STOCK EXCHANGE ANNOUNCEMENT
Open Briefing - Pima Mining CEO on Financial Projections

10 September 2002
corporatefile.com.au

Pima Mining NL recently announced that you had accepted the CEO position and that it had completed the Bankable Feasibility Study (BFS) for the SAMAG magnesium project. What changes in approach will the new management team take to getting the project commissioned?

CEO Gordon Galt

The first change is a matter of focus. There's been a lot of work on SAMAG over a long period and my immediate aim is to complete all the tasks others had started. We've completed and announced the results of the BFS and we've progressed the NRG power contract and the Engineering Procurement and Construction (EPC) contract to the stage where they're ready for signing within the next few weeks. Shareholders have also approved a change in the company’s name to Magnesium International Limited. We expect that ASIC will approve the use of this new name in October 2002.

Secondly, we want to clearly outline our plans to the market. This includes stating when the debt information memorandum will be in the market and what our proposed financing strategy will be. Our schedule sees us coming to the market for an equity raising in early 2003.

corporatefile.com.au

What investment returns and net present value does the project generate at the base case production rate of 71,000 tonnes per annum of magnesium metal (77,000 tonnes per annum including alloying metals)?

CEO Gordon Galt

On a 100 percent equity basis, SAMAG should generate an internal rate of return of 14.8 percent real after tax, a 5.6 year capital pay back and a net present value of $750 million using a 10 percent discount rate. Those returns are hard to match, particularly in a first world economy. We are now concentrating on convincing the equity market that the project is a good investment.

corporatefile.com.au

What operating and capital costs have you confirmed and where do they sit compared with world magnesium producers?

CEO Gordon Galt

We forecast operating costs of US$0.59 per pound at a US$0.55 exchange rate and assuming we produce at 71,000 tonnes a year. That will certainly place SAMAG in the lowest operating cost quartile for world magnesium producers.

We estimate capital expenditure of $760 million plus financing costs - or around $1 billion in total. On these bases, SAMAG will be the lowest total cost electrolytic producer of magnesium in the world.

corporatefile.com.au

A large proportion of the capital will consist of a fixed price EPC contract. What's the status of negotiating that contract?

CEO Gordon Galt

We've agreed all commercial terms with Thiess Limited, a wholly-owned subsidiary of Leighton Holdings. We expect to sign and execute the contract within the next few weeks. The contract contains process guarantees and liquidated damages allowances for a number of potential late delivery or slow ramp-up issues, which demonstrates the high level of confidence that Thiess have in their pricing.

corporatefile.com.au

You expect production to commence in Month 28 after financial close and reach 90 percent of capacity by Month 37 after financial close. When do you expect to achieve financial close, what mix of debt and equity do you assume and how much insurance is involved for SAMAG?

CEO Gordon Galt

The equity raising is the critical item and we expect to finalise that early in 2003. We expect funding to be in the proportion of approximately 70 percent debt and 30 percent equity, assuming the debt consists of both senior and mezzanine debt. That means our equity requirement will be in the range $250 million to $300 million.

We'll take out project insurance to guard against capital cost overruns and that will cover an amount of about $50 million.

corporatefile.com.au

Will Pima seek a partner for SAMAG?

CEO Gordon Galt

Yes. Our financing strategy includes introducing a partner or partners who would acquire anything between 40 percent and 60 percent of the project. Pima would prefer to retain as much of SAMAG as possible but we're equally keen to attract a quality partner.

corporatefile.com.au

What attracted you to Pima?

CEO Gordon Galt

First, I’m confident that the magnesium market has enormous potential. The requirement for a light, strong material for use in the auto sector is growing with the emphasis on improving fuel efficiency. The best way to realize this growth potential is to provide a reliable supply of quality metal at reasonable cost. Australia is uniquely placed to be the supplier country of choice in the next decade.

My career has centered on developing resource projects in Australia in coal and gold to date. I’m convinced that this sort of development is important to ensure we maintain our export base. SAMAG will be the tenth project in which I’ve played a significant developmental role starting as a design engineer and more recently as an industry executive. It is a challenge but it is one that deserves to succeed.

corporatefile.com.au

How will your skill set complement those of the recently appointed Chairman, David Karpin?

CEO Gordon Galt

Our skill sets both complement and reinforce one another. We both understand what's required to build successful resources projects. David has a wide set of contacts in the metals industries, whereas my career has been mostly in coal and gold. I have more direct operational and construction experience.

corporatefile.com.au

What risks do you see in SAMAG using the Dow process?

CEO Gordon Galt

The Dow process has operated successfully for over 60 years. We have inherited extensive documentation on the process, including a long operational history from the Dow plants, which operated right up to 1998. We understand what's required to get SAMAG into production, including potential problems we might encounter. Dow plants have enjoyed successful commissioning and ramp ups and we've got the benefit of having several ex-Dow employees now working on SAMAG. We don’t really see any process risks.

corporatefile.com.au

How many former Dow employees have been involved in the SAMAG project?

CEO Gordon Galt

We've had up to a dozen ex-Dow employees working during the design and BFS stage. They've been invaluable in terms of identifying process improvements. Although the Dow process is a proven technology, there's still room for improvement. To a certain extent the Dow employees were unable to implement changes in the old plants because magnesium metal production was never a core business for Dow and many of the improvements were never pursued.

corporatefile.com.au

Can you please outline the magnesium price assumed in the BFS and the details of the long-term off-take agreements with ThyssenKrupp Metallurgie (TKM)?

CEO Gordon Galt

We've assumed a magnesium alloy price of between US$1.30 and US$1.40 per pound as advised by CRU International. We've assumed lower prices in the BFS in the earlier years because we don't expect to penetrate all of the higher priced markets immediately.

The off-take agreement with TKM is for ten years plus an additional five years at our election. The agreement covers 100 percent of production and includes a basic price, which will cover all operating costs and the repayment of senior debt principal and interest, and a market price. I think it's an excellent off-take agreement, particularly when it's with a company of the quality of TKM.

corporatefile.com.au

What are the current and expected trends in world magnesium demand and supply growth?

CEO Gordon Galt

Primary shipments of magnesium metal in the western world reached 367,000 tonnes in 2000. Supply growth averaged just under 6 percent over 1993 to 2000. The strongest growth was in the diecasting sector and in the period 2000 to 2015 we expect diecasting to grow by 12.5 percent per annum. The second largest market for magnesium metal is in aluminium alloy and we expect that to grow by about 2 percent per annum. The other major use for magnesium metal is for de-sulphurisation in the steel making process where we expect consumption growth to be small. Overall, we expect magnesium demand to grow by around 6.8 percent per annum over 2000 to 2015.

corporatefile.com.au

Have you received all environmental, government and native title approvals to meet the production timetable?

CEO Gordon Galt

Yes but in addition we're seeking environmental approval for production of 85,000 tonnes per annum. That will also allow us to achieve incremental increases in production above the planned 71,000 tonnes per annum, which we expect to achieve through process improvements.

corporatefile.com.au

Where are you up to with Government support for SAMAG?

CEO Gordon Galt

The South Australian Government has announced their strong support and will contribute $25 million to the establishment of a multi-user industrial park in Port Pirie.

Discussions with the Federal Government are advanced. We will be making a formal submission to them in the next few weeks. Individual members of the Government have voiced strong support for the project as being very good for South Australia and for Australia.

corporatefile.com.au

Thank you Gordon.

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For previous Open Briefings by Pima Mining visit www.corporatefile.com.au

For further information on Pima Mining N.L. visit www.pima.com.au

In accordance with Australian Stock Exchange listing requirements, the geological information in this report has been based on information provided by geologists who are corporate members of the Australian Institute of Mining and Metallurgy or Australian Institute of Geoscientists and who have had in excess of 5 years experience in their field of activity.