3.Nature of the Business

3.1 Background and Major Changes and Developments in Business Operations

  The TongkahHarbour organization has been in mining for 105 years
  beginning with offshore tin mining in and around Phuket Bay in 1906.
  The Company was the brainchild of Captain Edward T. Miles of Australia
  who, on observing the labor intensive methods of Chinese in offshore
  mining at Phuket in 1905, felt that he could develop equipment to
  mechanize the industry.

  1906, Captain Miles founded the “TongkahHarbour Tin Dredging Company
  N.L” incorporated in HobartTasmania and, upon due arrangements with
  the local Governor, began, offshore tin mining in PhuketBay in 1907
  utilizing the world’s first sea-going bucket dredge. In the following
  decades up to the present, the Company experienced a successful and
  eventful history with some highlights as follows:

  Over the years following 1907, the Company put seven more dredges into
  mining operations in the Phuket area. The British firm, the “London
  Tin Group” (Managed by Anglo Oriental), eventually gained control and
  transferred the Company’s domicile to Malaysia and renamed it
  “TongkahHarbour Tin Dredging Ltd” which was later officially named
  “TongkahHarbour Tin Dredging Berhad”. The London Tin Group was
  subsequently taken over by the Malaysian Mining Corporation (MMC).

  In 1980, shareholding was restructured becoming predominantly Thai in
  response to the Thai governments policy of encouraging domestic
  investment in the mining industry. Upon registration in Thailand, the
  Company was renamed “TongkahHarbour Limited” In 1988, the Company’s
  dredge sank in a storm off PhuketIsland. Due mainly to low tin prices,
  the Company decided to use dredging contractors thereafter and not
  commission new equipment.

  In 1981, the Company became a listed company with registration in the
  Stock Exchange of Thailand (SET) and the trading of shares then the
  Company was again renamed as “TongkahHarbour Public Company Limited”
  after registering with the Department of Business Development in 1994.

  With the collapse of the tin market in mid 1980’s, the Company turned
  to diversification entering gold and base metal exploration in 1990,
  and property development in Bangkok where it undertook the
  construction of “Tongkah Tower”, now known as the “True Tower”.

  In 1991, the Company’s subsidiary, Tungkam Limited (TKL), was founded
  and granted a concession in Loei province for the exploration and
  mining of gold and related minerals. In 1995, pursuant to successful
  exploration, TKL submitted mining plans and six gold mining license
  applications to the Department of Mineral Resources (DMR), which
  approved the plans in late 1996.

  The Company emerged from the financial crisis of 1997 with no foreign
  exchange exposure and no debts, and with a strong cash position.
  However, the SET ruled that the Company’s earnings from tin operations
  (considered by the SET to be the Company’s core business) were
  disproportionately lower than its other revenue and, accordingly,
  suspended (later reinstated) it from trading on the SET.

  In March 2003, the Ministry of Industry granted Tungkum Limited the
  gold mining license whereupon the Company could initiate its
  development program. In September 2004, the company added to its land
  bank in Phuket by acquiring land which joined together two parcels
  already held. With this acquisition, the Company now holds some 39,745
  sq m of continuous beach-front property in a prime location for future
  development.

  In 2005, the Company accumulated 83.7% of Sea Minerals Limited (SML)
  which has subsequently filed mining lease applications (MLA’s) about
  50,000 rai (8,000 hectars) to mine an off-shore deposit in the Andaman
  Sea where evaluations based on some 1200 drill holes indicate
  resources of over 50,000 tons of tin in the MLA area.

  In the year of 2006, Tungkum’s gold operations underwent commissioning
  and be officially commenced commercial operations from September 2006
  onward. Gold production aided in turning Company operations from the
  red into marginal profitable operations in the end of 2006 which was a
  special occasion as TongkahHarbour Public Company Limited marked 100
  years of continuous operations in the mining business.

  In February 2007, the Company acquired total increased share capital
  of Baht 45.2 million of Sea Minerals which was approved for increased
  authorized share capital from Baht 72 million to Baht 288 million in
  2006. The result was interest of the Company in the equity of Sea
  Mineral increasing from 83.70% to 89.99%. Subsequently, on 13 November
  2007, the Extraordinary General Meeting of Sea Minerals Limited’s
  shareholders approved the resolution to reduce Sea Minerals Limited’s
  shares from 1,171,976 to 1,054,616 by canceling 117,360 shares, owned
  by Southern Kinta Consolidation Limited. As a result of the reduction
  in shares, TongkahHarbour Public Company Limited’s shareholding in Sea
  Minerals Limited will increased from 89.99% to 99.99%.

  On 4 May 2007, with profitable operations for 2006, the Stock Exchange
  of Thailand reinstated the Company’s security trading. Also, the
  trading of the Company shares in the form of American Depository
  Receipts was approved by US Securities Exchange Commission on 9 May
  2007.

  2008: A loan of USD 35 million was approved by Deutsche Bank. Part of
  the loan was utilized to repay the earlier loan while the balance is
  being used to finance current and planned expansions.

  In second quarter of 2009, theCompany had completed installation of
  the new flotation plant, we shall be able to reap the benefits of the
  copper and iron ore recovery as by-products. The flotation processing
  is of importance to us in that the recovery rate of the transaction
  and primary sulfide ore will be much higher and there will be
  significant reduction of reagents used, particularly cyanide.

  On September 7, 2009, Department of Primary Industries and Mines has
  granted a temporary transport and export permit for export of 700tons
  of gold-copper concentrates from our gold mine. The first shipment of
  500tons was sent out in October 2009. The Company has been exporting
  gold-copper concentrates on a regular basis and, at the same time,
  continue with production and export of gold dore as before.

  The Company looks forward to improving its gold production potential
  and concentrating on developing and putting into production its tin
  reserve areas while, at the same time, watching for the right time to
  develop its land-bank holdings in Phuket and Bangkok. With the
  beginning of it’s next one hundred year journey, TongkahHarbour Public
  Company Limited and it’s subsidiaries will continue focusing on the
  mining business.

3.2 BUSINESS OPERATIONS OF THE COMPANY & GROUP

  Business Type :Mining Operation

  Igneous Rock Mining : Igneous rock mining (Andesite) currently in
  operation at KaengKhoi, Saraburi Province, Thailand. Surveyed
  resources are about 12 M tons and open to depth and laterally
  indicating a further 15 M tons. Operating under a 10-year mining
  license granted on May 1999, and a second ten-year mining application
  granted in 2003. 100% owned by THL.

  Land Holding : Phuket : two parcels total 22 Rai 1 Ngan 49.1 sq. wah
  (35,796.4 sq. m.) located on sea front with potential for development.
  100% owned by THL.

72.10% Business Type: Rock Crushing

  Crushing plant operator at the igneous rock quarry.

  72.10% owned by THL with remaining shares held by CPB Equity Co.,Ltd.
  (a subsidiary of the Crown Property Bureau), the Ministry of Finance,
  and others.

98.86% Business Type: Gold Exploration and Mining

  Gold Mining, Block 4 concession, Loei Province, Thailand. Six
  applications of the first batch were approved in January 2003. The
  mining licenses are valid for a 25-year term. Resources: 4.49 M tons
  at 4.14 g/t gold. Open pit operation with resource base open laterally
  and to depth.

75.00%

Business Type: Property Development

In Bangkok : a 75% holding in SCL, which owns a 3 rai 1 ngan 61.9 sqwah
(5,447.60 sq m) of land on Ratchadapisek Road. Sky Cliff plans to
develop a 29 storey office and service apartments. The site is
strategically located near the Phra Ram 9 subway station entrance, Rama
III expressway and motorway entrances leading to the Suvarnabhumi
airport.

99.99% Business Type: Offshore Tin Mining

  In Phuket: Company owns 99.99% in SML. Application has been filed for
  a lease area of 50,000 rai with minable resources of about 64,320
  tons, cutoff at 0.10 kg/cu m. Verification studies pending.

  Subsequently, the company increased its capital through shareholders’
  meeting in February 2007, to Baht 288 million from Baht72 million.

3.3 Revenue Structure

The group’s revenue was generated from its core businesses, which are
gold mining, andesite aggregate production and interest income from
banks and financial institutions.

The Group’s revenue was

+--------+-------------+-------+------+-------+------+-------+------+
|        |   Operated  |   Re  |      |       |      |       |      |
| Nature |   by        | venue |      |       |      |       |      |
|   of   |             |       |      |       |      |       |      |
|        |             |  Stru |      |       |      |       |      |
| Income |             | cture |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|        |             |       |      |       |      |       |      |
|        |             |  2010 |      |  2009 |      |  2008 |      |
+--------+-------------+-------+------+-------+------+-------+------+
|        |             |       |   %  |       |   %  |       |   %  |
|        |             |  Baht |      |  Baht |      |  Baht |      |
|        |             |   mi  |      |   mi  |      |   mi  |      |
|        |             | llion |      | llion |      | llion |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   1.   |             |       |      |       |      |       |      |
|   R    |             |       |      |       |      |       |      |
| evenue |             |       |      |       |      |       |      |
|   from |             |       |      |       |      |       |      |
|   sale |             |       |      |       |      |       |      |
|   of   |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   Gold |   Tungkum   |   8   |   8  |   3   |   8  |   8   |   8  |
|        |   Limited   | 37.18 | 3.03 | 98.95 | 3.76 | 81.42 | 9.90 |
|  Sales |   (TKL)     |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|        |   Tungkum   |   1   |   1  |       |      |   -   |   -  |
| Copper |   Limited   | 09.49 | 0.86 | 21.49 | 4.51 |       |      |
|        |   (TKL)     |       |      |       |      |       |      |
|  Sales |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   An   |   Ton       |       |      |       |      |       |      |
| desite | gkahHarbour |  5.61 | 0.56 |  8.04 | 1.69 |  4.63 | 0.47 |
|        |   Public    |       |      |       |      |       |      |
|  Sales |   Company   |       |      |       |      |       |      |
|        |   Limited   |       |      |       |      |       |      |
|        |   (THL) and |       |      |       |      |       |      |
|        |   Cholsin   |       |      |       |      |       |      |
|        |   Limited   |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   Tin  |   THL       |   -   |   -  |   -   |   -  |   -   |   -  |
|   Ore  |             |       |      |       |      |       |      |
|        |             |       |      |       |      |       |      |
|  Sales |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   2.   |             |       |      |       |      |       |      |
|        |             |       |      |       |      |       |      |
|  Other |             |       |      |       |      |       |      |
|        |             |       |      |       |      |       |      |
| Income |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   Gain |   THL       |   -   |   -  |   -   |   -  |       |      |
|   on   |             |       |      |       |      | 77.90 | 7.95 |
|   sale |             |       |      |       |      |       |      |
|   of   |             |       |      |       |      |       |      |
|        |             |       |      |       |      |       |      |
| Assets |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   Gain |   TKL       |       |      |       |      |   -   |   -  |
|   on   |             | 50.49 | 5.01 | 45.36 | 9.52 |       |      |
|   ex   |             |       |      |       |      |       |      |
| change |             |       |      |       |      |       |      |
|   rate |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|   In   |   Group of  |       |      |       |      |       |      |
| terest |   companies |  5.48 | 0.54 |  2.45 | 0.52 | 16.46 | 1.68 |
|        |             |       |      |       |      |       |      |
| Income |             |       |      |       |      |       |      |
|   and  |             |       |      |       |      |       |      |
|   O    |             |       |      |       |      |       |      |
| thers  |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+
|        |             |   1,0 |   10 |   4   |   10 |   9   |   10 |
|  Total |             | 08.25 | 0.00 | 76.29 | 0.00 | 80.41 | 0.00 |
|   R    |             |       |      |       |      |       |      |
| evenue |             |       |      |       |      |       |      |
+--------+-------------+-------+------+-------+------+-------+------+