Altona Energy Regulatory News (ANR)

2 July 2012

Altona Energy Plc ("Altona" or "the Company")

Completion of Acquisition of PRC Coal Exploration Licences

Altona, the AIM listed energy company, is delighted to announce that it has completed the acquisition (the "Acquisition") of the entire issued share capital of Cheerful Jade Investment Holdings Limited (the "Target"), and has thus secured an indirect 95% beneficial interest in an advanced coal exploration licence ("EL1"), with an option to acquire a further advanced coal exploration licence ("EL2"), both located in the Xinjiang Autonomous Region of the People's Republic of China.

The Amended and Restated Share Purchase Agreement ("SPA") was signed at a Ceremony in Beijing on 27 June by Altona Directors Chris Schrape and Michael Zheng and the Director and Shareholder of Cheerful Jade (the "Seller"), Mr. Cheung Wing Kwong. Completion of the Acquisition was subsequently executed at the presentation of share transfer and other documentation at the Hong Kong office of Altona's legal advisers, Dechert LLP, on 29 June.

Highlights:

·; The Completion follows a period of detailed due diligence which commenced after the signing of a conditional Share Purchase Agreement, announced on 17 February 2012

·; Altona anticipates that production and revenues from sales to local markets at profitable prices will start flowing as soon as post-winter conditions allow in 2013

o Altona has successfully concluded the commercial and legal due diligence on the Seller and on both EL1 and EL2 (together the "EL's"), and additional technical due diligence on EL1;

o In the meantime, the technical due diligence on EL2 will continue with a view to exercising the option and proceeding to the conversion to a Mining Licence ("ML") and into production as soon as possible; and

o Altona has negotiated a number of favourable adjustments to the initial terms announced in February 2012, which are detailed within this announcement.

·; The Board of Altona stress the following benefits that the Acquisition will provide to the Company and its shareholders:

o A source of revenue, profits and cashflow that will mitigate the need to raise funds from shareholders and arrest further dilution of existing shareholders;

o A stronger platform for Altona's participation in the Arckaringa Project, particularly to cover working capital needs during the Bankable Feasibility Study ("BFS"); and

o The ability to strengthen the Company's shareholder base - holding income producing coal assets in China of the nature and size covered by the Acquisition would enable Altona to consider a dual listing on the Hong Kong Stock Exchange, and the Company has engaged a Hong Kong based corporate advisor to assist in the evaluation of this pathway.

The Chairman of the Altona Board, Chris Lambert, commented: "The Company is thrilled to complete the Acquisition and to secure two advanced EL's in a dynamic and growing area that is hungry for energy. We have successfully negotiated amendments to the terms of the SPA to reduce technical and commercial risk to a minimum whilst preserving an early pathway to development and securing full rights over both EL's. Our due diligence work establishes that the first EL can be readily converted to an ML and brought quickly into production and that the second EL should follow the same path.

"The Acquisition is a transformational move for the Company, providing the means to move into production in the near term on a sustainable basis, which is anticipated to generate strong cash flows to underpin the Company's future. In contrast to our flagship Arckaringa CTL Project, this project will have much shorter timelines to achieving coal production revenues and will therefore have more frequent updates to the market."

CONCLUSION OF DUE DILIGENCE

The Completion follows a period of detailed due diligence which commenced after the signing of a conditional Share Purchase Agreement, announced on 17 February 2012, and which was extended in April to 30 June. During this period, Altona and its team of legal and technical advisors successfully concluded the commercial and legal due diligence on the Seller and on both EL's, plus technical due diligence on EL1, but have necessarily placed the conclusion of technical due diligence for EL2 on hold. Part of the access road to EL2 has not been repaired sufficiently to allow ready access for site inspections after the seasonal winter closure, although a full review of geological documents has been carried out.

The parties agreed that rather than wait to conclude the due diligence on EL2 it was mutually beneficial to proceed with the transaction whilst incorporating appropriate amendments into the final SPA, as further detailed below. In particular, the SPA been amended to include the immediate acquisition of EL1 and to include EL2 as an exclusive option to acquire at Altona's sole discretion.

On this basis, EL1 can proceed to conversion into an ML and be brought rapidly into production thereafter. The due diligence on EL1 has confirmed that the coal resources in this EL can be mined using conventional methods and that there is coal of marketable quality, not only at or near surface to allow rapid open cut development after the ML is granted but also to underpin the ramp up of production in the future. Preparations and technical documentation for the immediate submission of the ML application to the local mines regulatory authorities are underway. During the period of application, Altona will also complete plans for the commencement of mining, including appointment of operator/contractors and mine management.

Altona anticipates that production and revenues from sales to local markets at profitable prices will start flowing as soon as post winter conditions allow in 2013. In the meantime, the technical due diligence on EL2 will continue with a view to proceeding to the conversion to an ML and into production as soon as possible.

The technical assessments to date underline the strong earnings potential of the EL's. These assessments have been carried out by a qualified and experienced geological consultant employed by Altona's business advisor - Asiabiz Capital - and by Altona's Managing Director, Chris Schrape, who has long industry experience in the appraisal, development and operation of conventional open cut coal mines. They have assessed the coal resources and quality, indicative mine design and production parameters and the markets to underpin ongoing local sales at good profits. These parties will continue with the due diligence on EL2. Prior to entering into the acquisition process, the Company engaged the Beijing office of Minarco Mineconsult (MMC), an international mining consultancy firm, to undertake an independent high level technical review of the EL's, particularly in regard to geology, mining potential, coal quality and coal markets.

NEGOTIATED AMENDMENTS

In the light of these practicalities, Altona has negotiated a number of adjustments to the terms of the Acquisition. Certain basic protections have been retained from the conditional Share Purchase Agreement signed in February, notably that considerations payable are dependent on the conversion of each EL into an ML within a specified timeframe and the cash consideration is only payable out of Net Operating Profits in respect of each ML. In addition, the following key points have now been incorporated into the SPA, as follows:

·; The milestones that must be reached before Altona is liable to pay a Cash consideration or issue Shares to the Seller, pursuant to the exercise of options granted to the seller, have been confined solely to Profit Milestones, whilst the previous link to production milestones has been deleted;

·; These Profit Milestones apply for each of three years , rather than just one year, and will be at a level of at least RMB60 million in each year after the ML is issued (rather than at RMB90 million for just one year as previously proposed) and, in addition, an interim milestone of RMB30 million will apply mid way into each year;

·; The Cash consideration (£3.825 million) will no longer have to be paid in one instalment, but rather in three part instalments over three years to coincide with the attainment of the Profit Milestones;

·; The requirement for Altona to pay the Resources Fee, which was previously proposed to be payable with the ML application, has been deleted with confirmation during due diligence that any resources fees or charges can be paid out of future production and revenues in accordance with normal local regulations;

·; the Seller has undertaken to convert EL1 into an ML by 15 December 2012, failing which a remedy of £200,000 is payable to Altona within 10 business days after receiving a written notice from Altona; and

·; All of the obligations and liabilities of the Seller have been guaranteed.

 The share Purchase AGREEMENT

Altona has agreed to acquire the entire issued share capital of the Target, of which the Seller is the 100% shareholder. The Target owns an indirect 95% beneficial interest in the EL's through its 95% ownership of the JV in Zheng Zhou (JV). In turn, the JV is the 100% owner of two local companies in Xinjiang Autonomous Region which will be the respective holders of ML1 and ML2 following conversion of EL1 and EL2. In return, Altona will pay certain considerations in cash and shares, as more fully detailed below.

The necessary shareholder approvals required for Altona to proceed with Completion of the SPA were obtained at the Extraordinary General Meeting of shareholders on 11 April 2012.

The Seller has given certain warranties including, but not limited to, enforceability of the SPA, the coal mining assets (including title to the shares in the Seller), the EL's, tax and compliance with legal requirements.

The Seller has also given various undertakings including, but not limited to, the conversion of EL1 to an ML by 15 December 2012 and in the event that the Seller fails to procure conversion of EL1 to an ML then the Seller must pay Altona a remedy of £200,000 within 10 business days after receiving a written notice from Altona and either party may terminate the Share Purchase Agreement, the Bonds and the Options. Termination will relieve both parties of all obligations under the SPA, the Bonds and the Options.

The entire consideration payable under the SPA is contingent on the completion of specific milestones (save that the Convertible Bonds convert into Shares upon the conversion of the EL's into ML's). The consideration can besummarised as follows, based on the assumption that Altona will exercise its option to acquire EL2 and have it converted into an ML:

Any New Shares issued to the Seller in accordance with the Bonds and the Options will be subject to lock-in arrangements for a period of 24 months from the date on which the Seller's right to convert the relevant Bond or Option came (or is deemed to have come) into effect.

If all the shares which could be issued by virtue of exercise of the rights under the Convertible Bond and Share Options for both EL1 and EL2 were to be issued, they would represent 22.9% of the total share capital of Altona.

The cash element of the consideration is conditional upon the following:

·; conversion of the relevant Exploration Licence to a Mining Licence;

·; transfer of the Mining Licences to two local companies respectively;

·; for each mining licence the attainment of certain Net Operating Profit milestones (EL Payment Milestones) as follows:

(ii) at least RMB60 million in the period from 15 December 2013 to 14 December 2014 (of which at least RMB30 million within the period to 30 June 2014); and

(iii) at least RMB60 million in the period from 15 December 2014 to 14 December 2015 (of which at least RMB30 million within the period to 30 June 2015).

The cash consideration will only be payable out of the net operating profits of each relevant ML utilising operating cash flows received by Altona. Further, payment is conditional upon the grant of the relevant ML and satisfaction of the EL Payment Milestones and is payable in three instalments over three years, as follows:

the bonds

On completion of the Acquisition, Altona has issued to the Seller one non-interest bearing and unsecured £2,625,000 Bond. A second Bond for the same amount will be issued should Altona choose to exercise its right to acquire EL2. Each of the Bonds is convertible into 50,000,000 New Shares (100,000,000 New Shares in total) at 5.25 pence per New Share. Conversion of each Bond is conditional upon the conversion of the EL related to that Bond into an ML.

The options

On completion of the Acquisition, Altona has granted the Seller options to subscribe for 20,000,000 New Shares divided into three parcels at respective subscription prices of 10, 15 and 20 pence per New Share (the EL1 Option). The same arrangement will apply for a further 20,000,000 New Shares should Altona exercise its right to acquire EL2 (the EL2 Option).

Both the EL1 Option and EL2 Option carry the following conditions relevant to each EL, each of which must be met before the relevant Option vests and is exercisable:

·; the conversion of the relevant EL to an ML;

·; transfer of the Mining Licences to two local companies respectively;

·; subject to attainment of the First Payment Milestone, as to 7,000,000 Shares at Subscription Price 1 (10p) per Share on the First Payment Date;

·; subject to attainment of the Second Payment Milestone, as to 7,000,000 Shares at Subscription Price 2 (15p) per Share on the Second Payment Date; and

·; subject to attainment of the Third Payment Milestone, as to 6,000,000 Shares at Subscription Price 3 (20p) per Share on the Third Payment Date.

This structure mirrors the staged three part payment and milestone structure applicable to the cash consideration.

the EXPLORATION licences ("EL's")

EL1 and EL2 cover a combined area of 36 square kilometres and are located in the southern part of the Xinjiang Autonomous Region in north western China. The Licences are connected by existing roads to the National Highway system. The EL's are of good standing with valid tenures ranging from July 2012 to July 2013, with both renewable. From historical exploration work, the EL's were reported to contain total coal resources of an estimated 1.17 billion tonnes, according to Chinese ore reporting standards of the time (non JORC compliant). Further detail of the two EL's from these historical reports, which have been reviewed by MMC, are set out in the table below.

The coal resources are principally contained in two major seams common to both EL's, with the geology showing that an economically viable portion of the deposits are accessible by conventional truck and shovel open cut mining methods and have the potential for additional underground operations in the future. The resources are capable of sustaining viable mining operations under viable mine plans.

The available coal analyses reports indicate a bituminous thermal coal with low moisture, sulphur and a medium to high ash content with low impurities and medium to high energy content. The in-situ coal quality indicates that the coal is already marketable as a high quality thermal coal but, subject to further detailed analysis, may have the potential to be washed to reduce ash levels and increase energy content.

More broadly, it can be said that the Xinjiang region is becomingly increasingly important as a coal mining centre in China. According to the Chinese Government's principal economic policy and planning body, the National Reform and Development Commission (NRDC), Xinjiang contains 2.19 trillion tonnes of coal resources (approximately 40% of China's total resources). Historically, production has been small, but recent NRDC statistics indicate that, as a result of new mine developments over the past decade, coal output rose to around 100 million tonnes in 2011. Industry commentators suggest that, with the continuing development of transport and industry infrastructure within north western China, output from existing and new mining operations in Xinjiang will continue to rise during the current economic planning period to supply both local markets and other regions of the country.

Qualified Person

Altona engaged Minarco Mineconsult ("MMC"), an international mining consultancy firm to undertake an independent high level technical review of the Licences, particularly in regard to geology, mining potential, coal quality and coal markets. The review was carried out by the Beijing office of MMC, a firm suitably experienced in the assessment of coal assets and mine design in Asia and Australia. MMC's scope of work was undertaken on a desktop basis and MMC's further recommendations is that a full due diligence inclusive of a site visit be carried out in the near future, which will be completed as part of the mining licence application process. MMC is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies who has reviewed and approved the technical information contained in this announcement.

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