RHODES RIDGE IRON ORE PROJECT

In January 2007 Cazaly applied for E47/1791 - 1794 over of the Rhodes Ridge project which contains one of the largest undeveloped iron ore resources in Western Australia, the subject of an agreement between the State and the Rhodes Ridge Joint Venture which was ratified by the Iron Ore (Rhodes Ridge) Agreement Authorisation Act 1972 (WA).

The Rhodes Ridge Joint Venture comprises Hamersley Resources Limited (“Hamersley” a subsidiary of Rio Tinto Limited), Wright Prospecting Pty Ltd and Hancock Prospecting Pty Ltd.

Objections to each of the applications were lodged by Hamersley, primarily on the basis that the Rhodes Ridge Joint Venture holds rights of occupancy under the State Agreement in respect of the land the subject of the applications.

Cazaly has entered into an agreement with Fortescue Metals Group Limited (FMG) pursuant to which Cazaly will, subject to ministerial consent, transfer the exploration licences to FMG upon grant in consideration for an advance on future royalties by cash payment of between $20 - $100 million upon transfer and a royalty capped at $1.48 billion.

On 21 - 23 January 2009 a preliminary hearing was conducted before the Mining Warden in Perth to determine:

- whether the Rhodes Ridge Joint Venturers hold valid rights of occupancy; and

- if so, whether the rights of occupancy preclude the grant of the exploration licenses.

If Hamersley cannot establish valid and subsisting rights of occupancy over the land, the State Agreement is in effect an empty shell and Cazaly considers it is likely that the Warden will recommend to the Minister that he grant the exploration licenses to Cazaly.

The Warden also heard a challenge by Wright Prospecting Pty Ltd to the jurisdiction of the Warden to hear the applications and make a recommendation to the Minister.

As expected, the Warden reserved his decision in respect of both matters.

Cazaly was pleased with the hearing and looks forward to the Warden's decision in due course.