Kangaroo Island Plantation Timbers : Appendix 4C – quarterly

Kangaroo Island Plantation Timbers

ABN 19 091 247 166

Quarterly Activities Report

and Appendix 4C

For the quarter ended

31 December 2016 Highlights

During the quarter

• Continued progress toward developing multi-user wharf at its Smith Bay site on the north coast of Kangaroo Island:

  • Lodged a Major Project Application to build a deep water wharf at Smith Bay.

  • EPBC Act referral lodged.

  • Berth harmonics commences: an analysis of the wave and berthing forces acting upon the proposed floating wharf.

  • Coastal process modelling commenced: using the hydrodynamic information being collected at the proposed berth face and publicly available data to model the coastal processes operating at Smith Bay, including any sediment transport.

  • Silt plume dispersal modelling commenced: determining the likely dispersal of suspended sediments mobilized during construction.

  • Water quality monitoring commenced: establishing, over a six- month period, the baseline water quality at Smith Bay.

  • Roadside vegetation impacts study commenced.

  • Traffic management study completed.

• Acquisition of 19,000 ha of land on Kangaroo Island effectively quadrupling the size of the Company's timber estate
• Appointment of a new Non-Executive Director, Greg Boulton AM, effective 1 November 2016.
• Appointment of Executives: a business and marketing executive, Mr John Ipsen and Project Manager, Peter Lockett.
• Consultancy agreement with Professor Anthony Cheshire.
• Completion of housing land sale for $222,227.
• Completion of a fully underwritten 1 for 3.7 pro rata non- renounceable accelerated entitlement that raised $12.8 million at $25.00 per share.

  Since the quarter end:

• Announced a general meeting to be held on 24 February 2017

Acquisition of Forestry Investment Trust estate on Kangaroo Island

The agreement

Kangaroo Island Plantation Timbers Ltd (KPT or the Company) announced, on 31 October 2016, the execution of the transaction documents giving effect to the Company's acquisition of the Forest Investment Trust (FIT) estate on Kangaroo Island, as per the Heads of Agreement (previously announced on 21 October 2016) under which KPT commits to purchase the entire Forestry Investment Trust (FIT) estate managed by New Forests Asset Management (New Forests) on Kangaroo Island, South Australia. The purchase includes all of the plantation land, standing timber and the Ballast Head site proposed by New Forests as a multi-user export facility.

The agreed purchase price is $55m, which is to be apportioned between the land and timber assets on an appropriate allocation. The major terms of the agreement include that KPT pay a 10% non- refundable deposit that was paid in October 2016. Under the terms of the agreement, the final purchase price will be between $55.0m and $67.8m, depending on the final date of completion.

The Forestry Investment Trust estate deposit

In October 2016, the Company paid the $5.5m deposit to FIT using a $2.75m short-term debt facility provided by one of its substantial shareholders (Samuel Terry Asset Management), on arm's length terms and $2.3m short term unsecured loans from directors. All debt facilities were repaid in full from the funds raised in the $12.8m rights issue.

The Forestry Investment Trust estate on Kangaroo Island

The FIT estate includes approximately 19,000 ha of land of which more than 10,700 is planted with Tasmanian blue gum (eucalyptus globulus). The current standing volume of timber is estimated at 2.4m green metric tonnes. Thus, the FIT estate acquisition will effectively quadruple the size of KPT's plantation area and triple its standing timber resource.

Smith Bay Wharf Development approval process underway

The Company is seeking a ministerial declaration that the Company's Smith Bay Wharf proposal will be treated as a major project and assessed under s.46 of the South Australian Development Act 1993. As a separate matter, the Company has lodged a referral under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 seeking a decision on whether the Smith Bay development would be considered a controlled action under that legislation. The Commonwealth has responded that it regards the wharf development as a controlled action, as announced on 16 December 2016.

As a consequence of the FIT acquisition, KPT will also own the other potential site for an export facility (at Ballast Head). On the basis of careful consideration, KPT believes the Smith Bay site to offer very significant advantages over Ballast Head. It has consequently lodged its application for Major Development Status. Because it is not possible to foresee all eventualities, the Ballast Head site will be held in reserve until the Smith Bay proposal receives all necessary approvals, at which time KPT would expect to sell the Ballast Head property.

KPT is committed to the thorough and rigorous assessment of its proposed development, in consultation with the South Australian Government and with the involvement of the Kangaroo Island Community.

Capital requirements

The Company's future capital requirements include:

• Purchase of Forestry Investment Trust (FIT) estate: the final purchase price excluding deposit paid to date, is between $49.50m and $62.3m, depending on the final date of completion;

• Development of the Smith Bay wharf project, costing between $25.0m and $30.0m; and

• Ongoing working capital requirements, estimated at $6m;

Future capital requirements

Over the next six months, the Company will review its capital requirements in relation to the construction of the wharf at Smith Bay, if approved, the completion of the New Forests FIT Estate purchase and the commencement of harvest operations. At this stage, it is expected that a further

$88m will be raised via equity and debt.

Other matters

General Meeting

A General Meeting Notice was released on 23 January 2017 for a meeting to be held in Adelaide on 24 February 2017, at which the following Shareholder approvals are being sought:

1. Approval of the acquisition of the entire Forestry Investment Trust (FIT) estate managed by New Forests Asset Management Pty Limited on Kangaroo Island, South Australia (Acquisition);

2. A share split on the basis of 10 Shares for every 1 Share held;

3. Confirmation of the appointment of Non-Executive Director, Mr Greg Boulton AM to the Board; and

4. The issue of a maximum of 89,999 performance rights dated 24 February 2017, subject to certain share price and liquidity conditions being met.

Securities on issue

At the 31 December 2016 the securities on issue included:

Number of Ordinary Fully paid Shares	Number of Performance Rights
As at 30 June 2016 and 30 September 2016	1,718,884	180,000
New Shares under the Rights issue	513,468	-
Performance Rights issued	180,000	(180,000)
As at 31 December 2016 and date of this report	2,412,352	-

Appendix 4C

The Appendix 4C as required by Listing Rule 4.7B for the quarter ending 31 December 2016 is attached to this report.

Cash and cash equivalents

The cash and cash equivalent at the 31 December 2016 amounted to $6,479,788.