3 December 2003

Dear Shareholders

Recently I wrote to you inviting you to participate in a Shareholder Share Purchase Scheme (SSPS), to provide working capital for your company, Magnesium International Limited (MIL).   Directors believe that the SSPS represents a great opportunity for all shareholders to support their company, by acquiring shares at a 15% discount to the current market price and with no brokerage involved.   Conditions of the Scheme are provided at the end of this letter.   To assist you further with your decision about participation, I have provided you with up to date information regarding the company's activities as presented at the recent Annual General Meeting, which was held on 25 November.

SAMAG Project Developments

Several important new initiatives regarding the SAMAG project were announced at the AGM, with the most significant being that we intend to undertake a detailed review of other potential sites for our magnesium smelter project in Australia.   The review has been prompted by our ongoing review of our proposed business and by calls from potential cornerstone investors that we formally establish that we have the absolutely best site available.  

The site review will look at potential smelter sites in Queensland and Victoria and compare them with our Port Pirie site.   It will concentrate on capital costs and on the major operating costs which include power, gas and ore.   We think it will take around six months to complete the work with the main factor being the environmental impact assessments.  

In Victoria we would be seeking lower power and gas prices and there are a number of potential power providers available.   There is potential for the Dow process to use fly-ash as a feedstock but magnesite from our current leases in South Australia could also be used.   Queensland has potential for lower power prices and gas prices via coal seam methane gas,   There are extensive deposits of magnesite ore north of Rockhampton.   At least two deposits could be available and we have already ascertained that we can obtain ore from one of these at competitive cost.   We know that industrial parks with suitably sized site areas are established in the Gladstone, Rockhampton and Townsville regions.   There are numerous power sources in the Central Queensland area, while Townsville has a new power station on the drawing board.

In respect of the Port Pirie site, all our approvals are in place and are being maintained throughout the review period.   The SA Government has reiterated its infrastructure support package of $25m as late as last week.   If it ends up being confirmed as the best site then we will be delighted to build at Port Pirie.

Directors believe that the site review is a very positive development for shareholders as we will only finally consider moving our project if a new site provides a significantly better economic result than we currently have with our South Australian location .

Market Developments 

The most likely reason that you made your original decision to invest in MIL was because you believed that the global demand for magnesium was growing strongly.   This growth is still happening and magnesium demand has already grown by about 6% this year versus 2002.  

According to CRU International (the London based commodities research unit), the magnesium industry is expected to maintain the 6% growth rate for at least the next ten years.   If this occurs we will need an additional 350,000 tonnes per year compared to the 2002 production rate.   CRU predicts that 160,000 tonnes per year of this will have to come from Western world producers because most of the growth will be in the diecasting sector where high quality magnesium alloys are required, rather than in the lower quality grades of magnesium, where Chinese producers have been successful.

No Western project is as advanced as SAMAG, so we really do have the opportunity to capture a unique market opportunity with our proven, bankable technology.

Conditions of the Scheme and Participation Method 

Relevant conditions of the SSPS are as follows:

• the price of shares under this offer is the price which is 15% less than the average closing market price for the 5 days prior to the closing date of the offer, which is 12 December 2003;
• applications for shares can be for any amount between the minimum application of $500 and the maximum allowable of $5,000;
• completed application forms along with full payment must be received by 5.00pm on Wednesday 17 December 2003;

Participation in the SSPS is at your own discretion, but your entitlement to participate in the SSPS is non-renounceable (i.e. it cannot be transferred to anyone else).   If you wish to take up some or all of your entitlement under the SSPS, you should complete the application form sent to you approximately two weeks ago, enclose your payment and submit to our share registry, Computershare, in the reply paid envelope which was provided, to arrive no later than 5.00pm on 17 December 2003.

I strongly encourage all shareholders to participate in the SSPS.   If you have any queries about the SSPS, or any of the enclosed documents, or if you have misplaced your application form and need a new form, please contact our Company Secretary, Neil Hooper on (02) 9252 1505.

Yours faithfully,

David Karpin AM

Chairman