STOCK EXCHANGE ANNOUNCEMENT
Dated: 25 February 2003

MAGNESIUM INTERNATIONAL LIMITED SAMAG SMELTER PROJECT

Magnesium International has completed a strategic review of its SAMAG magnesium smelter project. Highlights of the review are as follows:

• SAMAG smelter capacity will increase by 18% to 84,000 tonnes per annum
• The smelter will be constructed and funded in two modules to maximise shareholder returns
• Module One (41,000 tpa) will cost an estimated A$683 million. Equity requirement is A$230m (was A$330m)
• Operating cash cost estimated at 57 US c/lb at exchange rate of 0.60 (was 59 US c/lb at exchange rate of 0.55)
• Robust project economics confirmed

MAGNESIUM INTERNATIONAL LIMITED

SAMAG Smelter Capacity increases 18% to 84,000 tonnes of magnesium per annum

Two module strategy identified as most effective approach to maximise shareholder returns

Magnesium International Limited (ASX: MIL) announces that the planned production capacity of its SAMAG Magnesium smelter project will increase to 84,000 tonnes per annum (tpa) of magnesium metal.

The new capacity of the smelter, which is to be built near Port Pirie in South Australia, is 18% higher than the previous figure of 71,000tpa.

MIL Managing Director, Mr Gordon Galt, said the increased capacity is the principal result of a three month extensive project review, “to determine the most effective project construction approach that maximises economic returns for shareholders.”

“ The extra tonnage will come from additional electrolysis cells and re-sizing of some process equipment,” he said.

Smelter to be built in two modules

The review also concluded that MIL should vary the construction schedule and build the smelter in two modules. The first module (41,000tpa capacity) will begin its commissioning 27 months after Financial Close. Work on Module 2 will commence once Module 1 reaches full capacity.

Mr Galt said the new construction schedule, which will extend the date for final project completion by 11 months, will deliver significant benefits to shareholders.

” The new schedule has the dual advantages of improving project economics and providing us with the ability to pursue an innovative and less demanding funding strategy. This strategy reduces the equity requirement and minimises the dilution of existing shareholders.

“ We have incorporated these matters into a revised Bankable Feasibility Study (BFS) which was approved by Directors yesterday.

“ Our construction partner, Thiess Ltd, has reviewed the construction strategy and provided a new cost estimate for engineering, procurement and construction of the smelter.

Mr Galt noted that MIL owns exclusive worldwide rights to the Dow process, the most proven electrolytic magnesium smelting process in the history of magnesium production, and added that “our ability to accommodate this new schedule is due to the modular nature of the Dow magnesium process technology. This proven process provides Western world producers with the opportunity to compete effectively in the magnesium market. Not only can the process reliably produce low cost metal now, it still has significant opportunities to drive costs down further through future productivity improvements” he said.

With the increased capacity, cash operating cost at full capacity has been reduced from US59c/lb (at A$/US$ of 0.55) to US57c/lb (at A$/US$ of 0.60). In A$ terms, this new strategy has reduced cash operating costs by 12%. At this level SAMAG’s operating costs will be near the bottom of the global cost curve.

Project Economics

In its examination of the economics of the new strategy, MIL has revised its long term price assumption and foreign exchange assumptions to current levels.

Mr Galt said “The new strategy forecasts excellent returns in keeping with previously reported levels despite our new assumptions for price and foreign exchange. We believe there is strong potential for returns to improve further when we make a number of operational improvements.

“ For instance, in the plant, we expect to be able to reduce costs by over 10% in the first years of operation by implementing research previously undertaken at Dow’s US site.

“ In addition, exploration we have recently completed on magnesite deposits near the smelter site has made us confident that we will be able to obtain good quality magnesite in sufficient quantities to satisfy the smelter’s ore requirements for several decades. Transport distance for our ore will be reduced from 230km to less than 20km, with major cost savings.”

Two Tranche Funding Strategy

A major advantage of employing a sequential construction schedule is that funding requirements can be met in two tranches.

SAMAG will raise A$683m to commence construction of Module 1. The estimated equity requirement is A$230m, well down on the previous estimate for equity of around A$330m.

Expenditure on the second module will not be undertaken until after Module 1 is completed, and the experience gained from building and commissioning the first module will allow lower contingencies for the second module.

Overall, the new funding strategy will deliver the project at lower cost with lower risk. Further details will be provided as they are agreed with the banking consortium.

Project Schedule

MIL has submitted the revised BFS to independent engineers Behre Dolbear Australia (BDA) acting for the project’s lending banks. After BDA provides its report, due diligence periods by the banks and others using the report will take until early May 2003.

MIL is continuing discussions with a number of parties who are potential strategic equity investors in the project.

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.