publicly held Australian corporation which currently holds 10.8% of the shares of UDC, will purchase an 11.75% interest in CQCA from UDC and Mitsubishi Development Pty. Ltd. for approximately $A121 million * (subject to certain adjustments) payable in ten quarterly installments over the Norwich Park construction period. UDC's share of such amount would be approximately $A90 million. It is the present intention of the parties to implement the program by January 1977, subject to obtaining all necessary governmental approvals and to reaching a final decision to proceed with the Norwich Park project. At such time the ownership interests in CQCA would become: Utah Development Company................................................ 76.25% Mitsubishi Development Pty. Ltd.......................................... 12.00 Australian Mutual Provident Society.................................... 7.75 Utah Mining Australia Limited............................................. 4.00 - 100.00% The management of Utah considers this transaction beneficial to Utah in that it presents a framework for future developments in Australia, extends the life of existing properties by allowing considerably more coal to be exported from the Queensland properties, and meets the Australian objectives of increasing participation by the Australian business community in new mineral developments. Other Matters In Utah's operations to date there has been no problem in obtaining sufficient energy supplies, primarily diesel fuel and electricity. However, the cost of purchased energy has increased substantially in both Utah's domestic and foreign operations. Both in the United States and abroad Utah's mining operations require that various governmental licenses, authorizations and permits be obtained. Periodic renewals of routine permits must be solicited and obtained if the mining operations are to be continued. Many of Utah's mining operations involve leases, the continuance and renewal of which are subject to the satisfaction by Utah of various conditions. In many cases the renewal of leases is also subject to renegotiation of rents or royalties payable thereunder. In addition, mining operations frequently involve taxes on production or severance. Utah has experienced significantly increased costs during recent years in all of its operations primarily due to rising labor and supplies costs including the cost of purchased energy referred to above. The application of escalation clauses in Utah's long-term sales agreements and in certain cases negotiation of price increases have substantially offset these cost increases, and in the case of coking coal, price increases have more than offset cost increases. See also "Utah Management's Discussion and Analysis of the Statement of Consolidated Income." Certain of Utah's long-term sales agreements, specifically the Canadian copper and the Australian iron ore agreements, do not contain escalation clauses. Prices under the Canadian copper agreements are based on London Metal Exchange quotations. Mining As described in more detail in the descriptions of individual mines following, Utah's principal mining operations consist of mining coal, uranium, copper and iron ore. Utah's mining operations in the United States include uranium in Wyoming (Lucky Mc and Shirley Basin mines), iron ore in Utah (Cedar City mine) and steam coal in New Mexico (Navajo mine and San Juan mine). A new steam coal mine is currently under development near Craig, Colorado, and the development of an additional uranium property in the Green Mountain area of Wyoming is under consideration. Utah owns approximately 25% of Cyprus Pima Mining Company which mines copper in Arizona. In Canada, Utah mines copper at the Island Copper mine on Vancouver Island, British Columbia. Utah's mining interests in Australia are held by UDC. Utah owns 89.2% of the outstanding stock of UDC and the balance is held by Utah Mining Australia Limited, an Australian corporation which is publicly held. UDC's operations consist of iron ore mining in Western Australia (an undivided one-third interest in the Mount Goldsworthy mine) and coking coal mining in Queensland (Blackwater mine and an 85% interest in the Goonyella, Peak Downs and Saraji mines). Utah's affiliate, Marcona Corporation ("Marcona"), in which Utah has a 46% equity interest and a 50% voting interest, carries on iron ore mining operations in New Zealand and is engaged in ocean shipping. Marcona was also engaged in iron ore operations in Peru until July 1975 when the Peruvian assets were expropriated. See "MarconaPeru." Utah also has a 49% interest in a Brazilian company which is developing an iron ore project in Brazil. See "SamarcoBrazil." * On September 30, 1976, the Australian dollar was equivalent to approximately $US1.24. 44 In addition, Utah has large areas under exploration and examination for various metals and non-metallics, including iron, coal, copper, uranium and precious metals. Such areas include the Western United States, Canada, South America, Africa, the Southwest Pacific, Australia and Europe. Considerable drilling has been performed in several areas, the results of which have indicated the presence of mineral-bearing deposits, although to date the extent of mineralization has not been fully delineated and no markets have been developed. Therefore such deposits cannot be classified as commercially mineable. The extent to which such deposits will be mined, if at all, will depend upon economic feasibility and the development of markets. Areas included in this category are coal deposits near Kanab, Utah, and iron ore deposits (50%-owned) near Dayton, Nevada. Utah's mineral sales backlog, excluding the backlog of affiliates, rose from approximately $4.85 billion at October 31, 1974 to approximately $6.45 billion at October 31, 1975 principally as a result of product price increases and stood at $6.27 billion at July 31, 1976. Substantially all of such backlog arises from long-term contracts with utility companies, steel mills, smelters and others, which contracts are more fully described in the individual mine descriptions which follow. Approximately 70% of such backlog consists of coking coal contracts having a term of about ten years. At October 31, 1975 and July 31, 1976, approximately 94% and 96%, respectively, of such backlog was represented by contracts containing escalation clauses offering substantial protection against future cost increases. For the nine months ended July 31, 1976, all of Utah's producing mining projects described herein were profitable with the exception of the Mount Goldsworthy mine in Western Australia. With respect to the mining operations of Utah for the fiscal years 1974 and 1975 and the nine months ended July 31, 1976, coal operations accounted for approximately 69%, 90% and 92%, respectively, of Utah's gross profit from operations plus its equity in the earnings or losses of affiliates, joint ventures and partnerships and excluding exploration costs, whereas copper operations accounted for approximately 22%, 4% and 1%, respectively, and uranium operations accounted for approximately 2%, 1% and 5%, respectively. Coal Set forth below is a summary of estimated recoverable coal reserves by geographical area as of October 31, 1975. A description of the respective properties follows the summary. SUMMARY OF ESTIMATED RECOVERABLE COAL RESERVES BY GEOGRAPHICAL AREA AS OF OCTOBER 31, 1975 (In millions of tons/tonnes) (1) Assured Reserves on Leased Present Disposition (6) Land Utilization Geographical Area (3)(4) (5) Assigned Unassigned Queensland, Australia(2)............................... 362.7(8) Metallurgical 282.7(8) 80.0(7)(8) New Mexico.................................................... 1,087.0 Steam 272.0 815.0 Colorado.......................................................... 300.0 Steam 78.0 222.0 (1) Utah's steam coal reserves are measured in short tons of 2,000 pounds each; metallurgical coal reserves are measured in tonnes (metric tons) of approximately 2,205 pounds each. (2) Reserves include those of Utah and minority interests. (3) "Assured" reserves include merchantable reserves which lie within 2,000 feet of a known seam measurement. "Merchantable" coal is coal believed to be of sufficient grade and thickness so located that it can be mined at a profit in substantial quantities by judicious methods under normal conditions of the industry. (4) Sulfur content is less than 1%. (5) "Metallurgical" coal (herein called "coking coal") is coal suitable for metallurgical use because of its coking qualities, chemical characteristics and low ash content. "Steam" coal is coal not suitable as metallurgical coal because of its noncoking characteristics. Its primary use is for generation of electrical power. 45