An update on Morupule South

Hodges is an exploration company which is now moving to the next phase and is developing the Morupule South Coal Project in Botswana.

Hodges acquired an option for an interest in the Morupule South prospect in March 2011. It will earn a 75% interest in the Project upon completion of A$3 million exploration expenditure by May 2013 (A$0.7 million remaining to expend). It then has the right to establish and operate a joint venture company and/or increase its interest to 99% through acquisition/dilution.

Hodges acquired an option for an interest in a second prospect in Botswana in May 2011 (Moiyabana). Based on the quality of the coal, Hodges will not be exercising its option over Moiyabana (announced August 2012).

The Company’s focus is to develop the Morupule South Coal Project which has the potential to produce 20Mtpa (ROM) which would be supplied to domestic IPPs and utilities and the export market (10Mtpa).

Company Overview

2

Morupule South

BOTSWANA

Morupule South – Coal Resource

3

Measured Indicated Inferred Total Resource

110Mt 173Mt 2.16Bt 2.45Bt

Mine (underground)

Power station

PL121/2010 Morupule South

0 5 10

The prospecting licence (PL121/2010) covers a total area of 264.4km2 within the central eastern district of Botswana.

The Morupule South Coal Project is located directly to the south of Botswana’s only power station and operating colliery.

1.26BT amenable to open cast strip mining.

83% of resource comes from Morupule Main seam.

Export quality coal available.

Product of 5,731Kcal/kg with approximately 20% ash produced indicative seam yields of 75% and 78% from the SLB and SMB seam respectfully.

Product of 6,209Kcal/kg with approximately <15% ash produced indicative seam yields of 56% and 51% from the SLB and SMB seam respectfully.

Source: Hodges Resources / Company Investor Presentations

Morupule South – Mining Areas

1.2Bt Open cut 1.1Bt Underground

Strip Ratio Waste m3: Coal tonne

1.7 : 1

4

Prospecting Licence Renewal due March 2013. Hatched area shows the Proposed Area for relinquishment in March 2013.

Coal Quality Data

Vertical exaggeration = x8

Resource and Raw Coal Quality

Fence diagram of the Morupule South Coal Project central block

5

Indicative Wash Yields

6

Target range CV 24Mj (5,731Kcal)

Seam Sample No. Ave Yield Min Yield Max Yield Ave Ash Min Ash Max Ash Ave VM Ave IM Ave TS Min TS Max TS

SSB 1 89.5 22.6 34.2 3.5 5.72 SLB 4 75.0 62.2 87.0 20.9 20.0 21.9 30.8 3.7 0.93 0.76 1.22 S2B 3 34.7 21.9 58.5 19.4 13.3 25.8 25.4 5.0 0.59 0.26 1.19 SMB 7 78.3 41.8 94.4 19.8 18.9 20.7 23.9 4.5 0.48 0.34 0.74



SSB 1 59.1 20.4 35.4 3.5 6.06 SLB 4 66.9 52.6 81.7 18.2 17.1 19.3 31.8 3.8 0.79 0.46 1.05 S2B 3 24.0 8.8 45.1 16.9 10.8 23.8 26.4 5.1 0.57 0.22 1.16 SMB 7 66.6 29.2 90.9 17.0 15.6 18.0 24.6 4.5 0.46 0.25 0.69



SSB 1 45.4 19.7 36.6 3.9 6.05 SLB 4 56.7 15.5 14.4 16.7 32.7 3.9 0.72 0.48 0.90 S2B 3 14.4 0.0 28.5 17.6 13.3 21.8 28.2 4.8 0.74 0.36 1.12 SMB 7 51.3 20.7 79.5 14.5 13.2 15.7 25.5 4.7 0.46 0.23 0.70



SSB 1 0.0 SLB 4 44.4 27.0 70.7 13.0 11.5 14.1 33.7 4.0 0.73 0.48 1.01 S2B 3 8.4 0.0 44.4 14.5 10.8 18.1 30.1 4.6 0.71 0.42 1.00 SMB 7 29.6 13.7 52.2 12.3 10.3 13.5 27.1 4.7 0.45 0.24 0.63

Peer Comparison

CIC NMR

HDG-MOR AFR

AVA

2.5Bt

0%

10%

20%

30%

40%

50%

60%

70%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Ash

(%)

CV (Kcal/kg)

Raw Coal Data

CIC

NMR

HDG-MOR AFR

AVA 2 Bt

0%

10%

20%

30%

40%

50%

60%

70%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000As

h (%

) CV (Kcal/kg)

Washed Coal Data The Hodges - Morupule South Coal Project ranks very high on raw and washed data. It should be noted that at the time of compiling this presentation, CIC Energy (2.4Bt raw resource) had been purchased by Jindal Steel and Power for $CDN2 per share.

Note: all information has been taken from public available documentation (in July 2012) from the companies websites and all seams are weighted averaged for the purpose of this comparison. 7

AVA Aviva Corporation Limited Open cut mine potential

AFR African Energy Resources Limited Open cut mine potential

CIC CIC Energy Limited ~30% can be extracted via open cut mining methods and the remaining 70% will require underground mining.

HDG-MOR Hodges Resources Limited – Morupule South Project

50% Open cut mine potential with 50% Underground

NMR Nimrodel Resources Limited Possible Open cut potential but considered to be underground due to main seams being greater than 80m below surface.

400KV power line runs directly over project which links into SAPP grid. Low strip open pit, thus low cost mining. Significant resource and with premium domestic power generation raw product and benefit of greater product beneficiation.

Morupule South Project is located

HERE

Morupule South – the right place

8

Proximity to the Morupule Power Station – planned expansions and allows Hodges to get access to the grid.

Coal deposit is amenable to open cast and therefore a low cost of extraction.

Coal quality.

Washability of coal and indicative yields – export product.

Large resource – export operation.

Ability to integrate coal export and power generation –sale of middlings will improve economics.

Ability to export a higher calorific value coal using the existing rail.

Competitive Advantages

9

Key Milestones – to date

Upgraded resource report – measured and indicated resources.

Nearing completion of social and environmental baseline studies - Ecosurv.

Established competent in-country team.

Completed scoping study on various mining scenarios - RSV International.

Completed concept study on mine mouth power station opportunities and transmission integration – Parsons Brinckerhoff.

Completed thermal coal forecast at Richards Bay, South Africa – Wood MacKenzie.

Completed benchmarking coal production in southern Africa for domestic consumption – Wood MacKenzie.

Commissioned pre-feasibility level studies.

Commissioned coal quality review, bulk sampling and process optimisation studies.

• Commence additional infill and bulk sampling drilling (March 2013).

• Complete definition studies on transport, power and water solutions.

10

Scoping study results were compiled by various independent consultant reports.

RSV International (RSV) – mine design, equipment selection, mine scheduling, coal processing and handling, development of scoping study and cost inputs for the mining components of the project (to mine gate) and financial modelling of a 1.5Mtpa operation.

Parsons Brinckerhoff – integrated power station concept studies; electricity demand review and supply assessments.

Wood Mackenzie – coal price forecasts and benchmarking. GEMECS - geological modelling and resource development. JohnStaff – coal logistics overview.

Scoping study results confirm robust economics across all Morupule South development scenarios and trigger feasibility studies.

Initial start-up development of around 2-3Mtpa with a ramp-up to 5Mtpa within 3-5 years. Focus on the open cast strip mining development with power integration.

Power integration studies confirm the economic viability of developing modular power generation plants with capacities ranging from 300MW to 1,800MW.

Conceptual transmission integration and future electricity demand assessments identify the preferred markets and power development opportunities for future focus.

Scoping Study Results

11

-

50

100

150

200

250

300

0 20 40 60 80 100 120 140

Min

ing

Cas

h C

osts

(ZAR

/t)

Production (Mt)

South Africa Botswana Morupule South


12

Operation Model Contractor Owner Operator Mining Scenario ROM rate (Mtpa) 1.5 1.5 5 5 - 10 Strip Ratio (LOM) (BCM:t) 1.66 1.66 1.83 2.02

Waste mining ($/bcm) 2.87 2.01 2.03 2.03 Coal mining ($/t) 2.70 1.89 1.89 1.89

Drill n Blast ($/bcm) 1.29 0.91 0.91 0.91 Rejects Removal ($/t) 0.79 0.79 0.79 0.79

Contractor/Labour ($/t) 1.45 1.01 0.98 0.93 Support services ($/t) 2.26 2.49 2.42 2.31

Total ROM cost ($/ROM t) 12.9 10.18 10.59 10.96

Additional costs (to handle washed product) Washing costs ($/t) 1.20 1.20 1.20 1.50

Product Handling/conveyor/train load out ($/Pt) 0.57 0.45 0.45 0.22

2015 Energy Adjusted Southern African domestic coal mining cost curve (2012 ZAR)

Source Wood Mackenzie

Low operational costs support the robust economics of the project’s development on all scenarios studied.

Morupule South's mining costs and coal quality were benchmarked against other south African domestic mines. The energy adjusted benchmarking graph supports the viability of the project’s development.

Operating Cost Estimates (US$)


13

Operation Model Contractor Owner Operator Mining Scenario ROM rate (Mtpa) 1.5 1.5 5 5 - 10 Strip Ratio (LOM) (BCM:t) 1.66 1.66 1.83 2.02 Capex Equipment (initial) Mining Equipment - 38,968,825 68,405,276 64,688,249 Mine Development 9,652,278 9,652,278 15,107,914 15,107,914 Process Plant 3,597,122 3,597,122 11,990,408 11,990,408 Mine Infrastructure 18,645,084 18,645,084 39,424,460 39,424,460 Crusher and Tip 5,875,300 5,875,300 12,829,736 12,829,736 Sub Total 37,769,784 76,738,609 147,757,794 144,040,767 Indirects 2,128,310 2,128,310 2,821,369 2,821,369 EPCM @ 12% 4,532,374 9,208,633 17,730,935 9,522,302 Contingency @ 30% 11,330,935 23,021,583 44,327,338 43,212,230 Total 55,761,403 111,097,135 212,637,437 199,596,669

Capex Additional (LOM estimates) Replacement Mining Equipment 10,431,665 77,937,650 136,810,552 139,388,489 Additional Mine/Plant Equipment (10Mtpa) - - - 248,501,199 Plant/Surface Infrastructure/Rail - 10,431,665 17,500,000 79,200,240

NPV @ 0% US$M 384.2

NPV @ 5% US$M 167.7

NPV @ 10% US$M 81.6

IRR – Real 28.9%

Payback 4.5 years

Open cast strip mining method selected for initial development and supports over 30 years mine life at all rates considered.

Truck and shovel mining equipment selected to allow flexibility with mining operation and therefore allows for a roll over methodology for mining and reduces capital outlay when advancing to second stage (5Mtpa).

Contractor mining option allows for lower capital costs and reduces the operational risks in start-ups.

The key financial indicators are for the contractors operator at a 1.5Mtpa model are:

Low cost mining due to low strip ratios achieved on all scenarios (all based on 30 year mine life).

Larger scale mining operations of 20Mtpa plus could be optimised further by use of a dragline based operations – these were not considered in the current study as the focus was for near term production options/possibilities.

Capital Cost Estimates (US$)

Staged Development Plan

14 *Run of mine production of 20Mtpa has not been considered at this point as management do not believe this rate of mining will be developed until developments are made to the existing rail and port infrastructure.

Timetable - 2013

Pre-Feasibility and Feasibility Studies

Complete pre-feasibility level mine design and coal processing options, including detailed capital & operational costs of the various phased mining scenarios for mine mouth power process.

Define the integrated power plant viability and optionality.

Confirm coal product marketability (5,700 to 6,200 Kcal range) and coal handling optimisation.

Transport, Power and Water solutions

Complete water supply design and licensing of supply.

Secure rights over transport options; short and longer term.

Secure expression of interest for the integrated power station development.

Cornerstone Investor and Strategic Partner

Secure power development partner.

Secure coal offtake agreement.

Identify infrastructure partners and enter into arrangements.

15

In the next 12 months Hodges will commission feasibility mining and cost studies as it seeks to identify: 1. Coal supply opportunities for power generation (Botswana & SAPP). 2. Infrastructure solutions for the export of coal. Hodges has a competitive advantage in being able to maximise margins through an integrated coal and power strategy due to location and coal characteristics. Hodges is seeking to minimise capex through: 1. Staged development of the coal mine. 2. Independent consortia for power and rail infrastructure. The completion of pre-feasibility level mine design and coal processing options should result in the Company being re-rated. Given coal quality and expected mine costs, Hodges should trade at a premium to its peers. There is a significant upside from introducing a power or infrastructure strategic investor or introducing a trade buyer such as an Indian or Chinese coal and/or power group.

Summary

16

Are preparing the Morupule South Mine Cost Benchmarking report. Wood Mackenzie provides commercial analysis and strategic advice.

Will be undertaking a coal quality review and process optimisation study. Sedgman is a leading provider of mineral processing and associated infrastructure solutions to the global resources industry.

Parsons Brinckerhoff have prepared a Concept Study for various coal-fired mouth power station options. Parsons Brinckerhoff provides engineering and project management services to the global power and energy market.

Have complied the information regarding the Morupule South Coal Resource dated 13 November 2012. Gemecs provides specialist services in the fields of geological modelling, resource and reserve evaluation and project feasibility studies.

Has a commercial advisory role regarding identifying and estimating the cost of viable alternative infrastructure options. Johnstaff are commercial advisors, project managers and construction managers for both public and private clients.

Are completing the social and environmental baseline studies. Ecosurv focus on environmental assessment and management, natural resource planning, environmental policy and community based resource management.

Preferred coal laboratory in South Africa. Inspectorate is one of the world’s leading inspection and testing organisations.

Completed scoping study on various mining scenarios. RSV International provide a complete project management and design service across the full project lifecycle and from concept to final beneficiation.

Advisors

17

Corporate Information

18

Share Structure Market Capitalisation

Shares on Issue 80,254,029 Share Price (31 Dec 2012) $0.105

Unlisted Options (20c-50c) 9,975,000 Market Cap (undiluted) $8.4m

Shares Outstanding on a Fully Diluted

90,229,029 Market Cap (diluted) $9.2m

12 month Share Price Range $0.08-$0.35 Convertible Notes 31 Dec 2012 $425,000

Cash 31 Dec 2012 $590,000

Major Shareholders Board of Directors and Company Secretary

1. Nathan McMahon 11.1% Christopher Eves Non-Exec Chairman

2. Pinetree Capital 10.1% Mark Major Managing Director

3. Citicorp Nominees Ltd 7.5% Nathan McMahon Non-Exec Director

4. Widerange Corporation Ltd 3.6% Bryan Dixon Non-Exec Director

5. Sino Portfolio International Ltd 2.7% Julie Hill Company Secretary

Top 20 Top 100

53.5% 78.5%

• This presentation has been prepared by Hodges Resources Limited (“Hodges” or “the Company”). It contains forecasts and forward-looking statements which are no guarantee of future performance of the Company or its shares and which involve certain risks. Actual results and future outcomes will in all likelihood differ from those outlined herein. The presentation should not be construed as an offer or invitation to subscribe for or purchase securities in Hodges. Nor is it an inducement to make offer or an invitation with respect to said securities.

• Forward-looking statements are statements that are not historical facts. Words such as “expect(s)”, “feel(s)”, “believe(s)”, “will”, “may”, “anticipate(s)” and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to statements regarding future production, resources or reserves and exploration results. All of such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of the Company, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include, but are not limited to: i. those relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits and conclusions of economic evaluations; ii. risks relating to possible variations in reserves, grade, planned mining dilution and ore loss, or recovery rates and changes in project parameters as plans continue to be refined; iii. the potential for delays in exploration or development activities or the completion of feasibility studies; iv. risks related to commodity price and foreign exchange rate fluctuations; v. risks related to failure to obtain adequate financing on a timely basis and on acceptable terms, or delays in obtaining governmental approvals or in the completion of development or

construction activities; and vi. other risks and uncertainties related to the Company’s prospects, properties and business strategy. Prospective investors in the Company cautioned not to place undue reliance on these

forward-looking statements that speak only as of the date hereof, and the Company not undertake any obligation to revise and disseminate forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of or non-occurrence of any events.

• No liability or responsibility is accepted and or and all liability or responsibility is expressly disclaimed by the Company and its directors, agents, officers, employees, advisers and affiliates for any errors, misstatements or misrepresentations or omission from this presentation.

• The Company has not completed feasibility studies on its projects. Accordingly, there is no certainty that such projects will be economically viable or successful. Mineral resources that are not ore reserves do not have demonstrated economic viability. The Company is not declaring an ore reserve at this stage with this work yet to be completed. The existing resource model was utilised to estimate mineable resources.

• The stated exploration targets and coal quality must be regarded as provisional indication of likely tonnages and qualities only. The exploration targets are based upon the results to date. The exploration targets includes potential quantity and grades and are conceptual in nature. There has been insufficient exploration to define the targets as Mineral Resources and it is uncertain if further exploration will result in the determination of further Mineral Resource.

• The Coal Resources was compiled by GEMECS (Pty) Ltd and are detailed in a report dated 13 November 2012. The competent person with overall responsibility for the reporting of the Coal Resources is Nico J Denner, Pr.Sci Nat, B.Sc Hons (Geology) of GEMECS (Pty) Ltd who is a fellow of a Recognised Overseas Professional Organisation, the Geological Society of South Africa. Nico Denner has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Denner consents to the inclusion in the presentation of the matters based on his information in the form and context in which it appears.

• This presentation does not contain all information which would be material to making a decision as to whether or not to invest in the Company. Prospective investors should make their own independent evaluation of an investment in the Company.

Disclaimer and Important Information

19

An update on Morupule South

Technology

Transcript of An update on Morupule South