2.3 Production Operation

2.3.1 Tin Mining Operations

The Company owns 100% of its offshore mining in the Phuket Bay area on
leases totaling 23.4 sq km in three leases nos: 18066/13050,
18064/13448, and 18065/13449 and valid to years 2006 and 2008.

The Company contracted its mining operations to an independent
contractor under agreement valid to 31 January 2005.

2.3.1.1 Mining and Production

The tin mining operation is conducted using the contractor’s dredge.
Income varies according to market tin prices and production output.
Prices have recently improved by approximately 25 percent. However, the
number of dredges in operation decreased. Tin production for year 2003
was 1,728 habs or 103,680 kgs and sales Totaled Baht 20.8 million.

2.3.1.2 Marketing and Competition

(A) Marketing Policy

The product is bought and processed by the refinery concerned. Tin
prices depend on international trends and vary according to worldwide
demand. Tin prices are now quoted in U.S. dollars value rather than the
Malaysian Ringgit as previously. In 2003 the price ranged from US$ 4.35
per kg in April to US$ 6.03 per kg in December.

  (B) Competition

There is no significant domestic competition at this time although one
other mining company also has offshore mining rights.

  2.3.1.3 Resources and Products

  (A) Resources

  Mining Agreement

The Company contracted (with professional engineering control) it
offshore mining operation to an independent contractor: Reu Dood Rae
Thai Ltd. Part. If the contractor purposes to change any aspect of
operations other dredges, it has to in form the Company in advance as
per agreement which is for one year contract with the following
essential terms:

  - Effective period: 31 January 2004 – 31 January 2006

  - The contractor will compensate for any damages occurring to third
  parties or assets. The contractor will provide at least Baht 500,000
  of insurance for against possible damages.

  - The contractor provides its own machinery, repair, and maintenance
  expenses, and all other mining expenses.

  - Stock must be located at a safe place on which the Company agrees.
  Sample analysis ore must be done with a Company representative
  present.

  - The tin is sold by the Company only, and to the Thai Smelting and
  Refinery Co., Ltd. Tin weight follows to buyer. Tin price is based on
  Kuala Lumpur, Malaysia (now quoted in U.S. dollars).

  - If the contractor breaks any conditions of agreement, it is liable
  to pay the Company up to the full amount of the guarantee.

  Capacity

About 19.1 sq km of offshore lease areas are currently being mined. The
contractor uses its dredges for mining operations and sends the tin ore
concentrate to a smelter at Phuket Thailand for refining. The
concentrate ore volume depends on dredge capacity, weather, and the
season. However, the Company’s concentrates are not the smelter’s only
support.

  (B) Environment Impact

Environmental regulations are overseen and enforced by the Harbor Master
and the DMR at Phuket. Offshore tin mining procedures use sea water for
dressing and washing and it is then drained back into the sea. Sediment
is returned to sea because the mining is in a deep-sea area that has
strong wind and wave action and tidal ebb and flow. The returned
sediment is widely dispused by the ocean currents. However, the Company
pays annual compensation of Baht 310,300 for draining the sediment back
into the sea.

The Company samples seven locations in the lease areas at one meter
depth for testing temperature, pH, Salinity, Oxygen, Oil, Lead, Mercury,
Arsenic, Cadmium, Copper, Chromium, Iron and Manganese. The result is
within the standards set by the Office of Environment Policy and
Planning (OEPP). The Company also pays about Baht 110,000 per annum for
the test costs.

2.3.2 Igneous Rock (Andesite) Mining Operations

Tongkah Harbour’s granodiorite (andesite) mine, located near Kaeng Khoi,
in Saraburi province, is about 140 km transport distance from central
Bangkok. The deposit area is about 215 rai (344,000 sq m) plus crushing
plant, service, maintenance, and stockpile areas.

THL is operating under a ten year mining license approved in May 1999.
Sintana Resources Co Ltd’s application for a ten year mining license (on
behalf for THL) was finally granted By the Ministry of Industry later in
2003 and the area concerned should be in production beginning in 2004.

  2.3.2.1 Mining and Production

Rock crushing operations have been contracted to Cholsin Limited since
June 1998 to Cholsin Limited which acquired relevant rock crushing
experience in underground mining operators at the Toh Moh mine in
southern Thailand. Cholsin’s Crushing plant permit was granted on
December 31, 2002 and is valid for five years and is renewable every
five years.

Major machinery consists of Jaw Crusher, Cone Crusher, Screens, and
Conveyor Belt. Blasted rock is trucked to the primary crusher then
conveyed to the scalping screen, sorted and conveyed to the secondary
and tertiary crushers. The products are stockpiled according to size as
follows :

  - Railway Ballast (1” – 2.50”)

  - Road Base

  - Fine Aggregate (3/4”)

  - Aggregate (1/2”)

  - Dust ( minus ฝ”)

All product produced is salable material. However, given the market,
sales and pricing depend almost entirely on demand and in meeting
clients product specifications such as particle shape and abrasive
index.

  2.3.2.2 Marketing and Competition

(A) Marketing Policy

Product application includes various construction and maintenance uses
such as: railway ballast, well-grade 3/4”aggregate for sleeper concrete,
road base, fine aggregate for asphaltic road surfacing, and coarse
aggregate and rip-rap for various embankments and dam construction.
Government guidelines specify igneous rock, such as the andesite, as
prerequisite for railway ballast and for some layers of road surfacing
where limestone does not meet required standards. Also, use of the
andesite can allow for less cement consumption in concrete and,
possibly, less steel reinforcing in building construction. .

The Company is increasing its share of the quality aggregate supply
market, and is also developing plans to enter sleeper manufacturing and
sales. In connection with these changes in market prospects, the Company
has acquired high level professional expertise in sleeper construction
and marketing is concentrating more in this area of sales.

1 Aggregate sales: Through ongoing efforts by our marketing section,
customers for the andesite aggregate are increasing steadily as the
product is being rapidly recognized as a quality product in
infrastructure developments. This year, the Highway Department gave
approval for andesite use in asphaltic road surfacing where orders for
the well-grade aggregate are increasing steadily as more highway
contractors are placing orders. Similarly, demand for the finer
aggregate, road base, and even the quarry dirt is now virtually
constant. Accordingly, all products are commanding higher prices.

2 Ballast: Sales of railway ballast were relatively low in 2003.
However, pursuant to further stabilization in the SRT’s management
structure, maintenance and development contracts let by the SRT are
expected to increase markedly in 2004, particularly in the central and
northeast regions where extensive double tracking is planed and where
our product is most competitive.

3 Railway Sleeper Construction: In connection with the SRT’s intended
improvement in the Kingdom’s rail system, extensive railway sections are
to be strengthened whereby roadbeds will be improved and wooden sleepers
will be replaced with concrete sleepers and rail fasteners of approved
design. Our aggregate is approved for sleeper construction. Accordingly,
the Company will be bidding on contracts to manufacture and install
sleepers and rail fasteners.

In preparation for this work, we will joint venturing with an
experienced firm in track laying to provide the integrated service and
lay foundations for future work in this field. At this juncture, the
Company has been, in principal, granted a contract to provide concrete
sleepers for the pending new railway line between Vientiane in Laos and
Udornthani, and is now waiting on final confirmation.

  (B) Competition

Located about 140 km form Bangkok, the product has several advantages in
marketing, including competitive transport costs. The deposit is the
only one of its kind known in the area and is central to a large region
of potential industrial expansion extending north and northeast of the
Bangkok area. There is nother deposit at Amphur Wiharndaeng, which
produces for its own projects and is not in high demand.

There are not many other readily available rock types that meet
standards set by the SRT. Highly silicified rock or igneous rock
material, such as the andesite, is required to meet current standards.
Alternatives of similar quality supplied by some competitors are
rhyolite, granite, and basalt. Ordinary limestone does not qualify.

  2.3.2.3 Resources and Products

  (A) Resources

In mining lease areas, Andesite resources were found to 30 meter-depth
from surface. The surveyed zone is open laterally and to depth
indicating additional minable resources. Surveyed resources currently
under license are about 12 M tons and additional resources are estimated
to be at least about 15 M tons.

The Andesit mining is is an open pot operation and entails site clearing
followed by controlled bedrock drilling and blasting, and transport to
stockpiles or to the crushing plant. As far as possible, all mining and
crushing operations are coordinated with immediate delivery requirements
so that transport and other operating costs are kept in line with
current orders.

(B) Environment Impact

The Andesite mining impacts on the environment to the extent that the
surface is altered and there is some noise and dust from blasting. The
Company operates in accordance with OEPP, DMR, and Labour Department.
The guidelines include safety practice and environmental maintenance
procedures in and around the site area such as:

1.  Rows of trees were planted around the site before mining began to
    help reduce noise and dust into neighboring areas.

2.  Vegetation and soil are cleared from the excavation site before
    drilling and blasting, otherwise there is no lasting damage to the
    immediate environment, and no unnatural materials are used.

3.  Rock blasting is controled to reduce shock and dust. The blasting
    does not result in any appreciable rock fragments falling outside
    the lease area.

4.  Water spraying apparatus are installed in several locations for dust
    suppression.

5.  Workers wear protective goggles and face masks against dust in their
    work areas. The Company spends Baht 48,000 for protective equipment,
    and Baht 40,000 on health checks of workers and staff.

2.3.3 Gold Mining Operations

Tungkum Ltd. (TKL) is an exploration and mining company registered in
Loei Province, Northeast Thailand, with control and working interest
(see Group Structure chart) held by Tongkah Harbour Public Company
Limited (THL). The Company started gold exploration in 1991. Gold Mining
License Applications (MLAs) were filed in 1995 and granted in March 2003
by the Ministry of Industry. On obtaining the concession in 1991, a
signature bonus of 5.8 million Baht was paid to the DMR. The Company’s
management team comprises expertise in mineral exploration and mining,
business, finance, and administration. To-date TKL’s investment is about
330 million Baht, excluding carrying and administration costs.

2.3.3.1 Mining and Production

Upon the commencement of infrastructures and processing plant
development, mining and production will begin in 10 to 12 months. Mining
operations will begin with surface oxide ore and the plant set-up will
be designed to process about 1,000 tons of ore per day. Subsequently,
mining will concentrate on the remaining “T” series deposits and
vicinity.

  2.3.3.2 Marketing and Competition

(A) Marketing Policy

In the gold mining operations, the product is bought and processed by
the refinery concerned. Prices are at international standards and vary
according to worldwide demand. The Royal Thai Government has the first
option to buy the gold output at the going world rate.

(B) Competition

As gold sales value will depend on the international market, any
additional producers in the country are not likely to affect prices.

  2.3.3.3 Resources and Products

  (A) Resources

Licensing

The six licenses applied for were granted in March 2003 after
endorsement by the Mineral Committee of the Ministry of Industry in
August of 2002 with recommendation to grant the mining licenses. The
licenses are valid for 25 years and subject to renewal for periods of 25
years should resources be proven up for ongoing mining. .

Board of Investment (BOI) Approval

BOI approval was given to Tungkum’s application on 14 October 1999. The
privileges so granted can be exercised once the mining license is
granted and will include:

  1. Full exemption from import duties on machinery for two years.

  2. A 75 % reduction on raw material import duties for five years.

  3. Exemption from corporate income tax for eight years and a 50%
  exemption for five years thereafter.

Resources and Reserve

Pursuant to the abouve mentioned exploration, the Company found
economically significant gold and/or base metal mineralization in at
least 20 locations, seven (comprising the T series) of which are in the
south-east sector where exploration is at a more advance stage. About
31,200 m of core and reverse circulation drilling in 346 holes, were
completed in delineating the current minable ore grade resources. West
and northwest of the T series area, mineralized locations are indicated
showing economically significant assay results for one or more of gold,
copper, lead, and zinc.

Reserve estimations were initially done by a professionally accredited
economic geologist in mineral resource appraisal methods. Subsequently,
in 2003 a consulting economic geologist registered with the Australian
Institute of Mining and Metallurgy (AIMM), reviewed overall practice and
verified results. Currently, measured and inferred resources consisting
of gossanous, surface, and near surface oxide ore, well suited to open
pit surface mining, total 3.46 M tons at 4.38 g/t gold which refine to
pure gold about 440,000 ounces or 15 tons (from surface to over 300
metres depth).

(B) Environment Impact

The Company and several consulting companies studied various aspects of
the natural environment. The consulting companies include: SGS
Consulting Services, NSR Environmental Consulting Pty. Ltd., and
Environmental Geochemistry International Pty Ltd Of Australia, and the
Department of Geotechnology at Khon Kaen University. The scope of the
study included wildlife appraisal, soil analysis, and ground water
quality. State-of-the-art technology was applied with the installation
of monitoring wells and computer based hydrological modeling, all
designed to work in conjunction with proposed mining operations and
ongoing ground water testing toward early warning of any contamination,
and including the most appropriate approach to remedial action.

The Office of Environmental Policy and Planning (OEPP) and the
Department of Forestry have investigated the mining site and approved
the mining operation plans, including the gold ore processing and
tailings treatment. Special emphasis will be given to safeguarding and
monitoring ground water quality. Plans for post-mining rehabilitation of
the site area have also been accepted.

Once the Company will starts mining, related government offices - for
example the DMR, the OEPP, the Forestry Department, and others- will
monitor mining activities. The Company will also report water test
results every month and pay an environmental compensation fee of about
Baht 100,000 per month.

2.3.4 Property Development

2.3.4.1 Sky Cliff Limited

THL owns 75% in Sky Cliff Ltd which owns a 3 rai 1 ngan 61.9 sq wah
(5,447.60 sq m) site directly on Rachadapisek Road. With the improved
property market, Sky Cliff revived its plans to develop a 28 story
condominium on the site. The site is in a prime location being near an
entrance to the new subway development (scheduled to open in April 2004)
and with easy access to expressways and the motorway which will connect
directly to the new airport. Several supermarkets and integrated quality
shopping complexes are also nearby. Earlier work completed, included
complete architectural plans and a valid building permit, and surveys to
implement marketing. In coordination with construction operations, the
Company moved to new offices at the Maung Thai-Phatra Office Tower 1
location on Ratchadapisek Road.

Bids were invited for the construction of the main building and of the
responses received, three are well-experienced companies in high rise
building construction. Negotiations are now underway with these three
and the Company will make its decision sometime in April 2004.

  2.3.4.2 Phuket Property Holding

  A. Purchase and Sales

The purchase and sale agreement transacted in September 2001 wherein the
Company sold a parcel of land totaling 8 rai, 1 ngan, 42.3 sq wah
(13,369.2 sq m) was completed satisfactorily with the local buyer
agreeing to a sale price of Baht 1.3 million per rai, totaling Baht
10,862,475 (in comparison to its book value of Baht 137,600). This year
the Company completed negotiations with the Siam Commercial Bank (SCB)
to purchase a 6-3-51.3 rai (11,005.2 sq m) parcel of waterfront land
which would connect for Baht 25 million. The Company will take over
ownership on completion of payments in September 2004. Possession of
this property will join the other two land areas resulting in a single
land parcel totaling about 24-3-36.4 rai (39,745 sq m), and greatly
increase the Company’s prospects for major waterfront development in the
future. In addition, the Company still owns (rented out) an 8-2-11 rai
(13,644 sq m) parcel in the town center.

B. Development Plans and Proposal

In 2003, pursuant to further extensive research and analyses, the
Company’s initial proposal for development of Phuket Bay, presented in
2001, was revised and resubmitted. The revised concept focused on
development of a world class cruise ship terminal and related tourist
facilities, plus a marina, convention center, and recreation areas. The
revision retained the proposal to upgrade the Princes Mother’s Park to
its original intent, and safeguarding of the Bay’s extensive mangrove
forest with a view to promoting eco-tourism as a major part of the
development.

Amid the fast developing cruise liner industry in East Asia, and
worldwide in general, world class facilities now exist in locations such
as Hong Kong, Singapore, Hawaii, and Vancouver. In this context, Phuket,
already well known as a tourist center, is looked upon in the luxury
cruise industry as, potentially, one of the top three ports of call in
the Pacific and East Asia. Moreover, Phuket could be developed as a home
port substantially increasing local benefit as there would be a much
greater demand for maintenance and supply goods and facilities as
today’s large liners can accommodate up to 3,000 passengers, plus crews
of several hundred.

In connection with the Bay’s development prospects, community based
discussion groups organized by government and municipal agencies have
been attended by Company officials to proactively promote its proposed
Development and to ensure protection of the Company’s offshore mining
lease rights. In general, the Phuket community is in favor of developing
the Bay area. The Company is now awaiting the outcome of the study and
is committed to undertaking what is best for the Company, the community,
and the environment.