Red Sky Mining: Chairman's Letter to Shareholders

Red Sky released their Annual Report today and there's no doubt that what you and the group are doing is hurting them.....Here is the CHAIRMAN’S LETTER

Dear Shareholders,

 It has been a frustrating year for Red Sky Energy. By any measure the Company had a very successful two well exploration program in the Clarence Moreton Basin in  the :north east New South Wales.

A major new discovery was made in the shallow Kangaroo Creek Sandstones. In addition substantial coal seam gas reserves and resources were independently certified. However the value of these resources failed to show in the Company’s share price. In the Board’s view there are two main reasons for this; the highly volatile share market and the adverse publicity that coal seam gas has attracted.

 This year the share market has seen a large number of investors cash out their holdings for placing in term deposits. It is hoped the situation starts to reflect fundamentals soon. In the case of natural gas resources in Eastern Australia, the fundamentals are very strong.

 The emergence of five major LNG projects in Gladstone has created a huge new gas market, as well as a high price gas market because LNG contracts are linked to the global oil price. This means domestic gas prices are likely to rise strongly over the next few years. Some people are expecting gas prices to rise from about $5/GJ now to over $10/GJ assuming the oil price stays above or at current levels.

 This year we have also seen more consolidation, with Eastern Star Gas being acquired by Santos and Bow Energy being acquired by Arrow Energy (Shell). This is good news for Red Sky. It is evidence that the major companies developing the Gladstone LNG projects are seeking more gas for further expansion. This also means that gas is scarce for power companies looking to develop new gas fired power stations. Red Sky’s resources are well positioned to supply into the eastern Australia gas market.

 The adverse publicity that coal seam gas has attracted has had a significant impact on the Company. Permitting for new wells requires far more upfront planning, consultation and reporting of potential impacts, which adds to the cost of doing business and significantly increases the time to have work programs approved. Red Sky’s view is the industry produces minimal impacts on the environment, has been adequately regulated to date and new regulatory measures add no value. However Red Sky is prepared to work with the current arrangements as long as they provide a stable framework within which to do business.

 Red Sky is in the process of securing regulatory approvals for the proposed Talma pilot, to test the prospectivity of the Kangaroo Creek sandstone gas resource, and is excited about the potential results. We see this as a stepping stone to adding value to the Company andbeing able to further explore and appraise our high quality tenements.

 Gerrit J de Nys
 Non-Executive Chairman