. See

Figure

6.3

on the

following

page

Associates

.2012

m2 13 2 14

2

I.-

18

16

14

12

1

U

8

0

I—

6

w

0

2

_

4

_

:C

Technical

Due

Diligence ofthe dine Group —

Sale ofthe

Donkin

Project


December

2014

40 Project

No. 1408858


44/50

7.0

6.0

=

5.0

c

I

4.0

w

0

0

3.0

=

—

2.0

=

c

1.0

0.0

Figure

6.3: Top US

Room-and-Pillar Mine Productivity 2012 through

2014

Q3

2012 2013

2014

8 0

—

..

— . ————

Source:

MSHA data

: ,

c

&

N

_

c50

\e ;

c —

—

c)

ots

Cline

has

committed to installing

and operating the

most

modern,

efficient

and

productive

mining

equipment into

each of their

underground

operating

mines. This, coupled with their flat

organizational

structure, has resulted in high

productivity

and

low costs. Table 6.1 below depicts

selected

financial

data demonstrating how

high productivity translates

to

low

cost,

high

margin operations. This financial

data does

not necessarily reflect the

mining

conditions, mining method or management structure

that

is initially contemplated

for

Donkin. The

room

and

pillar

mining methods employed at

Shay could

be

adapted

for

Donkin

and

the initial Donkin studies utilized

the

LW mining method.

Table

6.1:

Foresight

Energy

LP Selected Financial

Data

Item

• 2011

2012

2013

2014-3Q

Adjusted EBITDA1

(000)

192,402

338,607 364,694 291,943

Tons

Produced (000) 9,028

15,080

17,991

16,856

TonsSold(000) 8,773 14,403 18,589 16,153

Average Realization per Sold Ton

57.08 58.73

51.50 50.11

CashCostperSoldTon

19.85 21 51 19.53 20.70

Note:

1)

Earnings

before income tax, depreciation,

and amortization

Source:

Cline’s

Securities and

Exchange commission

(SEC) filings

S-I or

1O-Q

6.5

Overall Condition

Prospects

Cline is positioned

to be a

low cost, highly productive operator for many years

to

come.

The

large coal

reserve

holdings of approximately

3 b il lio n

tons,

concentrated

in large blocks

at

their

current

Golder

Associates

echnical Due Diligence of

the

dine Group

Sale ofthe

Donkin Project


December

2014 41

Project No. 1408858


45/50

operations,

provides the

base

for continuation of current

operations, as well

as

growth.

Table

6.2

below

depicts Cline’s position and

planned growth.

Table

6.2: Foresight Energy LP

Position

and

Planned

Growth

Williamson Sugar

Camp Hilisboro Macoupin

Total

Coal Reserves Mt)

asofJan

1,

2014

388

1366 880 459

3,093

Existing

Operations

MineType

LW LW LW

CM/LW

No.

Current Longwall Systems

2

4

Actual

Production

Mt

2010

5.8

0.3

0.0

1.0 7.1

2011

7.2 0.9

0.5

1.8 10.4

2012

7.5 4.7 2.4 1.7

16.3

2013

6.7 6.5

4 8

0.7 18.7

2014-3Q

5.0 6.5 4.5 1.1 17.1

Future

Operations

LW 2

2017-2019

LW 3

201620181

2018-2020

LW 4

201720191

No.

Potential Longwall

Systems

4

3

9

CurrentAnnual Production

Capacity

Mt

7 5

13.5

9.0

2.7

32.7

Long-Term

Annual Production

Capacity Mt

7.5 27.0 24 0 8.7

67 2

Note:

1

New Iongwall faces currently in

the

permit process.

Source:

Cline’s Securities

and

Exchange Commission

SEC)

filings

S-i or 10 Q

Based on

mining magazine

and newspaper articles, Chris

Cline

is

also the

owner

of

Gogebic

Taconite,

a

Florida-based company

seeking

permits to

construct

an open pit iron

ore

mine n

northern

Wisconsin. is

also

currently

based

in

Australia

where

he

is

l ooki ng for min ing related

acquisition

targets.

Associates

echnical

Due Diligence ofthe Cline Group

Sale

ofthe

Donkin

Project

S.20(1)


December2014

42

ProjectNo 1408858


46/50

7 0 COAL

MARKET

INDUSTRY INFORMATION

IMPACTS TO THE

PROJ

ECT

Cline’s initial focus will be to market

sufficient

ROM coal

from

early

development to

NSF. This

strategy

will

allow Cli ne to

get new mining areas established and

to

test their

mining plans

n

the conditions

encountered

As

operations

continue

Cline

will

then

be

able

to

estimate

projected

productivities

and

related

costs compared

to the

market

particularly

the

international market.

Cline

has supplied coal

to

many

international customers

including

the

European market

which

is the most

logical

outlet for

production.

Since

201

Cline

has

sold

coal

in the international market amounting to

between

30

and

45 of

total

coal

sales annually and about 34 of total coal sales

for

the period

2011

to 2014 Fo r

the

past

two years

European markets have received

between 69

and

88

of total international sales well

above

any

other international

market.

Cline currently has

or had coal sales agreements with

0 different domestic customers in

9

states

and 17 different international customers No

single

customer accounted

for

more

than 10 of

revenues Most contracts range

from one to seven

years

in

length

with the early year’s price fixed

and then renegotiated thereafter to

various

index

pric ing. As

of

the

end o f Ma rch 2014 the end of the

first

quarter referenced in

Cline’s

IFO Frospectus

Cline had 20 5 Mt

n 2014

15.4 Mt in 2015, and

.6

Mt

under contract representing

85

64 ,

and

48 , respectively of the expected

production

during

these

years In

today’s market environment

t is not unusual

to

have less than the expected

production

sold

at

the beginning of

a

year In the past

Cline

has

been

successful in

filling

ou t

sales

annually with new

term or

spot

sales

Golder

Technical Due Diligence

ofthe

dine Group

Sale

ofthe Donkin

Project

Associates



47/50

8 0

PROJECT BID

No

information related to the

Cline bid to Glencore

for

Glencore’s

share of the

Donkin

Project

has

been provided by

Cline Glencore

or

the

government

of

Nova

Scotia Therefore

Golder cannot form

any opinions

or conclusions about the bid

Golder

Technical

ue iligen e ofthe

dine

Group

Sale

ofthe

Donkin

Project

Associates


December2014 44 ProjectNo 1408858


48/50

9 0

LOSING

conclusion Golder wishes

to

thank Nova Scotia’s

Department

of Natural

Resources

for

the

opportunity to provide th is Technical Due Diligence on the

line

Group in regard to the sale

of the

Donkin Project Should

you

have

any

questions or wish to discuss any points contained herein

further please

feel

free

to

contact the undersigned

Sincerely

GOLDER ASSOCIATES IN

Associate

and

Mining

Practice

Leader

Mining

Practice Leader

Senior

Mining

Consultant

Golder

Technical

Due Diligence

ofthe

Cline Group

Sale

ofthe Donkin

Project

Associates

S.20(1) S.20(1)

S.20(1)

S.20(1)


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