STOCK EXCHANGE ANNOUNCEMENT
Dated: 29 November 2002

Managing Director's Address to AGM
Ladies and gentlemen

When I joined Magnesium International one of the first things I did, in early September, was make a public presentation of the status of the SAMAG project and identified three major tasks remaining before we could reach Financial Close on the Project. These were finalising Government support, completing debt arrangements and raising equity funding. I will complete my address by dealing with those matters, but would firstly like to talk about the Magnesium market and about further progress we have made in areas other than these three matters. I will assume however that most of you will have read the Annual Report and will try not to repeat recapitulate my address therein.

The market for magnesium saw high growth throughout the 1990’s and currently demand approximates 400ktpa. Magnesium grew at nearly 6% through this period compared to aluminium at 4%. To put this in context however, 4% growth in aluminium is nearly 1Mtpa, while 6% for magnesium is 20ktpa. Growth of magnesium usage in the 2001 and 2002 years has been below the 6% rate in line with the slowdown in usage in all metals during this period of low global economic growth. This slowdown is not considered to be a trend change and forecast growth to 2015 is 6.8% pa, with the major driver being the diecasting sector. By 2015, this suggests that the Western world will require another 470kt of production capacity, so a significant opportunity exists for a new producer.

The strong growth in magnesium usages in the 1990’s was built on the back of a stable Western world supply base. Dow and Norsk, with combined capacity of 140ktpa, were the major suppliers to the market. Users could rely on getting the quality of magnesium required in the quantities needed, when they needed it. The supply side has changed considerably since 1999, with several plant closures in the Western world and the emergence of the Chinese as a major supplier to some sectors of the global market. Dow shut its own plants in 1998 after two major weather events and has exited the industry. Norsk has shut one of its two smelters. Our company has acquired world rights to the Dow technology for the SAMAG Project.

There are now only four smelters in operation in the Western World and all of them use different technology from Dow/ SAMAG. Three of these (US Mag; Norsk Becancour, Quebec; DSM, Israel), with combined capacity of 115ktpa, are currently generating positive cash flow. They use commercially proven technology but none are low cost producers. The fourth smelter, Magnola in Quebec, uses Alcan technology. It has been in its commissioning phase for two years, is not expected to reach anywhere near its original design capacity and must have sorely tested the patience of Noranda’s shareholders. As we all know, a new smelter is currently being developed in Queensland. This smelter also uses Alcan technology. There are two smelters in Russia currently producing 35ktpa in total. By way of contrast our SAMAG Project will use the long established and commercially proven Dow technology and in consequence has no technology risk.

The Chinese industry consists of a large number of non-electrolytic smelters. Many of these are small-scale marginal producers. Their sales are controlled by a large number of sellers’ agents. Western diecasters, especially those making quality-approved auto components, have chosen not to rely on the Chinese smelters to produce the quality material they need and are not expected to change their buying patterns in the future, ie they will buy mainly from Western electrolytic producers. These conclusions have been reinforced by new reviews of the Chinese industry completed in September, 2002.

Magnesium usage can be grouped into two sectors. First you have the low value add, low growth sector comprising the steel desulphurisation and aluminium alloying markets. These are competitive sectors where prices have come off in recent years. Quality and reliability of supply are not so important and a lot of the magnesium used is sourced from China. This market is tending towards terminal commodity pricing and depending on the application is subject to the world commodity cycle and stiff competition from other materials. Even here, however, prices are rising again and inventories are at all time lows.

The second sector, which is the one which is relevant to SAMAG, is high growth and high value add. In this market, die casters source high quality alloys from reliable supply sources in the Western World. For these users Magnesium metal is the only metal that can provide them with what they want. Users sign up for long-term contracts known as offtake agreements in large quantities. This market is not depressed and it is far from a terminal commodity market. As noted previously, Chinese penetration into this sector is minimal. Our German offtake partner, ThyssenKrupp Metallurgie (TKM), would not consider Chinese suppliers for the markets it intends to service. It is noteworthy that a number of new uses for magnesium are emerging in this sector in addition to diecasting. We believe that the R&D put into magnesium alloy sheet and extrusions over recent years, for example, will see important new magnesium applications emerge in the near future.

Overall, then, we believe that the market presents a real opportunity for a reliable supplier, just like Dow but with a big difference - We will be beat Dow’s operating cost by more than a third. Our Bankable Feasibility Study forecasts our operating cost at 59US cents per pound.

Leaving the market for now, the foundations on which our project is built are:

• The Australian advantage,
• Dow technology,
• Our 100% offtake agreement with ThyssenKrupp Metallurgie, and
• Our EPC arrangements with Thiess

The first of these is becoming increasingly important given recent unsettling events around the world. Australia is a safe place to invest and our workforce is skilled and quality conscious. We also have a low-cost structure expressed in US dollar terms which ensures that we will be a low-cost producer of magnesium for a very long time to come. The major element of our operating cost is power and we have now locked in low long term power costs by formally signing our 15 year contract with NRG last month.

The Dow technology for magnesium production has produced more magnesium, by far, than any other process. It is reliable, flexible and low-cost. Plants using Dow technology have commissioned smoothly and reached full operating capacity quickly. This is because they are relatively simple, which is certainly not the case with other technologies. For example we don’t have a number of processes that others have, with only one process loop rather than three or four. We have continued our liaison with Dow and over the last few months have been negotiating to vary our base agreement by making it royalty based rather than lump sum payment based.

ThyssenKrupp, our strategic partner, is one of the largest global metals companies. TK is determined to obtain our metal and believes, as do we, that we can quickly establish a position as a world leader in this industry – a position which Dow had built up while their plants were operating. ThyssenKrupp is active in R&D for magnesium as well and is developing new applications for the metal in several of their operating entities. In the last few months, TKM has reiterated its keenness to support MIL by extending the starting date of our agreement. They have actively assisted us in attracting two major debt banks to the project and have hosted the Premier of South Australia on his recent trip to Europe.

Our EPC arrangements with Thiess have moved towards completion of a formal contract for construction of the SAMAG plant. We have shaken hands on a price for the plant and we expect to announce details of this next week. We have also agreed on the method we will use to determine how variations in scope can be costed if they occur. This second agreement is important because we are currently examining opportunities for variation in the construction schedule to reduce the amount of equity required to get the project started. We should be in a position to issue a progress report on this before the end of the year. I would like to add that the price we have reached with Thiess has been achieved on an open book basis, so we are confident that it is a fair price as well. Our basic engineering package is complete and is ready to hand over to Thiess on Financial close. It is very advantageous to be able to go into a major development such as this smelter knowing that you can bank on the cost of the job - before you start the fund raising – so you can give equity investors a good idea of prospective returns at the time of their investment.

We have also been working on other areas, mainly to examine the significant opportunities to improve on the operating cost forecasts we have made in our BFS. We estimate that we will be able to drive operating costs down by over 10% from the BFS cost forecast over a two to three year period after startup. This would significantly improve our long term profitability.

One of these cost reduction opportunities is provided by the discovery of magnesite ore nearby to our smelter site. Our present plans include mining at Leigh Creek, some 250 km north of the smelter site, and railing ore to Pt Pirie. The local discovery is being evaluated at present as a short-term possibility to defer commissioning the Leigh Creek deposits. This would reduce initial capital expenditure and lower operating costs.

Other opportunities for cost reductions come with the Dow technology. When Dow ceased production in 1998 they had conducted a considerable amount of R&D which had not been implemented. We have acquired all of this R&D work and are confident that we will be able to incorporate much of it into the project after we start operating.

Now on to the three major tasks remaining – Government, debt and equity.

Shareholders will be aware that the Project has attracted significant support from the South Australian Government, which has agreed to provide $25 million towards the provision of multi-user infrastructure at a new industrial park at Port Pirie. The SAMAG smelter will be built on this park site and we are very appreciative of this support. The operating model for the park has been the subject of significant effort in the past few months.

With respect to the Federal Government, we lodged our submission requesting support in October. Federal Government support is valuable in its own right but also gives confidence to the potential equity investors who are needed to make long-term investments such as SAMAG. The assistance requested is in the form of a construction overrun facility. This is required by debt providers and would otherwise have to be provided from equity. We have been in discussions with the Government continuously since the lodgement and expect to know the outcome before the end of this year.

Considerable progress has been made on the debt side. There is significant interest and debt capacity in the market for the SAMAG project because of its low risk profile. The TKM offtake agreement, for example, guarantees a minimum price which covers all operating costs plus principal and interest payments on senior debt. We are currently in the negotiation phase with several major banks and announced recently that four separate providers will tender to become lead arrangers for senior debt and two for mezzanine debt. The Information Memorandum for debt is complete except for the section on equity and we have circulated it on a limited basis. The Independent Engineer for the debt providers, Behre Dolbear Australia, has confirmed the results of our Bankable Feasibility Study as part of the preparation of the Information Memorandum.

With respect to equity, we stated in September that locking in strategic investors was desirable before we proceed with our own equity raising on market. Several major companies are currently undertaking due diligence on the project and we are reasonably confident of some commitments over the next few months. This process is understandably time consuming and difficult, given the current state of the equity markets in general and that magnesium is a relatively new industry to investors

So looking forward to the future and summarising.

By the end of this year we expect to have Government commitments finalised and to have at least one equity partner or cornerstone investor announced. Due diligence by debt banks and insurance providers should then be able to proceed in January/ February and debt commitments can be finalised soon thereafter. Assuming that the equity market is giving us sufficient confidence we are targeting coming to the market in the middle of 2003. This would allow us to commence operation before the end of 2005. This is ambitious but I believe we can achieve it.

Before I hand back to the Chairman, I would like to reiterate SAMAG’s strengths.

This is a low risk project. It has extremely well defined capital and operating cost structures, it will use tried and proven technology and we already have one of the world’s largest companies signed up to buy all the output. It is environmentally safe, will contribute to a reduction in global greenhouse gas emissions and has the strong support of the South Australian Government and the local community in Port Pirie.

As a long term business it is hard to beat – there is a growing market and we have enough resource to last for hundreds of years. Our project should become the lowest total cost electrolytic magnesium smelter in the world and will certainly not be beaten for reliability and quality of production.

As a financial investment it is attractive, with a 15% real after tax internal rate of return, and a significant net present value at over $750 million using a 10% discount factor. We have already identified cost improvement opportunities and ready expansion potential to give it further upside.

The SAMAG Project deserves to be built. Your company has cleared virtually all of the hurdles and is ready for the challenge of construction and the many years of successful operation that lie before it.

Thank you ladies and gentlemen.

CHAIRMAN

Thank you, Gordon

Before I finish, I would like to thank a few people. High on this list are the many South Australians who want this Project to happen, from the Premier, Mr Mike Rann to the many government people who have helped us get this far. Already 800 people have registered with the Port Pirie Regional Development Board for a job at the smelter. We particularly thank members of that Board and the Port Pirie Council. Without your continuing efforts the progress we have made would have been very difficult indeed. We hope to be able to deliver an exciting new development for you in the next year.

I would also like to thank our staff involved with the project. They have worked through the many complex issues with diligence and skill and have come up with many innovative solutions to project issues as they have arisen.

Lastly I would like to thank our shareholders for your support and persistence. It is always difficult for a small company to commence a major, capital intensive greenfields resource project and in this market it is even more challenging. Notwithstanding, you have contributed around $50 million to this task and we are nearing the finish line. This time next year I hope to be standing here telling you of progress with construction of this very important, and very worthwhile Australian project.

Ladies and gentlemen, for Australia to establish a world class magnesium industry, we truly believe that the next step is Magnesium International’s SAMAG smelter.

Thank you ladies and gentlemen. I would now like to ask if there are any questions and we will do our best to answer them.

For further information:

Gordon Galt
Managing Director

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.