STOCK EXCHANGE ANNOUNCEMENT
Dated: 30 June 2003

MEDIA RELEASE

The directors of Magnesium International Limited (MIL) wish to respond to recent enquiries from shareholders and other interested parties, about the effects on MIL of recent announcements by Australian Magnesium Corporation (AMC) regarding their Stanwell magnesium smelter. Questions have been asked as to whether MIL’s SAMAG project may suffer from the same problems which have befallen the Stanwell project.

This statement aims to set out clearly the important differences between SAMAG and Stanwell, to ensure that shareholders, and the market generally, are properly informed.

Why is Stanwell not proceeding?

No-one at MIL is privy to any information regarding AMC or its Stanwell project other than what has been made publicly available.

Fundamentally, the Stanwell project is currently unable to proceed because AMC and its contractors identified significant construction cost pressures which could not be met within the funding package available. AMC was unable to raise additional funds to bridge the shortfall.

AMC did not secure an Engineering, Procurement and Construction ( EPC) contract at a price low enough to enable the conditions precedent for senior debt lending facilities to be met and could not therefore draw down any senior debt. Development work stopped as the equity and other sources of funding were nearing exhaustion.

The reasons for the price increase are as yet unclear, but they are likely to be related to the fact that a new technology was being implemented at Stanwell.

Why should this not happen at SAMAG?

SAMAG will secure a fixed price EPC contract from Thiess Ltd. The value of this contract will be publicly stated. MIL will not raise equity for the construction phase of the SAMAG project until it has obtained a fixed price contract which demonstrates the economic viability of the SAMAG project.

Investors will know the fixed value of the contract for building the SAMAG smelter before they invest.

Unless there is a significant change in the project scope or there are extremely unusual events or unprecedented and unexpected increases in labour rates, taxes or the like, the “fixed” price cannot rise significantly.

The potential for scope change after completion of the SAMAG equity raising will be very limited. The SAMAG plant will be based on the design of the Dow plant in Texas which was, until 1998, the largest magnesium production facility in the world.

The SAMAG project utilises a conservative two stage construction strategy, designed to reduce the time taken to get into production and generate positive cash flow. Accordingly, the project has been changed from a big project to a “medium”-sized project, with considerable reduction in completion risk.

SAMAG will have a fixed EPC price with very limited potential for cost over run. This gives comfort to the lending banks that SAMAG will meet the conditions precedent necessary to draw down senior project debt.

Why will Thiess be willing to give a fixed price EPC contract for SAMAG?

Thiess has already offered a fixed price contract for the SAMAG project.

Thiess and MIL negotiated and published a fixed price for the SAMAG project in late 2002, when the project concept was to build the smelter in one stage rather than the current two stage, lower risk, strategy.

The current estimate for the EPC contract for the first module of the SAMAG plant, is around $500 million. This was derived by Thiess and MIL working together using the agreed fixed price contract data from last year and making the modifications needed to scale the plant down. The new fixed price will be set after completion of some more detailed engineering.

Thiess has been able to deliver a fixed price due to the established Dow technology. The Dow technology is well proven, robust and relatively simple. It has been in existence for over 60 years, with about 7 generations of technological improvements. It has produced over 3.5 million tonnes of magnesium metal, which is more than any other method ever used.

MIL has been working with Thiess on this plant design for three years and both parties’ understanding of the plant design is well advanced. Both MIL and Thiess see the plant construction as low risk.

Are contingencies in place for unforeseen events?

The financing package proposed for SAMAG includes senior debt lenders contingencies of $76 million and a further $60 million of other overrun facilities. As a percentage of the base EPC estimate, these two amounts total 25%, which is generous given that the technology risk and scope are known and understood.

What other differences are there between SAMAG and AMC?

The other major difference is the marketing agreement. SAMAG has an agreement with a major German company ThyssenKrupp (TK) for 100% of the plant’s output. The agreement lasts for 15 years. In contrast, AMC’s marketing agreement covered 50% of output for 10 years.

The agreement with TK provides for payment of a minimum price which covers MIL’s senior debt costs (principal and interest), plus all cash costs of production. This agreement is designed to underwrite senior debt and was not a feature of AMC’s agreement. The payment terms are also favourable as they require TK to pay early, take the customer credit risk and provide a substantial portion of the marketing and logistics support.

Why is the overall market opportunity better?

The latest estimate by commodity usage forecaster Commodities Research Unit (CRU) indicates a need for an additional 160,000 tonnes of new magnesium production in the western world in the next decade. The potential for new projects anywhere in the western world – greenfields or brownfields – is now extremely limited. No other new project in the western world is as advanced as SAMAG in terms of time to implementation. Any other mooted projects are at least three years behind SAMAG, which now has the capability and opportunity to address this greater market potential.

Summary

The differences between AMC’s Stanwell project and MIL’s SAMAG project are very significant, with the SAMAG project presenting as a much lower risk opportunity.

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.