QUARTERLY REPORT QUARTER ENDED 31 DECEMBER 2015 · QUARTERLY REPORT QUARTER ENDED 31 DECEMBER 2015...

QUARTERLY REPORT

QUARTER ENDED 31 DECEMBER 2015

TerraCom Limited (“TerraCom” or the “Company”) (ASX: TER) is pleased to present its quarterly activities report for the period ended 31 December, 2015. HIGHLIGHTS

• 2015 Strategic review implementation progressing across operational and corporate levels.

• Re-branding approved by shareholders at EGM to change the Company name to TerraCom Limited.

• Townsville corporate office closure as part of the Company’s further cost rationalisation and cost reduction program.

• The Baruun Noyon Uul (BNU) coking coal mine in Mongolia completed another calendar year Lost Time Injury (LTI) free and was awarded “Best Mining Company of Mongolia focused on Health and Safety – 2015” from the Mongolian Ministry of Mining.

• Direct mining costs of ~US$28 per run of mine tonne achieved at BNU during period.

• Exploration licence obtained for 18 km2 area which is 81.5 kms east of BNU mine. A number of other exploration areas are under application in the South Gobi province and also the Uvs Province of Mongolia.

Corporate Strategy and Operating Environment As a consequence of continuing weak global market conditions during the Quarter, volatility in the resource market has become the norm. This is presenting significant economic and funding challenges for TerraCom. In the face of these challenges, the Company has remained focused on delivering both the corporate and operational recommendations of the strategic review of the Company which was completed in early 2015. Restructure of Balance Sheet

TerraCom, along with its advisors and principal financiers have worked tirelessly to restructure the Company’s existing financing facilities; generate new finance opportunities; and generate additional share equity with investors. The Company expects to complete the Restructure of the Balance Sheet during Q1 2016. Extraordinary General Meeting

At the Company’s Extraordinary General Meeting (EGM) held on 30 October 2015 shareholders approved the Company name change TerraCom Limited (ASX: TER). The new name better reflects the strategic direction and focus to transition to a dynamic energy and resources company. At this EGM shareholders also voted up the approval of adjusting the terms of the Company’s convertible notes and amortising notes facilities, as well as the issuing of new warrants attached to these facilities.

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Annual General Meeting

The Company held its Annual General Meeting (AGM) on 30 November 2015. For the second year in a row Company’s Remuneration Report had more than 25% votes against it; however, no spill resolution was voted up. It is important to consider that only 64% of shareholders voted on this Resolution; and accordingly the votes against represent only 16% of total shareholders votes. The shareholders however recognised the valuable contributions the Directors provide to TerraCom. All 5 directors who had been appointed to the Board since the previous AGM were voted up by shareholders to remain on the Board – Craig Wallace, Michael Avery, David Stone, Philip Forest and Hwee Fang Loo. Relocation of Corporate Office

As part of the Company’s cost rationalisation and cost reduction drive, the Townsville corporate office in Queensland, Australia was closed in December, 2015 and relocated to Thirroul in NSW. Thirroul is located only 60 minutes south of Sydney. Change in Board Composition

During December 2015 the Board composition was modified to ensure clear separation and focus on the differing functions and requirements in the areas of corporate governance delineated from strategic development and associated implementation. Michael Avery remains on the Board as an executive director with a focus on strategy, corporate governance, marketing and stakeholder relations. David Stone resigned from the Board and remains as a senior executive reporting to the Board. His focus is on strategic development and implementation of the TerraCom business strategy. Potential Asian Stock Exchange Listing

TerraCom also continues to investigate the merits and mechanisms for a potential listing on an Asian stock exchange, a crucial recommendation of the strategic review. A regional hub in Singapore is providing logistics and marketing support to the Company. Operations - Mongolia BNU Safety

Our operations continued to deliver strong health and safety performance with the BNU Coal Project continuing its very impressive safety record of No Lost Time Injury (LTI) since inception. The project has now recorded over 1.5 million man hours without an LTI. In addition to the good safety record, the BNU Coal Project was awarded first prize for “Best Mining Company of Mongolia on Health and Safety – 2015”. The award was received from the Mongolian Minister of Mining. Revenue Realisation Pressure

The end user coal sales prices have continued to soften over the last quarter in direct relation to the volume constraints and conditions that exist in the Chinese steel market. The Chinese seaboard metallurgical coal sales prices have softened considerably as demonstrated with the relative example of the Platts HCC mid-vol price falling from approximately US$110 per metric tonne (mt) in January 2015 to

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US$93 per mt in July 2015 and further to US$79 per mt in December 2015. This represents a 30% fall over the 2015 calender year. The continued downward pressure on the internal market has also seen end-user sales prices drop from CNY¥570 per mt in January 2015 to CNY¥548 per mt in July 2015 and further to CNY¥530 per mt for November sales, on a Free on Transport basis at Ceke in China. This is approximately a 7% reduction, and is considerably smaller price fall compared to the effect on the seaborne market. The operation has continued to drive down the direct mining costs of the BNU mine and is continuing to deliver industry leading productivities. The direct mining costs per ROM tonne for December 2015 quarter was US$ 28.34, which represents a 12% reduction to the September 2015 quarter. Production

Production from the BNU Coal Project continued throughout the quarter with a focus on extracting premium Hard Coking Coal from Pit 2. A second Run of Mine (ROM) stockpile was constructed near to the exit of Pit 2 to optimise haulage and reduce overall coal haulage cost for the mining fleet. Given the high bench advance rate in Pit 2 the mining team had pit dewatering as a critical focus. Reconciliation of the coal produced against the geological model also continued to be monitored throughout the quarter.

Figure 1- Mine Foreman overlooking operations in Pit 2

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Figure 2 – Pit 2 from the end wall looking East

Initial coal production commenced from Pit 2 in July 2015 ramping up through the quarter.

Figure 3 - Coal production from Pit 2 during the Quarter

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Figure 4 - Coal cropping in the Low Wall of Pit 2, coal mining in the background

Production from the initial Pit (Pit 1) has been put on hold in order to reduce overall production costs during the tough market conditions.

Figure 5 - BNU Pit 1 nearing completion in September 2015

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Table 1 – Quarterly BNU Coal Project Production Statistics compared to Previous Quarter

Q2 2015/2016 Q1 2015/2016

Rom coal production (tonnes) 179,140 154,374 Overburden removed (BCM) 1,938,177 2,527,210 Coal trucked to China (tonnes) 164,839 64,618 Coal washed (tonnes) 79,142 74,697 Overall gross product yield 91% 82% Prime HCC delivered to Customers (tonnes) 38,564 57,261 Other Coal delivered to customers (tonnes) 58,451 4,215 EOM ROM Stocks (tonnes) 97,300 101,681

During the quarter, the BNU operation encountered variability to coal extraction as volumes increased month to month, being:

1. Variability in third party CHPP washing yield 2. Variability in the ‘in pit’ coal reconciliation 3. Closure of the third party logistics line

The Company is continually monitoring these variables, and management has enacted a detailed review and action plan.

Figure 6 - Clean Coal Stocks in Ceke at Wash plant

While the market continues to remain soft Terra Energy continues to focus on maximising the quality of the BNU coking coal to deliver superior returns in the current market.

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Development - Mongolia Mining Licenses

South Gobi Mining Licenses applications XV005264, XV13780 and XV17163 all remain in the last stages of approval with MRAM (Minerals Resource Authority of Mongolia). An additional exploration license (License number XV-018513) was issued to TerraCom’s subsidiary Terra Energy LLC (Terra Energy) during the quarter. The licence located in the South Gobi coal basin is in close proximity to the BNU Mine (81.5 km east of the mine) and existing exploration assets. The 18.5km2 licence has been granted for a term of 3 years, and following this approval can be requested for a further 12 years extension which is granted in 3 year stages. The licence is 170 km from the Chinese border crossing at Shivee Huren/ Ceke, which is the main distribution centre for the BNU coal. Further, the South Gobi Resources Ltd Zag Suuj deposit is located 75km North West of the licence. A prior report prepared by Minarco Mineconsult estimated a NI 43-101 compliant 21.5 million tonnes of indicated coal resource and 84 million tonnes of inferred resource. Terra Energy now holds 15 mineral licences in Mongolia across 3 project areas: 1. South Gobi, 2. Middle Gobi, 3. Uvs Provinces. The South Gobi Project now holds 10 licences being 3 mining licences, 4 exploration licences, and 3 application for mining licences (pre-mining). Uvs Project

The Uvs project is situated in the north-western region of Mongolia. The project area is targeting Potash Salts, Brines (CaCl2 and Lithium) and Coking Coal and consists of three exploration licenses 18142X (coking coal and adjacent to Khuden Coking Coal Mine), 18797X and 18802X (Potash and Brines). 1:200 000 scale geological mapping work was conducted within the exploration area. In total 120 line kilometres of prospecting was completed to determine the boundary tracking the sediments of the salt bearing Mid-Devonian Tserd Uul formation (D2cr) and coal bearing mid-upper carboniferous Khuden formation (C2-3hd) and determine shallow coal and salt outcrops. Detailed geological mapping was conducted with 45 samples taken from the lithology contacts of outcrops. An additional 14 grab samples were taken from the alteration and occurrence zones, coal, salt and gypsum narrow beddings and host rocks.

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Figure 7 – Mapping of the Uvs Project Area

Coal Bed Methane (CBM)

A CBM license exploration contract application in the South Gobi is under negotiation with PAM (Petroleum Authority of Mongolia). Further development is expected in Q3, FY2016. Operations – Queensland A focus on cost conservation on projects as a result of the 2015 strategic review has restricted exploration for the reporting period. The North Galilee and Springsure Project remains the focus and there have been discussions with potential joint venture or offtake partners to self-fund these projects through the development phase into operating mines. The company continues to seek investment partners for the next stage of development of the Australian assets. Springsure Project – Next Stage Drilling Program

Planning for the next stage drilling program on MDL 3002 will commence in Q1, 2016.

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Business Development Australia

The Company is currently considering a strategic opportunity, through a 3rd party, to assume their negotiated position to acquire a mature mining operation which is currently on care and maintenance. Indonesia

The Company is nearing Completion of its desktop due diligence on a hard coking coal mining operation in Indonesia. The mine’s production licence has a 12 year remaining life and is located in close proximity to road, barge and port infrastructure which connects into the seaborne coal market. The mine has a capability of delivering 500,000 tonnes per annum of hard coking coal. ABOUT TERRACOM – www.terracomresources.com TerraCom has fully commissioned the Baruun Noyon Uul (BNU) coking coal mine in the South Gobi Mongolia. The Company’s goal is to become one of the largest and highest quality coking coal producers in Mongolia, providing exceptional value for its steel-producing customers. TerraCom is also focused on developing two priority projects in Queensland, Australia: the large thermal coal Northern Galilee Project and the high energy prime thermal coal Springsure Project. Please contact Nathan Boom, on +61 2 4268 6258 or at [email protected] for further information.

Michael Avery

Group Managing Director

Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report

+ See chapter 19 for defined terms. 01/05/2010 Appendix 5B Page 1

Rule 5.5

Appendix 5B

Mining exploration entity and oil and gas exploration entity quarterly report

Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/2013

Name of entity

TerraCom Limited

ABN Quarter ended (“current quarter”)

35 143 533 537 31 December 2015

Consolidated statement of cash flows

Cash flows related to operating activities

Current quarter

$A’000

Year to date (6 months)

$A’000 1.1 Receipts from product sales and related

debtors 4,637

7,040 1.2 Payments for (a) exploration & evaluation

(b) development(1) (c) production(1) (d) administration

(130) (3,246) (1,243) (2,863)

(392) (7,053) (2,878) (4,871)

1.3 Dividends received - - 1.4 Interest and other items of a similar nature

received - -

1.5 Interest and other costs of finance paid(2) - - 1.6 Income taxes paid - - 1.7 Other (provide details if material) (673) (1,073) Net Operating Cash Flows (3,518) (9,227)

Cash flows related to investing activities

1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets

- -

1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets

- -

1.10 Loans to other entities - - 1.11 Loans repaid by other entities - - 1.12 Other (provide details if material) (211) (331) Net investing cash flows (211) (331) 1.13 Total operating and investing cash flows

(carried forward)

(3,729)

(9,558)


+ See chapter 19 for defined terms. Appendix 5B Page 2 01/05/2013

1.13 Total operating and investing cash flows (brought forward)

(3,729)

(9,558)

Cash flows related to financing activities

1.14 Proceeds from issues of shares, options, etc. - - 1.15 Proceeds from sale of forfeited shares - - 1.16 Proceeds from borrowings(2) 4,498 10,439 1.17 Repayment of borrowings - - 1.18 Dividends paid - - 1.19 Other (provide details if material) (608) (1,231) Net financing cash flows 3,890 9,208

Net increase (decrease) in cash held

161 (350)

1.20 Cash at beginning of quarter/year to date 211 687 1.21 Exchange rate adjustments to item 1.20 (6) 29

1.22 Cash at end of quarter 366 366

Notes: (1) The BNU North Mining operation achieved commercial production for accounting purposes

from 1 September 2015. All costs incurred at the BNU North Mining operation prior to this date when paid will be classified as Development costs in this section as per accounting requirements

(2) As announced to the market on 31 December 2015 in relation to the finance update, the Company continues to maintain a strong and supportive working relationship with its existing financiers. The Company has been working on two options, mainly the bond and the traditional debt facility, in parallel in its efforts to achieve the requisite balance sheet recalibration early in 2016. Both debt restructuring options would provide stability and funding security to the Company to enable it to successfully deliver its strategic objectives.

Payments to directors of the entity, associates of the directors, related entities of the entity and associates of the related entities Current quarter

$A'000 1.23

Aggregate amount of payments to the parties included in item 1.2

(295)

1.24

Aggregate amount of loans to the parties included in item 1.10

-

1.25

Explanation necessary for an understanding of the transactions

Item 1.23 includes fees and salaries paid to directors.

Non-cash financing and investing activities

2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

Nil



2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest

Nil

Financing facilities available Add notes as necessary for an understanding of the position. Amount available

$A’000 Amount used $A’000

3.1 Loan facilities[1] 156,036 155,429

3.2 Credit standby arrangements

-

-

Note 1: Item 3.1 consists of the following financing facilities: - Noble Debt Facility US$10m (A$13.7m equivalent) - Noble Working Capital Facility US$10m (A$13.7m equivalent) - Noble Fuel Exclusivity Agreement US$7.5m (A$10.3m equivalent) of the original facility of US$8.0m

(A$10.9m equivalent) - Noble Additional Debt Facility US$14.0m (A$19.1m equivalent) - Noble Additional Working Capital Facility US$7.0m (A$9.6m equivalent) - OCP Amortising Notes US$55m (A$75.3m equivalent) - OCP Convertible Notes US$10m (A$13.7m equivalent)

Estimated cash outflows for next quarter

$A’000 4.1 Exploration and evaluation

(897)

4.2 Development

(4,243)

4.3 Production

(6,472)

4.4 Administration

(2,012)

Total(2)

(13,624)

Note: (2) The funds to support the forecast expenditure will come from a combination of revenue from sales, equity and debt funding. Ongoing Funding Requirements: As announced by the Company’s ASX release dated 31 December 2015, TerraCom remains on track to deliver all aspects of the 2015 strategic review, both on a corporate level and on operational level in Mongolia and Queensland. A critical aspect of the Company’s recent activities has been the evaluation and active pursuit of several funding alternatives to enable a restructuring of its existing debt facilities (the “Restructuring”). In this regard, the Company continues to maintain strong and supportive working relationships with its existing financiers to allow requisite time to complete the Restructuring.



Reconciliation of cash

Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.

Current quarter $A’000

Previous quarter $A’000

5.1 Cash on hand and at bank 366 211

5.2 Deposits at call - -

5.3 Bank overdraft - -

5.4 Other (provide details) - -

Total: cash at end of quarter (item 1.22) 366 211

Changes in interests in mining tenements and petroleum tenements

Tenement reference and location

Nature of interest (note (2))

Interest at beginning of quarter

Interest at end of quarter

6.1 Interests in mining tenements and petroleum tenements relinquished, reduced or lapsed

- - - -

6.2 Interests in mining tenements and petroleum tenements acquired or increased

XV-018513

(South Gobi,

Mongolia)

- - 100%

Note: During the quarter the Company relinquished sub-blocks from EPC 1962, 1964 and 2504 within the Northern Galilee Project. Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. Total number Number quoted Issue price per

security (see note 3) (cents)

Amount paid up per security (see note 3) (cents)

7.1 Preference +securities (description)

- - - -



7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs, redemptions

- - - -

7.3 +Ordinary securities

1,095,928,523 1,095,928,523 Fully Paid Fully Paid

7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy-backs

- - - -

7.5 +Convertible debt securities OCP Asia Convertible Notes(1)

1,000

Nil

$10,000

Refer Appendix 3b

lodged 9 January 2014 for terms and

conditions

7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted

- - - -

7.7 Options OCP Asia Detachable Warrants(1)

66,762,962

Nil

See (1) Below

See (1) Below

7.8 Issued during quarter

- - - -

7.9 Exercised during quarter

- - - -

7.10 Expired during quarter

- - - -

7.11 Debentures (totals only)

- -

7.12 Unsecured notes (totals only)

- -



Note: (1) On 30 October 2015 TerraCom Limited held an Extraordinary General Meeting and shareholders

approved the following amendments in relation to OCP convertible notes and OCP amortising notes: i. Adjustments to OCP convertible notes previously issued by TerraCom Limited to OCP Asia. In

particular the conversion price being the lower of A$0.037 and the average volume weighted average price of shares for 30 days prior to conversion).

ii. Issue of 126,308,306 detachable warrants with a term of 5 years from the earlier of 31 October 2015 or the date of additional capital raising, with a conversion price based on the trading price of the Company’s shares for the 1st month of issuance. At 31 December 2015 the previous warrants (total of 66,762,962) have not been cancelled, nor the new warrants (total of 126,308,306) issued – these transactions will be concluded in Quarter 1 2016.



Compliance statement 1 This statement has been prepared under accounting policies which comply with

accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 5).

2 This statement does give a true and fair view of the matters disclosed.

Sign here: Date: 31 January 2016 Group Managing Director

Print name: Michael Avery

Notes 1 The quarterly report provides a basis for informing the market how the entity’s

activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of

interests in mining tenements and petroleum tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement or petroleum tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

3 Issued and quoted securities The issue price and amount paid up is not

required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of

Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International

Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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QUARTERLY REPORT QUARTER ENDED 31 DECEMBER 2015 · QUARTERLY REPORT QUARTER ENDED 31 DECEMBER 2015...

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