Microsoft Word - 20141230_KRL_ASX_Quarterly_Dec 14 FINAL

Kangaroo Resources Limited

ABN: 38 120 284 040

ASX Code: KRL

DECEMBER 2014 QUARTERLY ACTIVITIES REPORT

ACTIVITIES REPORT

• BAYAN substantially completed new TABANG Coal Haul Road and Senyiur Port facilities - to be used for the Development of our PAKAR north area.
• Reaching final stages of preparing draft agreements for utilization of BAYAN Road & Port Facilities.
• Improvement in Mahakam River water levels during December- allowing resumption of coal barging from MCM in January 2015.
• Clear & Clean (CnC) status now confirmed for 8 of our 14 concession areas. Formal Certification issued for 3 entities with certification for 5 others in process.
• MCM - Completed new geological resource models - Resource estimate being prepared for new JORC statement in Q1.
• Authorities extend time available for completion of outstanding CnC issues in PAKAR South.
• One of the two appellants in the Appeal of the Court verdict relating to our successful defense of the $28Million Litigation case has gone into provisional liquidation, and the other has now discontinued its appeal.
• Cash at bank totaling $2.797 million.

CORPORATE

Chimaera & Empire v Kangaroo Resources legal case

On 1st October 2014 the two Plaintiffs lodged an appeal against certain parts of Court Verdict issued by the Supreme Court of Victoria on 16th September 2014. The Plaintiffs subsequently amended their Appeal and limited it on 23rd October 2014.

We have sought payment for recovery of almost $900K that the Court awarded to the Company. In December 2014, one of the two Plaintiffs went into provisional liquidation. The other discontinued its appeal on 20th January 2015. We are still pursuing both Plaintiffs for payment of the full amount.

We are also preparing our submission for recovery of our legal expenses in defending the case.

BCBCS (White Energy) v Bayan Resources legal case

As reported in the Q3 report, the Company continues to be involved in the proceedings between PT Bayan Resources Tbk and BCBCS in Western Australia. The Company is not taking an active part in the proceedings and only remains involved for the purpose of challenging the costs orders that were made against it.

Financial

Cash at bank at the end of the Q4 was AU$ 2.797 million.

Reported Loan Balance increased in Q4 due to further drawdowns, interest accrued and the effect of FOREX due to the weakening of the AUD against the USD. (Loan is in USD)

New budgets were prepared and approved by the Board for 2015. The Budget includes expenditure for exploration activities which are planned to recommence at GPK and in the PAKAR North area.

The company has continued to reduce spending with 2014 net cash expenditure less than 50% of 2013 net cash expenditure. This trend is expected to continue with the Company continuing to review options to tighten budgets and look for further reduction of Company debt & associated interest costs in 2015 through the:-

• Reduction in non-essential expenditure
• Reduction in manpower levels
• Disposal of under-utilized and surplus assets
• Sale of remaining MCM coal and subsequent reduction in overheads at MCM site

New Regulations

There have been no further developments or clarifications from the government in Q4 regarding the new regulations on foreign ownership of mining concessions.

Project Development

The development of new mines in Indonesia is a long and involved process. Exploration timeframes of between 4 and 7 years are not uncommon. A significant portion of that time is taken up in navigating the licensing and permitting requirements, which involves interfacing with many different government ministries and departments' at local, regional, provincial and also national level.

• Process steps for exploration

o Foreign Investment License

o Corporate Entity

o Exploration License (IUP-Exp)

o Clear & Clean Status Registration and certification (CnC)

o Forestry Usage Permit (to conduct exploration) (IPPKH)

o Exploration Activities

o Geo-modeling and Resource Evaluation

• Process steps for production

o Reserve Evaluation & Feasibility Study

o Operations License (IUP-Op)

o Forestry Usage Permit (to build infrastructure and conduct mining) (IPPKH)

o Port Permits (separate permits for location, design, construction & operation)

o Construction (of Port, road access and mine infrastructure)

o License to Store & Use explosives (if blasting is required)

o Mining Activities

o Export Permits

o Marketing and Sale of Coal

The Company currently has interests in 14 separate mining tenements and all are at different stages in their development.

Almost all of these 14 concession areas are located in forestry areas regulated by the Ministry of Forestry. Separate additional forestry usage permits (IPPKH) are therefore required prior to carrying out Exploration activities and also prior to commencing construction of infrastructure and mining activities.

Laws and Regulations can and do change over time, creating the need to revise or revisit steps in the process. The licensing & permitting process has proved to be time-consuming. The process also involves engaging with many different government authorities at National, Provincial and regional level. The Company is well supported by the Legal and Government Relations departments in BAYAN who have been very active in securing Licenses and Permits.

PAKAR COAL PROJECT (TA, TJ, DE, OM, SA, CA, BS, AU & SK)

We are now targeting opening up mining operations in the TJ concession during 2017 (or earlier if licenses are already in place) which would also involve the construction of short (2km) link roads to connect our mining pit areas to the new 69Km long Bayan Coal haul road and the new Port facility at Senyiur on the Kedang Kepala River.

Bayan have already substantially completed the construction of the new Road and Port facilities and have already started construction of a new Crushing & Stockpiling facility located 6Km from the new Port. This new Crushing and Stockpiling facility will be fully commissioned in time for commencement of initial coal production from our PAKAR North mining areas. (BAYAN currently crush coal near its existing mine-site)

Bayan subsidiary entity IP will operate the Road, Crushing, Stockpiling and Barge loading facilities directly.

Initial contracts for coal haulage and for overburden and coal mining have already been awarded by BAYAN for operation at its TABANG operation and Coal Barging contracts are currently being finalized.

• Mining Contractor - PT Petrosea Tbk - Contracted for 65 Million Tonnes over a period 7 Years
• Coal Haulage Contractor - PT BIS Industries - Contracted for 64 Million Tonnes over a period of 7 Years
• Coal Barging Contractor(s) - still being finalised
Coal haulage contractor BIS has mobilized a new 300t capacity road-train fleet to site and has already commenced the hauling of coal from the existing TABANG mine-site.

Coal is currently being transported by BIS to BAYAN'S existing Gunung Sari Port on the Belayan River pending final completion of the new coal haul road to the Senyiur Port and the ramp-up of coal mining operations at BAYAN'S 'BT' mine-site which will be the largest single production mine utilizing the newly constructed haul road and new Senyiur Port facility.

Capacity at the port is initially planned by BAYAN to reach 30Mtpa in 3 years with the Company having access to 9Mtpa of this capacity and options to increase proportionately on any further expansion.

Mine Plans are currently being developed to fully exploit and utilize this allocation.

All project infra-structure has been fully funded by BAYAN, and this represents a significant advantage to KRL, leaving us able to engage the existing mining, haulage and barging contractors on site and commence operations as soon as our licenses and permits are in secured and without the need to raise additional funds for capex and working capital.

Our main focus is to ensure that we continue to make progress towards obtaining all other necessary permits and approvals required to enable construction and mining operations to commence at PAKAR North in 2017.

The Department of Mines has also been active in Q4, carrying out inspections, audits and assessments related to our applications for CnC status for our PAKAR North concessions and also our PAKAR South concessions.

CnC status is a critical step in the development and licensing & permitting process. Without CnC status, it is not possible for concession holders to:-

1. Transfer to/from Local to PMA status
2. Sell or transfer equity (as per Ministerial Regulation No 27-2013)
3. Upgrade from Exploration IUP to Production IUP,
4. Obtain other necessary Business Licenses
5. Sell Coal
6. Obtain recommendation letters from Bupati's or Governors
7. Make any corporate changes to an entity (eg. change Directors or
Commissioners)

We are pleased to report on CnC progress to date for the PAKAR project as follows:

TJ - CnC status confirmed and Certification issued
TA - CnC status confirmed and Certification issued
OM - CnC status confirmed.

We are now able to progress the remaining licenses for PAKAR North.

For DE, SA and CA - We have been advised that local Department of Mines officials have submitted their own reports and recommendations to the Ministry who are responsible for the registration of CnC status and for issuance of certification. Barring any unforeseen circumstances, we believe that CnC status would be forthcoming.

For BS, AU and SK - There are still some issues to resolve with a potential overlapping concession in the PAKAR South area, this has been the subject of legal action in a number of court cases. We had previously been advised that these issues had been resolved