Arafura Pearl 2010/11 Project

Key Features

Project Structure
An Applicant who applies under this PDS (for a minimum of two Project Interests) and whose application is accepted by the Responsible Entity enters into a Management Agreement with the Responsible Entity pursuant to the Power of Attorney. Under the Management Agreement the Grower contracts the Responsible Entity to establish their Pearl Farms by allocating Spat (juvenile shell) for them and conveying to them a number of Oyster Panels in accordance with their Project Interests. The Oysters allocated to the Grower will be identifiable by reference numbers which shall be recorded and kept by the Responsible Entity on a plan of the Pearl Farm.

The Responsible Entity will seed the Oysters (the main operations will occur approximately 2 and 4 years (respectively) after commencement of the Grower’s Management Agreement) and will carry on the management and maintenance of each Grower’s Pearl Farm until the Spat mature and produce two pearl harvests. The Responsible Entity will then market and sell the pearls harvested (unless the Grower elects to collect the pearls for their own purposes) and the net harvest proceeds will be distributed to Growers. On completion of the two pearl harvests and distribution of proceeds to Growers, the Management Agreement and the Project will automatically end (approximately 6.5 years after commencement).

The Pearl Farm is located at Elizabeth Bay in north-east Arnhem land in the Northern Territory where the Responsible Entity has been operating its existing pearl farm and hatchery operation for over 9 years.

Overview
Arafura Pearls Holdings Ltd (Arafura Pearls) is the Responsible Entity and Project Manager of the Project under authority by Australian financial services licence no. 296246. This is the sixth Project offered by Arafura Pearls after a small wholesale offering to sophisticated investors in 2005, and the first retail offering in 2006.

Arafura Pearls is an ASX listed public company which at 30 June 2009 had approximately $50 million in net assets.

Arafura Pearls owns 140 units of Quota, and has access to another 95 units of Quota through lease arrangements making it by access to Quota the largest farmer in the Northern Territory and second largest farmer in Australia after Paspaley pearls.

Existing Pearling Operation
Growers who participate in the Project are leveraging off Arafura Pearls’ existing pearling operation. Accordingly, the risk profile of the Project is significantly reduced with the infrastructure already in place and the farm already established and operating for over 10 years.

Growers are not contributing in any way to the capital infrastructure of the operation as they might in a “greenfields” project yet to be established. Growers are also receiving the benefit of economies of scale from leveraging off Arafura Pearls’ existing operation.

Farm Site
Arafura Pearls has been developing and expanding its existing pearl farm and hatchery operation at Elizabeth Bay in north-east Arnhem land, in the Northern Territory since 1998, and harvesting Australian South Sea pearls since 2001. Elizabeth Bay is 48 kilometres by sea, north-west of Nhulunbuy (Gove) in Arnhem Land, in the Northern Territory. Nhulunbuy is located 800 kilometres by air east of Darwin.

Land and Sea Lease
Arafura Pearls has a lease agreement with the Arnhem Land Aboriginal Land Trust, the Aboriginal Owners and the Northern Land Council with an existing term until 3 September 2018. This lease is over the land and sea based areas of Arafura Pearls’ operations covering an area in excess of 500 km2. Crown leases in relation to the sea areas have also been granted. There are rights of renewal explicitly included in the land and sea leases which will be exercised closer to the expiration of the head term.

Farm Infrastructure
Arafura Pearls has developed and established the following land and sea based infrastructure to conduct its modern hatchery-based Australian pearling operation:

Hatchery
As discussed in section 4.4 of the PDS, Arafura Pearls’ pearling operations are hatchery based. Arafura Pearls uses modern marine technology to produce Oysters in which to cultivate pearls rather than relying on fishing for wild shell.

The hatchery process starts with a small number of healthy and mature Broodstock being selected from naturally occurring stocks. The male and female Broodstock are brought together in the hatchery and through the manipulation of water temperature the male Broodstock are induced to release their sperm and the females to release their eggs. This typically occurs between October and March of each year.

The fertilised eggs (Larvae) are in tanks containing sea water that is pumped from the ocean to the hatchery. The Larvae are fed with micro-algae grown under controlled conditions in the hatchery’s laboratory. Eventually the Larvae settle onto collectors which are suspended from the top of the tanks.

The collectors are transferred from the hatchery to long lines in the ocean and the Larvae develop into Spat which are selected into panels and put into farm production to be grown out. After approximately 18 months to 2 years of grow-out, the Spat will be mature enough to be seeded.

Arafura Pearls’ hatchery is one of the most advanced in Australia and has the capacity to produce Spat numbers well in excess of its requirements. The hatchery facility represents a significant investment in capital works and intellectual property. The capital works established include a pump house, pumps, water filters, water storage facilities, air filters, settlement tanks, Larvae tanks, algal culturing equipment, autoclave and hatchery buildings.

Arafura Pearls is involved in hatchery research and development programs which include genetic tracking in a bid to breed genetically superior shell which expands the Responsible Entity’s intellectual property and gives it a competitive advantage.

Land Base
Arafura Pearls has other significant land based infrastructure in addition to the hatchery. These include a hatchery laboratory, a farm office, workshop, satellite communication systems, kitchen/mess area, employee living quarters, power generation plant, internal roadways, water supply and farm plant and equipment. The pearl farm site is well protected and the buildings have been constructed to withstand heavy weather conditions. The Northern Territory has strict building codes and the farm buildings have been constructed to meet these requirements.

Sea Infrastructure
Arafura Pearls has a significant fleet of vessels to conduct its pearling operations including a 32 metre pearling vessel with large capacity shell holding tanks used as a mothership and shell transport and operations vessel, cleaning vessels, general work boats, and dive boats.

DISCLAIMER
This document is a summary only.

This document contains general financial product advice only and does not take into account investment objectives, financial situation or particular needs. Before investing you should assess the suitability of the investment to your needs, consider the PDS in its entirety and consult professional licensed advisers.

No person or corporation associated with Arafura Pearls Holdings Limited (AFSL 296246) guarantees, warrants or underwrites the performance of the Arafura Pearl 2010/11 Project or any particular return. While we believe that the information set out above is correct at the time of compilation, no warranty of accuracy or reliability or completeness is given to any information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any person by reason of negligence) is accepted by Arafura Pearls, its directors, employees, agents and third party information providers.