Prairie Mining : December 2018 - Half Year Accounts

Interim Financial Report for the Half-Year Ended

31 December 2018

Śródroczny raport finansowy za drugie półrocze zakończone 31 grudnia 2018

ABN 23 008 677 852

CORPORATE DIRECTORY | ZBIÓR DANYCH KORPORACYJNYCH

DIRECTORS: Mr Ian Middlemas

AUDITOR:
Poland:
Ernst & Young Audyt Polska sp. z. o.o.
Australia:
Ernst & Young - Perth
BANKERS:
Poland:
Bank Zachodni WBK S.A. - Santander Group
Australia:
Australia and New Zealand Banking Group Ltd
	PD Co sp. z. o.o. (Warsaw):
Ul. Wspolna, 35 lok. 4
00-519 Warsaw	SHARE REGISTRIES:
Poland:
Karbonia S.A. (Czerwionka - Leszczyny):	Komisja Nadzoru Finansowego (KNF)
Ul. 3 Maja 44,	Plac Powstańców Warszawy 1, skr. poczt. 419
44-230 Czerwionka - Leszczyny	00-950 Warszawa
Tel: [phone]
London:	United Kingdom:
Unit 3C, 38 Jermyn Street	Computershare Investor Services PLC
London SW1Y 6DN	The Pavilions, Bridgewater Road
United Kingdom	Bristol BS99 6ZZ
Tel: [phone]	Tel: [phone]
Australia:
Australia (Registered Office):	Computershare Investor Services Pty Ltd
Level 9, BGC Centre	Level 11, 172 St Georges Terrace
28 The Esplanade	Perth WA 6000
Perth WA 6000	Tel: [phone]
Tel: [phone]
Fax: [phone]
STOCK EXCHANGE LISTINGS:
SOLICITORS:	Poland:
Poland:	Warsaw Stock Exchange - GPW Code: PDZ
DLA Piper Wiater sp.k.	United Kingdom:
United Kingdom:	London Stock Exchange (Main Board) - LSE Code: PDZ
DLA Piper UK LLP	Australia:
Australia:	Australian Securities Exchange - ASX Code: PDZ
DLA Piper Australia
CONTENTS | ZAWARTOŚĆ
Directors' Report	1
Directors' Declaration	9

Chairman Director and CEO Non-Executive Director Non-Executive Director Non-Executive Director Alternate Director

Mr Benjamin Stoikovich Ms Carmel Daniele

Mr Thomas Todd Mr Mark Pearce Mr Todd HanniganMr Dylan Browne

PRINCIPAL OFFICES:

Company Secretary

Page | Strona

Consolidated Statement of Profit or Loss and other Comprehensive Income 10

Consolidated Statement of Financial Position 11

Consolidated Statement of Changes in Equity 12

Consolidated Statement of Cash Flows 13

Notes to the Consolidated Financial Statements 14

Auditor's Independence Declaration 23

Independent Auditor's Review Report 24

DIRECTORS' REPORT

The Directors of Prairie Mining Limited present their report on the Consolidated Entity consisting of Prairie Mining Limited

("Company" or "Prairie") and the entities it controlled during the half-year ended 31 December 2018 ("Consolidated Entity" or "Group").

DIRECTORS

The names and details of the Company's Directors in office at any time during the half-year and until the date of this report are:

Directors:

Mr Ian Middlemas	Chairman
Mr Benjamin Stoikovich	Director and CEO
Ms Carmel Daniele	Non-Executive Director
Mr Thomas Todd	Non-Executive Director
Mr Mark Pearce	Non-Executive Director
Mr Todd Hannigan	Alternate Director

Unless otherwise shown, all Directors were in office from the beginning of the half-year until the date of this report.

OPERATING AND FINANCIAL REVIEW

Operations

Highlights during, and subsequent to, the end of the half-year include:

Possible Prairie and JSW Co-Operation

• • During the half-year, Prairie and JSW jointly reported that JSW's due diligence had confirmed semi-soft coking coal

  quality at Jan Karski which JSW could potentially utilise, and had also indicated the technical feasibility and potential synergies in accessing Debiensko via JSW's existing infrastructure. JSW estimates such synergies could potentially

  enable production within 18 months from all relevant permits and concession amendments being granted.

• • Prairie and JSW signed an extension to a non-disclosure agreement ("NDA") in order to discuss a deal structure and commercial terms for any co-operation or transaction and for the adaption of mine plans for both Debiensko and Jan

  Karski to align with JSW's development concepts and to maximise potential synergies.

• • There can be no certainty as to whether any transaction(s) will be agreed, or the potential form of such transaction(s).

  The Company will continue to comply with its continuous disclosure obligations and will make announcements to the market as required.

Debiensko Mine (Premium Hard Coking Coal)

• • In December 2016, following the acquisition of Debiensko, Prairie applied to the Ministry of Environment to amend the

  50-year Debiensko mining concession to extend the time stipulated in the mining concession for first production of coal from 2018 to 2025. In January 2019, Prairie received a final "second instance" decision from the Ministry of

  Environment that has denied the amendment application.

• • The 50-year Debiensko mining concession remains in place and Prairie will strongly defend its position and continue to take relevant actions to pursue its legal rights regarding the Debiensko concession amendment, which includes an appeal that has been filed with Poland's Administrative Court.

Jan Karski Mine (Semi-Soft Coking Coal)

• • Poland's Supreme Administrative Court finally and fully rejected Bogdanka's administrative complaints against Poland's Ministry of Environment regarding the refusal of Bogdanka's 2013 application for a mining concession over

  the K-6-7 deposit at Jan Karski.

• • The Supreme Administrative Court has also upheld the 2016 Regional Administrative Court decision that obliged the

  Ministry of Environment to approve Prairie's Addendum No.3 for the K-6-7 deposit. Addendum No.3 is a detailed

  resource estimate for the K-6-7 deposit according to Polish geological reporting standards and is based on the results of Prairie's exploration program at the deposit.

Corporate

• • Cash on hand of $8.6 million and CD Capital's right to invest a further $68 million as a cornerstone investor.

OPERATING AND FINANCIAL REVIEW (Continued)

Debiensko Mine

The Debiensko Mine ("Debiensko") is a permitted, hard coking coal project located in the Upper Silesian Coal Basin in the south west of the Republic of Poland. It is approximately 40 km from the city of Katowice and 40 km from the Czech Republic.

Debiensko is bordered by the Knurow-Szczyglowice Mine in the north west and the Budryk Mine in the north east, both owned and operated by Jastrzębska Spółka Węglowa SA ("JSW"), Europe's leading producer of hard coking coal.

The Debiensko mine was originally opened in 1898 and was operated by various Polish mining companies until 2000 when mining operations were terminated due to a major government led restructuring of the coal sector caused by a downturn in global coal prices. In early 2006 New World Resources Plc ("NWR") acquired Debiensko and commenced planning for

Debiensko to comply with Polish mining standards, with the aim of accessing and mining hard coking coal seams. In 2008, the Ministry of Environment ("MoE") granted a 50-year mining concession for Debiensko.

In October 2016, Prairie acquired Debiensko with a view that a revised development approach would potentially allow for the early mining of profitable premium hard coking coal seams, whilst minimising upfront capital costs. Prairie has proven expertise in defining commercially robust projects and applying international standards in Poland. The fact that Debiensko is a former operating mine and its proximity to two neighbouring coking coal producers in the same geological setting, reaffirms the significant potential to successfully bring Debiensko back into operation.

Update on Concession Amendment Application

In December 2016, following the acquisition of Debiensko, Prairie applied to the MoE to amend the 50-year Debiensko mining concession.

The purpose of the concession amendment was to extend the time stipulated in the mining concession for first production of coal from 2018 to 2025. Prairie has now received a final "second instance" decision from the MoE that has denied the

Company's amendment application. Not meeting the production timeframe stipulated in the concession does not automatically infringe on the validity and expiry date of the Debiensko mining concession, which is June 2058. Prairie also holds a valid environmental consent decision enabling mine construction and continues to have valid tenure and ownership of land at Debiensko. In accordance with Polish law, the concession authority is required to provide an achievable and reasonable timeframe to remedy any non-compliance taking into account the nature of the non-compliance. Nevertheless, the second instance decision may result in the commencement of proceedings by the MoE to limit or withdraw the Debiensko mining concession.

Prairie will strongly defend its position and continue to take relevant actions to pursue its legal rights regarding the

Debiensko concession, which includes an appeal that has been filed with Poland's Administrative Court. Furthermore,

Prairie has formally notified the Polish government that there exists an investment dispute between Prairie and the Polish

Government. Prairie's notification calls for prompt negotiations with the government to amicably resolve the dispute, and indicates Prairie's right to submit the dispute to international arbitration in the event the dispute is not resolved amicably.

The dispute arises out of certain measures taken by Poland in breach of the Energy Charter Treaty, the UK-Poland Bilateral Investment Treaty and the Australia-Poland Bilateral Investment Treaty.

The Company advises that it is not in a position to comment on the potential size of the claim that may be made against the Polish Government should the dispute not be resolved amicably. Prairie will update the market when it is in a position to do so.

Prairie can confirm that it is taking all necessary actions to preserve its rights and protect its investments in Poland. We remain hopeful that the dispute with the Polish Government can be resolved amicably. The Company will consider any other actions necessary to ensure its rights are preserved.

Prairie will continue to update the market in relation to this matter as required.

OPERATING AND FINANCIAL REVIEW (Continued)

Jan Karski Mine

The Jan Karski Mine ("Jan Karski") is a large scale semi-soft coking coal project located in the Lublin Coal Basin in south east Poland. The Lublin Coal Basin is an established coal producing province which is well serviced by modern and highly efficient infrastructure, offering the potential for low capital intensity mine development. Jan Karski is situated adjacent to Lubelski Węgiel BOGDANKA S.A.'s ("Bogdanka") Bogdanka coal mine which has been in commercial production since 1982 and is the lowest cost hard coal producer in Europe.

Prairie's use of modern exploration techniques continues to transform Jan Karski with latest drill results re-affriming the capability of the the project to produce high value ultra-low ash semi-soft coking coal ("SSCC"), known as Type 34 coal in Poland whilst confirming Jan Karski as a globally significant SSCC / Type 34 coking coal deposit with the potential to produce a high value ultra-low ash SSCC with a coking coal product split of up to 75%.

Key benefits for the local community and the Lublin and Chelm regions associated with the development, construction and operation of Jan Karski have been recognised as the following:

• • creation of 2,000 direct employment positions and 10,000 indirect jobs for the region once operational;

• • increasing skills of the workforce through the implementation of International Standard training programmes;

• • stimulating the development of education, health services and communications within the region; and

• • building a mine that creates new employment for generations to come and career paths for families to remain in the region.

Positive Rulings in Supreme Administrative Court

Poland's Supreme Administrative Court has finally and fully rejected Bogdanka's administrative complaints against Poland's MoE regarding the refusal of Bogdanka's 2013 application for a mining concession over the K-6-7 deposit at Jan

Karski.

This Supreme Administrative Court decision is final, cannot be appealed and has upheld the 2016 Regional Administrative

Court decision that confirms the original 2015 decision, which denied Bogdanka's mining concession application. It has been concluded that granting a mining concession to Bogdanka would be a serious violation of the provisions of Poland's Geological and Mining Law ("GML"), and would be contrary to the rule of law as embodied in the Polish constitution.

In a second ruling, the Supreme Administrative Court has upheld the 2016 Regional Administrative Court decision that obliged the MoE to approve Prairie's submitted Addendum No.3 for the K-6-7 deposit. Addendum No.3 is a detailed resource estimate for the K-6-7 deposit according to Polish geological reporting standards and is based on the results of Prairie's exploration program at the deposit. This complaint was brought against the MoE by Prairie in 2015.

The Court's ruling will now be passed back to the MoE, and the MoE is obliged to promptly reassess the original decision taking into account the court's verdict i.e., to issue a positive decision approving Addendum No.3.

The significance of this Supreme Administrative Court decision is that Bogdanka's 2018 application for a mining concession over K-6-7 is now entirely inadmissible under Polish law (Bogdanka's application was suspended following an injunction awarded in Prairie's favour (see news release dated 26 April 2018) and requires the MoE to reject Bogdanka's mining concession application).

The Supreme Administrative Court's rulings re-affirm, beyond doubt, that Bogdanka's claims over K-6-7 are without merit and inadmissible. The Board notes that Bogdanka's claims have been rejected by the Polish courts in multiple rulings. Furthermore, the Court's decision obliging the MoE to approve Addendum No.3 demonstrates that the MoE has acted illegally and failed to correctly implement Poland's own mining laws.

Injunction against Poland's Ministry of Environment Remains in Force

In April 2018, Prairie commenced legal proceedings against the MoE due to its failure to grant Prairie a Mining Usufruct

Agreement over the concessions which form the Jan Karski Mine and in order to protect the Company's security of tenure over the project.

Pursuant to the initiated legal proceedings:

• • the Polish Civil Court ruled in Prairie's favour by granting an injunction preventing the MoE from granting prospecting, exploration or mining concessions and concluding usufruct agreements with any other party until full court proceedings are concluded; and

• • the decision provides security of tenure over the Jan Karski concessions and effectively safeguards Prairie's rights at the project until full court proceedings have concluded which are anticipated to take 12 months or more to complete.