Doc2 business plan

PART II

BUSINESS PLAN XXXX

DETAILED STRATEGY IMPLEMENTATION PLAN

November 2013

XXXX-­‐Implementation Plan

Table of Contents EXECUTIVE SUMMARY ................................................................................................................................ 1 1. POSITIONING PLAN .............................................................................................................................. 2 1.1 EARLY MOVER ADVANTAGES .................................................................................................................. 2 1.2 DISTINCTIVE COMPETENCIES .................................................................................................................. 3 RELINE COMPETENCIES ........................................................................................................................................................ 4 VALUE CREATION ................................................................................................................................................................... 4 LOWER COSTS ......................................................................................................................................................................... 5 1.3 TOTAL QUALITY MANAGEMENT ............................................................................................................ 5 TEAM DEVELOPMENT: .......................................................................................................................................................... 6 CUSTOMER SERVICE: ............................................................................................................................................................. 7 ENVIRONMENTAL SCANNING: ............................................................................................................................................. 8 2.0 ENGAGEMENT PLAN ...................................................................................................................... 10 2.1 SITUATION ANALYSIS ........................................................................................................................... 10 PNG & SOUTH PACIFIC-­‐ SHORT TERM (2014) GROWTH ........................................................................................... 10 S.E.ASIA-­‐ SHORT TERM (2014) GROWTH ...................................................................................................................... 16 PNG & SOUTH PACIFIC -­‐ MEDIUM TERM (2015-­‐16) GROWTH ................................................................................ 17 PNG & SOUTH PACIFIC -­‐ LONGER TERM (2017 ON) ................................................................................................... 20 2.2 COST PERFORMANCE ............................................................................................................................ 23 INTERNATIONAL LOGISTICS: .............................................................................................................................................. 23 EXPAT LABOR: ...................................................................................................................................................................... 24 PNG LABOR: ......................................................................................................................................................................... 25 2.3 FOREIGN CURRENCY HEDGING PLAN ................................................................................................... 27

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EXECUTIVE SUMMARY

The Strategic Plan for XXXX has set short (2014) and medium (2015-­‐16) term goals for its business directions, which include growing existing contracts (reline/plant maintenance and truck cartage) and securing new opportunities across their PNG, South Pacific and S.E.Asian markets. Assessments have been undertaken and detailed analysis developed to fully understand the nature of industry, other external and internal environment positives and challenges. These have influenced the final set of competitive strategies to implement the goals, contained in this business plan.

XXXX can best implement its strategic plan and goals through adopting those key methods proposed (Strategic Plan) including the consideration of strategic alliances through a supply chain integration model. By developing contractual relations with leading crusher and reline equipment suppliers, XXXX can attain the competitive advantages of early market mover and preferred supplier status. By leveraging (increasing) its distinctive competencies (technical reline skills, safety, global learning) XXXX is able to differentiate its superior services to create value perception pricing for its customers.

Total Quality Management (TQM) can enhance team cohesion through self-­‐management and accountability measures backed up with emphasis on customer services and training support. Increased engagement with XXXX’s customers will provide greater links to industry and provide opportunities for internal parts of XXXX to connect. The ability to undertake assessments and perform analysis on competitors and markets has been developed (tools) for XXXX to utilize to improve this assessed weakness.

To support the medium term goals for XXXX a set of strategic action plans have identified localizing reline labor for all regional markets, in trend with mining owners current practices. This will enable XXXX to continue to lower costs including international logistics and expat labor, whilst increasing customer perception pricing as outlined.

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1.

POSITIONING PLAN

The XXXX Strategic Plan determines broadly how XXXX will build market growth regionally through three Strategic Business Units (SBU’s) and will be guided by competitive strategies for progress and control. This section will now provide direct alignments between these strategic goals, the SBU’s and the primary tactical plans:

1.1

Early mover advantages

The recommended competitive strategies for SBU: 1/2 –(PNG, South Pacific, S.E.Asia-­‐ reline and plant maintenance) is to consider forming strategic alliances through vertical supply chain integration. This basically means that XXXX target a crusher and reline equipment manufacturer/supplier throughout their markets (Asia Pacific) and begin developing a model for mutual benefits (contractual).

Strategic alliances provide competitive benefits to both firms whilst separating each firm’s business focus and therefore minimizes direct competition for each firm in mutual markets. The model recommended is for joint marketing of services and products where XXXX gains early market mover advantages over rival reline contractors by aligning with a crusher or reline equipment supplier with access to mining developments in its Asia Pacific regional markets. This is not considered a joint venture (legal structure) model merely joining of forces to promote each other’s benefits to markets (contractual). This will provide mutual benefits for marketing each other in these markets and particularly for XXXX, enables leverage into these markets.

In addition it is recommended that XXXX vertically integrate into the crusher/reline equipment supply chains as ‘preferred supplier’ for the firms reline maintenance component. In this model the suppliers market XXXX to its mining clients during the early procurement planning processes and in this way, creates early mover advantages for XXXX. Similarly XXXX will have obligations to promote the products of the crusher or reline equipment suppliers in its regional markets. In addition XXXX uses its reline expertise/learning (distinctive competence) to assist partners to improve crusher and reline equipment design and manufacture (contractual). This level of engagement is at the early concept design stages where XXXX can best assist with performance and operational ‘reality-­‐checks’ for manufacturers, given the strengths of XXXX’s reline experiences.

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The key condition for any strategic partnership is for XXXX to be the sole reline maintenance provider. Global crusher suppliers like Metso (Finnish) also has reline divisions therefore may not provide suitable targets for such alliances. China is an emerging market supplier and under current commodity price and cost pressures, will continue to be the procurement choice for mining developers. REM is the leading reline equipment manufacturer/supplier for developing potential alliances with.

Illustration: XXXX strategic alliance/integration model

Crusher'manufacturer

Crusher'supplier

Mining'development

Reline'P'&'E'manufacturer

Reline'P'&'E'supplier

Mining'development

WFSP=Reline'contractor

1.2

Distinctive competencies

Vertical integration • Safety • ISO 9000 • PNG-­‐ Good Citizen

• R & D partnering • Leverage from learning advantages

• Peak reline bodies • Industry memberships

Industry engagement

Accreditations

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Reline competencies

XXXX has gained global and regional market knowledge in relines and plant maintenance operations including high technical and safety processes and operational management capabilities. This includes managing multiple reline maintenance operations across diverse markets (South Pacific & S.E.Asia) in a heavy industry operating environment.

This level of management experience is a competitive asset for XXXX to integrate into its growth strategies to attain its goals. XXXX needs to embark on processes to gain formal accreditation through ISO 9000 programs and relevant safety and reline industry recognition. This will strengthen marketing capabilities and boost the industry standing for XXXX’s reline medium term goals (“to be the leading reline maintenance provider in the South Pacific”). GoPNG provides ‘Good Corporate Citizenship’ awards that XXXX is encouraged to pursue, some benefits from this program include 5 yearly work permits.

Further competitive advantages can be gained from XXXX’s highly skilled and diverse work force through more active engagement with manufacturers for R&D on crusher and reline equipment. XXXX is recommended to position its reline capabilities along lines of professionalism (accreditations) and to also seek industry influence through membership with peak reline bodies.

Value creation

These tactics will allow XXXX to adopt value pricing for its mining owner clients in positioning its lower cost labor services with higher customer value (perceived) through good industry integration (section 1) and accreditations. This should be implemented for both SBU: 1 & 2-­‐ PNG, South Pacific and S.E.Asia -­‐ reline and plant maintenance, as a competitive response to move away from low cost entrants and to boost market appeal for medium term growth in new mines.

This can be seen as a competitive advantage under the current cost challenges where increased customer value perception (V) allows XXXX to increase price (above P) so that XXXX can charge at a new higher price point (V). By adopting value added reline capabilities through localization of labor, accreditations and peak industry engagement, XXXX moves its price from (P) up to (V).

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Lower costs

XXXX can also leverage from its low cost base when adopting transnational market growth over the medium term, to secure competitive contract bids. By stacking crew make ups (for S.E.Asian contract bids), with experienced PNG reline supervisors and technicians (if not already), XXXX can reduce its charge out rates. Currently the international logistics costs (see section 2) threaten the competitiveness for XXXX’s medium term strategic goals. Through a combination of low-­‐cost PNG labor, supplemented with localized (in-­‐market nationals), XXXX is able to eliminate higher expat costs from this regional market and reduce its logistics costs and remain competitive.

1.3

Total Quality Management

Total Quality Management (TQM) is a continuous process of ensuring all parts of the organization, is able to operate effectively. For TQM to function there needs to be attention to tailored (targeted) training and staff development, there also needs to be some good controls to manage people, systems and processes (accounting, payroll, staff performance). There needs to be attention on good customer service levels and the ability to undertake business analysis (competitor threats, market opportunities, industry trends). TQM requires that management is always looking to improve on all aspects of the business operations and therefore is organic (always changing).

The Strategic Plan assessed some internal weaknesses in team strengths and business processes, as needing more developed capabilities and the recommendation was to

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implement a continuous improvement program through TQM. The XXXX Value Chain below demonstrates these two key areas of operations (HRM, Business Support Systems), where the assessments indicated more attention was required to deliver improvements. This section presents these aspects and their application to the XXXX value chain (the cost performance aspects are dealt with at section 2):

Illustration: XXXX Value chain analysis Primary'activities 1

2

3

WEAK

MID

STRONG

Administration'Support

Fixed'Plant'Maintenance

SAG/BALL'Relining

Workforce'Labor'Costs'(Expat'reline'labor) 1 Workforce''Labor'Resources'(contractorOskills,'experience)

Support'acTviTes'

3 Other'Resources'(assets,'facilities,'P&E) 3 HRM'(team'stengths) 2 Business'Support'Systems'(intelligence'capabilities) 2 Logistics'(internationalOtravel'costs) 1

Team development:

TQM will allow XXXX to create a team-­‐centered culture with emphasis on providing higher service levels in all aspects of administration and customer service. Both of these operations will be improved through strengthening performance, developing measurement systems and providing staff feedback.

Team culture and cohesion can be developed by involving the team in goal setting processes (if not already) for the XXXX administration operations and having the team self-­‐monitor (under control of management). Making the team accountable to management also reinforces team commitments to goals and makes the team more cohesive to each other. Other incentives like team-­‐based rewards can also strengthen the team for XXXX and gain the required level of commitment to strategic goals.

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Effective measurement processes will need to provide management with feedback and control indicators on metrics like customer service complaints attended to and resolved over the month, weekly payroll and accounts transactions (errors and improvements) and operating cost performances including forecast/actual variance analysis. These metrics will provide basis for monitoring and controlling different aspects to the XXXX operations and allow performances to be aligned to supporting SBU activities.

Training and development options (if not already) will build team cohesion, improve customer services, improve technical knowledge on critical administration operations and systems (accounts, payroll etc), will support team goal commitment and foster a greater sense of purpose. Fostering team culture through greater self-­‐management is leadership, providing job based skills development is the training aspects. XXXX will need this combination to align the administrative function to better serve each SBU in the matrix structure.

Customer service:

Critical to this TQM approach will be attention to improving levels of customer service and this needs to be achieved through the team approach described above. Areas for improved customer services can be delivered to staff through training options and focus on creating increased value through the eyes of XXXX mining and other customers.

Improved and professional service provisions between the administration teams and customers is the starting point and this includes measures to better manage reline logistics (air fares, crew mobilization plans etc.), speedier response and feedback times to customer enquiries and other requests for information. Performance measurement outcomes in this area of TQM systems can provide the basis for management decisions on team based rewards.

Stronger alignment to XXXX’s customers can be achieved through customer visits to meet staff and view operations and for mutual recognition. This works both ways with benefits to XXXX administration teams being hosted on-­‐site by mining owners and XXXX site staff. These exercises act as staff orientations to the reline operations of XXXX as well as providing them with greater context of their organization, their place in the organization and allow other parts of XXXX to meet.

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Environmental Scanning:

XXXX will be required to continue monitoring for changes to political, legal and economic environments across PNG, South Pacific and S.E.Asian regional markets, to assess government laws and regulations, civil and contract laws and general economic stability indicators. This level of assessment has been developed in the Strategic Plan document (see Sections 2-­‐3) and the tools will provide XXXX with improved analysis capabilities (see Attachment 1-­‐ ‘Industry Analysis’, ‘Internal_Analysis, ‘External_Analysis’). A procedures guide has also been developed to enable XXXX to navigate through PNG work permit/visa procedures (see Attachment 1 – ‘PNG_Work_Permit_Procedure’, ‘PNG_Visa_Procedure’).

Data sources to monitor and environmental indicators to analyze should form part of the market and competitor intelligence system for XXXX as indicated in the table below:

Political risk: FDI laws (Solomon Isl.) (Vanuatu) (Vietnam) (Indonesia) (Myanmar) (Thailand) (PNG) Labor laws

MACRO-­‐ENVIRONMENT Indicators Sources www.investsolomons.gov.sb/ • Work permits/visas www.investvanuatu.org/ • Local partnerships www.chinhphu.vn/portal/ • Capital repatriation www.bkpm.go.id/

www.dica.gov.mm

www.boi.go.th/ www.ipa.gov.pg/ www.commerce.gov.sb www.rbv.gov.vu/ www.sbv.gov.vn/ www.bi.go.id/web/ www.cbm.gov.mm/ www.bot.or.th www.bol.gov.la/ www.workpermits.gov.pg/ www.ird.gov.sb customsinlandrevenue.gov.vu www.gdt.gov.vn www.irs.gov www.irdmyanmar.gov.mm www.rd.go.th www.irc.gov.pg (South Pacific) www.paclii.org/databases (S.E.Asia) www.worldlii.org/catalog/

(refer –Monthly Economic Bulletins) www.cbsi.com.sb/

• National content • Awards/rates • Statutory fees

Taxation/financial • Tax rates laws • Compliance regimes • Accounting policies

Legal risk

Economic risk

• Contract law • Civil law

• Growth • FX rate

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www.rbv.gov.vu/ www.sbv.gov.vn/ www.bi.go.id/web/ www.cbm.gov.mm/ www.bot.or.th www.bol.gov.la/ www.bankpng.gov.pg MICRO-­‐ENVIRONMENT (refer ‘Strategy’-­‐ section 2.1) • Five forces Company web sites • Project details Annual/Qtrly Reports • Strategies/forecasts Chambers of Commerce • Prices Internal resources • Market share Competitor web sites • Growth Competitor annual /shareholder reports • Strategic plans • Inflation rate • Interest rate • Unemployment

Industry Mine projects Competitors

Illustration: XXXX Total Quality Management components

Customer focus *Site visits *Teams are connected *Professional services

Management controls

Analysis capability

*Monitoring *Providing metrics *Improving systems

*Macro-­‐political/legal/ economic risks *Micro-­‐industry/market/ competitors

Staff performance *T&D programs *Team building *Team assessment

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2.0 ENGAGEMENT PLAN

2.1

Situation Analysis

In accordance with the XXXX Strategic Plan, short term (2014) goals will focus on consolidating (strengthening) ongoing market share for reline and plant maintenance contracts (PNG, Solomon Islands, Laos) and to secure cartage hire contracts for the truck fleet (PNG). The plan is to then grow the reline business in all regional markets (South Pacific & S.E.Asia) over 2015-­‐16.

Current indicative assessments now need to be developed for each SBU across each regional market to determine situation analysis and appropriate strategy responses.

XXXX has also declared medium term directions to be the leading reline maintenance contractor for the South Pacific region and this section focuses on this region:

PNG & South Pacific-­‐ Short term (2014) growth

SBU 1: PNG & South Pacific – Relines & Plant Maintenance (action plan)

Ok Tedi Mining Limited (OTML) -­‐ OTML is undergoing cost cutting mainly in their workforce (-­‐12% force : -­‐33% costs) with earnings down on forecasts, although the current ownership uncertainty has not impacted. OTML is also planning reduced production for 2014 onwards and although near-­‐mine exploration is ongoing, this represents static (unchanged) opportunities for XXXX. (http://www.businessadvantagepng.com/just-­‐like-­‐riding-­‐tiger-­‐ok-­‐tedi-­‐minings-­‐ceo-­‐reflects-­‐momentous-­‐year/).

STRATEGY RESPONSE: XXXX has synergy between its units (reline/plant maintenance) to provide required economies of scope (resource sharing). Location economies (being located on-­‐site to reduce logistic costs etc.) will also need to be implemented (if not already). OTML has no indication of implemented localization programs however XXXX is advised to continually monitor for changes to this policy.

Porgera Joint Venture (PJV)-­‐ Barrick Gold reports over AUD$500m (for all its mines) in cost cutting was implemented during 2013 losing 1,850 positions. For Porgera the

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owner is currently evaluating mine plan changes and exploring other alternatives and there has been decreased mining activity for 2013. Overall this should be noted as presenting static (unchanged) opportunities for XXXX. (http://www.barrick.com/files/quarterly-­‐ reports/2013/Barrick-­‐2013-­‐Third-­‐Quarter-­‐Report.pdf)

STRATEGY RESPONSE: XXXX should focus on cost efficiencies through location and scope economies. Continue applying distinctive competencies (technical reline capabilities) to consolidate ‘preferred contractor’ status. No indication of implemented localization programs however XXXX is advised to continually monitor for changes to this policy.

Lihir –One of the world’s largest gold deposits, with an operational life projected to exceed more than 30 years. During 2013 the company reported increased use of contract mining at Lihir with local landowner companies. Near mine exploration programs has discovered a new zone of mineralization at Kapit North East, which is an important part of the long-­‐term production profile, however this project has been deferred (during 2013). Overall this should be noted as presenting static (unchanged) opportunities for XXXX. (http://www.newcrest.com.au/media/annual_reports/FINAL_AR_2013_72dpi_web.pdf)

STRATEGY RESPONSE: Risks for localization (use of local providers) remains a short-­‐ term threat under the recent programs announced, however XXXX needs to create differentiation in its’ highly experienced and skilled reline capabilities, in combination with cost effective (scope and location economies) strategies. Seriously consider immediate term (subject to costs/contractual) recruiting/sub-­‐contracting localized reliners. (if not already) for deployment on site/other sites (PNG/Solomon Islands/Laos).

Morobe Mining Joint Venture (MMJV) – The mine is expected have a projected 14-­‐year mine life. Hidden Valley results (2013) during the year remain unacceptable, production decreased by 3,797 ounces or 4% in the current year primarily due to lower volume and grade of ore processed and actions are being taken to address production and reliability issues. 2013 saw cost-­‐cutting strategies including the in sourcing of previously contracted maintenance work, resulting in an increase in employee costs.

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Potential brownfields expansions at Hidden Valley are in the concept study stage, these are on hold but remain options should market conditions improve.

(NEWCREST MINING LIMITED ANNUAL REPORT 2013)

STRATEGY RESPONSE: Risks for localization (use of local providers) remain under the recent programs announced. XXXX needs to create differentiation in its’ highly experienced and skilled reline capabilities, in combination with cost effective (scope and location economies) strategies. Seriously consider immediate term (subject to costs/contractual) recruiting/sub-­‐contracting localized reliners. (if not already) for deployment on site/other sites (PNG/Solomon Islands/Laos).

Gold Ridge –(Solomon Islands) – St Barbara acquired the mine in 2013 and production at Gold Ridge has steadily increased quarter on quarter (2013). Production has been of materially lower metallurgical recovery and the resolution of this issue is the immediate focus for the Pacific Operations. There are possibilities for expansion of known ore bodies and exploration opportunities in proximity to current mining operations. The Group also has an ongoing commitment to work with local communities to improve infrastructure, particularly in health and education, support local businesses. (http://www.stbarbara.com.au/fileadmin/user_upload/documents/annual-­‐reports/2013_Annual_Report__web_.pdf)

STRATEGY RESPONSE: Emerging risks for localization (use of local providers) remain under the recent programs announced. This is a new contract therefore XXXX has opportunity to deliver on its distinctive competencies (experienced and skilled reline capabilities, low labor costs, safety culture). Gain early mover advantages by recruiting local-­‐based (landowners) reline labor (if not already).

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Illustration: XXXX Summary Action Plan

WFSP$Action$Plan:$Short$term$(2014) SBU$$1: PNG$&$South$Pacific$Regions Reline(&(F.P.Maint.(Services

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

Ok(Tedi(Mining(Limited((OTML)( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Leverage(synergy(( Economies(of(scope( Location(economies

Porgera(Joint(Venture((PJV)( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Distinctive(competencies( Economies(of(scope( Location(economies

Lihir(Gold(Limited Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Create(differentiation( Economic(efficiencies Localisation(recruitment

Morobe(Mining(JV((MMJV)( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Create(differentiation( Economic(efficiencies Localisation(recruitment

Gold(Ridge(L(Solomon(Islands)( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Create(differentiation( Economic(efficiencies Localisation(recruitment

SBU 3: PNG & South Pacific labor, truck hire (action plan)

PNG truck cartage contract opportunities will need to consider the higher commercial (contract) risk in PNG. This may restrict potential partnerships with localized (all PNG) civil construction firms and government civil projects/tenders. From an operations point there will need to be adequate support for consumables (fuel, tires) and maintenance requirements to ensure assets are maintained fit for use. Costs for these services increase outside of NCD, which adds to final cost of sales and impacts on cost competitiveness.

The main channel for GoPNG project tenders (subject to risk assessments) is http://www.cstb.gov.pg and will provide substantial opportunities to secure possible truck cartage contracts. It should be noted however that there is considerable time and application required to develop tender submissions. The cultural risks (‘wantok’ system) will present significant challenges for this channel. This is however an ideal channel to secure substantial cartage contract opportunities as this is the portal to

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multiple industry participants for cartage and transportation services, through which to seek strategic alliances or long-­‐term sub-­‐contract opportunities.

To place this in perspective the 2014 Capital Expenditure Component of the National Budget appropriation is a record K7.471 billion. This is focused on ensuring the successful roll out of nation building infrastructure including Highlands Highway Upgrade, the Lae Port Development Project, Lae City Roads, POM City Roads, the National Broadband Network and the 2015 South Pacific Games. K1.54 billion or 21% of the total PIP is targeting the 16 National Priority Roads, 16 Missing Link Roads and crucial provincial, district and rural feeder roads associated with resource rich areas across the country. (2014 NATIONAL BUDGET -­‐ VOLUME 3 -­‐PUBLIC INVESTMENT PROGRAM 2014 – 2018).

To provide XXXX planning capability a forecast/cash-­‐flow projections tool has been developed (see Attachment 1) based on scenarios for securing market shares of the K6.2 billion of the Public Investment Program in particular the K5.20 billion allocation for infrastructure being delivered through Department of Works & Implementation:

Chart a: XXXX cartage sales projections

Sales&Projec,ons&(Truck&cartage)&PGKmill& 4.5$ 4$

3.89$

3.5$

3.18$

3$ 2.5$

2.28$

2$ 1.5$ 1$

1.16$

0.5$ 0$ 2014$

2015$

2016$

2017$

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Chart b: XXXX cartage gross profit projections

Gross%Profit%Projec,ons%(Truck%cartage)%PGK%mill% 4% 3.59%

3.5% 3%

2.96%

2.5% 2.13%

2% 1.5% 1.07%

1% 0.5% 0%

2014%

2015%

2014%National%Budget K5.2%billion%of%the%Public%Investment%Program% 2014%Budget%allocation:%(PGK%bill) Department)of)Works)&)Implementation) WFSP%Sales%Projections%(PGK%mill) Sale%projections%(.025%%market%share) Sales%projections%(.05%%market%share) Sales%projections%(.075%%market%share) Sales%projection%(.1%%market%share) Sales)Annually: Cumulative

2016%

2017%

Annual%forecasted%cash%flow%analysis%(PGK%mill) 2014 2015 2016 2017 1,529

1,520

1,200

950

0 0 1.1466 0 1.1466 1.1466

0 0 1.139625 0 1.139625 2.286225

0 0 0.899625 0 0.899625 3.18585

0 0 0.7125 0 0.7125 3.89835

(2013%nominal)

Cost%of%sales%(PGK%'000,000s) Gross%Profit%(PGK%mill): Sales%projections%(.075%%market%share)

0.075

0.075

0.075

0.075

1.0716

1.064625

0.824625

0.6375

Gross)Profit)(PGK)mill):)Annually Cumulative

1.0716 1.0716

1.064625 2.136225

0.824625 2.96085

0.6375 3.59835

(2013%nominal)

The XXXX Strategic Plan (corporate) proposes strategic alliances (sub-­‐contracting), this means consideration of securing contract opportunities with only reputable and large-­‐ scale civil companies. This should reduce commercial risks and provide access to long-­‐ term contracts, however this may mean positioning the truck fleet in regional locations (Alotau/other). It is recommended to target local subsidiaries of foreign-­‐based large civil/construction contractors (Australia/NZ) like Curtain Bros (http://www.curtainbros.com.au), Fletcher (http://www.fletcherconstruction.co.nz), Leightons (http://www.leightoncontractors.com.au/news-­‐and-­‐media/news/png-­‐office-­‐ opens/) etc.

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Another localized channel is available to seek tender opportunities for PNG regional projects (civil/construction/NGO projects etc.), which can be sourced directly through tender related web sites ( www.tendersinfo.com). Local PNG newspapers and web-­‐ based trade directories (Post Courier, www.pngbd.com) are another important source of tenders. NGO’s (AusAid, Asian Development Bank, UN etc.) are an important and growing source of project opportunities, with substantial funding annually in PNG/South Pacific and most have a base headquarters in POM. However these programs are generally implemented through GoPNG (all levels) agencies.

WFSP$Action$Plan:$Short$term$(2014) SBU$$3: PNG$&$South$Pacific$Regions Other(Business(Directions

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

PNG(truck(cartage(contracts Goal:(Secure(market(entry Status:(Potential(

Strategic(alignments LongCterm(contracting

Create(differentiation( Location(efficiencies

S.E.Asia-­‐ Short term (2014) growth

SBU 2: S.E.Asia Relines & Plant Maintenance (action plan)

Ban Houayxai-­‐(Laos) - PanAust reports Ban Houayxai contributed US$125.9 million, representing 18% of Group sales revenue (2013), producing approximately 100,000 oz. of gold. For full year 2014 gold production is forecasted at 165,000oz gold and approximately 1.2 million ounces of silver.

Phu Kham-­‐(Laos) Phu Kham contributed US$591.1 million for 2013. Also in 2013 the Phu Kham Upgrade Project was completed within the US$95 million capital budget. The Phu Kham Increased Recovery Project with a capital cost estimated to be US$45 million will lift production to between 65,000t and 70,000t-­‐(Copper and gold). Recoveries in 2014 are expected to rise to over 80% and 50% respectively.

Localization (T&D) of reliners included in original scope (XXXX). (http://www.panaust.com.au/sites/default/files/reports/FINAL_PanAust2012AnnualReport.pdf) (http://www.panaust.com.au/sites/default/files/PanAust%202014%20Guidance.pdf)

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STRATEGY RESPONSE: XXXX should continue to apply distinctive competencies in reline capabilities but focus on next growth opportunity in Laos (limited contract period with PanAust). XXXX needs to consider early mover advantages in recruiting their trained Laos reliners for its market growth in S.E.Asia to maintain economic efficiencies (location/scope).

Illustration: XXXX Summary Action Plan

WFSP$Action$Plan:$Short$term$(2014) SBU$$2: S.E.Asia$Regions$ Reline(&(F.P.Maint.(Services

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

Ban(HouayxaiB(Laos)(( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Distinctive(competencies( Economic(efficiencies Localisation(recruitment

Phu(KhamB(Laos)(( Goal:(Grow(reline(contract Status:(Static((unchanged)(

Related(diversitifation (F.P.Maintenance)

Distinctive(competencies( Economic(efficiencies Localisation(recruitment

PNG & South Pacific -­‐ Medium term (2015-­‐16) growth

SBU 1: PNG & South Pacific-­‐ Reline & Plant Maintenance

XXXX Strategy Plan proposes that XXXX adopt a combination of strategic alliance and supply chain integration with crusher and associated circuit P&E providers.

Backward/forward integration with manufacturers/suppliers will ensure early-­‐market mover advantages for XXXX for this contract opportunity. A key strategic initiative will also be to secure formal service contracts with each owner (like PBM) and to include the localized reline components in this agreement. This acts to reduce risks of localized entry post contract commencement, protects contract for XXXX and removes competitive threats (currently being experienced).

Indochine’s Mt. Kare gold mine is scheduled for 2015 production and represents a suitable target for XXXX to approach for determining appropriate crusher and maintenance planning/procurement alliances/integration. Indochine has begun this level planning recently engaging EPCM contractors (July 2013) Australian Contract Mining Pty Ltd and GR Engineering Services Limited for project management, feasibility study, development, engineering, construction and underground mining services. (ANNUAL FINANCIAL REPORT 30 JUNE 2013 INDOCHINE MINING LIMITED)

17

XXXX-­‐Implementation Plan

STRATEGY RESPONSE: XXXX needs early mover advantage (if still possible) target EPCM contractors to secure alliance with crusher circuit supply chain. Marketing and B/D activities using company web site, strategic plan and adopted content from PBM tender submission (capability statement, reline technical and safety approach etc.).

Implement distinctive competencies in marketing approach (reline technical skills/experience, low cost labor etc.). Aim to also secure early mover advantage through localized reline recruitment (recruit & train landowners), this will reduce competitive threats over medium term. A major component will be to structure this arrangement into any final contract with owner.

Woodlark Island gold mine – Mine will have a 9-­‐year mine life and resource of 2.1 million ounces of gold with first gold scheduled 2015. Kula Gold reporting (2014) progress activities including Bankable Feasibility Study (BFS) completed. Further activities (2014) include secure mining lease and environmental permit, confirm state equity option and finalize project financing. EPCM contractors (TBC) and these firms prepared PFS-­‐ Process Test work, Plant Design, Infrastructure-­‐ RW Nice and Associates Pty Ltd and GR Engineering Limited.

(Kula_Gold_Prospectus_LODGED_LR2) (Kula Gold May 2013 AGM Presentation Final PDF)

STRATEGY RESPONSE: XXXX needs early mover advantage (if still possible) target EPCM contractors to secure alliance with crusher circuit supply chain. Marketing and B/D activities using company web site, strategic plan and adopted content from PBM tender submission (capability statement, reline technical and safety approach etc.).

Implement distinctive competencies in marketing approach (reline technical skills/experience, low cost labor etc.). Aim to also secure early mover advantage through localized reline recruitment (recruit/train landowners), this will reduce competitive threats over medium term. A major component will be to structure this arrangement into any final contract with owner.

Vale Nouvelle-­‐Calédonie (VNC)/Goro Nickel Project (New Caledonia) –Vale reports this mine is an open pit nickel mining project in the South Province of New Caledonia with a potential annual output of 60,000 metric tons of nickel and 4,500 metric tons of cobalt. Mine being ramped up over a four-­‐year period (at 2012) to reach nominal production capacity of 57,000 metric tons per year of nickel. The mining project

18

XXXX-­‐Implementation Plan

provides local subcontractors, including Kanak companies, business opportunities with the mine. Analysts’ estimates that the New Caledonia archipelago holds 25% of the globe’s nickel resources. (http://www.vale.com/EN/investors/Quarterly-­‐results-­‐reports/20F/20FDocs/20F_2012_i.pdf)

Koniambo Nickel SAS – (New Caledonia) -­‐ complex is in the Northern Province of New Caledonia It is one of the world’s largest and richest nickel deposits -­‐ mine’s reserves are assessed at 62.5 million tonnes of ore at an average grade of 2.46%, the equivalent of 6.1 million tonnes of nickel content-­‐ the mine’s life is estimated to be 25 years -­‐ producing 60,000 tonnes of nickel content (http://www.koniambonickel.nc)

STRATEGY RESPONSE: Seek out reline contractor to target partnerships using distinctive competencies to align with local based reliners (training opportunities).

Implement transnational (corporate) strategy through options (FDI) to position XXXX relines for longer-­‐term mining growth in New Caledonia.

Illustration: XXXX Summary Action Plan

WFSP$Action$Plan:$Medium$term$(2015D16) SBU$$1: PNG$&$South$Pacific$Regions Reline(&(F.P.Maint.(Services

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

Mt.(Kare(gold(mine( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration

Distinctive(competencies( Localisation(recruitment

Woodlark(Island(gold(mine( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration

Distinctive(competencies( Localisation(recruitment

Goro(nickel(mine Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration

Distinctive(competencies( Localisation(recruitment

Koniambo(nickel(mine( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration

Distinctive(competencies( Localisation(recruitment

19

XXXX-­‐Implementation Plan

PNG & South Pacific -­‐ Longer term (2017 on)

SBU 1: PNG & South Pacific -­‐ Reline & Plant Maintenance Illustration: XXXX Summary Action Plan

WFSP$Action$Plan:$Longer$term$(2017$on) SBU$$1: PNG$&$South$Pacific$Regions Reline(&(F.P.Maint.(Services

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

Freida(River(gold(project Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Yandera(CopperGGold(project( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

WafiGGolpu(JV((WGJV)( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Imwauna(gold(project( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Freida River gold project (PNG)-­‐ PanAust acquired 80% of the Frieda River Project (2013), to secure the Company’s sustainable growth beyond the life of its Phu Kham Operation in Laos. Freida will have average annual production of over 100,000 tonnes of copper and 160,000 ounces of gold. It will have an 18-­‐year mine life with first production in 2017. Recent feasibility studies indicate the development of a large-­‐scale project, the need for large infrastructure development and complex material handling solutions. Options for future expansions may include the high-­‐grade Nena deposit.

EPCM (TBC) PFS contractor -­‐ Engineering Contractors -­‐ Sinclair Knight Merz. (http://www.panaust.com.au/sites/default/files/PanAust_to_acquire_majority_interest_in_Frieda_River_Project.pdf) (http://www.highlandspacific.com/pdf/2013Media-­‐Frieda_Article%202013.pdf)

STRATEGY RESPONSE: Seek strategic alliance/supply chain integration with crusher circuit suppliers through any final EPCM.

Yandera Copper-­‐Molybdenum-­‐Gold Project (PNG)– Yandera is one of the largest undeveloped porphyry copper-­‐molybdenum-­‐gold systems in the southwest Pacific.

Owner Marengo Mining is currently focused on advancing the development of the Yandera Project (Phase 2-­‐FS), this includes identification and consideration of options

20

XXXX-­‐Implementation Plan

for project infrastructure, processing facility locations and transportation. Additional work is required in a number of specific areas before a final FS (at May 2013). EPC-­‐ Principal Contractor -­‐ China Nonferrous Metal Industry’s Foreign Engineering and Construction Co. Ltd. (http://www.marengomining.com/reports/AnnualReporttoShareholders-­‐2013ManagementDiscussionAnalysisMDA.pdf)

STRATEGY RESPONSE: Seek strategic alliance/supply chain integration with crusher circuit suppliers through EPC contractor.

Wafi-­‐Golpu Joint Venture (WGJV) Project (PNG)– Newcrest/Harmony reports site contains one of the highest-­‐grade porphyry copper systems in southeast Asia, top ten in global undeveloped gold/copper deposits. Project has entered into the pre-­‐feasibility studies (PFS) stage. Mine life in excess of 25 years with a mineral resource estimate containing 26.6 million ounces of gold and 9 million tonnes of copper (as at June 2011).

Currently in advanced exploration work program-­‐ include engineering and project management activities and the establishment of key infrastructure. Current phase EPC (roads, bridges, a 500 man construction camp, power and water supply) -­‐Clough Nuigini. (http://www.newcrest.com.au/media/presentations/2013/FINAL_PNG_Chamber_of_Mines_and_Petroleum_Seminar_-­‐ _Wafi_Golpu_Joint_Venture_Presentation_061213.pdf) (http://www.newcrest.com.au/media/our_business/Newcrest_FS_Wafi-­‐Golpu_low_res_October_2013.pdf)

STRATEGY RESPONSE: Continue to monitor progress to EPCM principle contractor phase, then begin seeking strategic alliance/supply chain integration with crusher circuit suppliers. Plan for longer term localized reline recruitment opportunities for positioning XXXX contract security.

Imwauna gold project (PNG)– PNG Gold reports Imwauna Main Structure has completed an exploration program consisting of surface geological mapping, trenching and diamond drilling (at Sept 2013). Company is locating its’ logistics base in Alotau to supply Normanby Island site. Site will have significant potential for open-­‐pit and underground development. Expect to provide updated guidance on pre-­‐ feasibility, and construction timeframes by 2013 year-­‐end. (http://www.pnggold.com/i/pdf/Corporate_Presentation.pdf)

STRATEGY RESPONSE: Continue to monitor progress to EPCM principle contractor phase, then begin seeking strategic alliance/supply chain integration with crusher

21

XXXX-­‐Implementation Plan

circuit suppliers. Plan for longer term localized reline recruitment opportunities for positioning XXXX contract security.

Illustration: XXXX Summary Action Plan

WFSP$Action$Plan:$Longer$term$(2017$on) SBU$$1: PNG$&$South$Pacific$Regions Reline(&(F.P.Maint.(Services

Corporate(level !Strategic(alliances !Vertical(integration( !Transnational

Business(Level !Low(cost !Differentiation

Isabel(laterite(nickel(project( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Itina(Copper(Gold(Project( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Arosi(Copper(Gold(Project( Goal:(Secure(reline(contract Status:(Potential(

Strategic(alignments Suply(chain(integration Monitoring

Distinctive(competencies( Localisation(recruitment

Isabel laterite nickel project (Solomon Islands)-­‐ Axiom reports the Isabel Nickel Project is considered to be one of the largest nickel-­‐laterite deposits in the Pacific and has classified deposit into a high iron limonite zone at the surface and a low iron saprolite zone at depths.-­‐ Proposed mining via a Direct Shipping Ore (DSO) approach.

Itina Copper Gold Project (Solomon Islands)-­‐ Axiom reports site covers a substantial area of 554 square kilometers on the island of Guadacanal and suggestive of an environment capable of providing host to southwest Pacific style porphyry copper-­‐gold mineralization.

Arosi Copper Gold Project (Solomon Islands)-­‐ Axiom reports the project area covers 218 square kilometers of land on the Makira Island and indicates mineralization of possible southwest Pacific style porphyry copper-­‐gold. (http://www.axiom-­‐mining.com/irm/content/solomon-­‐islands.aspx)

STRATEGY RESPONSE: Continue to monitor progress.

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XXXX-­‐Implementation Plan

2.2

Cost performance

As per the competitive challenges assessed by XXXX (see Strategic Plan) three key cost components threaten the growth and profitability of XXXX’s reline operations – added logistics (internal travel), higher labor rates for expat (Australian) supervisors and emerging localized labor cost competitiveness.

International logistics:

International logistics (travel/accommodation/mobilization rates) costs for XXXX’s international crew mobilization from point of hire (POH) to Port Moresby (POM), adds to final charge out costs. As reline crews are multi-­‐national (Australian/PNG) this presents increased logistic costs to locate all crews from POH to POM, prior to final mobilization to site.

This additional travel leg places added cost burdens to XXXX’s charge-­‐out rates (labor hrly rates) and therefore threatens their cost competitiveness for international reline contracts. This will require restructuring of international logistic processes in order to provide XXXX with competitive advantages. Chart 1 below demonstrates the cost competitive performance of XXXX’s expat crew for international logistics, as compared to a competitor (Maxitool), however due to the additional travel leg this cost is passed in in the final charge-­‐out rates to owner clients.

STRATEGY REPONSE: XXXX has established accommodation facilities in its POM base and this should reduce the additional in-­‐transit costs for all international mobilization operations. As part of the competitive tactics developed in this document, it has been recommended that XXXX implement localization programs consistent with trends for its owner clients, to increase its local (site-­‐based landowners) reline crews. This should also reduce the longer-­‐term logistic costs.

23

XXXX-­‐Implementation Plan

Chart 1: XXXX logistic cost (int’l travel) comparison

WFSP%Expat+Reline+Int'l+Travel+Cost+(AUD$/Day)+Comparison+ !900!! !800!! !700!! !600!! !500!! !400!! !300!! !200!! !100!! !"!!!!

WFSP! Mobilisa:on!

Maxitool!

Fare!

Accomm!

Meals!

SAG/BALL'Reline Travel9Rates9(Expat) Mobilisation Fare Accomm Meals

9(AUD$/day92013) WFSP Maxitool (Int'l) (S.E.Asia) 999999999999999999999999 773 843 999999999999999999999999 752 823 999999999999999999999999 207 235 99999999999999999999999999 56 59 999999999999999999999 1,788 999999999999999999999 1,960

Assumptions: 1.9Maxitool9breakdowns9based9on9 WFSP9%9shares 2.9PGK9FX9rate9applied90.47

AVERAGE 999999999999999999999999 808 999999999999999999999999 788 999999999999999999999999 221 99999999999999999999999999 58

Indicator COMPETITIVE COMPETITIVE COMPETITIVE COMPETITIVE

COMPETITIVE:99WFSP9rate9is9close9to9the9average9rate9by9a9range9of910%9or9less UNCOMPETITIVE:9WFSP9rate9exceeds9the9average9rate9by9a9range9of910%9or9more

3.9Mob.9rate9based9on9averages

Expat labor:

Another cost component which places XXXX at a disadvantage is the direct labor costs for its expat reline supervisors, averaging AUD$20/hr more than competitor (Maxitool).

These costs will need to be restructured for the short term in order to make this labor component more competitive and it is recommended that XXXX conduct this exercise internally. More competitor rates for regional reliner labor (expat) should be gathered so that a more detailed analysis can be performed. Chart 2 below demonstrates the expat labor rate performance for XXXX based on average rates for all PNG client sites and while mobilization rates are competitive, direct labor exceeds the average comparisons.

STRATEGY REPONSE: It has been declared in the action plan (see previous section 1 and Strategic Plan) that XXXX is to integrate its’ distinctive competencies (reline technical skills/experience) and adopt differentiation (TQM/value pricing) to create conditions for higher pricing based on increased customer perception. These tactics are

24

XXXX-­‐Implementation Plan

to position XXXX apart from competitors as a method to continue to operate with its higher expat labor costs.

Chart 2: XXXX expat (direct) labor cost comparison WFSP%Expat+Reline+Labor+Cost+(AUD$/Hr%2013)+Comparison+ 120" 100" 80" 60" 40" 20" 0" WFSP"

Maxitool" P/Mgr"

P/Sup"

P/Tech"

SAG/BALL'Reline Labor8Rate8(Expat) P/Mgr P/Sup P/Tech

8(Hrly8AUD$82013) Maxitool (S.E.Aisa) 95 888888888888888888888888 109 85 88888888888888888888888888 98 65

WFSP (PNG)

Assumptions: 81.8128hrs/day8labor8costs

2.8PGK8FX8rate8applied80.47

AVERAGE

Indicator 95 97 UNCOMPETITIVE 82 UNCOMPETITIVE

COMPETITIVE:8WFSP8rate8is8close8to8the8average8rate8by8a8range8of810%8or8less UNCOMPETITIVE:WFSP8rate8exceeds8the8average8rate8by8a8range8of810%8or8more

3.8Labor8based8on8averages

PNG labor:

The third cost performance area for concern is the threat from emerging localized (all PNG) reline labor as shown in Chart 3. The labor rate for XXXX rubber splicers exceed their competitor (JBI) by a degree of more than 10% to the average rate.

STRATEGY REPONSE: The strategy action plan outlined in earlier sections recommends the implementation of localization programs to reduce costs (local based/landowners), following the industry trend for mining owners. This is to be implemented in combination with differentiation to reflect XXXX’s superior technical and safety capabilities (see section 1). This way higher cost labor components (expats, supervisors) can be value priced (see following section below) and general labor (PNG technicians) replaced with locally (landowners) available labor-­‐ staged over medium term.

25

XXXX-­‐Implementation Plan

Chart 3: XXXX PNG (localized) labor cost comparison WFSP%F.P.'Maintenance'Labor'Cost'(AUD$/Hr%2013)'Comparisons' 25" 20" 15" 10" 5" 0" WFSP" NORMAL6Belt"splicer"

JBI" NORMAL6Mechanical"trades"

Messi"

SHUT"DOWN6Belt"splicer"

SHUT"DOWN6Mechanical"trades"

Fixed&Plant&Maintenance NORMAL Belt<splicer/liner Mechanical<trades SHUT<DOWN Belt<splicer/liner Mechanical<trades

<(Hrly<AUD$<2013) JBI Messi

WFSP 22 22

14 13

22 22

23 23

Assumptions:<

AVERAGE 21 20

Indicator 19 UNCOMPETITIVE 18 UNCOMPETITIVE 23 COMPETITIVE 23 COMPETITIVE

COMPETITIVE:<WFSP<rate<is<close<to<the<average<rate<by<a<range<of<10%<or<less

1.<JBI<2012<rates<adjusted<bu<10%<(CPI) 2.<PGK<FX<rate<applied<0.47

UNCOMPETITIVE:<WFSP<rate<exceeds<the<average<rate<by<a<range<of<10%<or<more

Other components including expat mobilization (indirect labor) rates are competitive as measured against the averages between Maxitool (Chart 4) and taken from averages for all PNG site rates. Also of note is the satisfactory performance of XXXX’s PNG general labor hire rates illustrated in Chart 5 below.

Chart 4: XXXX expat mobilization cost comparison

WFSP%Expat+Reline+Mob.+Cost+(AUD$/Day%2013)+Comparison+ !1,200!! !1,000!! !800!! !600!! !400!! !200!! !"!!!!

WFSP!

Maxitool!

P/Mgr!

P/Sup!

P/Tech!

26

XXXX-­‐Implementation Plan

8(AUD$/day82013) Maxitool (S.E.Asia) 888888888888888888888888 980 888888888888888888888888 807 888888888888888888888888 877 888888888888888888888888 738 888888888888888888888888 671

SAG/BALL'Reline Mob.8Rates8(Expat) P/Mgr P/Sup P/Tech

WFSP (PNG)

Assumptions:

AVERAGE

Indicator

888888888888888888888888 980 COMPETITIVE 888888888888888888888888 842 COMPETITIVE 888888888888888888888888 705 COMPETITIVE

COMPETITIVE:8WFSP8rate8is8close8to8the8average8rate8by8a8range8of810%8or8less UNCOMPETITIVE:8WFSP8rate8exceeds8the8average8rate8by8a8range8of810%8or8more

81.8Maxitool8mob.8rates843%8of8total8 travel8costsYper8WFSP8

2.8WFSP8based8on8PNG8site8 averages8

3.8PGK8FX8rate8applied80.47

Chart 5: XXXX PNG (localized) labor hire cost comparison

WFSP%PNG(Labor(Hire(Cost((AUD$/Hr%2013)(Comparison( !35!! !30!! !25!! !20!! !15!! !10!! !5!! !"!!!!

WFSP!

Wansol!

PNG!Sup!

PNG!Trades!

PNG!T/A!

Labor&Hire (PNG) PNG9Sup PNG9Trades PNG9T/A

WFSP 0 9999999999999999999999999927 99999999999999999999999999 19 16 Assuptions:

91.9PGK9FX9rate9applied90.47

2.9Labor9based9on9averages

9(Hrly9AUD$92013) Wansol 0 33 24 18

AVERAGE

Indicator 0 30 COMPETITIVE 22 COMPETITIVE 17 COMPETITIVE

COMPETITIVE:WFSP9rate9is9close9to9the9average9rate9by9a9range9of910%9or9less UNCOMPETITIVE:WFSP9rate9exceeds9the9average9rate9by9a9range9of910%9or9more

As assessed internally by XXXX (see Strategic Plan) the capability to undertake analysis for competitors and markets is lacking and the tools developed will assist (see Attachment 1). The tables and charts developed there will allow XXXX to measure any cost aspects of their operations against competitors and benchmark cost performance.

2.3

Foreign currency hedging plan

The other cost competitive weakness identified in the XXXX Strategic Plan is the constraint that the PGK base operating currency imposes on the international competitiveness for SBU 2-­‐ reline and plant maintenance S.E.Asia. This area of

27

XXXX-­‐Implementation Plan

operations includes foreign exchange rate exposure (FX exposure) where fluctuations in the PGK makes final costs for its international reline operating costs (logistics and labor), higher or lower than forecasted. XXXX needs to consider protection measures to reduce these transaction risks for its regional market reline contracts:

The most immediate solution to assist XXXX reduce its FX exposure is to implement hedging where the FX rates applied to negotiate final costs (Laos labor crews) and revenues (PBM revenues) can be negotiating through the XXXX bank (managed through the accountant). This assists XXXX to reduce impacts of daily fluctuations in cross-­‐rates between PGK (base operating currency) and US$ (contract currency). This is illustrated below for both costs and revenues with two scenarios explained.

Table. a demonstrates the benefit to negotiating a forward rate (0.50PGK/US$) for labor costs payable in one month (US$300,00) which would be PGK 600,000 equivalent (column 2). If XXXX chose not to do this and ‘Go Naked’ this would mean paying any final PGK equivalent (column 1) depending on the FX rates. This tool has been provided (see Attachment 1) to provide XXXX with simple models (payables/receivables) to forecast these FX impacts.

Table: XXXX FX hedge for payables

1 S1

2

3

Profit) Hedge (Payables) F0 (S 0)@)S1)K (PGK) (PGK) (PGK) )))))750,000 )))))600,000 21,000 )))))666,667 )))))600,000 6,000 )))))600,000 )))))600,000 @9,000) )))))545,455 )))))600,000 @24,000) )))))500,000 )))))600,000 @39,000) )))))461,538 )))))600,000 @54,000) )))))428,571 )))))600,000 @69,000) No)hedge

0.4 0.45 0.5 0.55 0.6 0.65 0.7

4 Profit)(Long) forward) (S 1)@)F0)K (PGK) @30,000) @15,000) 0 15,000 30,000 45,000 60,000

5 Net (S 0)@)F0)K (PGK) @9,000) @9,000) @9,000) @9,000) @9,000) @9,000) @9,000)

28

XXXX-­‐Implementation Plan

Scenario: WFSP%needs%to%pay%K=US$%300,000%in%1%month%(Laos%reline%labor%crews) Current,spot,rate,(PGK/US$),,S 0 ,=,2.13, (0.47) 1>month,forward,rate,F0 ,=,2.00 (0.50) 1>month,future,spot,rate,S 1,can,take,any,value. !If,S1,=,0.45,,with,no,hedge,then,payables,V=PGK,666,000., !If,S1,=,0.43,,with,no,hedge,then,payables,V=PGK,697,674 !In,either,case,,if,forward,hedging,is,taken ,V=PGK,638,298,is,certain.

Analysis: WFSP,costs,for,Laos,labor,if,hedged,to,forward,position Otherwise,it,will,face,fluctuating,profits,on,exposure,per,col.,3 Or,fluctuating,profits,on,forward,positions,per,col.4 And,therefore,face,fluctuating,combined,(net),profits,per,col.5

(PGK) ,,,,,600,000 2.22 ,,,,,666,000 2.33 ,,,,,697,674 2.13 ,,,,,638,298

(PGK) ,,,,,600,000

Other mitigation strategies (need management through accountant) for XXXX to consider implementing include ‘operational/natural hedge’ (see accountant), which means structuring foreign cash flows for each SBU to match revenues with associated cost flows. For example it may mean adopting FDI to establish localized operations so that reline contracts and all costs are transacted in the same currency. The transnational (corporate) strategy would provide for this model if adopted (this is longer term option however).

Minimizing currency conversion costs is something that (if not already) be implemented (accountant) for XXXX to reduce loss risks due to daily FX rate fluctuations. This means scheduling foreign currency payments to suppliers, wages etc.

29