Queensland Bauxite Ltd: Company Transformation Announcement

Sydney - The Board of Queensland Bauxite Ltd. (ASX:QBL) (the "Company") is excited to announce that the Company and its subsidiary, Medical Cannabis Limited ("MCL") have entered into a legally binding heads of agreement to acquire a 100% interest in Medcan Australia Pty Ltd ("Medcan") ("Medcan HOA"). Medcan is the holder of an Office of Drug Control ("ODC") Medical Cannabis Production License (Australian Cultivation & Production Licence) with an experienced management and production team with a contract to supply already in place, which enables the MCL group to legally grow and cultivate high THC and CBD medicinal cannabis products in Australia to supply the new Australian and the burgeoning global markets.

PART ONE - THE ACQUISITION OF 100% OF MEDCAN AUSTRALIA PTY LTD BY QBL

HIGHLIGHTS

- QBL has entered into a legally binding heads of agreement to acquire a 100% stake in medical Cannabis company 'Medcan Australia Pty Ltd'

- Medcan has an ODC Medical Cannabis Production License to legally cultivate and produce high THC / CBD chemovars and cultivars to make medicinal Cannabis products in Australia

- MCL now has access to an ODC medicinal cannabis production license which will enable value maximisation of MCL's established seed bank, unique cannabis genetics and medical cannabis distribution divisions

- MCL is now able to complete its second locally vertically integrated business from 'seed to consumer' in medicinal cannabis. MCL is the only Medicinal Cannabis company in Australia with two complete fully vertically integrated businesses: Nutritional Hemp and Medicinal Cannabis

- Medcan's ODC license assists to realise MCL's vision to be able to be a supplier of the highest Australian quality, GMP standard, high THC/CBD medical cannabis and other formulations of medicinal cannabis

- Medcan's ODC license assists MCL to realize and fulfil its aim to cultivate medical Cannabis in Australia and manufacture its own GMP pharmaceuticals, nutraceuticals and therapeutics for distribution and sale to the Australian market and international export market, with the potential to return significant revenues for MCL

- Medcan has achieved a DA approval for a detailed planned 'state of the art' Cannabis cultivation and production facility. QBL will invest the funds required to complete to maximum capacity, the pharmaceutical grade centre, fully staffed for cultivation and production of high THC/CBD medicinal Cannabis products.

Material Milestone

The Directors of Queensland Bauxite Ltd. view this acquisition as significant for the Company as it marks a material milestone for MCL and completes the journey of fully integrating MCL's medical division, confirming MCL firmly as a leader in the Australian and Global Cannabis industry.

Medcan identified the prospect of securing an ODC licence pursuant to the Narcotics Drugs Act 1967 to enable it to legally cultivate and produce medicinal Cannabis products and in November 2017 was granted an Australian Cultivation & Production Licence. Medcan was one of the first medical Cannabis companies to receive an ODC MC license pursuant to the recent legislation changes.

The Directors of MCL are very excited to have Medcan's directors join MCL's medical cannabis team, as they will add their extensive technical expertise to the MCL team.

Medicinal Cannabis 'State of the Art' production facility

Medcan, after working extensively with local council, have secured a DA approved facility to allow the GMP production of medicinal cannabis products. This highly secure facility will have the ability to produce medicinal Cannabis dried flower, full extract oil, tinctures, capsules and the CannTab XR pill, amongst other products.

The Medcan facility, will utilise the latest 'state of the art' automated cultivation techniques allowing complete control of the growing environment. Through climate control systems monitoring temperature, humidity, CO2 levels and ATP, and advanced nutrient delivery systems reducing the error rate of manual watering, the facility will provide controlled, reproducible conditions optimising the ability to provide the highest level of Medicinal Cannabis product for both the Australian and International market. The facility is intended to begin operations by year end.

Medcan's professional management team retained by QBL

Medcan was founded by its directors Craig Cochran and Gareth Ball. Craig and Gareth are well respected experts in the Medicinal Cannabis industry. They have worked in both Australia and Canada and have broad and extensive knowledge of the Cannabis plant and will be continuing as executive directors of Medcan to drive the company forward.

Craig Cochran is an early mover in the Australian and International Medicinal Cannabis industry, Craig has an in-depth knowledge and understanding of current Australian and global legislation, licensing and regulation. With a focus on patient access, Craig has dedicated years to understanding the needs of individual patients. With a network of contacts through Australia, Canada, Europe and the USA, Craig has an ear to the ground understanding of both local and international Medicinal Cannabis market trends, business models and access pathways.

Gareth Ball is an enthusiastic cannabis advocate and is passionate about bringing much-needed medicine to the people who need it so they can improve their quality of life. Gareth is highly skilled in contract negotiations, inventory management, yield maximization, business operations, business to business sales and commercial management. He will use his 20 years of sales and marketing experience to drive the business forward.

Vertically integrated strategy

MCL management believe this vertically integrated model is a major competitive advantage for MCL in the Australian market. It allows the best value to be obtained from our own lawful recognised seed bank of over 25 varieties of unique cultivars, chemovars and genetics legally developed over two decades. This acquisition also allows the ability to produce cannabinoids, refined concentrates and isolates for the scientific and research communities, both locally in Australia and overseas. MCL already has exclusivity to produce and distribute the GMP, pharmaceutical grade, CannTab extended release pain relief pill in Australia and Asia.

Medcan is currently in negotiations to manufacture a number of other products for Licensed Producers (LP's) of Medical Cannabis.

MCL has also been approached by overseas manufacturers to be their supplier of choice.

This acquisition would enable the supply of Australian produced medicinal cannabis products in world markets.

Material terms of Medcan acquisition

As noted above, the Company and MCL have entered into a legally binding heads of agreement with all other shareholders of Medcan, being Craig Cochran and Gareth Ball ("Medcan Shareholders"), to acquire, subject to conditions, 100% of the shares in Medcan held by them, as well as 100% of the issued units in the Medcan Australia Unit Trust ("Trust"), currently held by Cochran Industries Pty Ltd as trustee for the Innacovenant Family Trust, an entity controlled by Craig Cochran, and Gareth Ball ("Unitholders") (together with the Shareholders, the "Vendors"). Medcan is currently the trustee of the Trust.

The acquisition of Medcan is subject to the following material terms and conditions:

- Conditions: The acquisition of Medcan is subject to obtaining all necessary shareholder, regulatory and third-party approvals pursuant to the ASX listing rules and the Corporations Act 2001 (Cth) to allow the Company to lawfully complete the acquisition, and ASX providing a letter of approval for QBL shares to be re-instated to trading on ASX, on conditions acceptable to QBL (Conditions). If the Conditions are not satisfied or waived by 31 August 2018, the parties may terminate the Medcan HOA by written notice to each other.

- Consideration: The consideration payable to the Vendors for the acquisition of their Medcan shares and units in the Trust will be satisfied through the issue of 250 million QBL shares, in proportion to their share and unit holdings. Upon completion of the acquisition, and the Company's proposed acquisition of MCL, this will represent an approximate 8% shareholding in the final merged entity (see part two of this announcement for further detail).

- Management contracts: The parties have agreed to negotiate arm's length management contracts for Craig Cochran and Gareth Ball for the first two years following settlement. The remuneration for the management contracts will, subject to QBL seeking the appropriate ASX waivers, include quarterly issues of QBL shares (1.25 million for Craig Cochran and 1 million for Gareth Ball) for the first two years following settlement, but with the inclusion of CPI in year 2. Medcan will also agree to pay a performance bonus to these parties (divided pro-rata) of 10% of Medcan's net profit, less the remuneration already received as salary. QBL has agreed to guarantee these obligations of Medcan for the first two years post settlement.

- Settlement: Settlement of the acquisition is expected to occur within 5 business days following satisfaction of the Conditions. MCL has been nominated by the Company (as purchaser) to hold the shares and units acquired from the Vendors. On completion of the acquisition, Medcan will be 100% owned by MCL and become its wholly owned subsidiary.

The board believes this deal represents significant material value for QBL shareholders, with the company able to implement cost and revenue synergies on multiple fronts. MCL was able to achieve favourable terms given the clear and executable revenue and cost synergies that both parties will benefit from.

This acquisition of Medcan, and associated acquisition of MCL (see part two of this announcement), is subject to QBL shareholder approval due to, among other things, the proposed change to the nature of the Company's activities. Approval will be sought at a general meeting of QBL shareholders, expected to be called next month.

The directors of QBL have spoken to the largest shareholders of QBL and are confident that these vital acquisitions have the support of QBL's largest shareholders. All the directors of QBL and MCL unanimously approve and recommend these acquisitions for the benefit of all QBL and MCL shareholders.

A huge milestone achieved for MCL

Andrew Kavasilas, Founding Director of MCL stated, "With Medcan integrated into the broader MCL group, we intend to produce high CBD and other THC rich variations of Medicinal Cannabis, as well as other cannabinoid variations to be used in research to manufacture patient specific products in accordance with the existing legislative framework. This is another step forward for patient access in Australia and globally, with patients to have direct access to legally produced Australian GMP Manufactured products of the highest standard and quality control."

Pnina Feldman, Executive Chairperson of QBL concludes, "The value of MCL and Medcan combined is greater than the sum of the individual businesses. Both parties achieve value uplift with clear and deliverable synergies - MCL has access to an ODC license and a DA approval for a state of the art cannabis cultivation and production facility, and the Medcan staff having the ability to improve and fast track its market reach and its grow of Cannabis, given access to MCL's genetics and its unique lawful Australian seed bank, MCL's knowledge, contacts, expertise and international reach, and together with QBL, ready access to the capital markets. Medcan's experienced management, their expertise, motivation and dedication, will enhance the broader success of MCL. MCL, with this acquisition, is now able to fulfil its vision to become a fully vertically integrated Cannabis company with the ability to develop its own products and to produce for patients much needed product to the highest standard. This should ensure the generation of further significant short term revenues for the Company as we continue to implement our business plan."

PART TWO - QBL ACQUIRES 100% OF MEDICAL CANNABIS LIMITED
THE MERGER OF MCL AND QBL

Acquisition of MCL

With due consideration given to the QBL (mining) and MCL (Cannabis/hemp) investors, and as a direct result of the MedCAN transaction, the Board of QBL has elected not to float MCL but to obtain approval from QBL's shareholders at a general meeting (pursuant to Listing Rule 11.1.2) to purchase the remaining 45% of MCL and completely incorporate MCL into QBL for the benefit of all QBL shareholders.

The Directors of QBL are confident after discussion with major shareholders, that this significant merger will be approved by shareholders. By purchasing 100% of MCL and merging MCL into QBL, all QBL shareholders will have the value of not only existing QBL current projects, but will also have full value of MCL and all its burgeoning activities and potential profits, as the hemp and medicinal cannabis industries develop from infancy to fruition worldwide.

It has been determined by the Directors of QBL that it is preferable for all current QBL shareholders to have the benefit of QBL owning 100% of MCL, rather than MCL floating separately and QBL potentially losing the bulk of the value of MCL.

Material terms of MCL acquisition

The Company has entered into a binding heads of agreement with MCL and MCL's major shareholders ("MCL Shareholders") to make offers to acquire, subject to conditions, the balance of 45% of MCL ("MCL Shares").

The acquisition of MCL is subject to the following material terms and conditions:

Conditions: The acquisition of MCL is subject to the following conditions:

o QBL receiving acceptances under the Offer (which as above has already been agreed by the major shareholders of MCL to provide) that give it a relevant interest in at least 90% of all of the MCL shares on issue on a fully diluted basis to enable it to achieve 100% by compulsory acquisition;

o QBL obtaining all necessary shareholder, regulatory and third-party approvals pursuant to the ASX listing rules and the Corporations Act 2001 (Cth) to allow the Company to lawfully complete the acquisition;

o QBL entering into a binding agreement to acquire 100% of Medcan (which as above has already been entered into); and

o ASX providing a letter of approval for QBL shares to be re-instated to trading on ASX, on conditions acceptable to QBL, (together the "MCL Conditions"). If the MCL Conditions are not satisfied or waived within 6 months of the MCL HOA being executed, the parties may terminate the MCL HOA by written notice to each other.

- Consideration: The consideration payable to MCL Shareholders for their MCL shares is a total of 1,195,000,000 QBL shares. The value of the consideration payable has been determined by the parties to the MCL HOA with reference to the value attributed to MCL through QBL's trading price.

- Acceptance of Offer: The Major Shareholders, who together hold 38% of the total MCL shares on issue, have covenanted in favour of QBL that they will accept the offer made by QBL to acquire their MCL shares and sign all documentation, including restriction agreements as required by ASX, to complete the acquisition of their MCL Shares.

Pursuant to the ASX listing rules, nearly all of the new QBL shares issued to MCL Shareholders, will be subject to a 24-month escrow period.

Change to nature of activities and QBL shareholder approval

As a result of these significant transactions causing a change in scale and nature of QBL's activities, the Company pursuant to listing rule 11.1.3 will re-comply with Chapters 1 and 2 of the Listing Rules.

The issue of QBL shares in consideration for the acquisition of MCL shares will also require QBL shareholder approval. As noted above, the Directors of QBL anticipate after discussion with the major QBL shareholders that this approval will be forthcoming.

Capital raising

To assist the Company to re-comply with Chapters 1 and 2 of the Listing Rules and support the Medcan and MCL acquisition costs, the Company plans, subject to the approval of the Company's shareholders, to conduct a capital raising under a prospectus to raise up to $5 million, at a price of 8 cents per share.

The directors of QBL have determined that QBL shareholders will have the exclusive right to participate in this raising by way of a priority offer. The capital raising will further enable the merged entity to implement its growth objectives.

Currently no fees have been agreed to be paid by QBL to any person for finding, arranging or facilitating the proposed acquisitions of MCL and Medcan. It is expected that fees may be payable to third parties as part of the capital raising on ordinary commercial terms.

- THERE IS NO REQUIREMENT FOR A CONSOLIDATION OF THE COMPANIES SECURITIES.

- The directors have no current intention to request a consolidation of QBL's securities.

Company Overview and Business Model, including MCL and Medcan

Following the integration of Medcan and MCL into QBL, QBL will be comprised of two separate operating divisions, Mining and Cannabis.

Cannabis

MCL has a clearly defined focus in the industrial hemp and medical cannabis industries.

The inclusion of Medcan into MCL will see the creation of local Australian Cannabis Production facilities. Further, the production facilities are expected to generate income near term, in 2H 2018. This completes the vertical integration for both the nutritional hemp and medical cannabis divisions.

To view the full release with figures, please visit:
http://abnnewswire.net/lnk/7D7404Z1

About Queensland Bauxite Ltd:

Queensland Bauxite Ltd. (ASX:QBL) is an Australian listed company focused on the exploration and development of its bauxite tenements in Queensland and New South Wales. The Company's lead project is the South Johnstone Bauxite Deposit in northern Queensland which has rail running through the project area and is approximately 15-24 kilometres from the nearest deep water port. The Company intends to become a bauxite producer with a focus on commencing production at South Johnstone as early as possible. The Company also pursues additional investment opportunities, and has acquired a 55% shareholding in Medical Cannabis Limited, an Australian leader in the hemp and Cannabis industries.



Contact:

Queensland Bauxite Ltd.
Tel: +61-2-9291-9000
For further information or any queries please email the Company at:
sfeldman@queenslandbauxite.com.au

For all Media enquiries please email the Company at:
media@queenslandbauxite.com