Altona Energy Regulatory News (ANR)

26 March 2012

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

Notice of EGM

 Altona, the AIM listed energy company, gives notice that an Extraordinary General Meeting ('EGM') of the Company will be held at The Westbury Hotel, 37 Conduit Street, Mayfair, London W1S 2YF on 11 April 2012 at 11.00 am.

 The purpose of the resolutions sought at the EGM are to enable the Company to complete the Share Purchase Agreement to acquire the entire issued share capital of Cheerful Jade Investment Holding Limited, which has an indirect 95% beneficial interest in two advanced coal exploration licences located in the Xinjiang Autonomous Region of the People's Republic of China, which was announced on 17 February 2011.

The Notice of the EGM is being posted to shareholders today, and the letter sent to shareholders by the Company's Chairman, Christopher Lambert, is copied below. Copies of these documents are available to view on the Company's website (www.altonaenergy.com). Terms defined in the letter to shareholders have the same meaning in this announcement, a shortened list of definitions is also included at the end of this announcement.

Notice of Extraordinary General Meeting

Dear Shareholder

1 introduction

On 17 February 2012 the Company announced that it had signed a conditional Share Purchase Agreement with the Seller to acquire the entire issued share capital of Cheerful Jade Investment Holding Limited, a company incorporated in the British Virgin Islands, which has an indirect 95% beneficial interest in two advanced coal exploration licences located in the Xinjiang Autonomous Region of the PRC. The Share Purchase Agreement was formally executed at a signing ceremony held on 23 February 2012 in the city of Zheng Zhou, which was attended by high level PRC regional government and industry representatives (as more fully detailed in the Company's announcement of 7 March 2012) and where the Company received positive support for its development plans.

The Board is delighted to have secured the Licences, which, it believes, have significant potential. The Licences are advanced exploration assets and are expected to have a clear path through the mining licence application process and into production. This is a transformational move for the Company, providing the potential to move into production in the near term on a sustainable basis, and generate strong cash flows underpinning the Company's future, as it actively continues the progression of the bankable feasibility studies (BFS) on its flagship Arckaringa Project in joint venture with CNOOC New Energy International (Australia) Pty Ltd.

In the Company's view, the key benefits of a successful completion of the Acquisition include:

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

·; a stronger platform for Altona's participation in the Arckaringa Project, particularly to cover working capital needs during the BFS; and

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

The Board believes that the Share Purchase Agreement (as more fully summarised in paragraph 3, below) is a suitable vehicle to deliver these benefits, but contains sufficient protections for the Company and its shareholders. The consideration payable has been favourably structured against significant performance milestones, including successfully converting each Licence into a mining licence within a specified timeframe and with the cash consideration only payable out of profits following the commencement of production in respect of each mining licence. In addition, based on information available from its initial review of the Licences, and on the relationships built between Altona's Beijing office and the owners of the Licences, the Directors believe the risk of non conversion of the Licences to mining licences and not reaching the production and profit milestones stipulated in the Share Purchase Agreement are low.

The Company engaged Minarco Mineconsult (MMC), an international mining consultancy firm to undertake an independent high level technical review of the Licences, particularly in regard to geology, mining potential, coal quality and coal markets. The review was carried out by the Beijing office of MMC, a firm suitably experienced in the assessment of coal assets and mine design in Asia and Australia. MMC's scope of work was undertaken on a desktop basis and MMC's further recommendation is that full due diligence inclusive of a site visit be carried out in the near future. Altona's Managing Director, Chris Schrape (formerly CEO of Griffin Coal) will be heading up the due diligence team alongside Altona's Beijing office, and during this period Altona's Technical Director, Peter Fagiano, will be spearheading the Arckaringa Project with continued assistance from Chris Schrape and Altona's Beijing office.

The purpose of this circular is to provide you with further details of the Share Purchase Agreement and the resolutions to be proposed in connection therewith at the forthcoming Extraordinary General Meeting of the Company on 11 April 2012. The Board urges all shareholders to vote in favour of the resolutions.

2 the licences

The Licences cover a combined area of 36 square kilometres and are located in the southern part of the Xinjiang Autonomous Region in north western China. The Licences are connected by existing roads to the National Highway system. The Licences are believed to be all of good standing with valid tenures ranging from July 2012 to July 2013, with both Licences renewable. From historical exploration work, the Licences were reported to contain total coal resources of an estimated 1.17 billion tonnes, according to Chinese ore reporting standards of the time (non JORC compliant). 

The coal resources are principally contained in two major seams common to both Licences, with the geology indicating that a large portion of the deposits are accessible by conventional truck and shovel open cut mining methods and having the potential for additional underground operations in the future. The available coal analyses reports indicate a bituminous thermal coal with low moisture, sulphur and a medium to high ash content with low impurities and medium to high energy content.

The preliminary observations that can be made from the available data are that the coal resources are potentially significant and, subject to the development of a feasible mine plan, would be capable of sustaining viable mining operations. The in-situ coal quality indicates that the resource already contains a marketable thermal coal but, subject to detailed washability analysis, may have the potential to be washed to reduce ash levels and increase energy content.

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

Prior to completion of the Acquisition Altona will conduct detailed due diligence and this requirement is a pre-condition for the completion of the Acquisition. On completion of the Acquisition the mining licence application process will commence and detailed technical and evaluation studies will be submitted under this process.

3 The share purchase AGreement

Altona has agreed to acquire the entire issued share capital of the Target, which has an indirect 95% beneficial interest in the Licences. The obligations of Altona under the Share Purchase Agreement are conditional upon Altona having concluded, to its satisfaction due diligence and on Altona receiving shareholder approval to issue the New Shares at the Extraordinary General Meeting. In the event that completion of the Acquisition does not occur by 30 April 2012, both parties agree to the cancellation of the Share Purchase Agreement.

The Seller has given certain warranties including, but not limited to, enforceability of the Share Purchase Agreement, the coal mining assets (including title to the shares in the Target), the Licences, tax and compliance with legal requirements.

The Seller has also given various undertakings including, but not limited to, the following:

·; to procure conversion of EL 1 to a mining licence within three months after the date on which Altona makes the Resources Fee Payment for EL 1; and

·; to procure conversion of EL 2 to a mining licence within three months after the date on which Altona makes the Resources Fee Payment for EL 2.

In the event that the Seller fails to procure conversion of EL 1 to a mining licence then either party may terminate the Share Purchase Agreement, the Bonds and the Options. Termination will relieve both parties of all obligations under the Share Purchase Agreement, the Bonds and the Options and the Seller shall repay the Resources Fee Payment paid for EL 1 plus interest to Altona.

In the event that the Seller fails to procure conversion of EL 2 into a mining licence then either party may terminate the Share Purchase Agreement insofar as it relates to EL 2 only. Termination will include the cancellation of the EL 2 Option and the EL 2 Bond, and the Seller shall repay the Resources Fee Payment paid for EL 2 plus interest to Altona. Furthermore Altona will be entitled to buy back for £1 any New Shares issued to the Seller on early, partial conversion of the EL 2 Bond in accordance with the terms of the Share Purchase Agreement and the EL 2 Bond (as summarised in the paragraph below) and Altona will procure that the Target sells back to the Seller for £1 its 95% indirect interest in EL 2.

Altona has given certain warranties and has also given various undertakings including, but not limited to, the following:

·; to procure payment of the Resources Fee Payment for EL 1, which is expected to be approximately £3 million, within three months after completion of the Share Purchase Agreement, and in the event that the Company fails to do so then either party may terminate the Share Purchase Agreement. Termination will relieve both parties of all obligations under the Share Purchase Agreement, the Bonds and the Options;

·; to procure payment of the Resources Fee Payment for EL 2, which is expected to be approximately £3 million by 31 December 2012 and:

o in the event that Altona fails to do so, and where the Seller is in breach of any of its warranties, the Share Purchase Agreement will terminate as per the Seller's undertakings described in this paragraph 3 above; or

o in the event that there is no breach of warranty by the Seller and Altona fails to procure payment of the Resources Fee Payment for EL 2 by 31 December 2012, then 50% of the EL 2 Bond will convert into New Shares immediately on 1 January 2013;

·; in addition, if Altona fails to procure payment of the Resources Fee Payment for EL 2 by 30 June 2013, then the balance of the EL 2 Bond (the remaining 50%) will convert into New Shares immediately on 1 July 2013; and

·; finally if Altona fails to procure payment of the Resources Fee Payment for EL 2, subject to the conversion of EL 2 to a mining licence, by the third anniversary of completion of the Acquisition then the parties will agree to seek to reach agreement on arrangements in respect of EL 2 only.

The entire consideration payable under the Share Purchase Agreement is contingent on the completion of certain milestones (as further summarised below). The consideration can be summarised as follows:

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

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

·; conversion of the relevant Licence to a mining licence;

·; for each mining licence the minimum production achieved must be 900,000 tonnes per annum for the first 12 months from the date of commencement of production; and

·; the net operating profit shall be at least ¥90 million (which equates to £9.03 million at today's exchange rate) for the first 12 months of production.

The cash consideration will only be payable out of the net operating profits of each relevant mining licence utilising operating cash flows received by Altona.

4 the bonds

On completion of the Acquisition, Altona will issue to the Seller the two non-interest bearing and unsecured £2,625,000 Bonds. Each of the Bonds is convertible into 50,000,000 New Shares (100,000,000 New Shares in total) at 5.25 pence per New Share. Conversion of each Bond is conditional upon the conversion of the Licence related to that Bond into a mining licence.

5 The options

On completion of the Acquisition, Altona will grant the Seller options to subscribe for 20,000,000 New Shares at a subscription price of 10 pence per New Share (the EL 1 Option) and 20,000,000 New Shares at a subscription price of 15 pence per New Share (the EL 2 Option).

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

·; the conversion of the relevant Licence to a mining licence;

·; the expiry of one year from commencement of production of the relevant mining licence;

·; production of 900,000 tonnes per annum for the first 12 months from the date of commencement of production for the relevant mining licence; and

·; the net operating profit achieved at the relevant mining licence shall be ¥90 million for the first 12 months of production.

Each of the Options may be exercised at any time for a period up to the third anniversary of the vesting date.

6 RESOLUTIONS

The resolutions to be proposed at the Extraordinary General Meeting are set out in full in the notice of meeting attached to this document.

7 Authority to allot share capital and waiver of pre-emption rights

In addition to completing the Acquisition, it is also anticipated that the Company may carry out share placements to institutional investors in order to raise additional working capital for the Company and in order to make the Resources Fee Payments (as detailed in paragraph 3, above) required under the Share Purchase Agreement. It is therefore necessary to renew the Board's authority to allot the Company's share capital, and to waive pre-emption rights in relation thereto, to enable, in particular, the allotment of New Shares to the Seller pursuant to the terms of the Share Purchase Agreement on conversion of the Bonds and exercise of the Options and the allotment of Ordinary Shares pursuant to one or more share placings.

8 ACTION TO BE TAKEN

A form of proxy is enclosed for use by Shareholders at the Extraordinary General Meeting. If you are a Shareholder, you are requested to complete, sign and return the form of proxy, whether or not you intend to be present at the meeting, and return it to Share Registrars Limited, Suite E, First Floor, 9 Lion and Lamb Yard, Farnham, Surrey, GU9 7LL. The completion and return of a Form of Proxy will not prevent you from attending the meeting and voting in person should you subsequently wish to do so.

9 recommendation

The Directors consider that the proposed resolutions are in the best interests of the Company and its Shareholders as a whole.

Accordingly, the Directors unanimously recommend that you vote in favour of the resolutions being proposed at the Extraordinary General Meeting, as they intend to do or procure to be done in respect of their own and their connected persons' beneficial holdings.

Yours faithfully

Christopher LambertChairman

DEFINITIONS

**ENDS**