BUSINESS OF UTAH Utah International Inc., a Delaware corporation, was incorporated in 1956 as the successor to a Utah corporation formed in 1900. Utah* is principally engaged in mining. Utah primarily mines coal and also mines uranium, copper and iron ore. An active mineral exploration program is an integral part of Utah's mining business. To a lesser extent Utah is engaged in oil and gas exploration, development and production, ocean shipping and land acquisition and development. Utah also has an interest in a limited partnership engaged in construction. Various of these activities in certain instances are also carried on through affiliates*. Utah's principal affiliates are Samarco Mineracao S.A. (iron ore mine and processing facilities under development in Brazil), Marcona Corporation (iron ore mining in New Zealand and ocean shipping), Cyprus Pima Mining Company (copper mining in Arizona) and Goldsworthy Mining Limited (contract mining and iron ore processing in Australia). Utah maintains its principal executive office at 550 California Street, San Francisco, California, and its registered office at 100 West Tenth Street, Wilmington, Delaware. The following table presents the approximate percentages of revenues and profits attributable to each of Utah's lines of business activity for the five years ended October 31, 1975 and the nine months ended July 31, 1976. Such information for 1971 is exclusive of operations which were discontinued during that year. Nine Months Year Ended October 31 Ended July 31 1971 1972 1973 1974 1975 1976 (1) Gross revenues from operations(a): Mining......................................... 80% 90% 93% 94% 94% 95% Oil and gas.................................. 12 7 5 5 5 5 Land acquisition and development .................................... 8 3 2 1 1 (2) Gross profit from operations(a): Mining......................................... 86 93 99 98 96 95 Oil and gas.................................. 10 7 3 5 5 5 Land acquisition and development.................................... 4 (2) (3) Construction activities................ (l)(b) (3) Gross profit from operations plus equity in earnings or losses of affiliates, joint ventures and partnerships: Mining......................................... 64 84 93 91 95 98 Oil and gas.................................. 7 6 3 5 5 5 Ocean shipping........................... 26 10 9 9 3 (1) Land acquisition and development.................................... 2 (5) (5) (2) (2) Construction activities................ 1 (1) (a) The terms "Gross revenues from operations" and "Gross profit from operations," as used herein and in Utah's consolidated financial statements, include the operations of Utah and its subsidiaries. The operating results of affiliates, joint ventures (other than mining joint ventures) and partnerships are not included therein; Utah's share of the earnings or losses of such entities is reported by use of the equity method of accounting. (b) Relates to a provision for loss attributable to an interest in a limited partnership engaged in construction. * Utah, as used herein (except as otherwise indicated by the context), means Utah International Inc., all of its subsidiary companies and a subsidiary's undivided interests in mining joint ventures. The terms "affiliate" or "affiliates" refer to a corporation or corporations in which the interest of Utah is less than a majority. See "Business of UtahUranium" for a description of the arrangements with respect to Lucky Mc Uranium Corporation. 42 Of total gross revenues from operations as reported in the statement of consolidated income of Utah International Inc. and subsidiaries, operations outside of North America (resulting from mining activities only) accounted for approximately 44%, 50%, 55%, 58% and 72% in each of the fiscal years during the five-year period ended October 31, 1975, respectively, and 77% for the nine months ended July 31, 1976. The remaining gross revenues are from sources within North America. Operations outside of North America accounted for approximately 59%, 64%, 62%, 73% and 92% of the gross profit from operations plus Utah's equity interest in the earnings or losses of affiliates, joint ventures and partnerships for each of the fiscal years during the five-year period ended October 31, 1975, respectively, and 89% for the nine months ended July 31, 1976. Ocean shipping has been classified as an operation outside of North America for the purpose of determining the gross profit percentages. Total assets committed to operations outside of North America from which gross revenues and gross profit are realized approximated 53% of the total consolidated assets at October 31, 1975 and 54% at July 31, 1976. Foreign Operations Utah's foreign mining operations are carried on primarily in Australia and a significant portion of its sales backlog results from long-term sales contracts for the sale of coking coal from Australia to Japanese and European companies. The Samarco project (see "SamarcoBrazil") involves iron ore mining in Brazil. Utah's operations and investments in these countries and in others where Utah does business may be affected by economic and political conditions, exchange controls, currency fluctuations, regulation of exports, and laws or policies designed to reflect the interests of such countries, as well as by laws and policies of the United States affecting foreign trade and investment. In light of Utah's predominant position through its 89.2% ownership of Utah Development Company ("UDC") among natural resource companies in Australia, and the major impact in recent years of the production and sale of Australian coking coal on Utah's earnings, the policies of Australia's Commonwealth government and of the government of the State of Queensland are of special interest. In August 1975, following substantial increases in the price of coking coal, the Commonwealth government of Australia imposed an export duty of $A6.00* per metric ton on exports of high quality coking coal, approximately 50% of the amount of the increase in prices (see "Utah Management's Discussion and Analysis of the Statement of Consolidated IncomeComparison of 1975 to 1974"). At the same time, the corporate tax rate was reduced from 45% to 42 1/2%. In August 1976 the government reduced the export duty to $A4.50 per metric ton and announced its intention to entirely phase out the duty within three years. The complete elimination of the export levy would have the effect of increasing Utah's net income by approximately $50 million, assuming estimated 1976 coal sales levels and present ownership of Central Queensland Coal Associates ("CQCA") (as to which see the third paragraph following with respect to a proposed reduction of Utah's interest in CQCA). In recent years the national desire for greater opportunities for equity participation in new mining projects by Australian investors has intensified. As a consequence, the stated policy of the present Australian Commonwealth government, which is largely consistent with the expressed policy of the predecessor government, currently seeks to achieve Australian equity ownership of at least 50% in new mining ventures. See also "The MergerGovernment Approvals." Utah has several properties in Australia under consideration for future development, and conducts an ongoing exploration program there. The project in the most advanced stages of consideration is Norwich Park, a new coking coal mine in the Bowen Basin, located in the State of Queensland. Utah has had discussions with both the Queensland and Australian Commonwealth governments regarding the development of Norwich Park. In June 1976, the Australian Commonwealth government announced its approval of Utah's proposal for development of the project based on the acquisition by new Australian joint venturers of an interest in all of the mines of CQCA as an alternative to offering a 50% interest in Norwich Park alone. CQCA is the Australian joint venture in which UDC has an 85% interest and which includes Norwich Park. In addition, the Queensland government has agreed to increase significantly the quantities of coal which CQCA is entitled to export from its properties as an inducement to the development of Norwich Park and the introduction of new Australian participation. An agreement in principle has been reached under which the Australian Mutual Provident Society ("AMPS"), Australia's largest life insurance company, and Utah Mining Australia Limited ("UMAL"), a * On September 30, 1976, the Australian dollar was equivalent to approximately $US1.24. 43