Risk of coal oversupply Risk of failure or delay in the implementation of the Company’s strategy

 Under the terms of contract agreements between the subsidiaries and the contractors, the contractors are responsible for most capital expenditure requirements and manpower to run their activities. The contractors’ capital expenditure requirements and operational plans have risks, which some of the risks are beyond their control, such as increasing price of equipments, delay in the delivery of required equipments and materials including the ability to obtain permits required, the procurement of qualified manpower and the ability to obtain funding by acceptable provisions, which may affect the ability of contractors to meet their contractual obligations to related subsidiaries.  The Company and its subsidiaries or its contractors may find difficulties in the procurement of machineries, equipments and spare parts, especially the coal trucks, digging machinery and tires for those equipments required to increase coal production, which may be caused by the supply constraints in steel and rubber market and high demand for such materials in the global market.  The Company and its subsidiaries must obtain various permits from the authorities to implement and continue their expansion plan. Failure to obtain required permits within a specified time period may inhibit or obstruct the expansion plan.  The Companys inability to integrate new mines with current operation activities.  Declining coal prices during the implementation of the expansion may result in uneconomical business expansion.  There is no assurance that the Company and its subsidiaries are able to sell the coal from their production.  Unexpected conditions and development of situation that may hinder the implementation of the expansion program, including poor weather conditions, forest fires, poor geological conditions, social and community issues around concession areas, difficulties in reaching agreements with the residents in the framework of land utilization, and damage equipments and machineries during the operational activities.  The inability of the Company and its subsidiaries to conduct operations and production expansion in their PKP2B and IUP territory may cause negative impacts on the financial conditions, operation results and business prospects of the Company.  There is no assurance that the Company and its subsidiaries can produce coal in sufficient quantities to fulfill customer demands, or obligations under existing contracts. Failure in supplying coal in sufficient quantities can be caused partly by disputes with contractors, labor problems, failure of machineries and equipments, operational constraints, weather, social and environmental problems, and variations in quantity and quality of the coal being mined. Failure of the Company and its subsidiaries in fulfilling their obligations under existing contracts may lead to claims from customers, sanctions under the contracts and the incurrence of demurrage costs, things which can disturb their relationship with their customers. In addition, if in future the quality of the Companys coal production is declining compared with the previous quality, the Company may have to provide greater discount to its customers. Should this occurs, it may cause negative impacts on financial condition, results of operations and business prospects of the Company.

12. Risk of mine reclamation and rehabilitation requirements

Reclamation is an activity to return the excavated peeled soil which was resulted from the implementation of mining activities into the former mining location. The government has set standards of operation and reclamation for all types of mining, for both open cut and underground mining. The Company through its subsidiaries haswill develop mine reclamation and rehabilitation strategies based on geological characteristics of the mines being operated. These reclamation activities will continue to be performed until the entire mining activities are completed in related concession areas. Since the commencement of mining operations, the Company through its related subsidiaries has to record the estimated reclamation and rehabilitation costs as a component of mining costs. These costs will increase in line with the expanded mining area. Based on PKP2B and IUP, associated subsidiaries are responsible to the Government for the reclamation and rehabilitation of all mining area within their concession territory. There is no certainty that the reclamation and rehabilitation works undertaken by associated subsidiaries, will be in accordance with standards established by the Government. When the result of reclamation and rehabilitation does not meet predetermined standard, it may result in requirement for continued reclamation and rehabilitation works. This may increase the Company’s operational costs which will cause significant negative impacts on the financial condition, results of operations and Companys business prospects. B RISKS ASSOCIATED WITH THE MANAGEMENT AND SHAREHOLDERS OF THE COMPANY 1. Risk of the Companys dependence on its subsidiaries Currently, the majority of the Company’s is gained from the subsidiaries’ business activities. Therefore, the Companys