Ann: Scheme of Arrangement and Demerger, page-111

The Mole,

I have read the Scheme Implementation Agreement document included in the SECURITIES EXCHANGE ANNOUNCEMENT 11th March 2019.On Page 7 of this document, it states the an "Independent Expert to be engaged by the Target (GBG) to express an opinion on whether the Scheme is in the best interests of Target Shareholders."

Further down on Page 46 it also states that ""Termination by the Target- The Target may terminate this agreement at any time before 8:00 am on the Second Court Date: 14.3 (b) (iii) the Independent Expert concludes in the Independent Expert's Report (either in its initial report or a subsequent update of its report) that the Scheme is not in the best interests of Target Shareholders."

Therefore we should also forward this paper to the Independent Expert (IE) so that our claims can be independently verified by the appointed IE who may similarly conclude that the offer of A$0.026 per share is way undervalue compared to claims of about A$0.32 per share (excluding KML magnetite ore deposit). In this case, BOD can exercise clause 14.3 (B) to terminate this buyout agreement.

If Ansteel is not prepared to buy out retail shareholers at a reasonable price close to our assets claims, it will be better to hold on the KML investment in the medium to long term horizon ( 5 to 10 years), as the prospect is getting very rewarding.

I have worked out the potential profitability of implementing KML mine stage 2 development, upgrading to 16mtpa solely undertaken by Ansteel and the GBG's share of the KML mine diluting from the present 47.84% to 25%. Essentially, Ansteel will own all the additional 8mtpa of magnetite concentrate and GBG's portion of magnetite concentrate remain unchange around 4mtpa.

At 16mtpa, the mine should generate enough surplus cash after servicing senior debt repayments to finance the continue mine expansion until 32mtpa without the need of capital injection (additional equity from sharelders) and GBG's portion of magnetite concentrate will then be 8mtpa.

KML mine stage 2 development, upgrading to 16mtpa solely undertaken by Ansteel
Potential profitability at current high magnetite concentrate price.

** Upgrade to 16mtpa
* 2017 2019 solely by Ansteel
A$ m A$/dmt A$ m A$/dmt A$ m A$/dmt

Sale of concentrate (CFR) 872.039 107.59 1,152.000 144.00 2,304.000 144.00
Cost of sales (772.408) (95.30) (795.143) (99.39) (1,430.286) (89.39)
Depreciation and amortisation (DA) (114.867) (14.17) (120.500) (15.06) (160.500) (10.03)
Interest expense (175.874) (21.70) (187.441) (23.43) (214.085) (13.38)
Other operating and financial expenses (61.028) (7.53)
------------ ---------- ----------- --------- ------------ -----------
Total operating costs (1,124.177) (138.70) (1,103.084) (137.89) (1,804.871) (112.80)

Operating profit/(loss) (252.138) (31.11) 48.916 6.11 499.129 31.20
Foreign exchange gain/(loss) 293.242 36.18
------------- --------- ---------- -------- ------------ ----------

Profit / (loss) before income tax 41.104 (5.07) 48.916 6.11 499.129 31.20

Volume shipped dmt 8.105 8.105 8 8 16 16

Average foreign exchange AUDUSD 0.7668 0.7100 0.7100

GBG shareholding in KML (%). 47.84% 47.84% 25%

Operating profit/(loss) attributed to
non Ansteel GBG shareholders A$m (77.558) 15.045 80.225
Earning per share A$ 0.016 0.083
Market valuation per share at PE of 10, A$ 0.156 0.832

ash generated from operation (137.271) (9.41) 69.416 21.18 659.629 41.23
Senior debt repayment (145.595) (17.96) (157.239) (19.65) (213.58) (13.35)
Cash balance after debt repayment (282.866) (27.37) 12.176 1.52 446.052 27.88

Notes:

* Figures of FY 2017 are actual based on the FR2017 filed By KML with Australian Securities & Investments Commission. The Profit/(loss) before income tax of A$41.104m is due to the Foreign exchange gain of A$293.242m, otherwise there is an Operating loss of (A$252.138m).

** Stage 2 upgrade to 16mtpa: The development cost estimate is based on the GBG announcement 16-3-2011 and it essentially involves in building a new 8mtpa concentrate processing plant since the infrastructures are already in place since 2013. The new plant is estimated to cost about A$1,200 millions and it will be financed in the same way as stage 1, at 40% equity and 60% borrowing. The project borrowing will be in the region of A$720m or US$500m at current forex rate of about 0.71. The equity portion is about A$480m and is raised by issuing 300 millions KML shares at A$1.60 each. This new equity amount is comparable to our claims.