Alliance Resources : First Supplementary Target's Statement

For personal use only

ABN 38 063 293 336

FIRST SUPPLEMENTARY TARGET'S

STATEMENT

in response to the off-market takeover bid made by

Gandel Metals Pty Ltd

to acquire all of your shares in Alliance Resources Limited

The Offer is $0.18 cash

for every Alliance Share you hold.

THIS IS AN IMPORTANT DOCUMENT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to its contents, you should promptly consult your legal, financial or other professional adviser immediately.

Legal advisor to Alliance Resources Limited

For personal use only

INTRODUCTION

First Supplementary Target's Statement

This document is the first supplementary target's statement dated 20 May 2022 (First Supplementary Target's Statement) to the target's statement dated 4 May 2022 (Original Target's Statement) issued by Alliance Resources Limited ACN 063 293 336 (ASX code: AGS) (Alliance) in response to the Offer made by Gandel Metals Pty Ltd ACN 102 347 955 (Gandel Metals) under its off-market takeover bid contained in its Bidder's Statement dated 4 April 2022 and Supplementary Bidder's Statement dated 14 April 2022.

This First Supplementary Target's Statement is given pursuant to Division 4 of Part 6.5 of the Corporations Act in compliance with the requirements of section 644.

This First Supplementary Target's Statement supplements and is to be read together with the Original Target's Statement. This document prevails in the event of any inconsistency with the Original Target's Statement.

Important notices

A copy of this First Supplementary Target's Statement was lodged with the Australian Securities and Investments Commission (ASIC) on 20 May 2022. Neither ASIC nor its officers take any responsibility for the contents of this First Supplementary Target's Statement.

Defined terms and interpretation

Unless the context otherwise requires, capitalised terms in this First Supplementary Target's Statement have the same meaning given to them in Section 8.1 of the Original Target's Statement. The rules of interpretation set out in Section 8.2 of the Original Target's Statement apply to this First Supplementary Target's Statement, unless the context otherwise requires.

Page | 2

For personal use only

CONTENTS
KEY DATES............................................................................................................................................	3
MANAGING DIRECTOR'S LETTER ......................................................................................................	4
Independent Directors' recommendation and reasons.....................................................................	5
7.	Additional Information .............................................................................................................	7
Further developments ..........................................................................................................................	7
Consents ................................................................................................................................................	7
Approval.................................................................................................................................................	8

KEY DATES

	Announcement of Offer	4 April 2022
	Date of Bidder's Statement	4 April 2022
	Date of Supplementary Bidder's Statement	14 April 2022
	Offer Period commences	20 April 2022
	Date of Target's Statement	4 May 2022
	Date of First Supplementary Target's Statement	20 May 2022
	Scheduled Close of Offer Period (unless withdrawn or	7pm (AEST) on 6 June 2022
	extended)

Page | 3

For personal use only

MANAGING DIRECTOR'S LETTER

Dear Alliance Shareholder,

The Independent Expert has concluded that the Offer is fair and reasonable.

The recommendations made by the Independent Directors in the Original Target's Statement and this First Supplementary Target's Statement are those of Kevin Malaxos and Anthony Lethlean. For the avoidance of doubt, Ian Gandel is not an Independent Director and any recommendations made by the Independent Directors does not include a recommendation by Ian Gandel. This is a result of Ian Gandel's position as a director of both Alliance and Gandel Metals.

Your Independent Directors both recommend that in the absence of a superior proposal you ACCEPT the Offer for all of your Alliance Shares.

Your Independent Directors have made this recommendation after a thorough consideration of the advantages and disadvantages of the Offer.

The possible advantages of the Offer include:

• the premium offered for Alliance Shares above the independent valuation in the Independent Expert's Report; and
• the opportunity for Shareholders to sell thinly traded shares in a company with a dominant or controlling shareholder.

The possible disadvantages of the Offer include:

• the uncertainty as to whether Gandel Metals will acquire a Relevant Interest in at least 90% of all Alliance Shares and if the conditions to the Offer will be satisfied or waived before the end of the Offer Period (at the time the Offer is accepted by the Shareholder);
• the loss of the Shareholder's ability to deal in its Alliance Shares after the Offer is accepted; and
• a delay in realising the value of the Shareholder's investment if the Offer is not accepted but nonetheless proceeds to the compulsory acquisition stage (Noting Gandel Metals has stated that it intends to proceed with compulsory acquisition (if the thresholds are satisfied) and delist Alliance from the ASX Official List.

The Independent Directors also make further observations in Section 1 which may be relevant to any shareholders who have an atypical risk appetite or a long investment horizon.

You are encouraged to read this First Supplementary Target's Statement and the Original Target's Statement in full as it sets out your Independent Directors' formal response to the Bidder's Statement and Supplementary Bidder's Statement, their recommendation and other important information to enable you to consider the Offer having regard to your personal circumstances. We also encourage you to seek your own independent financial, legal and taxation advice prior to deciding whether to accept the Offer.

If you have any questions regarding this First Supplementary Target's Statement, please contact Alliance on [phone].

Yours faithfully

Kevin Malaxos

Managing Director

Page | 4

For personal use only

Independent Directors' recommendation and reasons

Your Independent Directors both recommend that, in the absence of a superior proposal you ACCEPT the Offer for all of your Alliance Shares.

The Independent Directors recommended that you accept the Offer in light of the independent valuation of Alliance Shares and the disadvantages of holding relatively illiquid shares in a company with a dominant or controlling shareholder.

The Independent Directors do, however, make the following observations which may be relevant to any shareholders who have an atypical risk appetite or a long investment horizon.

Advantages of the Offer

Net present value of Alliance Shares

The Independent Expert has valued an Alliance Share at between $0.048 and $0.063. The Offer price is $0.18. In the absence of a superior proposal, the Independent Directors recommend the offer should be accepted by shareholders who wish to realise a premium to the pre-Offer market price.

Liquidity

Alliance Shares are thinly traded on the ASX and may become even more so if Gandel Metals increases its holding to a greater controlling position. The Independent Directors are concerned that small shareholders take the opportunity to avoid being minority shareholders in a company with a dominant or controlling shareholder, possibly even one that is delisted from the ASX.

Uncertain future

The Independent Directors are confident that there is significant exploration upside potential at the Weednanna gold and iron deposit, but it requires Alliance to raise further capital. In addition, significant capital will be required by Alliance should the decision be made to develop the Weednanna gold and iron project. Current valuation methodologies, including those used for ASX reporting, mean that the upside value is not sufficiently certain for quantification. Therefore, any potential future upside value will not be available to any shareholders who accept the Offer, but equally those shareholders accepting the Offer would not be subject to a request to contribute further capital or face dilution.

Exploration undertaken by Alliance on the Weednanna project and announced on the ASX during the past 3 years has not grown the resource tonnage or contained gold. Exploration results have increased confidence in the published gold resource and ore shoots that contribute to the global resource but failed to increase the global gold resource tonnes and grade. Therefore, there is no guarantee that future exploration will increase the Weednanna total resource.

Disadvantages of the Offer

For completeness, the following may be disadvantages of the Offer for some or all Alliance Shareholders, regardless of the merits of the Offer. Each shareholder needs to weigh up the extent to which each of the following is relevant to their overall assessment of the net benefit or

Page | 5