Heemskirk Consolidated : First Supplementary Target's Statement

12 April 2017

The Manager ASX Announcements Electronic Lodgement

Dear Sir/Madam

Off-market Takeover Bid by Northern Silica Corporations - First Supplementary Target's Statement

We act Heemskirk Consolidated Limited (Heemskirk). In accordance with section 647(3) of the Corporations Act 2001 (Cth), we enclose a copy of Heemskirk's first supplementary target's statement dated 12 April 2017 relating to the off-market takeover bid by Northern Silica Corporation (First Supplementary Target's Statement).

Heemskirk has today lodged a copy of the First Supplementary Target's Statement with the Australian Securities & Investments Commission and served a copy on the Bidder.

Yours sincerely

Alfonso Grillo

[e-mail]

Liability limited by a scheme approved by Professional Standards Legislation

HEEMSKIRK CONSOLIDATED LIMITED (ACN 106 720 138) FIRST SUPPLEMENTARY TARGET'S STATEMENT

This document is a supplementary target's statement (First Supplementary Target's Statement) issued by Heemskirk Consolidated Limited ACN 106 720 138 (Heemskirk or the Company) under section 644 of the Corporations Act 2001 (Cth) and is supplementary to the target's statement dated and lodged with ASIC on 28 March 2017 (Target's Statement) in relation to the off-market takeover bid by Northern Silica Corporation (NSC) for all of the fully paid ordinary shares in the capital of Heemskirk (Offer).

The First Supplementary Target's Statement supplements, and should be read together with the Target's Statement. The First Supplementary Target's Statement prevails to the extent of any inconsistency with the Target's Statement.

Unless the context requires otherwise, terms defined in the Target's Statement have the same meaning in the First Supplementary Target's Statement.

A copy of the First Supplementary Target's Statement was lodged with ASIC on 12 April 2017. Neither ASIC nor any of its officers take any responsibility for the content of the First Supplementary Target's Statement.

1. CHANGES TO THE INDEPENDENT EXPERT REPORT

   The Company refers to the independent expert report dated 27 March 2017 relating to the Offer (the Independent Expert Report) which was annexed to the Target's Statement.

   On 11 April 2017, the Company received an updated Independent Expert Report (Updated IER) from the Independent Expert.

   While the Independent Expert has confirmed that its opinion provided in the Independent Expert Report remains unchanged, it has made the following key changes to the Independent Expert Report in the Updated IER:

2. The valuation of Heemskirk was amended to exclude adjustments that were made for additional funding requirements;

3. The Canadian dollar exchange rate adopted by the Independent Expert was updated to align with the timing of the Updated IER; and

4. The value of the investments held by Heemskirk was also updated to align with the timing of the Updated IER.

   As a consequence of the above changes:

5. the Independent Expert's valuation of a share in Heemskirk has been updated from a range of $nil to $0.008 with a preferred value of $nil, to a range of $0.039 to $0.057 with a preferred value of $0.048; and

6. the Independent Expert's valuation of the Share Consideration has been updated from a range of $nil to $0.006 with a preferred value of $nil, to a range of $0.028 to $0.044 with a preferred value of $0.036.

7. A number of consequential changes have been made in the Updated IER to reflect the updated valuation range. The Independent Expert has confirmed that its opinion in relation to the Offer remains unchanged and that, in the absence of a superior offer:

8. the Cash Consideration offer is fair and reasonable to Shareholders; and

9. the Share Consideration offer is neither fair nor reasonable to Shareholders.

A copy of the Updated IER is attached to the First Supplementary Target's Statement for your further information.

The Company refers to Sections 1, 2 and 4 of the Target's Statement (entitled 'Why you should accept the Offer and receive Cash Consideration', 'Why you may consider not accepting the Offer', and 'Why you may not elect the Share Consideration' respectively). Given that the opinion of the Independent Expert remains unchanged, the Directors are of the view that the changes in the Updated IER do not impact the Directors' reasoning set out in these Sections.

In addition, the Directors are of the view that the changes in the Updated IER do not change the recommendations and the reasons for those recommendations provided by the Company's Directors in Section 6 (entitled "Directors' recommendation and reasons" of the Target's Statement).

The Company is currently liaising with the Bidder in relation to the changes in the Updated IER and will provide shareholders with further information in due course.

10. VARIATION TO THE OFFER - EXTENSION OF OFFER PERIOD

    On 6 April 2017, the Bidder provided the Company with:

11. a notice that the Bidder has varied the Offer by extending the Offer Period for approximately one month to 7pm (Sydney time) on 16 May 2017; and

12. a notice that the Bidder has varied the date for giving notice of status of the Conditions to be 8 May 2017.

    The Company also received the Supplementary Bidder's Statement dated and lodged with ASIC and ASX on 7 April 2017 (First Supplementary Bidder's Statement). The First Supplementary Bidder's Statement contains the above information and clarifications in relation to certain statements made by the Bidder in the Bidder's Statement dated 13 March 2017.

13. SALES PROJECTIONS OF MOBERLY PROJECT

    Heemskirk refers to Section 9.2 of the Target's Statement in respect of the Moberly Project, particularly in respect of the sales projections of the Moberly Project.

    Heemskirk also refers to the Independent Technical Specialist's Report (which was annexed to the Independent Expert Report) which was prepared by CSA Global Pty Ltd (CSA Global).

    In particular, CSA Global has recommended an initial base price of CAD$65/tonne in Year 1 with an annual price increase of CAD$5/tonne to reach CAD$85/tonne in Year 5. The Independent Expert, BDO Corporate Finance (East Coast) Pty Ltd has adopted and relied upon CSA Global's review and assumptions underpinning the forecast cash flows.

    CSA Global noted that although Heemskirk has customer encouragement for supply of frac sand at prices potentially higher than the recommended values, in the absence of firm off-take contracts, a more detailed, robust and comprehensive pricing analysis is required to be confident of pricing assumptions. CSA Global further noted that this should involve:

14. estimates of major current and potential competitors' costs of product delivered to the main fraccing sites;

15. initial levels of pricing incentive if so required;

16. profit maximisation by allowing different (maximum) prices to be set for different delivered locations which capitalise on any associated strategic advantages; and

17. risk assessment similar to that used by silica and frac sand producer US Silica in their prospectus supplement from 2016.

18. As noted in Section 9.2, Heemskirk is of the view that it expects to be able to sell its products at approximately C$85 per metric tonne from commencement of production, well above the range assumed by CSA Global and adopted by the Independent Expert in the early years of production for the following main reasons:

    (a) the Company has engaged in dialogue with potential future customers and recent discussions have indicated a mine gate price of approximately C$85 per metric tonne is achievable; and