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Magnesium Intl Ltd (MGK)

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Wednesday 17 May, 2006

Magnesium Intl Ltd

GenMtgAddress&Results17May06

Magnesium International Limited
17 May 2006

17 May 2006

                CHAIRMANS ADDRESS TO GENERAL MEETING 17 MAY 2006



CHAIRMAN:





BEFORE PROCEEDING WITH THE FORMAL RESOLUTION TO BE CONSIDERED AT THIS MEETING I
WOULD LIKE TO PROVIDE SHAREHOLDERS WITH AN UPDATE ON THE COMPANY'S ACTIVITIES.



THERE HAS BEEN MUCH PROGRESS IN THE PAST FEW MONTHS. RATHER THAN FOCUS ON THE
PAST I WOULD PREFER TO SET OUT THE COMPANY'S CURRENT POSITION ON OUTLOOK.



EGYPTIAN MAGNESIUM COMPANY S.A.E. ('EMAG')



EMAG IS CURRENTLY 50% OWNED BY MIL AND 50% OWNED BY THE AMIRAL GROUP. IF THE
NECESSARY RESOLUTIONS ARE PASSED TODAY THEN EMAG WILL BECOME 100% OWNED BY MIL.



AS OUTLINED IN THE DOCUMENTS SENT TO SHAREHOLDERS WITH THE NOTICE OF TODAY'S
MEETING THIS RE-ARRANGEMENT OF THE EMAG OWNERSHIP IS AN IMPORTANT STEP TOWARDS
ENSURING THE REALISATION OF THE PRIMARY MAGNESIUM BUSINESS.



VISION

MIL'S VISION FOR SOME YEARS HAS BEEN TO USE THE DOW ELECTROLYTIC MAGNESIUM
PROCESS TECHNOLOGY AS THE PLATFORM FOR ENTRY INTO THE RAPIDLY GROWING MARKET FOR
MAGNESIUM ALLOYS. NOTHING HAS OCCURRED THAT HAS ALTERED OUR COMMITMENT TO
REALISING THAT VISION.



HOWEVER, IT IS APPROPRIATE TO REVIEW THE REASONS WHY WE BELIEVE THAT THE
MAGNESIUM INDUSTRY IS ATTRACTIVE AND WHY WE BELIEVE OUR APPROACH WILL PRODUCE
HIGH RETURNS:



1.      IT IS A GROWTH INDUSTRY



a)      DEMAND FOR MAGNESIUM IS GROWING AT AROUND 5 - 6% PER ANNUM. THIS MAKES
IT A FAST GROWING MARKET BY METAL INDUSTRY STANDARDS;

b)      THE DEMAND FOR QUALIFIED ALLOYS FOR THE PRODUCTION OF AUTOMOTIVE COM
PONENTS AND COMPUTER OR MOBILE PHONE CASES IS GROWING AT AROUND 10% PER ANNUM;

Please see graph on website: www.mgil.com.au






c)   IF ANYTHING THIS DEMAND GROWTH MAY ACCELERATE AS ADOPTION OF MANY MAGNESIUM
APPLICATIONS BECOMES MORE WIDESPREAD.

2.      THE DEMAND DRIVERS ARE VERY STRONG



THE KEY DEMAND DRIVER IS THE PRESSURE ON AUTOMOTIVE MANUFACTURERS TO REDUCE
VEHICLE WEIGHTS. THIS PRESSURE IS A RESPONSE TO RECENTLY MUCH HIGHER FUEL PRICES
AND ENVIRONMENTAL REGULATIONS SEEKING TO MINIMISE GREENHOUSE GAS EMISSIONS.



MAGNESIUM ALLOYS ARE ONE OF THE ENABLERS TO ASSIST IN IMPROVING FUEL ECONOMY AND
ENVIRONMENTAL PEFORMANCE.



MORE IMPORTANTLY, MAGNESIUM IS NOW VERY PRICE COMPETITIVE COMPARED WITH
ALUMINIUM.



THE PRICE RELATIVE TO ALUMINIUM WILL NOW ENCOURAGE SUBSTITUTION AS SOON AS
ENGINEERING AND DESIGNS ALLOW. WITH ALUMINIUM PRICES ABOVE US$1.00 PER POUND
MAGNESIUM ALLOYS AT US$1.25 PER POUND ARE VERY COST COMPETITIVE WITH ALUMINIUM
IN MANY APPLICATIONS. WHEN THE MAGNESIUM PRICE IS 1.55 TIMES THE ALUMINIUM PRICE
THE USER GETS THE SAME WEIGHT OF AN ALLOY WHERE THE PROCEESING COSTS ARE LOWER
AND DESIGN FLEXIBILITY ARE MUCH HIGHER. CURRENTLY THE RATIO AT 1.1 TIMES IS
EXCEPTIONAL VALUE. EITHER THE MAGNESIUM ALLOY PRICES WILL GO UP; ALUMINIUM WILL
GO DOWN AND/OR MAGNESIUM WILL SUBSTITIUTE ALUMINIUM IN MANY APPLICATIONS - OR A
BIT OF ALL THREE - EACH OF WHICH WORKS WELL FOR MIL.





3.      THE MAGNESIUM TECHNOLOGIES ARE NOW AVAILABLE TO ACCELERATE THE ADOPTION
IN AUTOMOTIVE USE



i.                    ALLOY DEVELOPMENTS: COMPONENTS MADE FROM A NUMBER OF
RECENTLY DEVELOPED ALLOYS ARE BOTH ECONOMIC TO PRODUCE AND ABLE TO OPERATE
SATISFACTORILY AT HIGHER TEMPERATURES. E.G ENGINE BLOCKS AND AUTOMATIC
GEARBOXES.



Please see components on website: www.mgil.com.au







                                                                              IP Cross-beam

                   7 G-tronic gearbox



                                                                               Seat Frame

                     Transfer case



THIS DRAMATICALLY INCREASES THE POTENTIAL VOLUMES;

ii.                  METAL PROCESSING ADVANCES: THERE HAVE BEEN NUMEROUS
ADVANCES IN THE PROCESSING OF MAGNESIUM ALLOYS THAT HAVE IMPROVED THE RELATIVE
ECONOMICS OF USING THEM. E.G BETTER DIECASTING TECHNOLOGIES; THIXOMOULDING AND
OUR OWN MAGSHEET TWIN ROLL CASTING TECHNOLOGY. ALL OF THESE DEVELOPMENTS SUPPORT
AN ACCELERATION IN MAGNESIUM DEMAND GROWTH;

iii.                COATING TECHNOLOGIES: ONE OF THE LARGER COSTS IMPEDIMENTS TO
THE ADOPTION OF MAGNESIUM ALLOY AUTOMOTIVE COMPONENTS HAS BEEN THE COST OF
SURFACE COATINGS. AGAIN, THERE HAVE BEEN MANY RECENT DEVELOPMENTS IN COATINGS
THAT SIGNIFICANTLY REDUCE THIS COST IMPEDIMENT. THIS BRAODENS THE RANGE OF
COMPONENTS THAT MAGNESIUM ALLOY CAN BE COMPETITIVE IN.



4.      THE DOW PROCESS TECHNOLOGY ALLOWS EMAG TO BE VERY COST COMPETITIVE

TO ENTER THE PRIMARY MAGNESIUM INDUSTRY A NEW ENTRANT SUCH AS EMAG MUST EITHER
LICENCE ONE OF A FEW PROPRIETARY ELECTROLYTIC PROCESSES OR CHOOSE TO USE THE
GENERIC PIDGEON TECHNOLOGY.

THE ADVANTAGE OF ELECTROLYTIC TECHNOLOGY IS THAT IS HAS LOWER CASH OPERATING
COSTS THAN PIDGEON PROCESS PLANTS AND DELIVERS ECONOMIES OF SCALE - SIMILAR TO
THE ALUMINIUM SMELTING INDUSTRY.

THE DISADVANTAGE OF AN ELECTROLYTIC PLANT IS THAT THEY ARE MORE CAPITAL
INTENSIVE. THUS, AN ELECTROLYTIC PLANT REQUIRES A LARGER SCALE TO BE REALLY
ECONOMIC.

Please see graph on website: www.mgil.com.au






OUR PROPOSED PLANT AT SOKHNA WILL BE AROUND 90,000 TONNES PER ANNUM CAPACITY, TO
BE BUILT IN TWO STAGES. THIS SIZE AND STEPPED APPROACH IS A MORE EASILY FINANCED
AND REDUCES THE RISK THAT WE CREATE AN OVERSUPPLY SITUATION. AT FULL PRODUCTION
EMAG IS EXPECTED BE IN THE BOTTOM QUARTILE OF CASH COSTS. THIS WILL ENABLE US TO
ENTRENCH A SIGNIFICANT COMPETITIVE ADVANTAGE. THIS COST ADVANTAGE WILL BE
SUSTAINABLE AS IT IS LARGELY A FUNCTION OF EMAG'S LOWER ENERGY CONSUMPTION PER
TONNE OF MAGNESIUM.



Please see graph on website: www.mgil.com.au




THIS IS THE KEY TO OUR ENTRY STRATEGY. ONCE ESTABLISHED EMAG EXPECTS TO CAPTURE
THE AVAILABLE MARKET GROWTH IN MAGNESIUM ALLOY AND BECOME THE DOMINANT GLOBAL
PLAYER.



THE INCREMENTAL EXPANSION CAPITAL COSTS OF LESS THAN US$4000 PER TONNE OF ANNUAL
CAPACITY AND MARGINAL OPERATING COSTS OF LESS THAN 50 US CENTS PER POUND WILL BE
ALMOST IMPOSSIBLE FOR ANYONE TO BEAT. BY WAY OF COMPARISON NEW PIDGEON PLANTS
HAVE ONLY A SLIGHTLY LOWER CAPITAL COST PER TONNE OF ANNUAL CAPACITY WITH NO
ECONOMIES OF SCALE AND OPERATING COSTS IN EXCESS OF 80 US CENTS PER POUND. THE
KEY FOR MIL IS GETTING EMAG STARTED SO WE CAN CAPTURE THIS GROWTH AND THE
ECONOMICS THAT FLOW FROM IT.




5.      EGYPT IS THE RIGHT PLACE



THE DRIVERS TO PRODUCE THE LOWEST COST MAGNESIUM ALLOY POSSIBLE ARE THE
COMBINATION OF SUSTAINABLE LOW POWER COSTS AND LOW CAPITAL COSTS.



EGYPT OFFERS THESE COMPETITIVE ADVANTAGES AND WE ARE ACTIVELY FINALISING THE
RELEVANT CONTRACTS.



                           Please see picture on website: www.mgil.com.au







EGYPTIAN POWER PRICES ARE BASED ON LOW COST NATURAL GAS FUEL THAT WOULD
OTHERWISE BE EITHER SHUT IN OR SOLD INTO LNG PLANTS. THIS PROVIDES US WITH LONG
TERM COMFORT THAT POWER PRICES WILL REMAIN RELATIVELY VERY COMPETITIVE.



CONSTRUCTION COSTS AND CAPABILITIES IN EGYPT ARE VERY COMPETITIVE
INTERNATIONALLY. CERTAINLY THE WORK WE ARE CURRENTLY DOING IS HIGHLIGHTING A
SIGNIFICANT DIFFERENCE COMPARED TO EUROPEAN COSTS.



ALL OF THE NECESSARY INFRASTRUCTURE THAT EMAG NEEDS (POWER, GAS, AND WATER) ARE
ALREADY IN PLACE AT SOKHNA SO EMAG IS NOT RELIANT ON SOMEONE ELSE'S CONSTRUCTION
TIMELINES.



IN SHORT, WE REMAIN OF THE VIEW THAT WE ARE HEADING IN THE RIGHT DIRECTION.



EXECUTION

I WOULD LIKE NOW TO OUTLINE SPECIFIC STATUS OF KEY ASPECTS OF THE EMAG
DEVELOPMENT:



                           A. CAPITAL COST ESTIMATE



WE ARE WELL ADVANCED IN FINALISING A CAPITAL COST ESTIMATE ON THE BASIS WE HAVE
OUTLINED, NAMELY

i.                  MAXIMUM EGYPTIAN AND LOCAL CONTENT;

ii.                 USING VALUE ENGINEERING;

iii.                RE-TENDERING VENDOR BID PACKAGES; AND

iv.                 CHANGING THE CONSTRUCTION CONTRACTUAL ARRANGEMENTS.



THE CURRENT STAGE OF THIS WORK WILL BE FINALISED IN THE NEXT FEW WEEKS. SO FAR,
IT IS FAIR TO SAY THE PRELIMINARY NUMBERS THAT HAVE COME THROUGH HAVE BEEN
ENCOURAGING.



B.     ENVIRONMENTAL APPROVALS



WE HAVE BEEN GRANTED THE NECESSARY APPROVALS BY THE ENVIRONMENTAL AUTHORITIES.
THIS IS A SIGNIFICANT MILESTONE FOR EMAG AND FOLLOWS THE NECESSARY EXTENSIVE
SCRUTINY OF OUR PLANS. THE ONLY REMAINING ENVIRONMENTAL ISSUE IS THE LOCATION OF
THE SOLID RESIDUE FROM THE PLANT. THIS RESIDUE COMPRISES BENIGN TALC, ALBITE AND
OTHER SILICATES WHICH REMAIN AFTER THE MAGNESIUM IS REMOVED FROM THE NATURALLY
OCCURRING MAGNESITE FEEDSTOCK. WE ARE WORKING WITH THE RELEVANT AUTHORITIES ON
POSSIBLE SITES AS WELL AS EXPLORING OPTIONS FOR THE SALE TO NEARBY CEMENT OR
CERAMIC PLANT THAT COULD USE THIS RESIDUE AS A FEEDSTOCK.



C.    POWER CONTRACT



WE HAVE AGREED THE TERMS OF THE POWER SUPPLY WITH EGYPTIAN ELECTRICITY
TRANSMISSION COMPANY AND ARE FINALISING CONTRACTS. THE TERMS ARE IN LINE WITH
OUR EXPECTATIONS.



D.    GAS CONTRACT



WE HAVE AGREED THE TERMS AND TECHNICAL ISSUES SURROUNDING GAS SUPPLY. FINAL
CONTRACTS ARE CURRENTLY BEING DRAFTED.







E.     LAND LEASE



WE ARE CURRENTLY FINALISING THE TERMS OF THE LAND LEASE ON THE DESIGNATED SITE
AT SOKHNA.



F.     WATER SUPPLY



WE ARE CURRENTLY FINALISING THE TERMS OF SUPPLY FOR PROCESS WATER WITH SOKHNA
PORT DEVELOPMENT COMPANY ('SPDC'). THESE ARE EXPECTED TO BE ON THE SAME TERMS AS
OTHER MAJOR PROPOSED USERS WITHIN THE SOKHNA PORT AREA.



IN SUMMARY, EMAG IS IN GOOD SHAPE IN TERMS OF THE MAJOR CONTRACTS NEEDED TO
SUPPORT THE FINANCING.



MARKET CONDITIONS



MAGNESIUM ALLOYS PRICES HAVE NOT SHARED IN THE GENERAL RISES IN METAL PRICES AND
TYPICAL PRICES ARE AROUND THE US$1.20 PER POUND AREA. WE BELIEVE THIS IS A SHORT
TERM SITUATION AS THERE IS ALMOST NO CAPACITY ADDITIONS GOING ON AND ALMOST NO
PRODUCERS ARE REPORTING PROFITS - THIS IS SOMEWHAT SIMILAR TO THE SITUATION IN
OTHER METALS TWO YEARS AGO.



MORE IMPORTANTLY, THE DRAMATIC IMPROVEMENT IN MAGNESIUM ALLOY COMPETITIVENESS
AGAINST ALUMINIUM IN PARTICULAR, CAN BE EXPECTED TO LEAD TO AN ACCELERATION IN
DEMAND.



IN ADDITION, THE COSTS OF THE COMPETITORS IN CHINA ARE RISING BOTH FROM ENERGY
INPUT COSTS AND THE RISING YUAN.



NEXT STEPS FOR EMAG



THE NEXT STEPS FOR EMAG ARE TO COMPLETE FURTHER ENGINEERING DESIGN AND COSTING
WORK. THIS IS NECESSARY AS THE CURRENT WORK IS FOCUSSING ON A SMALL NUMBER OF
LARGE IMPACT PACKAGES AND ARE MAINLY AT THE BASIC ENGINEERING STATUS.



WITH A SHIFT IN CONTRACT EXECUTION STRATEGY FROM FIXED PRICE LUMP SUM EPC TO A
FIXED PRICE EPCM STRATEGY A GREATER DEGREE OF SELF PERFORM IS NECESSARY. THIS
REQUIRES A GREATER DEGREE OF ENGINEERING DEFINITION IN ORDER TO MINIMISE THE
RISK OF COST OVERRUNS THAT WOULD BE BORNE BY THE EPC CONTRACTOR.



ESSENTIALLY, THIS WORK WILL INVOLVE FURTHER INVESTMENT IN ENGINEERING AND TAKE 6
MONTHS TO COMPLETE. HOWEVER, IT WILL SIGNIFICANTLY REDUCE PROJECT RISK AS WELL
AS REDUCE OVERALL CAPITAL COSTS BY AROUND 10 - 15% BY ALLOWING EMAG TO EXECUTE
AND BE FINANCED ON AN EPCM BASIS.





EMAG FINANCING



WE HAVE BEEN REVIEWING THE EMAG FINANCING STRATEGY. IN OUR PRELIMINARY
INVESTIGATIONS WE ARE DEVELOPING PLANS TO ATTRACT REGIONAL FUNDS; LOCAL PARTIES
(INCLUDING GOVERNMENT) AS WELL AS TRADITIONAL PROJECT FINANCE SOURCES. IN
ADDITION, WE ARE ACTIVELY SEEKING STRATEGIC INVESTORS WHO WILL ADD TO OUR
PROJECT DELIVERY SKILLS.



THE CURRENT PROGRAM WILL REQUIRE MIL TO RAISE ADDITIONAL EQUITY PRIOR TO
FINANCIAL CLOSE AND WE ARE DEVELOPING OUR PLANS IN THAT REGARD.




MAGSHEET



Please see picture on website: www.mgil.com.au






TURNING NOW TO MAGSHEET. THIS HAS BEEN SLOWER TO DELIVER RESULTS THAN WE
EXPECTED A YEAR AGO WHEN WE ENTERED INTO THE ARRANGEMENTS WITH CSIRO.



WE HAVE EXCEEDED OUR EXPENDITURE COMMITMENTS BUT REMAIN COMMITTED TO MAGSHEET'S
SUCCESS DESPITE THIS SLOWER START.



THE DELAYS HAVE BEEN DRIVEN BY THE NEED TO EDUCATE POTENTIAL USERS ON THE
DIFFERENT ROLLING CHARACTERISTICS OF THE MAGSHEET TRC PRODUCT. IN ADDITION, THE
STANDARDS OF SUPPLIERS OF THIN MAGNESIUM SHEET TO THE COMPUTER AND ELECTRONICS
INDUSTRIES HAVE PROVEN TO BE PARTICULARLY EXACTING. WE BELIEVE WE HAVE NOW
WORKED THROUGH THESE ISSUES AND ARE ON THE CUSP OF CUSTOMER ORDERS.



BY WAY OF EXPLANATION, MAGSHEET PRODUCES A 3 MM THICK MAGNESIUM ALLOY SHEET IN
COIL FORM. IT IS TO THIS THICKNESS THAT THE TECHNOLOGY OFFERS SIGNIFICANT COST
ADVANTAGES OVER OTHER ROUTES TO PRODUCE 3 MM THICK SHEET.


Please see picture on website: www.mgil.com.au




HOWEVER, MOST USERS REQUIRE SHEET AT 0.5 - 1.0 MM THICKNESS TO FORM INTO
FINISHED COMPONMENTS. THIS IS ACHIEVED BY ROLLING THICKER SHEET TO THE REQUIRED
THICKNESS. THE MAGSHEET TRC MATERIAL HAS DIFFERENT ROLLING REQUIREMENTS THAN
SHEET PRODUCED BY OTHER MEANS. IT IS THIS AREA OF DOWNSTREAM PROCESSING THAT HAS
NECESSITATED EDUCUATION OF POTENTIAL CUSTOMERS. THE MAGSHEET TECHNOLOGY OFFERS
NO COST ADVANTAGE OR DISADVANTAGE IN THIS FINISH ROLLING. OUR FOCUS HAS BEEN ON
FORMING RELATIONSHIPS WITH GROUPS THAT HAVE THAT FINISH ROLLING CAPABILITY SO AS
TO GET MAGSHEET PRODUCT TO MARKET IN SIGNIFICANT VOLUMES.



AT PRESENT, WE ARE UPGRADING THE FURNACE CAPACITY AT THE CLAYTON PLANT IN ORDER
TO IMPROVE RELIABILITY AND INCREASE RUN SIZE. AFTER THIS THE CLAYTON PLANT WILL
BE ABLE TO PRODUCE IN EXCESS OF 20 TONNES PER MONTH.



ALTHOUGH IT IS EASY TO FOCUS ON THE DIFFICULTIES WE SHOULD NOT LOSE SIGHT OF THE
PRIZE. IF WE ARE SUCCESSFUL THEN MAGSHEET WILL DRAMATICALLY REDUCE THE COSTS OF
PRODUCTION OF THIN MAGNESIUM ALLOY SHEET ALLOWING NUMEROUS APPLICATIONS TO BE
DEVELOPED THAT WERE PREVIOUSLY TOO COSTLY. THE MAGSHEET TRC TECHNOLOGY CONTINUES
TO HAVE THE POTENTIAL TO BECOME THE STANDARD FOR THE PRODUCTION OF MAGNESIUM
ALLOY SHEET.



WHILST THERE ARE THE USUAL UNCERTAINTIES ASSOCIATED WITH A NEW TECHNOLOGY START
UP WE BELIEVE THAT OUR TECHNICAL TEAM AT MAGSHEET ARE VERY CLOSE TO MAJOR
SUCCESS.





CONCLUSION



DESPITE THE SETBACK WE ENCOUNTERED LATE IN 2005 WE HAVE NOW DONE SUFFICIENT WORK
TO BE CONFIDENT THAT OUR STRATEGY ON CONTINUING TO PURSUE THE DEVELOPMENT OF
EMAG IN EGYPT IS ONE WORTH PURSUING AND IS IN THE INTEREST OF SHAREHOLDERS.



For further information please contact:


Pat Elliott

Managing Director

Magnesium International Limited

Telephone:             +61 2 9252 1505
Mobile:                +44 7891 002 015
Email:                 [email protected]

Peter Sydney-Smith

Finance Director

Magnesium International Limited
Tel:                   +44 (0) 20 7297 4316
Mobile:                +44 (0) 7810 543 192
Email:                 [email protected]


                            Website: www.mgil.com.au


17 May 2006

                    RESULTS OF GENERAL MEETING - 17 May 2006




At the Company's General Meeting held today the following resolution was passed
by shareholders on a show of hands.



Details of valid proxies submitted to the meeting are as follows:




Resolution            Votes cast           Votes for             Votes against          Abstentions
Ordinary              3,854,149            3,842,301              11,848                -










For further information please contact:



Pat Elliott

Chairman & Managing Director

Magnesium International Limited

Telephone:        +61 (0) 2 9252 1505
Fax:              +61 (0) 2 9252 1507
Mobile:           +44 7891 002 015
Email:            [email protected]




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