Annual Report and Accounts 2010

We have made encouraging progress during the year in delivering our growth strategy, and examined a number of opportunities to demonstrably create value for our shareholders.

Exploration

Our current development projects are located in Poland, focused on opportunities that address our existing target market. Work to develop one of the first new large scale mines for some time in the region, at Dębieńsko, has continued as well as further work on the mothballed Morcinek Mine to develop it for a return to production in the future.

NWR KARBONIA S.A.(‘NWR KARBONIA’) oversees NWR’s two development projects in southern Poland.

Dębieńsko

Dębieńsko represents a significant part of our growth strategy.

We were granted a mining licence to enable us to extract coal from Dębieńsko, valid for 50 years in 2008, and in 2010, we applied for an amendment to this licence along with acquisition of land and recruitment of a world-class engineering and technical team.

EUR 25 million has been set aside for the first phase of this project, to be invested on the completion of a Detailed Feasibility Study (‘DFS’), which includes geological exploration, land purchase, engineering work and some infrastructure projects.

The growing reputation of NWR has allowed us to successfully recruit a world-class engineering and technical team and put in to place contracts with industry-leading consultants and engineering contractors for the project execution.

During 2010, the first boreholes at the planned future shaft and decline locations were drilled and documented in anticipation of a double slope opening. The development of mine plans continued, based on the study of 3D models showing the geology of the area.

In parallel, we have acquired some plots of land necessary for surface infrastructure, in addition to an electricity supply line and related substation.

We expect to break ground in Dębieńsko towards the middle of 2011 with first production still about five years away.

Morcinek

Last mined in late 1990s, Morcinek is a mothballed mine, situated in southern Poland close to the Czech border. NWR KARBONIA was granted a 12-year exploration licence in 2003 for Morcinek 1, followed by an additional six-year licence for a second area, in 2008. The signing of an intergovernmental agreement in August 2008 allowing cross-border mining activities gives us increased optionality when exploring Morcinek.

Geological documentation is scheduled for completion by the end of 2011 for Morcinek 1. Once the Polish Ministry of the Environment has accepted this, an application for a mining licence will be submitted for an area containing abundant mineable coal.

A further deep exploration borehole is planned for 2011 in the second, Morcinek 2 area, with a further six to be drilled during 2012 to 2014, with the aim of preparing geological documentation.

Strategic development

View of the hoist tower at the Dębieńsko in southern Poland

In addition to our current development projects, we believe the long-term rationale for consolidation in the Central and Eastern European coal sector is compelling and we continue to pursue our regional consolidation strategy. This will deliver both growth and synergies in mining skills and resources. As the first privatised coal mining business in the region and the first to access international capital markets, we have already gained the necessary experience to implement this strategy. Our operational knowledge, combined with our commercial and financial expertise, puts us in a strong position to capitalise on any opportunities that may emerge.

With its huge coal reserves, Poland remains a key target region for us to exploit our technical expertise of mining in the Upper Silesian basin. Developing Dębieńsko and Morcinek increases our presence in the region where we anticipate further opportunities for development.

We also continue to explore potential opportunities in Ukraine, a coal-rich region, where privatisation of the mining industry is well under way. Our successful track record of productivity and efficiency improvements means that we can bring both capital and operational expertise to potential partners.