ASTRON LIMITED - AGM Information 2007

Explanatory Memorandum and Notice of Extraordinary General Meeting

==> picture [266 x 147] intentionally omitted <==

EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF ASTRON LIMITED

10.00AM ON 17 JANUARY 2008 TO BE HELD AT LEVEL 19 2 MARKET STREET SYDNEY NSW 2000

Astron Limited (ABN 97 000 285 272)

116755317 \ 0414315 \ JRT01

Important Notice

Important Dates

Chairman’s Letter

Section 1: Executive Summary

Section 2: What should you do?

Section 3: Proposed Transaction

Section 4: Frequently Asked Questions

Section 5: Glossary

Section 6: Independent Expert’s Report

Notice of Meeting

116755317 \ 0414315 \ JRT01

Important Notice

This is an important document. You should read it in its entirety and consult your professional adviser if you have any queries.

Regulatory Information

A copy of this document has been lodged with the Australian Securities Exchange Limited (“ASX”) in accordance with the ASX Listing Rules. Neither the ASX nor any of its officers takes any responsibility for the contents of this document.

Independent Expert’s Report

While Astron is responsible for this document, it contains an independent expert’s report issued by KPMG Corporate Finance (Aust) Pty Ltd (“KPMG”). KPMG is liable for its report (including its Financial Services Guide) subject to any agreed disclaimer, waiver or indemnity. KPMG is remunerated for its services.

[Other ]

Forward looking statements This document contains statements relating to the future (“Forecasts”). These Forecasts are based on assumptions concerning actual and future events. The Forecasts have been prepared with proper care and attention and all assumptions, when taken as a whole, are considered to be reasonable at the time of preparing the Forecasts, based on present circumstances and market conditions. You should appreciate that many factors which may affect the actual financial performance of Astron are outside the control of Astron or may not be capable of being foreseen or accurately predicted. Accordingly, actual results may vary materially from the Forecasts.

Unless otherwise stated or implied, references to times in this document are to Australian Eastern Summer Time (“AEST”).

All financial amounts contained in this document are expressed in Australian dollars unless otherwise stated.

Disclaimer

This document does not take into account individual investment objectives, financial situation and particular needs of individual shareholders or any other particular person. If you are in doubt as to what you should do, you should consult your legal, financial or other professional advisor prior to voting.

116755317 \ 0414315 \ JRT01

Important Dates

Key Dates

Key Dates
Time For Determining Eligibility To Vote At The Meeting	10.00am on 15 January 2008
Deadline For Lodgement Of Proxies	10.00am on 15 January 2008
Extraordinary General Meeting Date	10.00am on 17 January 2008
If Proposed Transaction Is Approved, The Expected Date Of Completion Of The Astron China Sale	On or before 31 January 2008

Note: This timetable is indicative only. The Company, in consultation with its advisers, reserves the right to vary the dates and times.

116755317 \ 0414315 \ JRT01

Chairman’s letter

Dear Shareholders,

On behalf of the Board of Directors, I present to you this Notice of Meeting and Explanatory Memorandum which outlines a very important transaction for Astron Limited (“Astron”).

After detailed evaluation by the Astron Board and management of the value and future prospects for Astron’s Chinese based downstream zirconia materials business (“Astron China”), the Board has determined, subject to shareholder approval, to sell to Imerys Asia Pacific Pte Limited ("Imerys Asia Pacific"), a wholly owned subsidiary of Imerys SA, all of the share capital in Astron China (the “Proposed Transaction”).

The conditional Share Sale Agreement entered into by Astron and Imerys provides consideration for the sale of Astron China of:

Initial Payment – upon completion of the Proposed Transaction, Astron expects to receive an amount in cash of approximately A$194 million. This amount will include payment by Imerys of a basic purchase price of Rmb 1.2 billion (approximately A$194 million at the hedged foreign exchange rate) on a debt/cash free basis plus other contingent additional amounts resulting from the operations of Astron China since the date of signing of the Share Sale Agreement.
Earn-Out Payments – over a two year period commencing on 1[st] January 2008 Astron will be eligible to receive two annual earn-out payments. The earn-out payments will be paid in cash and are dependent on the future financial performance of Astron China. Adopting conservative assumptions the earn-out payments are currently estimated to total approximately A$5 to 15 million based on an assumed 10% EBITDA growth rate.

Astron's announcement to ASX on 29 August 2007 outlined the transaction as set out in the Share Sale Agreement dated 29 August 2007. On 30 November 2007 Astron announced on ASX that the transaction was proceeding but that the terms had been amended. The reason for this is that under the terms of the Share Sale Agreement dated 29 August 2007, one condition precedent was that the audited accounts as at 30 June 2007 disclose that the Earnings Before Interest, Tax, Depreciation and Amortization be no less than Rmb 130 million. As announced to ASX on 30 October 2007, this was not the case. Accordingly, as disclosed by announcement on 30 November 2007 to ASX, Astron and Imerys entered into a Novation and Amendment Deed to the Share Sale Agreement, the key terms of which were to change the base purchase price, the earn-out calculation and the end date.

Following the successful completion of the Proposed Transaction, Astron will have total cash, cash equivalents and available for sale financial assets of at least A$180 million. Further, Astron intends to remain listed on the Australian Securities Exchange and remain a company with a vibrant future.

Astron will retain its business operations in mineral sands supply via the Donald Project, the Gambian Project, the Senegal Joint Venture, the Matilda Offtake and a planned investment in a mineral separation plant in China. The Donald Project is a very appealing asset and as one of the world’s largest zircon deposits, offers Astron shareholders the opportunity to benefit from its near term development. Astron has also identified the titanium sector in China as one of great potential (and Astron is not restrained under the Share Sale Agreement from manufacturing and selling titanium products). Astron intends to commit resources to opportunities that utilise the company’s knowledge of the sector and the Chinese markets.

The Board and management of Astron expect that the majority of the proceeds from the sale of Astron China will be allocated to funding the growth of Astron's remaining business operations. Consequently, there is no expectation of an immediate shareholder return beyond that of the ordinary final dividend for the 2007 financial year which was raised to A$0.20 per share.

Astron will continue to maintain a strong and close commercial relationship with Astron China and Imerys, following the completion of the Proposed Transaction. Imerys will be party to Offtake Agreements for material mined from the Donald Project, the Gambian Project, the Senegal Joint

116755317 \ 0414315 \ JRT01

Venture and the Matilda Offtake. These agreements add value to Astron's continuing business. Additionally senior members of the current Astron management team will be available to Imerys through a formal Management Assistance Agreement. Imerys has indicated it intends to further develop and extend its relationship with Astron for the mutual benefit of both parties.

KPMG has been engaged to provide an Independent Expert’s Report in relation to the Proposed Transaction, and it has concluded that the Proposed Transaction is in the best interests of Astron’s shareholders. A copy of the Explanatory Memorandum and Notice of Meeting, and KPMG’s Independent Expert’s Report (set out in Section 6 of the Explanatory Memorandum) are included with this letter.

After careful consideration, the Directors of Astron have unanimously recommended that you vote in favour of the resolution approving the sale of Astron China to Imerys as stated in the Notice of Meeting.

The Directors recommend that Shareholders read the Explanatory Memorandum and the Notice of Meeting in full before making a decision in relation to the resolution.

I look forward to welcoming you at our Extraordinary General Meeting of shareholders on 10.00am on 17 January 2008 to consider the Proposed Transaction. However if you are unable to attend the Meeting in person, I urge you to complete and return the proxy form included with this letter in person, by post, by facsimile or by email, prior to 10.00am on 15 January 2008.

Yours sincerely,

==> picture [169 x 36] intentionally omitted <==

Gerard King Chairman Astron Limited

116755317 \ 0414315 \ JRT01

1. Executive Summary

116755317 \ 0414315 \ JRT01

1.1 Overview

This Explanatory Memorandum is intended to provide Shareholders with sufficient information to assess the merits of the Resolution contained in the accompanying Notice of Meeting.

The Directors recommend Shareholders read this Explanatory Memorandum in its entirety before making a decision on how to vote on the Resolution and if they are in doubt to consult their legal, financial or other professional advisor.

After duly considering the Proposed Transaction and taking into account the views of the Independent Expert, the Directors of Astron unanimously recommend that you vote in favour of the proposed Resolution and have indicated that they intend to vote the shares they own or control in favour of the Resolution.

1.2 Proposed Transaction

Overview of the Transaction

Astron has entered into a Share Sale Agreement pursuant to which it has agreed to sell all the issued capital in Astron China to Imerys Asia Pacific , a wholly owned subsidiary of Imerys SA (referred to as Imerys ), for a cash payment of approximately A$194 million (at a hedged foreign exchange rate) on a debt/cash free basis, plus other contingent conditional additional amounts resulting from the operations of Astron China, since the date of signing of the Share Sale Agreement ( Proposed Transaction ).

The actual purchase price for the sale of Astron China is a basic purchase price of Rmb 1,200,000,000.00 payable in Australian dollars at an exchange rate calculated three business days prior to Completion, adjusted by adding the cash (including cash equivalents, short term deposits and short term financial receivables) and Special Capex of Astron China, and deducting debt (being the internal and external financial indebtedness of Astron China) and a working capital adjustment (if the working capital of Astron China is less than 140 million Rmb).

Astron group entities entered into foreign exchange hedging arrangements at the time of signing the Share Sale Agreement that ensured the original basic purchase price of Rmb 1,249,991,744.40 is converted to Australian dollars at an exchange rate guaranteeing A$201 million is received by Astron. These arrangements will be rolled forward and it is expected that the revised purchase price of Rmb 1.2 billion will deliver to Astron proceeds of approximately A$194 million.

The Proposed Transaction contains a number of conditions precedent including approval by the Shareholders.

Shareholder approval is required under ASX Listing Rule 11.2 because Astron China forms a major part of Astron's business operations and has been Astron's major source of revenue. For more information on the requirements of ASX Listing Rule 11.2 refer to Section 3.4.

Additionally, the Directors consider, as a matter of best practice corporate governance, it appropriate to seek shareholder approval for the Proposed Transaction as it contemplates a change to the business strategy and operations of Astron.

Should the Proposed Transaction complete, Astron will be entitled to two annual Earnout Payments based on the future financial performance of Astron China. This earnout figure is assumed by KPMG (see section 6) to be approximately A$5 to 15 million over a two year period commencing on 1[st] January 2008. However you should note that receipt of these earnout monies is contingent upon the performance of the businesses being sold and this will not be within the direct control of Astron.

At Completion of the Proposed Transaction, Astron and Imerys will be parties to a Management Assistance Agreement, the Intellectual Property Licence Agreement and the Offtake Agreements. The Management Assistance Agreement allows for senior executives of Astron to provide their

116755317 \ 0414315 \ JRT01

services to Imerys in return for a payment to Astron. The Offtake Agreements dictate the arrangements whereby Imerys will acquire material produced from the Donald Project and Gambia Project, the Senegal Joint Venture and the Matilda Offtake.

Astron has entered into a non-solicitation and break fee arrangement with Imerys. The effect of these arrangements is such that Astron is restricted in its ability to directly approach third parties in relation to their potential interest in a transaction that competes with the Proposed Transaction. A break fee may be payable by Astron should discussions with a third party take place and these discussions lead to the Proposed Transaction failing to be completed.

Remaining Business

Following the sale of Astron China, Astron will remain listed on the Australian Securities Exchange and will retain the mineral sands mining businesses in Australia and Africa and the titanium businesses in China.

Astron intends to build a minerals separation plant in China to process zircon concentrate from a number of sources including the Gambian Project. It will continue to develop its wholly owned Donald Project located in Victoria. The Donald Project is one of the world’s largest undeveloped zircon deposits and is believed to be capable of sustaining a large, low cost mining operation. Astron has been progressively developing the project and expects mining to commence in 2009. Under the new offtake arrangement, significant volumes of mineral sands from the Donald Project are expected to be sold to Imerys.

Astron has invested considerable resources in recent years completing the detailed design for building a titanium dioxide plant in China. Land has been identified and subject to commitment by Astron, is available. Efforts are under way to identify and secure a partner for this opportunity and to also secure suitable experienced management.

Astron has also identified a number of other development opportunities which will be pursued through its research staff in China.

As detailed above Astron's core business will be the manufacture of advanced materials from mineral sands. This will include the mineral separation plant in China, the development of the Donald Project and the design and construction of the titanium dioxide plant in China. Astron will use the funds from the Proposed Transaction to fund this remaining business and further expansion of these businesses, however the funds from the Proposed Transaction have not yet been committed for any of these particular projects.

Astron will develop more detailed proposals for the deployment of the funds from the Proposed Transaction and expects that further notification to shareholders will detail the expected amounts for these projects when approved, and other projects that Astron may pursue, including mergers and acquisitions.

1.3 Benefits and Risks of the Proposed Transaction

A detailed discussion of the benefits and risks of the Proposed Transaction is set out in the Independent Expert’s Report (refer to Section 6).

Key benefits include:

Immediate and Certain Value Realisation: Astron is being offered an opportunity to receive immediate cash consideration. This cash consideration represents a low risk way in which to realise the future value of Astron China.
Attractive Price: The offer consideration is valued at above the value implied by the current Astron share price. The Independent Expert considers the consideration offered by Imerys to be in the best interests of Astron's shareholders.
Opportunity to Refocus Astron: Astron will have the opportunity to focus its strategy on the Donald Project and other growth opportunities in the mineral sands sector, including notably Astron’s interest in titanium dioxide.

116755317 \ 0414315 \ JRT01

Key risks include:

Limited Cashflow Generation: The Astron China sale will result in the removal of Astron’s current major cashflow generating assets. Accordingly Astron’s other businesses will not be able to rely on cashflow being produced by the Astron China business to fund their operations.
Unsuccessful Application of Cash Proceeds: Astron will have surplus funds available following the receipt of the Astron China sale proceeds. Astron intends to use these funds to grow the remaining Astron business. If Astron is unable to successfully develop and operate the businesses it retains following the sale of Astron China, the application of the cash proceeds will not be successful.

1.4 Independent Expert’s Report

KPMG has reviewed the Proposed Transaction and subject to the qualifications contained in its Independent Expert’s Report, has advised that in its opinion the Proposed Transaction is in the best interests of Astron's shareholders.

Shareholders should carefully read the Independent Expert’s Report, a copy of which is set out in Section 6.

1.5 Conditions

In addition to the approval of Shareholders, the Proposed Transaction is subject to the following key conditions precedent:

Key material contracts being assigned.
Transfer of certain excluded assets out of Astron China and the sale of certain surplus assets.
Heads of Agreement being entered into for products derived from the Donald Project.
Offtake Agreement being entered into for the zircon sands produced from zircon concentrate from the Gambian Project, the Senegal Joint Venture and the Matilda Offtake.
Management Assistance Agreement being entered into for general assistance, to be provided by some senior executives of Astron, with the day to day operations, management and administration of the business of Astron China to allow Imerys Asia Pacific to take control of the zirconia materials business and integrate it within the Imerys Group.
Approval of matters in the People's Republic of China to permit the amendment of the Articles of Association for each of the companies comprising Astron China, the transfer of shares, foreign investment enterprise approval by the Ministry of Commerce for Imerys and issue of certain property certificates, permits and business related certificates for the operation of the businesses.
Other customary conditions precedent.

1.6 Directors’ Recommendation

THE DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOUR OF THE RESOLUTION TO APPROVE THE PROPOSED TRANSACTION.

116755317 \ 0414315 \ JRT01

2. What should you do?

116755317 \ 0414315 \ JRT01

2.1 Action required by Shareholders

Step 1: Read the entire document carefully

This is an important document. You should read it in its entirety and consult your professional adviser if you have any queries.

Step 2: Vote on the Resolution

You may vote in person or by proxy.

If you wish to vote in person, you should attend the Meeting at Level 19, 2 Market Street, Sydney NSW 2000 at 10.00am on 17 January 2008.

If you wish to vote by proxy, you must complete and return the enclosed proxy form so that it is received no later than 48 hours before the holding of the Meeting, being 10.00am on 15 January 2008. Completed proxy forms may be lodged or delivered:

In person at:

Level 19 2 Market Street Sydney NSW 2000

By mail to:

PO Box 1035 Dee Why NSW 2099

By fax to: +61 2 9984 0279

By email to : [email protected]

2.2 Voting Restrictions

Various persons are excluded from voting on the Resolution under the ASX Listing Rules and Corporations Act 2001 (Cth) (“ Corporations Act ”).

Under the ASX Listing Rules, Astron is required to disregard any votes cast on the Resolution by:

any person who might obtain a benefit, except a benefit solely in the capacity as a shareholder, if the Resolution is passed; and
any associate of that person.

However Astron need not disregard a vote if:

It is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
It is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form, to vote as the proxy decides.

116755317 \ 0414315 \ JRT01

3. Proposed transaction

116755317 \ 0414315 \ JRT01

3.1 Overview

This section contains a detailed overview of the Proposed Transaction. It details key terms of the main agreements that will be entered into as part of the Proposed Transaction and other considerations relevant to the Proposed Transaction.

3.2 Key Terms of Proposed Transaction

The Proposed Transaction is, or is to be, documented through six key agreements. These agreements are between Astron and Imerys and are identified as follows:

Share Sale Agreement (executed)
Novation and Amendment Deed (executed)
Management Assistance Agreement
Heads of Agreement - Donald Project
Offtake Agreement - Gambia Project, Senegal Project and the Matilda Offtake.
Intellectual Property Licence Agreement

The key terms of each of these agreements follow:

Share Sale Agreement, as varied by the Novation and Amendment Deed

The key terms of each of these agreements follow:	The key terms of each of these agreements follow:
Share Sale Agreement, as varied by the Novation and Amendment Deed
Interests sold	Shares in each of the companies comprising Astron China (Yingkou Astron Chemical Co Ltd, Astron New Materials (Yingkou) Co Ltd, Taicang Astron Mining Products Co Ltd and Zibo Astron Advanced Materials Co Ltd).
Purchase Price	Initial basic purchase price of Rmb 1,200,000,000.00 converted into Australian dollars, adjusted by adding net cash and Special Capex and subtracting working capital adjustments (if working capital is below Rmb 140 million) and the debt amount. (Separately Astron group entities have foreign exchange hedging arrangements that will ensure Astron receives approximately A$194 million in relation to this basic purchase price).
Earn-out Component	In addition to the purchase price, Imerys will pay an earn-out amount based on the increase in EBITDA for the first two years after completion, ending 31 December 2009, provided certain performance targets are met. In respect of the year ending 31 December 2008, the earn-out will be calculated by the formula 2 x (2008 EBITDA of Astron China - Rmb 130 million). If 2008 EBITDA is greater than Rmb 205 million, Imerys will only be liable to pay up to Rmb 150 million and the excess over this amount is referred to as "First Earn-out Excess". In respect of the year ending 31 December 2009: � if the 2009 EBITDA is greater than or equal to Rmb 150 million, the First Earn-out Excess is payable to Astron and � if 2009 EBITDA is greater than both the 2008 EBITDA and Rmb 130 million, Astron will be entitled to receive an amount calculated by the formula 2 x (2009 EBITDA - (the greater of 2008 EBITDA and Rmb 130 million)).

116755317 \ 0414315 \ JRT01

Conditions precedent	� Approval by the shareholders of Astron. � Transfer of certain excluded assets out of Astron China and the sale of surplus assets � Assignment of certain material contracts. � Execute a heads of agreement for products derived from the Donald Mineral Sands Project � Execute an Offtake Agreement for the zircon sands produced from the zircon concentrate from the Gambia Project, the Senegal Joint Venture and from the Matilda Offtake. � Entry into a Management Assistance Agreement for general assistance to be provided by senior executives of Astron (Alex Brown and Kang Rong) with the day to day operations and management of Astron China. � Continued employment of Alex Brown and Kang Rong on materially the same terms. � Approval of matters in China to permit the amendment of Articles of Association, the transfer of shares and foreign investment enterprise approval by the Ministry of Commerce for Imerys as buyer. � Other customary conditions precedent.
Non solicitation	Astron has agreed not to solicit any competing proposal, and Astron has agreed not to provide any information in response to an approach by a third party, except where a failure to provide that information would be a breach of the fiduciary duties of the directors of Astron. This restriction is from the date of signing of the Share Sale Agreement until the end date of 31 January 2008, or if earlier, termination of the Agreement.
Break fee	Astron has agreed to pay Imerys a break fee if the Proposed Transaction is not completed by the end date of 31 January 2008 and any one of the following conditions occurs, namely Astron shareholders fail to approve the Proposed Transaction, the directors of Astron do or omit to do anything that reasonably ought to have been done to effect the Proposed Transaction, or Astron accepts or enters into an agreement or understanding to accept a competing offer. The amount of compensation depends on whether or not a competing proposal is announced at the time one of the above conditions occurred. If a competing proposal had been announced at the relevant date then a break fee payable is 1% of the basic purchase price or A$1.94 million. In all other circumstances the break fee is A$3.88 million or 2% of the basic purchase price.
Termination events	Imerys has the right to terminate the agreement if there is a catastrophic event (excluding market events impacting the industry as a whole) causing the business of the companies comprising Astron China to cease for two months or more.
Guarantee	Imerys has guaranteed the obligations of its subsidiary, Imerys Asia Pacific, under the Share Sale Agreement.
Non competition	Astron and its senior executives have entered into non-compete obligations for a period of five years regarding the core zirconia materials business. The non-compete provisions permit Astron to develop the Donald Project including by selling product to Imerys under the Offtake Agreement.

116755317 \ 0414315 \ JRT01

Management Assistance Agreement

Management Assistance Agreement	Management Assistance Agreement
Services	Senior executives of Astron, Alex Brown and Kang Rong, will provide such general assistance with the day to day operations, management and administration of the business of Astron China to allow Imerys Asia Pacific to take control of the zirconia materials business and integrate it within the Imerys Group in order to maximise any potential synergies and cross-fertilisation opportunities.
Term	For a period of two years Astron will use its reasonable endeavours to procure that Alex Brown is available for approximately 50% of his time to provide the services and Kang Rong is available for approximately 100% of her time. However, it is acknowledged that the executives remain directors of Astron and the obligations as directors override any obligations to provide the services under the Management Assistance Agreement.
Payment	The base management fee is a fixed fee calculated on the basis of recovering Astron's costs of employing Alex Brown and Kang Rong (being A$697,000 in the first year and increases by 5% in the second year). Additionally, an annual variable fee of up to 100% of the base management fee is payable if certain EBIT targets are met. Additionally, a one time bonus fee of up to 100% of Kang Rong's employment cost is payable if certain EBITDA targets are met.
Termination	The agreement may be terminated if there is a breach or if Astron is not able to procure Alex Brown and Kang Rong's services. The fee is payable pro rata up until termination.


Heads of Agreement – Donald Project
Broad Principles	A non-binding heads of agreement that sets a framework for cooperation including broad price, quality and quantity principles. The aim of the agreement is to establish a market for a proportion of the offtake of zirconium products from the Donald Project.
Term	The agreement will continue until the fifth anniversary of the commencement of the Donald Project.
Purchase of Product	It is expected that Imerys will purchase between 50% and 75% of the annual requirements for Astron China under this offtake arrangement.
Prices	Prices will be determined at the lower of the market price and the most favourable price offered to a third party.


Offtake Agreement – Gambia Project, Senegal Project and Matilda Offtake
Broad Principles	An agreement under which the Astron Group sells zircon product to Imerys derived from Astron's Gambia Project, the Matilda Offtake and any offtake from the Senegal Joint Venture once it is in production.
Term	The agreement commences on completion of the Share Sale Agreement and continues until 31 December 2012.
Purchase of Product	Imerys will purchase all zircon sands conforming to certain quality specifications which are produced from zircon concentrate from the Gambia Project, Matilda Offtake and the Senegal Project, with an option to buy any additional zircon sands produced by Astron or its affiliates.
Prices	Prices will be determined at a discount of 5% to the market price.

116755317 \ 0414315 \ JRT01

Intellectual Property Licence Agreement	Intellectual Property Licence Agreement
Licence	Astron grants Imerys a perpetual, royalty free, worldwide licence to use, reproduce and exploit Astron's intellectual property (being Astron's intellectual property in names, trade marks, logos, designs, devices, marketing material and the products manufactured by Astron China), including to manufacture, package and label the products, to market, promote and advertise the business conducted by Astron China and its products and to sell, offer to sell, distribute and import and export the products.
Sub - licence	Imerys may sub-license the rights granted to it to related bodies corporate provided that any such sub-licence is on no less onerous terms than this agreement.
Conditions of use	Imerys must not create any deception or confusion between its products and Astron (and their products) in respect of Imerys' use of Astron's intellectual property and must not disparage or bring into disrepute Astron or its business.
Exclusivity within Restrained Business	Astron may continue to use its intellectual property itself otherwise than in a restrained business area. Furthermore Astron will not be able to grant any rights in or to the intellectual property to any person for use in or in relation to a restrained business area.

116755317 \ 0414315 \ JRT01

3.3 Financial Impact of the Proposed Transaction

The financial position of Astron as at 1 July 2007 had the Proposed Transaction occurred on 1 July 2007 is set out in Table 1 below.

This pro-forma statement of financial position does not purport to represent the actual financial position of Astron for any future period should the Proposed Transaction occur.

Table 1: Pro-forma Financial Position of Astron as at 1 July 2007 had the Proposed Transaction occurred on 1 July 2007

	Status Quo	Post Proposed Sale
	(A$m)	(A$m)
Current assets	95.60	182.85
Non-current assets	49.26	29.39
Total assets	144.86	212.24
Current liabilities	45.80	0.85
Non-current liabilities	1.11	0.77
Total liabilities	46.91	1.62
Net assets	97.95	210.62
Share capital & reserves	23.42	30.03
Retained earnings	72.83	178.89
Unrealized gain on investment	1.70	1.70
Total shareholder funds	97.95	210.62

Notes on Table 1:

no tax is brought into account
loans assumed to be repaid in full
exchange rate used is A$1 = Rmb 6.45, representing that on 1[st] July 2007
excludes expected gain on foreign exchange hedging arrangements
includes estimated transaction costs

Astron will have a total cash and financial assets balance in excess of A$180 million. As stated in this document, Astron intends to use these assets pursue a range of business initiatives (refer to Section 1).

3.4 Requirement for Shareholder Approval

ASX Listing Rule 11.2 states that a significant change involving an entity disposing of its main undertaking or business requires shareholder approval. This requirement also applies where the entity proposes to dispose of several businesses, if collectively they are more significant than the business of businesses being retained.

3.5 Benefits and Risks of the Proposed Transaction

The benefits and risks of the Proposed Transaction are summarised in Section 1 and discussed in further detail in the Independent Expert’s Report contained in Section 6.

116755317 \ 0414315 \ JRT01

3.6 Conditions To The Proposed Transaction

The Proposed Transaction is subject to the following key conditions precedents:

Approval of the Proposed Transaction by Astron shareholders.
Key material contracts being assigned.
Transfer of certain excluded assets out of Astron China and the sale of certain surplus assets.
Heads of Agreement being entered into for products derived from the Donald Project.
Offtake Agreements being entered into for the zircon sands produced from the zircon concentrates of the Gambia Project, the Senegal Joint Venture and the Matilda Offtake.
Management Assistance Agreement being entered into for general assistance to be provided by some senior executives of Astron with the day to day operations, management and administration of the business of Astron China to allow Imerys Asia Pacific to take control of the zirconia materials business and integrate it within the Imerys Group.
Approval of matters in the People's Republic of China to permit the amendment of the Articles of Association for each of the companies comprising Astron China, the transfer of shares, foreign investment enterprise approval by the Ministry of Commerce for Imerys and issue of certain property certificates, permits and business related certificates for the operation of the businesses.
Other customary conditions precedent.

3.7 Directors’ Recommendation (Recommendation of the Full Board of Astron Limited)

The Directors of Astron at the date of this Explanatory Memorandum are Gerard King, Alexander Brown, Ronald McCullough, Robert Flew, and Kang Rong.

Each of the Directors consider themselves justified in making a recommendation concerning the Proposed Transaction and the Resolution.

THE DIRECTORS UNANIMOUSLY RECOMMEND THAT ASTRON LIMITED’S SHAREHOLDERS VOTE IN FAVOUR OF THE RESOLUTION TO APPROVE THE PROPOSED TRANSACTION.

116755317 \ 0414315 \ JRT01

4. Frequently Asked Questions

116755317 \ 0414315 \ JRT01

What is the Proposed Transaction?

Astron proposes, subject to shareholder approval to sell Astron China to Imerys for an expected cash consideration upon completion of approximately A$194 million. This amount will include the payment by Imerys of a basic purchase price of Rmb 1.2 billion (approximately A$194 million at the hedged foreign exchange rate) (on a debt/cash free basis) plus other contingent additional amounts resulting from the operations of Astron China since the date of signing the Share Sale Agreement. Such conditional additional amounts include an expected positive adjustment to the purchase price paid by Imerys for the disposal of certain assets of Astron China that were not necessary for the conduct of its business by Imerys.

Over a two year period commencing on 1st January 2008 Astron will be eligible to receive two annual earn-out payments. These earn-out payments will be paid in cash and are dependant on the future financial performance of Astron China. The earn-out payments are currently estimated to total approximately A$5 to 15 million. However, it is important to note that receipt of the earnout payments is contingent upon the financial performance of the businesses being sold and this will not be within the direct control of Astron. As part of the Proposed Transaction, Astron and Imerys will be entering in a number of agreements that will govern the parties' future relationship. The key terms of these agreements are summarized in Section 3.

What approvals are required for the Proposed Transaction to proceed?

For the Proposed Transaction to proceed, the Resolution approving the Proposed Transaction must be approved by an ordinary resolution at the Extraordinary General Meeting of Astron shareholders to be held at 10.00am on 17 January 2008.

What is the Resolution?

The Resolution is a resolution to approve the sale of Astron China to Imerys for an expected cash consideration of approximately A$194 million. This amount will include the payment by Imerys of a basic purchase price of Rmb 1.2 billion (approximately A$194 million at the hedged foreign exchange rate) (on debt/cash free basis) plus other contingent additional amounts resulting from the operations of Astron China since the date of signing the Share Sale Agreement.

ASX Listing Rule 11.2 requires approval by a resolution of ordinary shareholders for a change in an entity's activities by the disposal of a significant individual business or several businesses, where collectively they are more significant than the businesses to be retained.

Who is entitled to vote on the Resolutions?

All registered holders of Astron shares as at 10.00am on 15 January 2008 will be entitled to vote, subject to the voting exclusion.

Astron will disregard any votes cast on the Resolution by any person who might obtain a benefit, except a benefit solely in the capacity as a shareholder, if the Resolution is passed, and any associate of that person.

However Astron will not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the proxy form, or it is cast by the person chairing the meeting as a proxy for a person who is entitled to vote in accordance with the directions on the proxy form, to vote as the proxy decides.

Those shareholders entitled to vote may do so in person at the Meeting or by completing and lodging the relevant proxy form accompanying this Explanatory Memorandum.

When and where will the Meeting be held?

The Meeting will be held on 17 January 2008 at Level 19, 2 Market Street, Sydney NSW 2000, commencing at 10.00am.

116755317 \ 0414315 \ JRT01

How can shareholders be sure the best possible price has been obtained for Astron China?

The price agreed was the result of arms-length negotiations between Astron and Imerys, in which Astron was a willing but not anxious seller, and Imerys was a willing but not anxious purchaser.

In the context of the non compete limitations discussed in Section 3.2, and taking into account advice from its corporate advisers the Directors of Astron believe the price being paid by Imerys for Astron China is appropriate. Furthermore, the Independent Expert, KPMG, has concluded that the price being paid by Imerys is in the best interests of Astron's shareholders.

Did Astron consider selling Astron China to parties other than Imerys?

Astron and its corporate adviser, Goldman Sachs JBWere, have considered the universe of potential acquirers for Astron China as well as a range of other corporate alternatives. Preliminary discussions were held with a number of potential acquirers however no formal agreements were concluded and formal discussions have not been pursued.

Astron remains bound by non-solicitation arrangements in favor of Imerys. However Astron’s directors retain their right to act on their fiduciary duty to consider all proposals that may be in Astron shareholders’ best interests.

What Will Astron Look Like Following the Proposed Sale?

Following the Proposed Transaction Astron will have significant financial resources available to allow it to pursue:

Development of the Donald Project.
Expansion of Astron’s Chinese titanium business.
Entry into other mineral sands and related processing businesses.

Why isn’t the offer from Imerys for all of Astron?

Imerys has stated that it is not able to contemplate an offer for all of Astron at a price significantly above that being offered for Astron China. Imerys is not a dedicated natural resources development company and is therefore not in as good a position as Astron to value or develop the Donald Project.

Further, Imerys does not currently have expertise in the titanium sector so are unable to take advantage of the opportunities available to Astron in this field.

What restraints are imposed on Astron as a consequence of the Astron China sale?

Astron and its affiliates are restrained for a period of five years from competing in a business located in Australia, South and East Asia (including China) of:

manufacturing, marketing or selling of zirconium based carbonate, fused zirconia, zircon flour, zirconium minerals or fused silica;
trading third parties' mineral sands concentrate, zircon sand or titanium slag; and
manufacturing and selling third parties' zircon opacifier or zircon oxychloride.

However Astron and its affiliates will not be restrained from manufacturing, marketing or selling of titanium minerals and products, zircon opacifier or zirconium oxychloride coming solely from research and development or the operation of any pilot plant by Astron or any of its affiliates for the sole purpose of market development, manufacturing, marketing or selling zircon opacifier or zirconium oxychloride coming from the Donald Project including by selling product to Imerys under the Offtake Agreements.

116755317 \ 0414315 \ JRT01

What is Astron’s plan if the Proposed Transaction is not approved?

If the Proposed Transaction is not approved, Astron plans to continue growing its zirconia business both organically and through acquisitions. Astron would continue to generate cashflows from the Astron China business and to pursue the development of the Donald Project and titanium sector opportunities.

Shareholders should be aware that the current intention of Astron’s major shareholder, Alex Brown, is to vote in favour of the Resolution. Alex Brown’s current shareholding in Astron is approximately 68.5% and is on its own sufficient to approve the Resolution.

What is the role of the Independent Expert?

The ASX Listing Rules do not require the Notice of Meeting to contain an independent expert’s report. Notwithstanding this the Directors of Astron have determined that in order to provide shareholders with sufficient information to make an informed decision an expert should be appointed.

KPMG has been asked to opine as to whether the Proposed Transaction is “in the best interests” of the ordinary shareholders of Astron. Their report is designed to assist these shareholders in reaching their voting decision.

KPMG's opinion is that the Astron China Sale is in the best interests of the ordinary shareholders of Astron. Shareholders are encouraged to read the Independent Expert’s Report in full, which is contained in Section 6.

How do I vote?

Details on how to vote, either in person or by proxy are contained in the Notice of Meeting.

What is the deadline for lodging proxies?

10.00am on 15 January 2008.

What if I don’t vote?

You do not have to vote on the Resolution. However, if the required shareholder approvals are obtained:

Astron will dispose of Astron China to Imerys; and
Astron will enter into various agreements with Imerys as outlined in Section 3.

What do the Independent Directors recommend?

The Independent Directors consider that the approval of the Resolution is in the best interests of Astron shareholders and unanimously recommend that all Astron shareholders eligible to vote, vote FOR the Resolution.

What should I do next?

You should read this Explanatory Memorandum carefully. If necessary, get independent financial and taxation advice before making any decisions. You should exercise your right to vote. Your Directors believe that the Proposed Transaction is a matter of importance for all shareholders and therefore urge you to vote on the Resolution.

116755317 \ 0414315 \ JRT01

5. Glossary

116755317 \ 0414315 \ JRT01

ASIC means the Australian Securities and Investments Commission.

Astron means Astron Limited ABN 97 000 285 272.

Astron China means Yingkou Astron Chemical Co., Ltd, Astron New Materials (Yingkou) Co., Ltd, Taicang Astron Mining Products Co., Ltd and Zibo Astron Advanced Materials Co., Ltd.

Australian Securities Exchange or ASX means ASX Limited.

ASX Listing Rules means the official listing rules of the ASX.

Board means the board of Directors of Astron.

Completion means the completion of the sale and purchase of the share capital in Astron China.

Director means a director of Astron.

Donald Project means the exploration and mining of mineral sands by Donald Mineral Sands Pty Limited within the Donald tenements located in Victoria under exploration licence 4432 and 4433 and:

(a) the processing, marketing and sale of raw zircon sand, ilmenite and rutile derived from such exploration or mining activities;
(b) the processing, marketing and sale of such products into zircon opacifier and zirconium oxychloride derived from such exploration or mining activities and their sale and marketing; or
(c) the processing, marketing and sale of titanium related products derived from such exploration or mining activities.

Earn-out Payment means payments to be made based on the performance of Astron China for the two financial years commencing 1 January 2008 and ending 31 December 2009.

EBITDA means earnings before interest, taxation, deprecation and amortisation.

Gambia Project means the joint venture between Astron and Carnegie Minerals (Gambia) Limited and Coast Resources Limited to process and stockpile zircon bearing material located on the area subject of Carnegie's exclusive prospecting licence.

Imerys means Imerys SA, a company incorporated under the laws of France whose registered office is at 154 Rue de l'Universite, 75007 Paris, or any of its subsidiaries, including Imerys Asia Pacific.

Imerys Asia Pacific means Imerys Asia Pacific Pte Limited a company incorporated under the laws of Singapore whose registered office address is at 80 Robinson Road, Singapore 068898

Independent Directors means the non executive directors of Astron.

Independent Expert means KPMG Corporate Finance (Aust) Pty Ltd.

Independent Expert’s Report means the report dated 6 December 2007 by KPMG as set out in Section 6.

Management Assistance Agreement means the management assistance agreement to be entered into between Imerys and Astron and the operating companies which comprise Astron China.

Matilda means Matilda Minerals Limited ACN 103 651 538.

Matilda Offtake means the agreement dated 5 July 2005 between Astron and Matilda whereby Astron will purchase and Matilda will sell the heavy mineral concentrate containing commercial quantities of zircon, rutile, ilmenite obtained from Matilda's mining operations.

116755317 \ 0414315 \ JRT01

Meeting means the Extraordinary General Meeting of Shareholders of Astron to be held at 10.00am on 17 January 2008 (or any adjournment of that meeting) convened by the Notice of Meeting.

Notice of Meeting means the Notice of Extraordinary General Meeting of Shareholders of Astron, accompanying this Explanatory Memorandum.

Offtake Agreements means the heads of agreement relating to the Donald Project and the offtake agreement relating to the Gambia Project, the Senegal Joint Venture and the Matilda Offtake.

Rmb means Renminbi, the currency of the People's Republic of China.

Resolution means the resolution set out in the Notice of Meeting.

Proposed Transaction means the proposal for Astron to sell all of the share capital in Astron China to Imerys.

Senegal Joint Venture means the joint venture between Astron and Coast Resources Limited to explore and if warranted develop and mine minerals under an exploration permit in Senegal.

Shareholder or shareholder means the holder of shares in Astron.

Special Capex means the actual capital expenditure of Astron China between 1 September 2007 and the completion of the Proposed Transaction relating to the new zircon opacifier plant at Zibo China and the capacity extension plant at Shenyang China, capped at a maximum of Rmb 20 million.

116755317 \ 0414315 \ JRT01

6. Independent Expert’s Report

116755317 \ 0414315 \ JRT01

ABCD

KPMG Corporate Finance (Aust) Pty Ltd Australian Financial Services Licence No. 246901 Central Park 152-158 St George’s Terrace Perth WA 6000

ABN: 43 007 363 215 Telephone: +61 8 9263 7171 Facsimile: +61 8 9263 7151 www.kpmg.com.au

GPO Box A29 Perth WA 6837 Australia

The Directors Astron Limited Level 19, 2 Market Street Sydney NSW 2000

Our ref Astron-07 Fact Acc revised report1412-PFL.doc

14 December 2007

Dear Sirs

Independent expert report & Financial services guide

Introduction

Astron Limited (Astron or the Company) is an Australian public company listed on the Official List of ASX Limited (ASX). As at 13 December 2007, Astron had a market capitalisation of approximately $139 million[1] . Astron’s principal activities currently comprise:

zirconium and related chemical manufacturing in the People’s Republic of China (PRC)
mineral sands processing and trading.

On 20 April 2007, Astron announced that it had received an approach from a third party in relation to a possible transaction involving the sale of its zirconia materials business that is based in the PRC.

On 29 August 2007, Astron announced that it had entered into a Share Sale Agreement (the Agreement) for the sale of the Company’s interest in four of its subsidiary companies that are registered in the PRC and carrying on the Company’s zirconium and related manufacturing activities (together Astron China)[2] to Imerys Asia Pacific Pte Limited (Imerys Asia Pacific), a 100 percent subsidiary of Imerys SA (Imerys) (the Proposed Transaction).

On 30 November 2007, Astron and Imerys entered into a Novation and Amendment Deed to the Agreement (Novation and Amendment Deed). Under the Novation and Amendment Deed, the key terms were to change the base purchase price, the earn out calculation and the end date. The Novation and Amendment Deed was negotiated following the failure to meet a condition precedent under the terms of the Agreement that had required that the audited accounts as at 30 June 2007 disclose that Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) be no less than Renminbi (Rmb) 130 million. As announced to ASX on 30 October 2007, this was not the case.

1 All amounts expressed in this report are denominated in Australian dollars ($) unless specially noted otherwise. 2 Reference in this report to the acquisition of shares in Astron China by Imerys should be read as referring to the acquisition by Imerys Asia Pacific Pte Limited.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Imerys is a French public company listed on the Euronext Paris Eurolist. As at 13 December 2007, Imerys had a market capitalisation of approximately $6,140 million[3] . Imerys’ principal activities comprise the mining and distribution of industrial minerals. The company’s key products include kaolin, carbonates, building materials such as roof tile and bricks and refractories.

The broad terms of the Proposed Transaction as they impact Astron shareholders are that the Company will receive cash consideration of approximately $194 million[4] , subject to various completion adjustments (the Cash Component), plus a potential deferred earn out dependent upon achievement of future earnings hurdles (the Earn out Component). In exchange, Astron will dispose of its interest in Astron China. Astron will retain, in China, two companies for its ongoing activities:

Yingkou Astron Titanium Ltd (titanium dioxide pigment) (TiO2)
Yingkou Astron Minerals Sands (mineral separation)

The Proposed Transaction is subject to a number of conditions precedent including, amongst others:

Astron shareholders’ approval of the Proposed Transaction
completion of a non-competing business transfer relating to Astron’s TiO2 business
successful assignment or novation of Astron’s rights and entitlements under various key contracts and agreements
execution of a heads of agreement for products derived from Astron’s mineral sands project, the Donald Project
execution of an offtake agreement for the Carnegie Minerals (Gambian Joint Venture) (the Gambian JV), the Senegal Mineral Sands Joint Venture (the Senegal JV) (together the African Joint Ventures), in which Astron holds a 50 percent interest and the Matilda Offtake
continued employment of nominated key personnel with Astron, including Astron directors Mr Alex Brown and Ms Kang Rong on materially the same terms. Mr Brown is also Astron’s largest shareholder
execution of a Management Assistance Agreement for senior executives of Astron to provide general assistance with the day to day operations, management and administration of the business of Astron

3 Based on the prevailing spot rate as at 13 December 2007 of €:A$1.67.

4 The basic purchase price (exclusive of GST) is Rmb1,200,000,000 payable in Australian dollars at an exchange rate calculated three business days prior to the completion date for the Proposed Transaction. Astron entered into a foreign exchange hedging arrangement at the time of signing the Agreement that ensured the original basic price of Rmb 1,249,991,744.40 is converted to Australian dollars at an exchange rate guaranteeing $201 million is received by Astron. These arrangements will be rolled forward and it is expected that the revised purchase price of Rmb 1.200,000,000 will deliver to Astron proceeds of approximately $194 million.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

China to allow Imerys Asia Pacific to take control of the zirconia materials business and integrate it within the Imerys Group

approval from relevant regulatory and government authorities.

Following completion of the Proposed Transaction, it is proposed by the Directors that the majority of funds received from Imerys will be retained within the business to fund the further development of its remaining assets, in particular its African Joint Ventures, the Donald Project and its TiO2 pigment plant project.

The terms of the Proposed Transaction are discussed in further detail at Section 3 below. Astron is now seeking the approval of its shareholders for the Proposed Transaction. The specific terms of the resolution to be approved are set out in the Explanatory Memorandum to which this report is attached.

The Board of Astron has unanimously recommended all Astron shareholders vote in favour of the Proposed Transaction in the absence of a superior offer and Astron’s largest shareholder, Mr Alex Brown, has indicated that, in the absence of a superior offer, he intends to vote in favour of the Proposed Transaction.

We understand that there is no regulatory or legal requirement for an independent expert report to be prepared in the present circumstances. However, in order to ensure that Astron shareholders are fully informed as to whether to support or reject the Proposed Transaction, the Board of Astron has requested KPMG Corporate Finance (Aust) Pty Ltd (KPMG) to prepare an independent expert report opining on whether the Proposed Transaction is “in the best interests” of Astron shareholders.

Summary and conclusion

In our opinion, the Proposed Transaction is in the best interests of Astron shareholders

In forming this opinion, our assessment of the value of Astron China was the primary matter that needed to be considered. This value determined whether the consideration to be received, comprising the Cash Component and the Earn out Component reflects a fair return for Astron shareholders.

Our assessment of the key issues considered in forming our opinion, and the issues that Astron shareholders should consider in deciding whether to accept the Proposed Transaction are summarised below and discussed in more detail in the remainder of this report.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

The assessed value of the consideration to be received of between $199 million and $209 million is fair as the high end of the consideration falls within our range of assessed fair market values for Astron China

We have assessed the value of Astron China to lie in the range of $205 million to $259 million, which compares to our assessed fair values for the consideration to be received of $199 million to $209 million[5] .

Our range of assessed values for Astron China has been undertaken on a sum of the parts basis, includes a premium for control and incorporates cost savings that would generally be available to a purchaser. It does not include other strategic or operational benefits unique to Imerys associated with control of Astron China. With respect to an offer for Astron China, it is reasonable to expect there to be a premium to reflect the advantages associated with acquiring a pool of assets and other strategic and operational benefits.

We note that the low end of our assessed range of fair values for the assets being given up of $205 million implies that the minimum value of the consideration required to ensure that Astron shareholders are not disadvantaged financially by accepting the Proposed Transaction is $205 million, which lies towards the top end of our assessed range of fair values for the Consideration.

In the event Astron shareholders conclude that the fair value of the consideration lies below $205 million, then the Offer would be not fair. We note however that in these circumstances we believe that the offer is, on balance, still reasonable having regard to each of the qualitative considerations set out below and therefore remains in the best interest of Astron shareholders.

The Proposed Transaction provides Astron with a significant pool of funds to pursue other opportunities

Successful implementation of the Proposed Transaction will result in the Company receiving a substantial immediate cash injection of at least $180 million to complement existing cash and financial assets, with a further amount to be potentially received based on the future performance of Astron China. The future Earn out Component over the two years to 31 December 2009 could be significant.

The Company has indicated that soon after the completion of the Proposed Transaction, Astron’s Board will review opportunities for investment in the continuing business and other alternatives that may be available. Currently the majority of funds raised from the Proposed Transactions are provisionally expected to be allocated to fund Astron’s future growth initiatives, with the possibility of a return to Astron shareholders should there be funds surplus to near term requirements. While the majority of funds received will be provisionally allocated and retained, Astron has declared the dividend of $0.20 per share relating to the 2007 financial year, up from $0.10 per share for the 2006 financial year.

In the absence of the Proposed Transaction, it is likely that the Company would need to raise either debt funding and/or undertake some form of equity raising to fund the capital and other expenditure required

5 Astron China has foreign exchange hedging arrangements that will ensure Astron receives approximately

$194 million in relation to the revised basic purchase price of Rmb 1.2 billion.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

to complete the development and, if appropriate, commercialisation of the Donald Project and to pursue other strategic initiatives.

In the event the Proposed Transaction is not approved it is possible that the share price of Astron will fall

The Board of Astron has advised that if the Proposed Transaction is not approved, Astron will continue to be listed on ASX and the Company will pursue the operating strategy put in place prior to the receipt of the offer from Imerys.

On the last trading day prior to the initial announcement of the approach from Imerys on 20 April 2007, Astron shares closed at $2.13 on ASX. At the close of trading on the first day following the announcement, the Company’s shares closed on ASX on that day at $2.67 and have subsequently traded in the range of $2.25 to $3.16 on ASX. Whilst this increase from pre-announcement levels may reflect factors in addition to the Proposed Transaction, we consider that this increase can, at least in part, be attributed to the market’s perception as to the benefits of the Proposed Transaction to Astron.

Accordingly, having regard to our range of assessed fair values for Astron China to be divested and other information contained in the Explanatory Memorandum, in the event the Proposed Transaction is not approved, it is possible that Astron shares will fall significantly from current trading levels.

Other considerations

We have also considered a number of other factors in reaching our conclusion, which are summarised below and discussed more fully in section 12 of this report:

Although indications of serious interest from other parties have been received, no formal alternative offers have been received in respect of Astron or its assets in the period subsequent to the announcement of the initial approach by Imerys. Accordingly, the prospect of an alternative offer on better terms emerging is uncertain.
Astron China represents Astron’s principal source of earnings. Accordingly, completion of the Proposed Transaction will result in a fundamental shift in the risk profile of the Company away from that of zirconium and related manufacturing activities with associated mineral project interests towards that of principally a mineral sands and advanced titanium products and investment company.

Those Astron shareholders not wishing to participate in this change in risk profile may need to rebalance their investment portfolios through the on-market sale of their Astron shares. Accordingly, there is a potential for greater volatility in Astron’s share price, at least in the short term, following completion of the Proposed Transaction as these investors seek to balance their investment portfolios, than would otherwise be the case over the longer term, all other things being equal. Furthermore, exiting shareholders will need to consider the impact of any disposal upon their individual taxation positions.

Completion of the Proposed Transaction is subject to the satisfaction of a number of conditions precedent, including obtaining various consents and approvals. Whilst we do not consider the

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

conditions precedent to be so restrictive as to jeopardise the completion of the Proposed Transaction, we do note that as at the date of this report, a number of these conditions are yet to be satisfied

Astron has estimated that the total costs of implementing the Proposed Transaction are likely to be in the order of $8.5 million. A portion of these costs (approximately $1million) will have been incurred, or will be committed, prior to the date that the shareholders will vote on the Proposed Transaction. In event the Proposed Transaction is not implemented, Astron may also be liable to pay a reimbursement fee of either $1.94 million or $3.88 million to Imerys depending upon the circumstances.
The major shareholder, Mr Alex Brown, has indicated that, in the absence of a superior offer, he intends to vote in favour of the Proposed Transaction.
The Directors have unanimously recommended approval of the Proposed Transaction by Astron shareholders. The Directors and their related entities have a relevant interest in approximately 68 percent of the voting shares of the Company and have advised they intend to vote in favour of the Proposed Transaction in the absence of a superior offer.

2.1 Taxation

While the majority of funds received from the Proposed Transaction will be provisionally allocated and retained, the dividend of $0.20 per share relating to the 2007 financial year has been declared by Astron, up from $0.10 per share for the 2006 financial year. The dividend payment will be made on 12 December 2007 from Astron’s foreign income account. We have been advised that dividends declared by Astron (received from Chinese subsidiaries) and paid to non residents will not be subject to Australian withholding tax.

As the Proposed Transaction does not require the disposal of Astron shares by shareholders, it is not expected that the Proposed Transaction will impact the taxation position of Astron shareholders other than if they elect to dispose of their Astron shares at some point in the future, in which case the market’s assessment as to the Proposed Transaction could reasonably be expected to be reflected in the Company’s share price at that time.

The taxation consequences for exiting shareholders will vary according to the individual circumstances of each shareholder and will be impacted by various factors such as place of residence, original acquisition price etc. Astron shareholders should seek their own independent taxation advice regarding the taxation consequences of the Proposed Transaction.

Individual shareholders uncertain as to the impact of the Proposed Transaction should seek separate advice from their financial and/or taxation adviser.

2.2 General warning advice

This letter is a summary of KPMG’s opinion as to the merits or otherwise of the Proposed Transaction. This opinion should be read in conjunction with, and not independently of, KPMG’s detailed report and appendices as attached.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

In forming our opinion, we have considered the interests of Astron’s shareholders as a whole. The advice does not consider the financial situation, objectives or needs of Astron’s individual shareholders. It is not practical or possible to assess the implications of the Proposed Transaction on individual shareholders, as we do not know their specific financial circumstances.

The decision of Astron shareholders as to whether or not to vote in favour of the Proposed Transaction is a matter for individual shareholders based on their risk profile, liquidity preference and investment strategy. Individual Astron shareholders should therefore consider the appropriateness of our opinion to their specific circumstances before acting upon it.

Our report has been prepared in accordance with the relevant provisions of the Corporations Act, as amended (the Act) and other applicable Australian regulatory requirements. We recommend residents of foreign jurisdictions who are entitled to receive this report and who are uncertain as to the consequences of this seek their own independent professional advice.

This report has been prepared solely for the purpose of assisting Astron shareholders in considering the Proposed Transaction. We do not assume any responsibility or liability to any party as a result of reliance on this report for any other purpose, including but not limited to investment or lending decisions in relation to Astron.

Neither the whole nor any part of this report or its attachments or any reference thereto may be included in or attached to any document, other than the Explanatory Memorandum to be sent to Astron shareholders in relation to the Proposed Transaction, without the prior written consent of KPMG as to the form and context in which it appears. KPMG consents to the inclusion of this report in the form and context in which it appears in the Explanatory Memorandum.

Yours faithfully

==> picture [102 x 47] intentionally omitted <==

Duncan H Calder Executive Director

==> picture [98 x 61] intentionally omitted <==

Jason Hughes Executive Director

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

FINANCIAL SERVICES GUIDE

Dated 14 December 2007

KPMG Corporate Finance (Aust) Pty Ltd ABN 43 007 363 215 (KPMG or we or us or our as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you.

Financial Services Guide

In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide ( FSG ). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees.

This FSG includes information about:

Who we are and how we can be contacted
The services we are authorised to provide under our Australian Financial Services Licence, Licence No: 246901
Remuneration that we and/or our staff and any associates receive in connection with the general financial product advice
Any relevant associations or relationships we have
Our complaints handling procedures and how you may access them.

Financial services we are licensed to provide

We hold an Australian Financial Services Licence, which authorises us to provide financial product advice in relation to:

Interests in managed investments schemes (excluding investor directed portfolio services)
Securities (such as shares and debentures).

We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report.

Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

General Financial Product Advice

In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs.

You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Benefits that we may receive

We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis.

Except for the fees referred to above, neither KPMG, KPMG’s Australian professional advisory and accounting practice (the KPMG Partnership) nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report.

Remuneration or other benefits received by our employees

All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report.

Referrals

We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.

Associations and relationships

Through a variety of corporate and trust structures KPMG is ultimately controlled by and operates as part of the KPMG Partnership. Our directors may be partners in the KPMG Partnership.

From time to time KPMG, the KPMG Partnership and/or entities related to the KPMG Partnership may provide professional services, including audit, tax and financial advisory services, to financial product issuers in the ordinary course of its business.

Complaints resolution

Internal complaints resolution process

As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to The Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213.

When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.

Referral to External Dispute Resolution Scheme

A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Industry Complaints Service Limited ( FICS ). FICS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry.

Further details about FICS are available at the FICS website www.fics.asn.au or by contacting them directly at Financial Industry Complaints Service Limited, PO Box 579, Collins Street West, Melbourne VIC 8007

Toll free: 1300 78 08 08 Facsimile: (03) 9621 2291

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Contents of the remainder of KPMG’s report

The remainder of this independent expert’s report is set out below under the following headings:

The	remainder of this independent expert’s report is set out below under the following headings:
3	Background to the Proposed Transaction .........................................................................................11
4	Basis of assessment...........................................................................................................................13
5	Profile of the principal industry in which Astron operates ...............................................................15
6	Profile of Astron ...............................................................................................................................16
7	Profile of Astron’s principal assets...................................................................................................28
8	Profile of Imerys ...............................................................................................................................37
9	Valuation of the Assets.....................................................................................................................39
10	Valuation of consideration................................................................................................................48
11	Profile of Astron post transaction .....................................................................................................49
12	Evaluation of the Proposed Transaction ...........................................................................................52
Appendix 1 - Qualifications and declarations ............................................................................................57
Appendix 2 - Sources of information .........................................................................................................59
Appendix 3 - Industry Overview................................................................................................................61

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

3 Background to the Proposed Transaction

On 20 April 2007, Astron announced that it had received an approach from a third party in relation to a possible transaction involving the sale of its zirconia materials business based in China.

On 29 August 2007, Astron announced that it had entered into the Agreement with Imerys for the sale of the Company’s interest in Astron China, which comprises:

Yingkou Astron Chemical Co., Ltd (ACCL)
Astron New Materials (Yingkou) Co., Ltd
Taicang Astron Mining Products Co., Ltd
Zibo Astron Advanced Materials Co., Ltd.

3.1 Consideration

In consideration for the sale of Astron China, Imerys has agreed to pay Astron:

The Cash Component
The Earn out Component.

The Cash Component

The final Cash Component is to be determined as follows:

Cash Component = (A + B) − (C+D)

where:

A = 1,200,000,000 Rmb (Astron has entered into hedging arrangements that will ensure Astron receives approximately $194 million)

B = Cash, as defined in the Agreement and Deed of Amendment (including a Specific Capex Amount)
C = Debt, as defined in the Agreement
D = Working Capital Adjustment, as defined in the Agreement

with each of B, C and D to be determined as at the date of completion of the Proposed Transaction.

The Earn out Component

In respect of the year ending 31 December 2008, Imerys shall pay to Astron an amount (if positive) calculated as follows:

8 × 25% of (EBITDA − Rmb130 million)

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

3.2

Provided the total amount is greater than Rmb205 million, Imerys will not be liable to pay the excess over Rmb150 million (First Earn out Excess) in respect of the year ending 31 December 2008 at that time.

In respect of the year ending 31 December 2009:
i) if 2009 EBITDA is greater than or equal to Rmb150 million, the First Earn out Excess is payable to Astron
ii) if 2009 EBITDA is equal to or greater than both 2008 EBITDA and Rmb130 million, Imerys shall, in addition to the First Earn out Excess, pay to Astron an amount, calculated as follows:
- 8 × 25% of (EBITDA Year 2 − (the greater of EBITDA Year 1 and Rmb130 million))

Payments in respect of the Earn out Component, if any, will be made in Australian dollars, converted from Rmb at the relevant exchange rate as at close of the business day prior to the end of 31 December 2008 or 31 December 2009 as the case may be.

Conditions

The Agreement is subject to a number of conditions precedent including, amongst others:

Astron shareholders’ approval of the Proposed Transaction
Completion of a non-competing business transfer relating to Astron’s titanium dioxide business
Assignment of key sales and distributor agreements to companies nominated by Imerys
The sale of surplus properties specified in the agreement at book value to an Astron subsidiary
Execution of head of agreement in relation to products derived from the Donald Project
Execution of offtake agreement for Gambian JV, the Senegal JV and the Matilda offtake in relation to all zircon sands produced from zircon concentrate
Provision of evidence of ownership of various property assets, business licenses and environmental and work safety checks
Continued employment of Mr Alexander Brown and Ms Kang Rong with Astron on materially the same terms in place prior to completion of the Proposed Transaction
Execution of a Management Assistance Agreement for senior executives of Astron to provide general assistance with the day to day operations, management and administration of the business of Astron China to allow Imerys Asia Pacific to take control of the zirconia materials business and integrate it within the Imerys Group

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Relevant approval for the Proposed Transaction from appropriate regulatory authorities and government instrumentalities.

3.3 Non-Solicitation

The Agreement provides that Astron, its employees, officers and associates must not directly or indirectly solicit, initiate or encourage any competing proposal, or discuss, agree or approve of any competing proposal. This restriction is from the date of the agreement until the end date of 31 January 2008 or, if earlier, termination of the Agreement.

These obligations do not prevent Astron or the Astron Board from complying with their fiduciary or statutory responsibilities.

3.4 Break fee

Astron may be liable to pay Imerys non-completion compensation if the Proposed Transaction is not completed by the end date of 31 January 2008 and any of the following occurs prior to that date:

Astron accepts or enters into or offers to accept or enter into any agreement or understanding regarding a competing proposal or any other transactions that may reduce the likelihood of completion being achieved under the Agreement
Astron shareholders fail to approve of the share sale to Imerys
Mr Alex Brown or Astron or any of its directors does or omits to do anything that reasonably ought to have been done, that results in failure to satisfy the conditions precedent.

The amount of non-completion compensation depends on whether or not a competing proposal had been announced at the time one of the abovementioned conditions occurred. If a competing proposal had been announced at the relevant date, the non-completion compensation payable will be $1.94 million. In all other circumstances, the non-completion compensation payable will be $3.88 million.

3.5 Termination

Imerys has the right, but not the obligation, to terminate the Proposed Transaction if Astron delivers a supplementary disclosure letter or a catastrophic event occurs. We are advised that this is intended to apply in situations where events occur that result or are likely to result in Astron being substantially unable to carry on its business in the PRC for a period of two months or more.

Basis of assessment

This report has been prepared by KPMG for inclusion in an Explanatory Memorandum to be sent to Astron shareholders to convene a extraordinary general meeting of Astron shareholders on 10.00am on 17 January 2008. The purpose of the meeting will be to seek approval of the Proposed Transaction.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

4.1 Technical requirements

We understand that there is no regulatory or legal requirement for an independent expert report to be prepared in the present circumstances. However, in order to ensure that Astron shareholders are fully informed as to whether to support or reject the Proposed Transaction, the Board of Astron has requested KPMG to prepare an independent expert report opining on whether the Proposed Transaction is “in the best interests” of Astron shareholders.

In considering what will constitute being in the best interests of Astron shareholders, we have had principal regard to Regulatory Guide 75 “Independent Expert Reports to Shareholders”, issued by the Australian Securities and Investments Commission (ASIC), which outlines the principles and matters which ASIC expects a person preparing an expert report for inclusion in an explanatory statement to consider in the context of determining whether a scheme of arrangement is “in the best interests of the members”.

With respect to determining the meaning of “in the best interests” paragraph 6 of Regulatory Guide 75 states:

“Fair and reasonable” should be taken as a reference to “in the best interests of the members”.

Whilst this does not indicate that ASIC considers “fair and reasonable” to have the same meaning as “in the best interests of members” we consider that an analysis undertaken under the concepts of “fair” and “reasonable” as expressed in Regulatory Guide 75 is consistent with determining whether a proposal is “in the best interests of members”.

In our opinion an assessment of whether the Proposed Transaction is in the best interests of Astron shareholders should involve a comparison of the advantages and disadvantages likely to accrue to Astron shareholders if the Proposed Transaction proceeds, with those if it does not. Accordingly, in the context of our report, the Proposed Transaction will be in the best interests of the Astron shareholders, if Astron shareholders are assessed as being better off if the Proposed Transaction proceeds than if it does not.

4.2 Factors considered in determining our opinion

In forming our opinion, we have considered in particular the following issues:

the assessed value of the equity in Astron China compared with the value of the consideration to be received from Imerys
the extent of any control premium being paid by Imerys
the level of synergies and cost savings available to a pool of purchasers
the likely level of synergies and cost savings unique to Imerys
the liquidity of the market for Astron shares

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

the position and prospects of Astron post transaction
the likelihood of a competing offer emerging
any conditions associated with the Proposed Transaction
the consequences of not approving the Proposed Transaction
other advantages and disadvantages which may impact Astron shareholders if the Proposed Transaction proceeds

4.3 Sources of information

In preparing this report and arriving at our opinions, we have considered a number of sources of information as detailed in Appendix 2 to this report.

The statements and opinions expressed in this report are made in good faith and have been based on information believed to be reliable and accurate. We have relied upon the information set out in Appendix 2 and have no reason to believe that any material factors have been withheld from us. The preparation of this report does not imply that KPMG or any of its affiliates have carried out any form of audit on the accounting or other records of any entity within the Astron or Imerys group of companies, their investments or associates.

The information provided to KPMG included financial and operational projections prepared by the management of Astron. Prospective results are by their nature uncertain and are dependent on a number of future events, which cannot be guaranteed. Accordingly, achievement of these projections is not warranted or guaranteed by KPMG. Actual results may vary significantly from the prospective information relied on by KPMG. Any variations from prospective results may affect our opinion.

The opinion of KPMG is based on prevailing market, economic and other conditions at the date of this report. It should be noted that conditions can change over a relatively short period of time and that our findings should be considered in light of any such changes. Any subsequent changes in these conditions could impact upon our assessments, either positively or negatively.

It is not the role of the independent expert to undertake the commercial and legal due diligence that a company and its advisers may undertake. Imerys is responsible for its enquiries in relation to the assets, liabilities and financial performance of Astron. KPMG provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process, which is outside our control and beyond the scope of this report. We have assumed that the due diligence process has been and is being conducted in an adequate and appropriate manner.

Profile of the principal industry in which Astron operates

Astron’s principal business operations can be broadly characterised as comprising the manufacture of zircon based products. The raw material required by Astron is zircon and Astron is the largest zircon

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6 6.1

purchaser and user in the PRC. Accordingly, Astron’s financial performance is impacted by developments in the zircon industry. Astron sources zircon in three ways:

Long term supply contracts with third parties
Strategic alliances involving direct investment with resource development companies
Development of wholly owned resources.

To provide a context for assessing the prospects of Astron in the zircon industry, we have included at Appendix 3 a overview of recent trends in the zircon market.

Profile of Astron

Corporate background

The Company was originally formed in 1959 as a real estate investment vehicle. It has had a number of name changes over time. Its former names include South Coast Estates (Holdings) Limited and Dickson & Johnson Holdings Limited. Astron Limited was established in Australia in 1983 as a primary producer of zircon products and other related materials. Astron is now one of the world’s leading manufacturers of zirconium and related products, delivering high quality products at low cost through a number of factories in China and a distribution network in China and throughout the world. The Company was listed on the Official List of ASX on 11 November 1986 and as at 13 December 2007, had a market capitalisation of approximately $139 million.

Astron became involved in zircon and zirconium materials in China in 1988, with two zirconium materials projects, including one processing ilmenite and zircon on Hainan Island and the other manufacturing advanced zirconium chemical, powders and metals.

The Company has enjoyed strong and sustained growth in revenue and sizeable profit in China since 1988 and in recent years its outstanding growth performance has been recognised in Australia (Top 20 listed growth company (three year average) Business Review Weekly and in the United Kingdom (UK) (Top 10 growth company-Mining Journal)

The Company has demonstrated a strong competitive and technical position operating in China where competition is characterised as fierce and profit performance difficult to consistently achieve.

Astron established a wholly owned subsidiary, Shenyang Astron Mining Industries Ltd, in 1992 and commenced importing zircon sand from Australia into China and operating with two Joint Venture factories manufacturing zirconium chemicals. In order to complement its zircon sand import business, Astron also established a zircon flour factory at Zibo, Shandong Province in 1996.

In 1999, Astron developed more advanced chemicals at its wholly owned zirconium chemical plant in Bayuquan, Yinkou, Liaoning Province to produce zirconium basic carbonate, zirconium basic sulphate, zirconium acetate and zirconium propionate. This plant was significantly expanded over 2000 and 2001 to widen its product range to include fused zirconia and has had regular incremental expansions in the subsequent period. It is now the largest producer of these materials in the world.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6.2

Acquiring specialised equipment and personnel from Merck Ltd’s production facilities at Poole in the UK in 1998, Astron commenced producing optical materials and coatings. The plant was later relocated to a new optical chemical factory at Yingkou.

In order to expand its distribution network worldwide, Astron established Astron Advanced Materials Ltd in the UK in 2000 to provide customers in Europe with direct sale and product services.

Today, Astron has a large sales and distribution network throughout the PRC, as well as distribution capabilities in the United States (US), Europe and Japan. Through this network, Astron distributes its extensive range of products to over 2,000 customers in more than 30 countries. Astron has five separate production facilities, nine regional offices, eighteen warehouses and a research and development facility since it established its Headquarters in Shenyang, China. Astron was the first ISO9002 Quality Assurance Accredited Company in its industry in the PRC.

Astron also has an interest in various other mineral sands projects, including the 100 percent owned Donald Project in Victoria and a 50 percent interest in the Gambian JV zircon project and Senegal JV mineral sands project in West Africa, the other 50 percent ownership in the Joint Ventures is held by UKlisted Carnegie Minerals Plc (Carnegie).

Corporate structure

Astron has a number of subsidiaries, the majority of which are wholly owned. The principal operating structure of the Astron Group is set out diagrammatically below.

Figure 1- Astron corporate structure

==> picture [423 x 152] intentionally omitted <==

----- Start of picture text -----

Dickson & Bradford Astron Astron Advanced Astron YingkouAstron
Zirtanium Pty Ltd Sovereign Gold NL Johnson Pty Ltd Industries LimitedMetal Advanced Materials Limited Chemical Co Ltd (Yingkou) Co Materials Resource Co Mineral
Ltd Ltd
Donald
Mineral Carnegie
Sand Pty Ltd Minerals
Gambia Ltd
Zibo Astron Taicang Astron Astron
Advanced Mining Titanium
Materials Co Products Co (Yingkou)
Ltd Ltd Co Ltd
Source: Astron
----- End of picture text -----

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6.3 Financial performance

Astron’s historical audited consolidated financial performance for each of the four years ended 30 June 2007 is summarised in the table below.

Table 1: Summary of Astron’s historical consolidated financial performance

	Audited Year ended 30 Jun 2004 $000 Audited Year ended 30 Jun 2005 $000 Audited Year ended 30 Jun 2006 $000 Audited Year ended 30 Jun 2007 $000
Revenue Revenue from trading1 Other revenue Total Revenue Other income Cost of sales Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Other expenses Share of Profit/(Loss) of associates EBIT3 Net financing income/(expense) Operating profit before income tax Income tax (expense)/benefit Net profit after tax attributable to members Total revenuegrowth2- %	104,719 140,225 150,731 181,602 182 100 - 10
	104,901 140,325 150,731 181,612 - 169 783 2,274 (76,329) (97,796) (119,715) (152,444) (4,499) (5,144) (4,754) (6,802) (1,697) (1,345) (1,247) (863) (122) (138) (351) (295) (5,350) (8,879) (6,204) (7,886) (1,030) (153) (123) (637) 128 (311) - 28
	16,002 26,728 19,120 14,987
	(625) 8 432 (1,089)
	15,377 26,736 19,552 13,898 (226) (684) 1,037 (2,466)
	15,151 26,052 20,589 11,432 27.4% 33.9% 7.4% 20.5%
EBIT margin3- % NPAT margin3- % Basic earnings per share - cents Diluted earnings per share – cents Dividend per share4– cents Closing share price - $ Dividend payout ratio5- % Dividendyield6- %(unfranked)	15.3% 19.0% 12.7% 8.3% 14.4% 18.6% 13.7% 6.3% 30.2 45.2 35.4 19.2 30.2 45.2 35.3 19.2 - 10.0 10.0 10.0 2.68 3.00 3.10 2.85 - 22.1% 28.3% 52.1% - 3.2 3.2 3.5
Notes 1. Revenue excludes interest revenue 2. Total revenue is revenue from trading plus other revenue less interest revenue 3. EBIT is earnings from trading before net interest and tax. NPAT is net profit after tax attributable to members of Astron. EBIT margin is calculated as EBIT divided by total revenue. NPAT margin is calculated as NPAT divided by total revenue 4. The Company has declared the dividend of $0.20 per share relating to the 2007 financial year, up from $0.10 per share for the 2006 financial year

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

	Audited	Audited	Audited	Audited
	Year ended	Year ended	Year ended	Year ended
	30 Jun 2004	30 Jun 2005	30 Jun 2006	30 Jun 2007
	$000	$000	$000	$000
_5. _	Dividend payout ratio is calculated as dividend per share divided by diluted earnings per share
_6. _	The dividend yield has been calculated using the closing share price at the end of the financial period

Source: Astron 2004, 2005, 2006 and 2007 annual reports, KPMG analysis

Observations in relation to Astron’s historical financial performance are set out below:

Year ended 30 June 2004

Astron’s net profit after tax was $15.2 million, representing a 142.8 percent increase over the previous year. This increase was primarily due to continuing increased demand for zirconium based products from the PRC and global growth in a wide variety of applications and zirconium grades. It was however partly offset by the adverse impact of rising raw material prices.

Year ended 30 June 2005

Astron adopted Australian equivalents to International Financial Reporting Standards (AIFRS) for the first time in respect of the year ended 30 June 2006. The comparatives for the year ended 30 June 2005 were restated by the Company accordingly and are reflected in the table above. Results for the year ended 30 June 2004 were not restated by the Company.

Astron’s net profit after tax for the year ended 30 June 2005 was 72 percent higher than the previous year. Sales revenue was approximately $140 million, an increase of approximately 34 percent. This increase principally reflected Astron’s continued development of the Company’s downstream activities, moving away from zircon sand trading and toward manufactured zirconium materials.

Year ended 30 June 2006

Revenue growth principally was driven by the increased price and volume in sales of fused and chemical products.

Astron reported a net profit after tax of $20.6 million for the year ended 30 June 2006, representing a decrease of 21 percent compared to the year ended 30 June 2005. This was mainly due to the difficulty in passing through to customers substantial raw material price increases.

Year ended 30 June 2007

Revenue from trading for the year ended 30 June 2007 was $181.6 million representing an increase of approximately 20.5 percent compared to previous year and the Company again achieved new record revenues. This revenue increase principally reflected a strong performance for all divisions and in particular a significantly increased sales of titanium slag to TiO2 producers across China.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Astron’s net profit for the year ended 30 June 2007 declined from $20.6 million in 2006 to $11.4 million. The key factors attributing to this result included:

Softening of the zircon sand market in China resulting in lower margins from sales of zircon sand
Adverse movement in foreign exchange between US$ and Chinese Rmb
Lower margins from traded titanium products due to difficulties in passing through raw material prices
Significant increases in freight cost for export and domestic sales and increases in tonnages moved
Increased income tax rate in China applicable to Astron’s principal trading entity Astron Chemical Co Ltd
Write-off of consulting and advisory fees and other costs associated with the Proposed Transaction.

As certain account adjustments were made to the inventory valuations, income tax provisions and foreign currency losses on group loans, the audited net profit of $11.4 million has differed from that reported to ASX on 31 August 2007 of $14.1 million.

6.4 Financial position

Astron’s historical audited consolidated net assets as at each of 30 June 2004, 2005, 2006 and 2007 are summarised below.

Table 2: Summary of Astron’s historical consolidated financial position

	Audited 30 Jun 2004 $000 Audited 30 Jun 2005 $000 Audited 30 Jun 2006 $000 Audited 30 Jun 2007 $000
Cash and cash equivalents Trade and other receivables Inventories Available for sale financial assets Total current assets Receivables Other financial assets Investments accounted for using the equity method Property, plant and equipment Deferred tax assets Deferred exploration, evaluation and development costs Intangible assets Other Total non-current assets	15,616 13,429 20,784 9,785 12,445 16,720 21,454 29,679 20,304 25,927 28,643 49,941 - - 8,250 6,199
	48,365 56,076 79,131 95,604 1,868 - - - - 6,582 - - - - - 2,172 12,648 14,865 21,089 21,733 - - 1,080 729 14,095 - - - - 15,438 18,338 24,620 - 523 311 -
	28,611 37,408 40,818 49,254

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

	Audited 30 Jun 2004 $000 Audited 30 Jun 2005 $000 Audited 30 Jun 2006 $000 Audited 30 Jun 2007 $000
TOTAL ASSETS Trade and other payables Financial liabilities Current tax liabilities Total current liabilities Deferred tax Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS Number of shares on issue - 000s Net assets per share - $ Net tangible assets per share1-$ Total tangible assets2/Total liabilities - times	76,976 93,484 119,949 144,858 17,545 20,313 20,615 31,888 9,128 - 3,477 13,605 1,395 1,391 74 301
	28,068 21,704 24,166 45,794 - - 1,080 1,077 - - - 40
	- - 1,080 1,117
	28,068 21,704 25,246 46,911
	48,908 71,780 94,703 97,947
	12,875 57,647 58,322 60,435 3.80 1.25 1.62 1.62 3.80 0.98 1.31 1.99 2.74 3.60 4.02 2.56
Notes 1 Net tangible assets is net assets less research and development costs 2 Total tangible assets are total assets less research and development costs

Source: Astron 2004, 2005, 2006 and 2007 annual reports

We make the following observations in relation to Astron’s historical financial position:

Astron has maintained a very conservative gearing profile and risk policy from inception and strict system and financial controls.
The historical financial position as at 30 June 2005, 2006 and 2007 reflect the impact of AIFRS. The financial position as at 30 June 2004 was not restated to reflect AIFRS.
Astron has maintained a strong net cash position over the period to 30 June 2006.
Cash held at 30 June 2007 fell to $9.8 million, principally due to the significant decreased net cash from operating activites and increased cash outflow on investing activities.
Available for sale financial assets as at 30 June 2006 comprised an investment in the ordinary issued capital of Bemax Resources Limited (Bemax). Astron anticipates that capital gains tax would not be payable on the sale of these assets at fair market values due to capital losses carried forward.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6.5 Summary of cash flow statements

Astron’s audited consolidated cash flows for each of the four financial years ended 30 June 2007 are summarised below.

Table 3: Summary of Astron’s historical cash flows

	Audited Year ended 30 Jun 2004 $000 Audited Year ended 30 Jun 2005 $000 Audited Year ended 30 Jun 2006 $000 Audited Year ended 30 Jun 2007 $000
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Income tax (paid) Interest paid Share of profits – Joint Venture *Net cash inflow from operating* *activities* Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of investment Acquisition of property, plant and equipment Acquisition of available for sale investments Development expenditure *Net cash (outflow) from investing* *activities*	100,537 149,226 151,284 180,324 (82,189) (129,140) (135,363) (184,203) 167 181 431 133 (286) (549) (1,375) (1,504) (625) (173) - (1,222) 128 - - -
	17,732 19,545 14,977 (6,472) - - 31 - - - 2,395 1,657 (5,417) (4,626) (6,786) (4,582) (121) (6,600) - (1,901) (473) (1,349) (2,808) (7,915)
	(6,011) (12,575) (7,168) (12,741)
Cash flows from financing activities Proceeds from the issue of shares Proceeds /(repayments) of borrowing Dividends paid to shareholders *Net cash (outflow) from* *financing activities* *Net movement in cash held* Cash and cash equivalents1at the beginning of the year Effects of exchange rate changes on cash *Cash and cash equivalents1at the end of theperiod*	6,435 - 1,770 (13) (7,955) (8,362) 2,989 11,018 - - (5,809) (1,107)
	(1,520) (8,362) (1,050) 9,898
	10,201 (1,392) 6,759 (9,315) 5,339 15,616 13,429 20,784 76 (795) 596 (1,685)
	15,616 13,429 20,784 9,784
Note 1 Cash and cash equivalents comprise the net of cash, Astron’s bank balances and short-term deposits which support bank guarantees over the ongoing operations of the Donald Project.

Source: Astron 2004, 2005, 2006 and 2007 annual reports

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Astron’s net cash position as at 30 June 2007 has been impacted by timing arrangements of shipping deliveries at year end and changes in strategic inventory holdings.
Astron’s cash flows for investing activities increased significantly in the 12 months to 30 June 2005, with a net cash outflow of $12.6 million, which was primarily due to an increase in payments for acquisition of available Bemax shares for sale investments. As a result cash on hand fell to approximately $13 million.
There was a significant fall in the level of net cash inflows from operating activities for the year ended 30 June 2007 when compared to the year ended 30 June 2006, principally as a result of the reduced overall gross margins, reflecting the market conditions for zircon sand market and flour and a higher proportion of titanium slag sales.

6.6 Hedging arrangements

Aside from those arrangements specifically related to the Proposed Transaction, we are advised that the Company does not engage in currency hedging, partially relying on natural hedges in the business against the trading of zircon being predominantly denominated in US dollar.

6.7 Taxation

Under the double tax agreement between Australia and China, there is no restriction on repatriating profits from China to Australia. The dividends that Chinese subsidiaries have paid to Astron during 2007 are not assessable as income in Australia.

In China, Astron benefits from a low taxation regime and Astron has advised us that a number of tax concessions are currently available including:

No tax for the first five years of new established subsidiaries operations
A 50 percent reduction in the tax rate for Astron as a high technology company
Other significant concessions for other arrangements including profit reinvestment.

6.8 Franking credits

Under Australia’s dividend imputation system, introduced in July 1987, Australian companies accrue franking credits in respect of the tax paid on their profits generated in Australia. We are advised that the Company does not have franking credits available to utilise in paying future dividends.

6.9 Contingent liabilities

We are advised that the Company currently does not have any contingent liabilities. We note that a break fee is potentially payable in relation to the Proposed Transaction.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6.10 Share capital and ownership

Astron has on issue 60,434,610 fully paid ordinary shares, which are quoted on ASX. Astron’s top 10 shareholders as at 19 November 2007 are set out below.

Table 4: Astron’s top 10 shareholders as at 19 November 2007

	Number of shares held % of issued capital
Firback Finance Limited P T Arafua Mining Limited FSC Investment Holdings Limited Consolidated Trade Resources Pty Limited HSBC Custody Nominees (Australia) Limited Querion Pty Ltd Combined Oil & Gas Pty Ltd Standard Treasure Ltd Ellrock Pty Ltd Mr Darrell Vaughan Manton & Mrs Veronica Josephine Manton Top 10 shareholders Other shareholders Total shares on issue	26,519,443 43.9 14,865,446 24.6 3,206,641 5.3 1,420,000 2.4 1,285,765 2.0 1,193,408 2.0 1,000,000 1.7 641,615 1.1 431,884 0.7 402,437 0.7
	50,966,639 84.4 9,467,971 15.6
	60,434,610 100.0

Source: Astron management

Mr Alexander Brown is currently the Chief Executive Officer of Astron and has a total beneficial interest in 41.4 million Astron shares, which represents approximately 68 percent of the Company’s issued capital. Mr Brown’s substantial shareholding can be considered to be a strategic holding and therefore unlikely to form part of the free float of the Company.

Substantial shareholder notices have been received by the Company from the parties set out below.

Table 5: Substantial shareholders

	Number of shares held % of issued capital
Firback Finance Limited P T Arafua Mining Limited FSC Investment Holdings Limited	26,519,443 43.9 14,865,446 24.6 3,206,641 5.3
	44,591,530 73.8

Source: Astron management

6.11 Share price history

The chart below depicts Astron’s daily closing share prices since 1 January 2005 and the volume of shares traded expressed as a percentage of issued capital.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Figure 2: Astron share price and volume trading history

==> picture [415 x 255] intentionally omitted <==

----- Start of picture text -----

4.50 1.00%
4.00 0.90%
0.80%
3.50
0.70%
3.00
0.60%
2.50
0.50%
2.00
0.40%
1.50
0.30%
1.00
0.20%
0.50 0.10%
0.00 0.00%
Volume traded Astron share price
Share price ($)
Daily volume traded as a percentage of issued capital
Jan/05 Feb/05 Mar/05 Apr/05 May/05 Jun/05 Jul/05 Aug/05 Sep/05 Oct/05 Nov/05 Dec/05 Jan/06 Feb/06 Mar/06 Apr/06 May/06 Jun/06 Jul/06 Aug/06 Sep/06 Oct/06 Nov/06 Dec/06 Jan/07 Feb/07 Mar/07 Apr/07 May/07 Jun/07 Jul/07 Aug/07 Sep/07 Oct/07 Nov/07 Dec/07
----- End of picture text -----

Source: Bloomberg

Astron’s share price traded in the range of $2.05 to $4.09 on generally thin volumes in the period since 1 January 2005. Astron’s share price achieved its highest price during the period of $4.09 on 30 January 2006. The last traded price for Astron shares prior to the date of the announcement of the initial approach by Imerys was $2.13. Since the announcement, Astron’s shares have closed between $2.25 on 24 August 2007 and $3.16 on 31 August 2007. We note that Astron’s share was suspended from Official Quotation from 1 October to 30 October 2007, following failure to lodge its audited financial statements for the year ended 30 June 2007 by the end of September in accordance with listing rules. The closing price on the day prior to the date of this report was $2.30.

Significant announcement made by Astron since 31 December 2006 that may have impacted its share price include:

30 November 2007 – Astron announced that the transaction with Imerys was progressing but that the terms had been amended
31 October 2007 – Astron announced the relevant dates for its final dividend in respect of the year ended 30 June 2007
31 October 2007 – Astron released its first quarter report ended 30 September 2007 in relation to mining production and exploration activities

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

30 October 2007 – Astron announced that the suspension of trading would be lifted before the commencement of trading on 31 October 2007 following lodgement of its full year accounts for the period ended 30 June 2007
1 October 2007 – Astron was suspended from Official Quotation, following failure to lodge its audited financial statements for the period ended 30 June 2007
3 September 2007 – Astron released its preliminary final report for the year ended 30 June 2007
29 August 2007 – Astron announced a share sale agreement with Imerys for the sale of its Chinese downstream zirconia materials business
31 July 2007 – Astron released its fourth quarter report of the production and exploration activities including the Donald Project and Gambian & Senegal investments
19 July 2007 – Astron announced that Carnegie had completed a significant drilling programme in southern Senegal
12 July 2007 – Astron announced that Carnegie had received an independent ore reserve statement for the Niafarang deposit in southern Senegal.
17 May 2007 – Astron announced that its partner in the African Joint Ventures, Carnegie, had commenced a substantial air-core programme in Southern Senegal.
7 May 2007 – Astron announced that Carnegie had completed its exploration programme over the first mineral sands deposit in Southern Senegal, which had substantially increased the resource base of the project.
30 April 2007 – Astron released its third quarter report of the production and exploration activities including the Donald Project and Gambian & Senegal investments.
20 April 2007 – Astron announced its acquisition of a strategic land parcel in the Cope region of Western Victoria to develop the Donald Project.
20 April 2007 – Astron advised that it had been approached by a third party in relation to a possible transaction involving the sale of its zirconia materials business based in China.
28 February 2007 – Astron released its half year report. NPAT for the period ended 31 December 2006 was $7.38 million, a decrease of 44 percent when compared to the six months ended 31 December 2005.
31 January 2007 – Astron released its second quarter report of the production and exploration activities.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

23 January 2007 – Astron announced Carnegie had contracted the Australian company Wallis Drilling to undertake a substantial drilling programme on its Senegalese assets.

6.12 Liquidity History

An analysis of the volume of trading in Astron’s shares in the 18-month period to the last trading day prior to the announcement of the initial approach by Imerys in relation to the Proposed Transaction on 20 April 2007 is set out below.

Table 6: Trading liquidity in Astron share pre-announcement of the initial approach

Period up to and including 19 April 2007	Closing share price (high) Closing share price (low) Volume Weighted Average Price $ $ $ Cumulative volume	As a % of issued capital

1 week 1 month 3 months 6 months 12 months 18months	2.13 2.07 2.09 130,347 2.18 2.05 2.10 420,384 2.57 2.05 2.27 1,097,227 2.75 2.05 2.37 1,791,516 3.64 2.05 2.67 3,472,674 4.09 2.05 3.06 6,689,207	0.22% 0.70% 1.82% 2.99% 5.87% 11.39%

Source: Bloomberg

In relation to the results in the table above, we note that Astron shares have exhibited thin liquidity in the period leading up to the announcement of the initial approach, with only approximately 5.9 percent of shares on issue being traded over the year prior to the announcement of the initial approach by Imerys.

However, we note that approximately 68 percent of Astron’s current issued capital is held by Mr Alexander Brown, which can be considered to be a strategic holding, thereby reducing the level of the Company’s “free-float”. In the event these shares are excluded the percentage of free float traded over the twelve months was approximately 34 percent.

Following on the announcement of the initial approach by Imerys, Astron announced that it has entered into a share sale agreement for the sale of Astron China on 29 August 2007. An analysis of the volume of trading in Astron’s shares in the period from 20 April 2007 to the day prior to the date of the announcement is set out below.

Table 7: Trading liquidity in Astron’s shares post announcement of the initial approach

Period from	Closing	Closing	Volume	Cumulative	As a % of
20 April 2007 to	share price	share price	Weighted	volume	issued capital
28 August 2007	(high)	(low)	Average Price
	$	$	$
85trading days	2.90	2.19	2.56	1,402,591	2.32%

Source: Bloomberg

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

6.13

7 7.1

An analysis of the volume of trading in Astron’s shares in the period from 29 August 2007 to the day prior to the date of this report is set out below.

Table 8: Trading liquidity in Astron’s shares post announcement of the Proposed Transaction

Period from 29 August 2007 to 13 December 2007	Closing share price (high) Closing share price (low) Volume Weighted Average Price Cumulative volume As a % of issued capital
	$ $ $
53 trading days	3.16 2.27 2.76 1,330,877 2.20%

Source: Bloomberg

Options

The Company currently does not have on issue any options over unissued shares.

Profile of Astron’s principal assets

Astron China

Astron’s primary production locations are all in the PRC which provides a highly competitive low cost advantage for the Company. The principal areas of business operations of Astron China can be broadly categorised as comprising:

Fused zirconia
Zirconium chemicals and chemical oxides
Zircon materials
Optic materials and coatings
Titanium products.

Details of Astron’s key businesses are set out below.

Fused Zirconia

The majority of Astron’s zirconia is produced from zircon in electric arc furnaces and then through various crushing, screening or chemical processes.

Astron is the world’s largest producer of advanced fused zirconia materials used for refractory and ceramics as well as grinding industries. To meet the increasing demand for fused zirconia, particularly for stabilized fused zirconia, Astron increased its capacity for fused zirconia production from 7,000 tonnes per annum to 13,000 tonnes per annum in 2004 through the installation of two new furnaces at its plant in Bayuquan. The current capacity of fused zirconia is approximately 15,000 tonnes per annum and will lift eventually to 23,000 tonnes per annum by an expansion programme which is currently underway.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Figure 3: Fused zirconia processing flow

==> picture [63 x 42] intentionally omitted <==

==> picture [62 x 44] intentionally omitted <==

==> picture [63 x 102] intentionally omitted <==

==> picture [78 x 78] intentionally omitted <==

Source: Astron 2006 annual report

Zirconium Chemical products and Oxides

Astron is one of the world’s largest producers of advanced zirconium chemicals.

Zirconium chemicals and other special zircon chemical products are produced from zircon by chemical methods and are used in the production of a wide range of products including catalyst, anti-perspirant, paper film, paint, drier, ink, leather, TiO2 filming, superior ceramics and electronic products.

Astron produces a full range of high quality high reactivity chemical zirconias and processes basic chemical zirconias, including zirconium oxychloride (ZOC), zirconium basic sulphate (ZBS), zirconium acid sulphate (ZAS), zirconium basic carbonate (ZBC) in the PRC. Astron’s chemical capacity is 22,000 tonnes per annum comprising ZBC, ZBS, ABC and advanced zirconium.

Figure 4: Zirconium chemical products processing flow

==> picture [227 x 109] intentionally omitted <==

==> picture [82 x 141] intentionally omitted <==

Source: Astron 2006 annual report

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Zircon Materials

Zircon materials comprise of zircon sand, zircon flour and zirconium silicate. Zircon sand is mainly used in ceramic powder, refractory, casting, chemical and weld bars. Zircon flour is used as frits, which are used in turn to opacify ceramic glazes. Zirconium silicate is mainly used as opacifier for ceramic glaze.

Astron’s zircon sand is principally imported from Australia and Africa and is used to manufacture end products at its production facilities in the PRC. Astron also sells various grades of zircon, zircon flour and zirconium silicate directly to customers in the PRC.

To secure zircon feedstock supply and generate a new revenue stream through selling raw materials directly to small customers in China, Astron has moved towards developing its own zircon supply projects including the Gambian JV and Donald Project. The Gambian JV commenced zircon production in 2006, with an initial target production of 20,000 tonnes per annum and Donald Project is expected to produce approximately 90,000 tonnes per annum in stage 1, with substantial potential for future expansion.

Figure 5: Zircon materials processing flow

==> picture [66 x 41] intentionally omitted <==

==> picture [84 x 74] intentionally omitted <==

Source: Astron 2006 annual report

Optic Materials and Coatings

Astron produces super high-purity zircon and rare earth fluoride and oxide for use in mono crystals for laser, as well as superior optical materials and coating in vacuum film-plating application.

Titanium Products

Titanium mineral sands has various feedstocks mainly including ilmenite, rutile and slag. Astron commenced the sale of these products in 2004. The Company introduced high purity titanium slag as a feedstock to the Chinese TiO2 industry. It currently imports titanium slag from Rio Tinto for sale to Chinese TiO2 sulphate process pigment plants. This business is currently growing strongly.

To meet the increase in Chinese demand for titanium products, a 180,000 tonnes per annum titanium pigment plant (90,000 tonne stage1) is planned to be developed by Astron.

Research and Development

Astron’s research and development organisation is based at the Bayuquan Technology Centre in the city of Bayuquan, China. Astron’s research and development activities have three primary goals:

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Provision of innovative improvements to existing products and processes in a steady and continuing way
Development of new products to expand the revenue stream
Investigation of new technology for products with more effective properties, or at a lower cost.

In order to achieve these objectives, Astron provides its staff with state of the art research laboratories and equipment. In addition to in-house research, Astron is also collaborating with a number of external research institutions and universities in Australia, China and the UK.

The development pipeline for new products and processes flowing from the Company’s activities has been a feature of Astron’s operations and success to date.

Historical earnings and growth prospects

Set out below is summary of the historical performance of Astron China over the last four financial years and forecast performance for the year ending 30 June 2008.

Table 9: Summary of the historical and forecast performance of Astron China

	2004 2005 2006 2007 2008
Rmb000s	Actuals Actuals Actuals Actuals Forecast
Sales Cost of sales Freight & warehouse Gross Margin Selling expenses Financial expenses Management expenses Bonus Total expenses Net profit before tax Income tax Net profit after tax Add backs Interest Income tax Depreciation EBITDA	615,168 875,606 906,008 1,153,475 2,004,127 (460,655) (612,087) (714,985) (965,532) (1,682,363) (21,412) (30,931) (27,093) (27,838) (40,083)
	133,101 232,588 163,930 160,105 281,681
	(13,965) (15,713) (19,701) (20,586) (20,095) (3,280) (1,153) 274 (5,493) (9,339) (18,833) (22,734) (24,348) (33,772) (29,745) (9,376) (18,479) (11,326) (4,061) (22,250) (45,454) (58,079) (55,101) (63,912) (81,429)
	87,647 174,509 108,829 96,193 200,252
	(3,279) (4,991) (9,973) (12,961) (21,138)
	84,368 169,518 98,856 83,232 179,114
	3,697 1,060 6,152 1,300 3,279 4,991 9,973 12,961 21,138 7,322 12,451 16,786 14,833 20,800
	98,666 188,020 125,615 117,178 222,352
Gross margin - % Selling expenses - % Financial expenses - % Management expenses - % Total expenses - % Net profit after tax -%	21.6% 26.6% 18.1% 13.9% 14.1% 2.3% 1.8% 2.2% 1.8% 1.0% 0.5% 0.1% 0.0% 0.5% 0.5% 3.1% 2.6% 2.7% 2.9% 1.5% 7.4% 6.6% 6.1% 5.5% 4.1% *13.7%* *19.4%* *10.9%* *7.2%* *8.9%*

Source: Astron China 2008 Budget

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

In addition, Astron is expecting continued growth in the two years ending 30 June 2010. We have considered the underlying long term earnings projections prepared by Astron for the period to 30 June 2010 and discussed them in detail with Astron’s executive directors and senior management. We have been requested by Astron not to disclose any internal long term budgets due to issues of commercial sensitivity.

Figure 6: Sales Revenue Figure 7: EBITDA

==> picture [408 x 166] intentionally omitted <==

----- Start of picture text -----

250
2,500
200
2,000
150
1,500
222
100 188
1,000 2,004
126 117
500 876 907 1,153 50 99
615
0
0
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
Historical Budget Historical Budget
RMB M
RMB M
----- End of picture text -----

Source: Astron China 2008 budget

We make the following observations in relation to the financial performance for the four years to 30 June 2007:

Sales revenue growth averaged 24 percent over the four years to 30 June 2007 principally reflecting the continuing increased demand for zirconium based products from the PRC. It was however partly offset by the adverse affect of rising raw material prices.
Astron achieved significant EBITDA growth of 91 percent to Rmb188 million for the year ended 30 June 2005. The historical EBITDA trend reversed in 2006 mainly due to an overall limit in zircon supply, the difficulty in passing through zircon commodity price increases to customers, as well as some instability in the China market at the end of the 2006 financial year.
We have been advised by Astron management that certain account adjustments to cost of goods have resulted in a decline in EBITDA in year 2007.
Profit margins in individual years reflect market conditions for raw materials and Astron’s aggressive expansion activities and competitive position in the market.

The 2008 forecast represents an increase of 108.2 percent at a net profit before tax level. The unaudited management accounts for the first quarter of financial year 2008 record an increase in net profit before tax compared to the unaudited management accounts for the corresponding period in the previous year of 7.2 percent.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

In relation to the projected EBITDA, we note that these estimates were prepared by Astron late last financial year and assumed the early finalisation of the Proposed Transaction and the expenditure of a large amount of capital that has subsequently been deferred. Accordingly, the Directors are in the process of recasting the 2008 projections and anticipate a reduction in the level of projected EBITDA in the order of 25 percent.

Growth Prospects

Astron’s operating business is based in the PRC and focuses mainly on the sale of zircon products to Chinese industry, with particular leverage to the China market. The Company has built a strong platform in the PRC and has demonstrated an ability to:

Manage and protect its Intellectual Property (IP) in the PRC
Manage commercial disputes in the PRC
Access Government subsidies and financial support in the PRC
Manage construction projects in the PRC at low cost
Develop widespread and effective marketing positions in the PRC
Build distribution systems, including multiple branch sales offices around the PRC.

Management has historically focussed on certain niche markets and the potential to expand into other markets is strong.

Management has focussed on revenue growth believing that margins have and will be determined by actual market conditions in the short term rather than management initiatives. These market conditions include the difficulty in passing through zircon commodity price movements to customers without a time lag and market competition for expansion of market share etc. The Company’s capacity to control margins, markets and market share through longer term price arrangements is expected by management to improve strongly as the Company expands the Gambia Project and develops the Donald Project.

Astron China’s customer risk is well diversified as today it has over 2,000 customers across a broad spread of industries, providing some protection against downturn in particular sectors. Astron China sells into the following industries, which provide a broad exposure to the growing Chinese economy:

Paint driers – ZCM products used in construction and infrastructure
TiO2 coatings – ZCM products used in construction and infrastructure
Abrasives – used in manufacturing
Castings – used in manufacturing

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

7.2

Paper
Ceramics – Opacifier (ZSL) and zircon flour used in construction and infrastructure
TV glass – zircon flour used in TV screens used as x-ray absorber
Catalysts – automotive catalysis and industrial emission control.

Management has identified that businesses of smaller producers in China are being squeezed, which places a low cost producer like Astron in a strong position to make acquisitions or other cooperation arrangements. Several transactions are being contemplated. Once these begin to be implemented and successfully integrated there is strong potential for additional growth.

The potential for growth is currently being constrained by the workload of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) particularly related to a new computer software system installation and there is a need to broaden and deepen the senior management team to fully capitalise on this growth potential.

The African Joint Ventures

Astron also holds a 50 percent interest in African Joint Ventures, which comprise of a mining license in the Republic of The Gambia (Gambia), as well as an exploration license and general mining agreement in southern Senegal. The projects are often considered together as a result of their geographic proximity.

In 2002, Astron formed an equal joint venture with Carnegie to recover heavy mineral sands in Gambia in West Africa. The African Joint Ventures comprise three mineral sands resources including Sanyang, Batukunku and Kartung. A summary of total measured, indicated and inferred resources are contained in the table below.

Table 10: Summary of Gambia heavy minerals resources

Deposit	Resource (Mt) Grade heavy minerals (%) Heavy minerals (tonnes)
Sanyang Batukunku Kartung Total	11.0 6.0 662,000 7.2 4.0 286,000 0.6 4.8 28,000
	18.8 5.2 976,000

Source: Astron 2007 Annual Report.

The zircon product is particularly suited to use in the fused zirconia process. Its zircon has very favourable chemical impurity specifications and has one of the lowest uranium and thorium specifications in the world and allows direct reduction to zirconia which meets the 500 particle per million specification required by USA and Japan. The ilmenite however has high chromium levels which severely restricts its use.

The African Joint Ventures commenced production during the second half year of 2006, with a target of 20,000 tonnes per annum of zircon/rutile non-magnetic concentrate. Currently three dredges have been

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

brought into full production and the African Joint Ventures are on track to meet 2007 production targets in Gambia.

Carnegie’s exploration team is continuing an air-core test drilling programme of priority exploration areas identified by the high-resolution airborne magnetic and radiometric survey carried out in late 2006, based on preliminary initial work to date the potential exists for significant extension or expansion of the African Joint Ventures operations.

On 5 June 2007, in Southern Senegal a reserve of approximately 3.4 million tonnes grading 16.0 percent heavy minerals was announced for the Niafarang deposit.

All exploration in Senegal is 50 percent co-funded by Astron, with the emerging production in Gambia solely funded by Astron and all mining equipment and technical expertise also provided by Astron.

Audited historical financial information for Carnegie Minerals (Gambia) Limited, the entity that holds the Gambian mining license, for the year ended to 31 December 2006 is shown below.

Table 11: Summary of Carnegie Minerals (Gambia) Limited historical financial performance

	Audited year ended 31 Dec 2006 GMD1	Unaudited half year ended 30 Jun 2007 GMD2
Revenue EBITDA Depreciation and amortisation EBIT Net interest expense Income tax Netprofit/(loss) after tax	4,328,274 2,429,061 (10,496,030)	22,086,485 15,659,221 (9,246,715)
	(8,066,969) (141,845) -	6,412,506 - (94,345)
	(8,208,814)	6,318,161
Notes 1 Information on financial performance in the table above is presented in Gambian Dalasi (GMD). As at 31 December 2006, one Australian dollar was worth approximately 22.78 GMD. Applying this exchange rate, the net loss after tax of Carnegie Minerals (Gambia) Limited for the year ended 31 December 2006 was approximately $360,000. 2 As at 30 June 2007, one Australian dollar was worth approximately 22.85 GMD. Applying this exchange rate, the net profit after tax of Carnegie Minerals (Gambia) Limited for the half year ended 30 June 2007 was approximately $276,500.

Source: Carnegie Minerals (Gambia) Limited 2006 Annual Report, June 2007 unaudited management accounts.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

The table below summarises Carnegie Minerals (Gambia) Limited’s audited historical financial position as at 31 December 2006.

Table 12: Summary of Carnegie Minerals (Gambia) Limited's historical financial position

	Audited as at 31 Dec 2006 GMD	Unaudited as at 30 Jun 2007 GMD
Cash Inventory Receivables Other current assets Total current assets Deferred exploration and evaluation costs Plant and equipment Total non-current assets TOTAL ASSETS Current liabilities Total current liabilities Long-term liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS	3,415,270 6,908,615 5,638,047 - 15,961,932 47,406,120 23,918,197 71,324,317	5,624,833 13,561,308 27,117,423 282,735 46,586,299 57,133,644 25,499,354 82,632,998
	87,286,249	129,219,297
	698,634	2,043,967
	698,634	2,043,967
	58,096,826	92,366,383
	58,096,826	92,366,383
	58,795,460	94,410,350
	28,490,789	34,808,947

Source: Carnegie Minerals (Gambia) Limited 2006 Annual Report, June 2007 unaudited management accounts.

Applying the prevailing exchange rate as at 31 December 2006, the net assets of Carnegie Minerals (Gambia) Limited as at 31 December 2006 were approximately $1.25 million.

Applying the prevailing exchange rate as at 30 June 2007, the net assets of Carnegie Minerals (Gambia) Limited as at 30 June 2007 were approximately $1.52 million.

The long term liabilities of Carnegie Minerals (Gambia) Limited consist of an interest free loan from Astron.

7.3 Donald Mineral Sands Project

The Donald Project, located 240 kilometres northwest of Melbourne, is one of the world’s largest undeveloped zircon projects and is capable of sustaining a large, low cost mining operation.

Astron holds Exploration Licenses through its wholly owned subsidiary, Donald Mineral Sands Pty Ltd. A contiguous ore body in the Project area was defined underpinning an expected first stage mining operation of 7.5 million tonnes of ore per annum for at least 25 years.

The development of the Donald Project is ongoing. Finalisation of the Environmental Effect Statement and detailed mine planning is continuing. Commencement of construction is planned for March 2008,

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

7.5

with shipping of products expected in 2009. Commencement of this operation will add significant scale to Astron’s potential.

The project’s zircon and titanium products are very fine grained (50 micron) which make them ideally suited to chemical and grinding operations.

New production processes were trialled in 2005 using material from a large trial mining slot to confirm processing designs handling and separation of the mineral products.

In 2004, a project area was de-lineated comprising approximately 18 percent of the resource area.

7.4 Titanium Project

Astron began building up its titanium materials trading activities in China in 2004 to meet the increase in demand for titanium products. The construction of a 90,000 tonne per annum titanium pigment plant using chlorine process began in mid 2004 and has achieved several milestones including completion of the technical and commercial feasibility studies, detailed design and the like. It is expected to meet the targeted production capacity of 90,000 tonne per annum after fifteen months from trial start-up. Astron currently is seeking a partner for this business.

Mineral Separation Plant

In 2007 Astron approved the construction of a processing plant at Yingkou, China, which will be used to process concentrates from Gambia and Matilda projects. The site has been secured and the detailed design has been completed. It is expected that the construction will complete in early 2008.

Profile of Imerys

8.1 Corporate background

Imerys was established in 1880 with a core business of mining and processing non-ferrous metals. In 1974, the group’s name was changed to Imetal, with metals processing becoming a core sector of operations. From 1990 onwards, the group focused on industrial minerals, acquiring interests in the production of kaolin and calcium carbonate.

The group is now organised into three primary business groups:

performance minerals and pigments
materials and monolithics
ceramics, refractories, abrasives and filtration.

Mineral reserves and resources

The portfolio of minerals mined and processed by Imerys includes ball clays and red clays, calcium carbonate, feldspar, graphite and kaolin.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

A summary of Imerys’ mineral reserves and resources as at 31 December 2006 is shown in the table below.

Table 13: Summary of Imerys' mineral reserves and resources

	Reserves	Resources
	(kt)	(kt)
Ball clay	24,476	43,955
Carbonates	251,465	472,892
Clays	95,552	29,103
Feldspar	40,127	37,991
Graphite	184	89
Kaolin	114,209	185,487
Minerals for filtration	10,611	529,394
Minerals for refractories	10,898	20,526
Slate	125	388
Other minerals	3,320	5,015

Source: Imerys 2006 Annual Report.

Performance minerals and pigments

This business group focuses on the minerals of kaolin and carbonates, which are used in products such as plastics, rubber, coatings, adhesives, sealants, health, beauty and nutrition. For the year ended 31 December 2006, the performance minerals and pigments business group generated approximately €1,138 million in sales. The business group employs over 4,700 people. Approximately 60 percent of revenues and employment in this business group come from the pigments for paper area, where Imerys is a world leader.

Materials and monolithics

This business group covers building materials such as clay roof tiles, bricks and slate, monolithic refractories and kiln furniture. The monolithic refractories area produces materials with high levels of heat resistance, used in applications such as steelmaking, casting, cement, energy, petrochemicals and incineration industries. The materials and monolithics business group generated sales in 2006 of approximately €935 million, with over 4,200 employees. Over 50 percent of these figures were attributable to the building materials area.

Ceramics, refractories, abrasives and filtration

Activities undertaken in this business group concern minerals for ceramics, refractories, abrasives, filtration, graphite and carbon. This business group generated approximately €1,235 million in sales in 2006 and had over 6,700 employees.

Zirconium materials activities include two business units Treibacker Industries Gv, is a market leader in aluminium and zirconium abrasive materials and is one of Astron’s most important customers for monoclinic fused zirconia. It recently acquired (2007) Unitech Ltd, a UK and USA producer of fused and chemical zirconias. Unitech is a major competitor of Astron being one of the world’s largest producers of stabilized fused zirconia, a product currently being produced in expanding quantities by Astron.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

8.2 Share capital and ownership

Shares in Imerys are listed on the Euronext Paris Eurolist. The company’s principal shareholders are Pargesa Netherlands BV and Belgian Securities BV, a subsidiary of the Bruxelles Lambert group, which hold approximately 27 percent and 26 percent of Imerys’ issued capital respectively.

The market capitalisation of Imerys as at 13 December 2007 was €3,677 million ($6,140million ).[6]

Valuation of the Assets

9.1 Valuation methodology

The principal consideration in considering whether the Proposed Transaction is in the best interests of Astron shareholders is to compare the underlying value of Astron China to the value of the consideration to be received from Imerys.

The value of Astron China has been assessed on the basis of fair market value, that is, the value agreed between a knowledgeable and willing, but not anxious buyer, and a knowledgeable and willing, but not anxious seller, acting in an arm’s length transaction, where both buyer and seller are fully informed.

ASIC Regulatory Guide 12 (RG 12) states that in completing a report under the Act it is appropriate for an independent expert to consider, amongst other methods of valuation, the application of earnings multiples, discounted cash flow (DCF) analysis and asset-based methodologies.

Each of the abovementioned methodologies is applicable in different circumstances. In selecting the appropriate methodology to value the assets to be sold, we have considered which of these methodologies a potential purchaser would most likely adopt.

In our experience, the most appropriate methodology for determining the value of assets similar to those to be sold by Astron is by aggregating the estimated market value of any continuing businesses operations together with the realisable value of non-trading assets and deducting external borrowings and nontrading liabilities, with the principal operating businesses (Astron China), being valued using the capitalisation of earnings approach, reflecting that:

Astron China has established a record of stable, growing and profitable operations
Astron China can, in the absence of the Proposed Transaction, reasonably be expected to continue operations for the foreseeable future
Astron China does not prepare detailed long-term cash flow projections, although high level medium term forecasts and budgets are available.

6 Assuming an exchange rate of €:$1.67

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

9.2

Application of the capitalisation of earnings methodology involves capitalising the earnings of a business at a rate that reflects the risks of the business and the net income stream that it generates and requires the determination of three key factors:

future maintainable earnings (FME)
an appropriate range of capitalisation multiples
the level of other net assets, including non-trading assets and liabilities, including existing debt within the business.

We have used the audited net assets of the Company as at 30 June 2007 as set out in Section 6 of this report as the basis for our valuation.

Due to the various uncertainties inherent in the valuation process, we have determined a range of values which we consider appropriate for the value of Astron China.

Summary of assessed values

We have assessed the full underlying value of Astron China to lie in the range of approximately $205.2 million to $258.7 million, inclusive of premium for control.

In assessing the value of Astron China, we have considered the level of direct synergies that could reasonably be expected to be available to a pool of purchasers but consider that they are likely to be negligible. We have not included any additional value in respect of the synergies and other strategic benefits that may be unique to Imerys. Accordingly, our valuation of the assets to be sold has been determined regardless of the acquirer.

Set out below is a summary of the range of fair market values at which the assets to be sold have been assessed.

Table 14: Summary of assessed value of Astron China

	Assessed values
	Low $M High $M
Future maintainable earnings Capitalisation multiples Enterprise value Less: net debt Assessed equityvalue of Astron China	22.0 25.0 9.5 10.5
	209.0 262.5 (3.8) (3.8)
	205.2 258.7

Source: KPMG analysis

Our valuation of Astron China excludes any consideration of the assets to be retained by Astron, including the African Joint Ventures, the Donald Project, a TiO2 Project in China, and other sundry assets as current Astron shareholders will retain their same proportionate interest in these assets. This makes

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

9.3

any direct comparison to Astron’s share price difficult. We note that the current market capitalisation of Astron (which excludes a premium for control) is approximately $139 million.

Overview of valuation analysis

FME of Astron China

FME is considered to be that level of average earnings which the business could be expected to maintain on average in real terms ignoring short-term economic fluctuations. Estimation of FME requires consideration of, inter alia, historical and projected performance and non-recurring and/or abnormal items that may have or are expected to impact performance.

In forming an opinion as to the FME of Astron China, it is important to look at both historical and prospective results.

As such, in determining an appropriate level of FME for Astron China, we have had primary regard to:

The historical actual earnings for the years ended 30 June 2004, 2005, 2006 and 2007
Astron China’s actual results for the first quarter ended 30 September 2007
The Company’s strategy for the future operation and growth of Astron China
The level of robustness of the principal operating assumptions underpinning the prospective financial information prepared by the Company
The industry outlook.

We have adopted EBITDA as the most appropriate earnings base for the valuation of Astron China after considering:

The capitalisation of EBITDA is commonly used in assessing the fair market value of a company as a whole in the context of an offer to acquire 100 percent of a company’s issued capital, where gearing will be in the control of the acquirer.
Our analysis of appropriate capitalisation multiples involves the consideration of both domestic and overseas evidence: Use of EBITDA multiples ensures that the impact of any differences in the accounting and tax treatments by comparable overseas companies in terms of depreciation and amortisation policies and interest rate differentials are eliminated.
The different gearing levels adopted by participants in the industry and potential for differing market conditions in terms of domestic and overseas debt markets.

In considering the outlook we considered historical and forecast EBITDA as shown in the diagram below, as well as considering Astron’s expectations for the two years ending 30 June 2010.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Figure 8: Historical and forecast EBITDA

==> picture [250 x 203] intentionally omitted <==

----- Start of picture text -----

300
250
200
150 140-160
222
100 188
126 117
50 99
0
2004 2005 2006 2007 2008
Historical Budget
M aintainable EBITDA (low) M aintainable EBITDA (high)
RMB M
----- End of picture text -----

Source: KPMG analysis and Astron budget.

Having regard to the above, we believe an FME for Astron China in the order of Rmb140 million to Rmb160 million is appropriate, and have adopted an estimate of future maintainable earnings of $22 million to $25 million using the current prevailing exchange rate of AUD1.00:Rmb 6.5 (rounded).

Table 15: Future maintainable EBITDA for Astron China

	Future	maintainable EBITDA
	Low	High
	$M	$M
Astron China	22.0	25.0

Source: KPMG analysis

9.4 Capitalisation multiple

The EBITDA multiples inclusive of premium for control we have used to capitalise the adopted level of maintainable earnings of Astron China being sold are summarised below.

Table 16: Summary of adopted EBITDA multiples

	Low	High
Astron China	9.5	10.5

Source: KPMG analysis

The primary approach used by purchasers of a business in determining an appropriate capitalisation multiple is often a comparison of the implied multiples paid in acquisition transactions involving companies comparable to the target. However, where there is a lack of either sufficient market

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

information or directly comparable transactions to be able to complete a meaningful analysis, it is necessary to infer an appropriate multiple from other means.

We also note, that even where market information is available in relation to comparable transactions, a wide range of implied multiples may result from any consideration of historical transaction multiples, reflecting inter alia:

The individual business characteristics of the target, including its growth prospects
The level of synergies and cost savings available to purchasers
The special benefits available or strategic value of the target to the individual acquirer or both
Whether the acquisition is competitive
General prevailing market and economic conditions at the time of the acquisition.

An alternative approach to determining an appropriate capitalisation multiple is to review the multiples at which comparable companies trade on the sharemarket, recognising that these multiples reflect trading in small portfolio interests and therefore may not include a premium for control that would attach to a 100 percent interest in the relevant company.

In assessing an appropriate capitalisation multiple for Astron China, we have had particular regard to, amongst other things:

Multiples implied by recent completed transactions
The prevailing market rating of comparable companies
The quality and risk of the earnings being capitalised
The specific characteristics of Astron China
The potential level of direct synergies available to a pool of purchasers of Astron China.

Transaction evidence

There have been very few recent acquisitions of zirconium producers internationally, with those acquisitions being principally of private companies or companies in other jurisdictions. As a result, there has been relatively little publicly available information available in relation to these transactions. The historical EBITDA and EBIT multiples, where available, implied by these transactions are summarised in the table below.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Table 17: Summary of comparable transaction multiples

Target	Date	Acquirer	Value	Implied	Implied
				historical	historical
				EBITDA	EBIT
				multiple	multiple
			US$m	times	times
UCM Group plc	Apr 07	Imerys SA	58.0	11.1	36.9
Johnson Matthey	Mar 07	Pamplona Capital	304.0	n/a	7.4
Ceramics division		Partners
Denain-Anzin	Oct 05	Imerys SA	74.9	n/a	n/a
Mineraux
Zirtanium Limited	Mar 04	Astron Limited	n/a	n/a	n/a
Zirchem division of	Sep 02	AMR	496.0	n/a	n/a
Meldform Metals		Technologies Inc
Limited

Source: Company announcements and KPMG analysis

We do not consider the abovementioned analysis provides a significant level of guidance as to an appropriate multiple for Astron China given

The limited information available with respect to each of the transactions
Each of the transactions was to acquire a 100 percent interest in the target company or division (which operated as a stand alone business unit). Accordingly, it is likely that the value of the transactions considered would have included both a pure control premium and a premium for potential synergies and cost savings uniquely available to the purchaser
The earnings multiples observed for the acquisition of UCM Group plc reflects UCM Group plc’s poor financial performance in the 12 months to 30 June 2006, where the company recorded weak earnings and a net loss position.

Trading multiples of comparable listed companies

In an Australian context, the relatively small size of the market means that it can sometimes be difficult to find traded companies that are directly comparable to the subject company being valued. As such, valuers are often required to think broadly in selecting a sample of comparable companies.

In our analysis of comparable company trading multiples for Astron, we choose to look beyond those companies listed in Australia and also considered companies whose product ranges are not specifically confined to zirconium products.

In determining an appropriate range of capitalisation multiples for Astron China, we have had primary regard to the trading multiples of those selected listed companies set out in the table below.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Table 18: Summary of comparable companies' traded multiples

	EBITDA multiples
Company Market capitalisation US$m Enterprise value US$m	Historical 2006 times Forecast 2007 times Forecast 2008 times
Compagnie de Saint-Gobain 36,511.0 53,406.9 Imerys SA 5,419.1 7,403.1 Ferro Corporation 924.3 1,499.7 Neo Material Technologies Inc 480.9 559.0 Daiichi Kigenso Kagaku- Kogyo Co 158.4 185.5 China Zirconium Limited 124.7 106.0 Average Median	7.56 6.44 6.01 10.22 7.43 6.75 9.09 7.49 6.80 9.97 9.10 7.39 8.66 n/a n/a 8.39 9.72 n/a
	8.98 8.04 6.74 8.87 7.49 6.78
Note: 1. Market capitalisation taken as at 6 December 2007. 2. Market capitalisation and enterprises value converted to US$ at the prevailing spot rates at 6 December 2007.

Source: Bloomberg, company reporting and KPMG analysis

We make the following general observations in relation to the EBITDA multiples presented in the table above:

Most of the companies in the table above operate with a financial year end of 31 December. The exception is Daiichi Kigenso Kagaku-Kogyo Co, which has a 31 March year end.
The multiples shown reflect share prices in day-to-day trades on the relevant stockmarket. This represents trades in small portfolio interests and as such, the multiples shown may not include a premium for control
Compagnie de Saint Gobain (Saint Gobain), Imerys and Ferro Corporation are substantially larger companies than Astron China. It can be expected that, all other things being equal, a larger company will trade at a comparatively higher earnings multiple, as it is able to inter alia, achieve economies of scale and greater bargaining power. The trend of higher multiples for larger companies can be seen in our chosen sample of comparative companies
Saint Gobain, Imerys and Ferro Corporation enjoy a greater product range and geographical exposure compared to Astron China. As these companies’ business interests are more diversified, their shares may arguably be expected to trade at higher earnings multiples.

In addition to the general comments above, we note the following in relation to the multiples for individual companies:

Saint Gobain has recorded strong sales. Sales have been driven by demand in the construction market, with strong growth in European markets, contrasted with negative growth in the US.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Imerys is trading at high historical earnings multiples, with forecast multiples falling to levels closer to other comparables. Sales and earnings for 2006 were up on previous years, but negatively impacted by adverse market conditions and group restructuring. Analysts are anticipating very strong earnings growth in 2007, due to the company’s strong market position and kaolin restructuring.
Ferro Corporation displays very high historical earnings multiples. Forecast multiples fall significantly. Analysts are expecting strong earnings growth for 2007 as a result of opportunities to improve margins and expand into Asia, and cost saving restructuring.
For Neo Material Technologies Inc, sales and earnings in 2006 were much stronger than in 2005, when the company recorded two quarterly net losses. Analysts have forecast largely stable earnings for 2007 and solid increases for 2008. Growth is expected to be driven by greater application of high technology materials in common products such as compact fluorescent light bulbs.
The historical earnings multiples for Daiichi Kigenso Kagaku-Kogyo Co are very close to the averages for the comparable group. No forecast earnings were available, possibly a result of the company’s smaller size.
Asia Zirconium Limited’s historical and forecast earnings multiples are lower than most others in the comparable group. Analysts forecast higher earnings for the company in 2007, largely due to higher demand for zirconium chemicals in China and globally.

9.5 Premium for control

In considering the capitalisation multiple to adopt inclusive of a control premium appropriate in the current circumstances, we have considered both the quantum and nature of the synergies expected by Astron to be available to a pool of purchasers. As discussed above, we have not been able to obtain any meaningful guidance from recent corporate transactions.

Direct synergies

Direct synergies and cost savings can be characterised as being both relatively easily identifiable and quantifiable. These benefits comprise principally cost savings and other benefits associated with the elimination of duplicated administrative and operational functions.

We have been advised by Astron management that there would not be any material direct synergies for purchase of Astron China to any company in related products-suppliers, purchasers, competitors of Astron.

Additional benefits

Benefits and cost savings that any acquirer, as a function of the enlarged entity’s greater size, increased product suite and expanded distribution channels, may achieve are categorised as additional benefits and usually include a large degree of subjectivity and may not be as easily quantifiable.

In the case of Astron these benefits may potentially include, amongst other things:

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

the ability to access Astron’s strong and deep management expertise
the ability of a purchaser to introduce its suite of products to Astron’s customers and vice versa
the ability to accelerate Astron’s strategy for the expansion into the PRC market, particularly the ceramic and refractory markets, by leveraging an acquirer’s existing infrastructure
the strong competitive advantage for the zirconium business being acquired as a result of Astron having agreed a long term zircon supply offtake agreement
leveraging Astron’s global distribution network to access additional markets for the acquirer’s products
the acquirer’s ability to quickly gain an understanding of corporate culture and compliance regulations for a foreign public company in PRC and to leverage that knowledge to fuel growth.

It is important to note that whilst these benefits may not be easily quantifiable, they can often be key drivers of any transaction rather than availability of direct cost savings. Astron management considers these additional benefits are likely to be of significant value to any acquirer.

Given the uncertainty attaching to the final quantum of these additional benefits we have not attempted to explicitly quantify these benefits, however we have considered them in determining an appropriate premium for control to calculate the full underlying value of Astron China.

Premium for control

Having regard to the limited direct cost savings likely to be available to an acquirer but potential for an acquirer to realise significant but uncertain additional benefits from the acquisition of a 100 percent interest in Astron’s China business, we consider it reasonable to expect the premium to be paid to acquire the business should reflect this uncertainty. Accordingly we have incorporated a premium for control in the order of 25 percent for the purpose of assessing the full underlying value of Astron China.

Conclusion on capitalisation multiples

In forming a view on an appropriate capitalisation multiple we have also had regard to management’s expectation with regard to the strong short and medium term expansion prospects of Astron China and its relatively favourable tax profile. On the basis of the analysis of Astron China’s growth prospects summarised earlier, we believe EBITDA multiples of 9.5 to 10.5 times (inclusive of a premium for control as discussed above) are appropriate to apply to the adopted level of maintainable earnings for Astron China.

We have been advised by Astron that the net debt will be approximately $3.8 million and there are no material and relevant surplus assets. In addition Astron has estimated the specific capex amount is likely to be in the order of approximately Rmb 20 million.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

9.6 Valuation cross-check

As a high level cross check to value, we have considered the value of Astron China using the DCF methodology. KPMG was provided with a cash flow model prepared by Astron management as a business planning model for Astron’s China operations. This model was prepared using high level assumptions regarding revenue growth and operating margins and only includes a limited level of detail. Further, the cash flow model does not extend beyond 2011. Given the cash flow model’s restricted forecast period and the uncertainties regarding these assumptions, we are of the view that a DCF using this high level cash flow provides only a high level cross-check on the values estimated by reference to the capitalisation of earnings methodology and only limited reliance should be placed on our analysis.

KPMG prepared a DCF analysis using both Astron’s cash flow model and separately forecast EBITDA as a proxy for cash flow. Our analysis supports our assessed value of Astron indicating that a discount rate of the order of over 20 percent would need to be applied to expected cash flows to produce a value equivalent to that determined using a capitalisation of earnings approach. Having regard to the level of growth in Astron’s cash flow model compared to recent history, we do not consider this to be unreasonable.

Valuation of the consideration to be received

Pursuant to the Agreement entered into between Astron and Imerys, the consideration to be received by the Company for the sale of interest in Astron China is to comprise two elements:

The Cash Component
The Earn out Component

We have estimated that the combined value of the Cash Component and the Earn out Component is likely to be in the order of $199 million to $209 million, all other things being equal, as set out below.

10.1 Cash Component

As noted previously the Cash Component comprises an amount of approximately $194 million, to be adjusted for various working capital, net debt and Special Capex at the date of completion.

Whilst it is not possible to accurately predict the exact quantum of the adjustments to be made to the Cash Component at completion, the Company has provided us with a schedule calculating the adjusted amount as if the Proposed Transaction has been completed on 30 September 2007, which is summarised below.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Table 19: Indicative calculation of cash component

	$ million
Cash consideration Adjustments + Working capital - Net cash after financial debt, adjusted for estimated for Specific Capex Amount of $3.1 million (Rmb 20 million) Adjusted cash component	194.6 - (0.7)
	193.9

Source: Astron management

10.2 Earn out Component

Set out below are various comments in relation to the key factors affecting the Earn out Component.

Earn out

The relevant earn out amount in each of the 2008 and 2009 financial years has been estimated based on the following equation set out in the Agreement:

Earn out = 8 ×25% of (EBITDA for the relevant year – Performance hurdle)

The performance hurdle for:

2008 is Rmb130 million
2009 is the greater of 2008 EBITDA and Rmb150 million.

Excess Earnings

In the event the Earn out amount calculated in respect of 2008 exceeds Rmb205 million, then Imerys is only liable to pay an amount of up to Rmb150 million, with the balance in excess of this amount carried forward to 2009. This excess amount, if any, is payable in 2009 in the event that 2009 EBITDA exceeds Rmb150 million.

Assessment of value of the Earn out Component

We have estimated the value of the Earn out Component to be in the range of $5.0 million to $15.0 million based on Astron’s projected financial performance, our view on maintainable earnings and the views of executive directors and senior management on the potential for higher earnings in 2009 and 2010.

Profile of Astron post transaction

Following the completion of the Proposed Transaction, Astron will remain listed on ASX and will retain its mineral sands and titanium businesses, which the Board considers have significant growth and development potential. Astron’s strategy moving forward will focus on titanium raw materials processing and will encompass both mineral sands mining and processing and downstream production of chemicals and metals, specifically including:

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Mineral Sands Mining
Astron’s wholly owned Donald Mineral Sands project in Victoria, expected by the Company to commence operations in 2009
Astron’s 50 percent joint venture with Carnegie in the Gambian and Senegalese mining assets.
Minerals Sands Processing
Mineral sands concentrate separation facilities currently under design in the PRC for concentrate from Astron’s above mining projects as well as third parties’ projects including Matilda Mining Limited’s and others currently under discussion.
Downstream Processing
Processing facilities for titanium and specific zirconium based products currently under design in PRC. The construction of a 90,000 tonne per annum titanium pigment plant using chlorine process began in mid 2004 and has achieved several milestones including completion of the technical and commercial feasibility studies, detailed design and the like. It is expected to meet the targeted production capacity of 90,000 tonne per annum after fifteen months from trial start-up.
As part of the Proposed Transaction, offtake agreements will be provided by Imerys for the zirconium materials produced from the above mining and processing projects.

The Board considers that it is well placed to successfully pursue its downstream titanium based strategy in the PRC given its unique position of success as a Western company operating in the PRC over the last decade and its track record of developing niche mineral sands processing operations and delivering strong growth in that market.

Section 3 of the Explanatory Memorandum sets out the pro forma financial position of Astron as if the Proposed Transaction had been completed on 1 July 2007 and is summarised below for ease of reference. KPMG was not involved in the preparation of the Astron’s pro forma financial position following completion of the Proposed Transaction.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Table 20: Pro forma financial position

	Status Quo ($m) Post Proposed Transaction ($m)
Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Share capital & reserves Retained earnings Unrealized gain on investment Total shareholders’ funds	95.60 182.85 49.26 29.39
	144.86 212.24 45.80 0.85 1.11 0.77
	46.91 1.62
	97.95 210.62 23.42 30.03 72.83 178.89 1.70 1.70
	97.95 210.62

Source: Explanatory Memorandum

We make the following observations in relation to the post transaction Astron’s pro forma financial position as at 1 July 2007:

The pro forma financial position has been prepared by Astron from a net position of the:
Astron’s audited statement of financial position as at 30 June 2007
the audited statement of financial position of Astron China as at 30 June 2007
relevant adjustments reflecting the terms of the Proposed Transaction.
Astron has advised that no tax is brought into account and loans have been assumed to be repaid in full. In addition, the table above includes estimated transaction cost of the Proposed Transaction whilst it does not take into account of the expected gain on foreign exchange hedging arrangements.
We have also been advised by Astron that the exchange rate of A$: Rmb used in preparation of the pro forma financial position was A$:Rmb 6.45 as at 1 July 2007, which is different to the exchange rate when Astron entered into foreign exchange hedging arrangements at the time of signing the Agreement. As a result, the cash received from the Proposed Transaction recorded in the pro forma balance sheet is slightly different to the expected actual cash inflow from the Proposed Transaction.

Astron will have a total cash and financial assets balance in excess of $180 million, which is provisionally expected to be allocated to fund Astron’s future growth initiatives.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Evaluation of the Proposed Transaction

In our opinion the Proposed Transaction is in the best interests of Astron shareholders

The primary matter considered by us in forming this opinion was whether the combined value of the Cash Consideration offered under the Proposed Transaction for Astron China, being $194 million cash and the Earn out Component, reflects a fair consideration for Astron shareholders. However, a number of other issues were also considered in forming our opinion, which are discussed in detail below.

12.1 Assessment of the key issues

The consideration is fair as the high end of our assessed range of fair values for the Consideration falls within our range of assessed fair values for Astron China.

We have assessed the value of Astron China include of a premium for control in the order of 25 percent to lie in the range of $205 million to $259 million, which compares to the consideration offered under the Proposed Transaction of $199million to $209 million.

Table 21: Summary of assessed value of Astron China and consideration

	Assessed values
	Low $M High $M
Cash Component Earn out Component Astron China	194 194 5 15
	199 209 205 259

Source: KPMG analysis

We note that the low end of our assessed range of fair values for the assets being given up of $205 million implies that the minimum value of the Consideration required to ensure that Astron shareholders are not disadvantaged financially by accepting the Proposed Transaction is $205 million, which lies towards the top end of our assessed range of fair values for the Consideration.

In the event Astron shareholders conclude that the fair value of the Consideration lies below $205 million, then the Offer would be not fair. We note however that in these circumstances we believe that the offer is, on balance, still reasonable having regard to each of the qualitative considerations set out below and therefore remains in the best interest of Astron shareholders.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Figure 9: Comparison of assessed fair value of Astron China against the Consideration

==> picture [374 x 228] intentionally omitted <==

----- Start of picture text -----

Assessed Value Comparison
Astron China
Consideration
190 200 210 220 230 240 250 260 270
$million
----- End of picture text -----

Source: KPMG analysis

As illustrated in the figure above, we note that our assessed value for the consideration is relatively narrow in absolute terms, reflecting that the consideration is represented by a cash component and small variable Earn out Component.

Our assessment as to the range of values for Astron China has been undertaken on a sum of the parts basis, incorporates a premium for control. It does not include unique strategic or operational benefits to Imerys associated with control of Astron.

12.2 Implications if the Proposed Transaction is not approved

It is likely that the share price of Astron will fall

On the last trading day prior to the initial announcement of the approach from Imerys on 20 April 2007, Astron shares closed at $2.13 on ASX. At the close of trading on the first day following the announcement, the Company’s shares closed on ASX on that day at $2.67 and have subsequently traded in the range of $2.25 to $3.16. Whilst this increase from pre-announcement levels may reflect factors in addition to the Proposed Transaction, we consider it reasonable to expect that this increase can at least in part be attributed to the market’s perception as to the benefits of the Proposed Transaction to Astron.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Accordingly, having regard to our range of assessed fair values for the assets to be divested and other information contained in the Explanatory Memorandum, in the event the Proposed Transaction is not approved, it is possible that Astron shares will fall from current trading levels.

However, it is also possible the Company’s shares may trade at above pre-announcement levels as a consequence of the additional information provided to the market, in particular, information contained in this report and in the balance of the Explanatory Statement in relation to the prospects of the Company for the future.

In addition, the growth strategy of Astron may not be achieved as expediently and the other benefits of the Proposed Transaction discussed above will not be realised, in these circumstances is may take a reasonable period of time for Astron to return to the level of recent trading prices.

12.3 Other considerations

Although indications of serious interest from other parties have been received, no formal alternative offers have been received in respect of Astron or its assets in the period subsequent to the announcement of the initial approach by Imerys. Accordingly, the prospect of an alternative offer on better terms emerging is uncertain.

The value of Astron China to Imerys is likely to exceed our assessed fair value range

In addition to those synergies available to a general pool of purchasers, Imerys is likely to realise other revenue synergies, in particular Imerys is targeting the ceramic and refractory markets and other markets that Astron has dealt with for many years. Accordingly it is reasonable to expect that Astron’s relationships and marketing and distribution platform will be valuable to Imery’s expansion plans.

The final quantum of these benefits is uncertain and will not be known for some time. Astron management considers these additional benefits are likely to be of value to Imerys.

Astron’s largest shareholder has already indicated it is his current intention to vote in favour of the Proposed Transaction in the absence of a superior offer

Mr Alexander Brown currently holds a beneficial interest in approximately 68 percent of Astron’s issued capital. In order for the Proposed Transaction to be approved a simple majority of at least 50 percent of the votes cast by shareholders must be in favour of the resolutions for the Proposed Transaction. Accordingly, the intentions of Mr Brown in relation to the acceptance of the proposed terms for the Proposed Transaction are critical to the success or otherwise of the Proposed Transaction. Given the distribution of Astron’s share register, Mr Brown, voting in favour of the Proposed Transaction, will more than likely be sufficient for the Proposed Transaction to be approved.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Mr Brown has, as the Chief Executive Officer of Astron, recommended that, in the absence of a superior offer emerging and given KPMG’s opinion that the Proposed Transaction is in the best interests of Astron shareholders, that Astron shareholders vote in favour of the Proposed Transaction and that, subject to the same qualification, he intends to vote in favour of the Proposed Transaction.

The Proposed Transaction is subject to a number of conditions precedent that are yet to be satisfied

The Agreement sets out that completion of the Proposed Transaction is subject to the satisfaction of a number of conditions precedent, including obtaining various consents and approvals. While we do not consider the conditions precedent to be so restrictive as to jeopardise the completion of the Proposed Transaction, we do note that as at the date of this report a number of these conditions are yet to be satisfied.

The Directors unanimously recommend, in the absence of a superior offer, acceptance of the Proposed Transaction

Given no competing bid for the Company has emerged and KPMG’s conclusion that the Proposed Transaction is in the best interests of Astron shareholders, we are advised that at the date of this report that each of the Directors of Astron has, in the absence of a superior offer, recommended acceptance of the Proposed Transaction and this recommendation has not been withdrawn.

Additional one-off costs

Astron has estimated that the total costs of implementing the Proposed Transaction are likely to be in the order of $8.5 million. We note however that a portion of these costs (approximately $1 million) will have been incurred, or will be committed, prior to the date that the shareholders will vote on the Proposed Transaction and will be payable whether or not the Proposed Transaction is successfully implemented.

Transition risk

Astron China represents Astron’s principal source of earnings. Accordingly, completion of the Proposed Transaction will result in a fundamental shift in the risk profile of the Company away from that of zirconium and related manufacturing activities with associated mineral project interests towards that of principally a mineral sands and advanced titanium products and investment company.

Other issues

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

and tax position. In particular, the taxation consequences (specifically the extent to which CGT will be payable) will vary widely depending on the individual circumstances of each shareholder.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Appendix 1 - Qualifications and declarations

KPMG Corporate Finance (Aust) Pty Ltd (KPMG) is the holder of an Australian Financial Services Licence, No 246901, under the Corporations Act 2001 and is controlled by the partners of KPMG Chartered Accountants (the KPMG Partnership). The KPMG Partnership is a long established firm of chartered accountants which provides a full range of professional services, including advising on valuations, acquisitions, takeovers, restructuring proposals, reorganisations and related matters.

The following persons, whose qualifications and experience are stated below and which are appropriate to the tasks performed, were responsible for the preparation of this report.

Mr Duncan Calder is a partner of the KPMG Partnership and an executive director of KPMG. Duncan is an Associate of the Institute of Chartered Accountants in Australia and of the Institute of Chartered Accountants in England and Wales as well as an Associate of the Financial Services Institute of Australasia. Duncan has over 19 years experience in the preparation of independent expert reports and has been personally involved in a wide range of valuation assignments conducted by KPMG.

Mr Jason Hughes is an executive director of KPMG, an Associate of the Institute of Chartered Accountants in Australia and a Fellow of the Financial Services Institute of Australasia and holds a Bachelor of Commerce from the University of Western Australia. Jason has extensive experience in the preparation of independent expert reports and corporate valuations.

Messrs Calder and Hughes were assisted in the preparation of this report by other KPMG staff.

Declarations

The statements made in this report are given in good faith and have been derived from information believed to be reliable and accurate. We have examined this information and have no reason to believe that any material factors have been withheld from us.

During the course of the engagement, KPMG provided draft copies of this report to Astron for comment as to factual accuracy, as opposed to opinion, which is the responsibility of KPMG alone. Changes made to this report as a result of these reviews have not changed the opinion reached by KPMG.

Interests

KPMG is entitled to receive a fee of approximately $200,000 plus disbursements for the preparation of this report. Except for these fees, KPMG has not received and will not receive any pecuniary or other benefit, whether direct or indirect, for or in connection, with the preparation of this report.

This fee is not material to either KPMG or the KPMG Partnership either on a National or individual Perth office basis.

Employees of KPMG, the KPMG Partnership and its affiliated entities may hold shares in Astron or Imerys. However, no individual involved in the preparation of this report, or review thereof, holds a direct interest in either Astron or Imerys shares.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

With the exception of these matters, none of KPMG or the KPMG Partnership will receive any other benefits, whether directly or indirectly, for or in connection with the making of this report.

Consent

KPMG consents to the inclusion of this report in the form and context in which it is included with the Explanatory Memorandum to be issued to the shareholders of Astron. Other than this report, neither KPMG nor the KPMG Partnership has been involved in the preparation of the Explanatory Memorandum or any other document prepared in respect of the Proposed Transaction. Accordingly, we take no responsibility for the content of the Explanatory Memorandum as a whole or other documents prepared in respect of the Proposed Transaction.

Reliance on information

The sources of information upon which this report has been based are set out in Appendix 2 to this report. Whilst KPMG, has no reason to believe that such information is anything but reliable and accurate, KPMG has not in any way caused such information to be independently verified or audited. We have no reason to believe that any information relied on by us is incomplete or incorrect.

The opinion of KPMG is based on prevailing market, economic and other conditions at the date of this report. Conditions can change over relatively short periods of time. Any subsequent changes in these conditions could impact upon value either positively or negatively.

We note that any forecasts and projections as supplied to us are based on assumptions about events and circumstances that have not yet transpired. Accordingly, KPMG cannot provide any assurance that the estimates will be representative of the results that will actually be achieved during the forecast period.

As this report has been prepared specifically for Astron shareholders, none of KPMG, the KPMG Partnership, or any director, member or employee thereof undertakes responsibility to any other person in respect of this report, including any errors or omissions howsoever caused.

Indemnification

A condition of KPMG’s agreement to prepare this report was that Astron indemnifies KPMG against any and all losses, claims, damages and liabilities arising out of or related to reliance on information provided by the Company.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Appendix 2 - Sources of information

In preparing this report and arriving at our opinion, we have considered, amongst others, the following principal sources of information:

Astron

audited consolidated financial statements for Astron in relation to the years ended 30 June 2004, 2005 2006 and 2007, including various supporting worksheets and calculations
financial statements for Astron China to the three months ended 30 September 2007,
financial statements for the Gambian Mineral Sands Project JV for the six months ended 30 June 2007
trial balance for Astron Chemical, Taicang Ming, Yingkou New Materials and Zibo Astron Advance Materials in relation to the years ended 31 December 2005 and 2006, as well as the six months ended 30 June 2006
internal management financial projections of Astron China for the period 1 July 2007 to 30 June 2010
draft 2008 budget & plan of Astron dated 3 July 2007 and draft budget for calendar 2008
Share Sale Agreement dated 29 August 2007
Novation and Amendment Deed dated 30 November 2007
draft management assistance agreement dated 21Novemeber 2007
agreed format of offtake agreement between Donald Mineral Sands Limited and Imerys Asia Pacific included in the Share Sale Agreement dated 29 August 2007
Gambia JV Shareholder Agreements dated 7 April 2006
offtake agreement between Carnegie Minerals and Yingkou Astron Chemicals Co Ltd
shareholder agreement between Coast Resources Ltd and Astron Ltd
trust for JV Interest (Senegal) between Yingkou Astron Chemical and Astron Limited dated 7 April 2006
mining and economic study of Niafarang Mineral Sands Deposits prepared by Pertola Pty Ltd in June 2007
purchase price calculation excel spreadsheet dated on 26 November 2007 prepared by Astron management

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

mineral sands sector report from GSJBW research
various announcements by Astron to ASX
Astron’s top 20 shareholder register as at 19 November 2007
various brokers’ notes in relation to Astron and selected comparable companies
various economic analysis papers by market commentators
discussions with Astron executive directors and senior management
Astron website
various databases including:

Bloomberg

Datamonitor

IBISWorld Pty Ltd

Imerys

Imerys 2006 annual report
Imerys website.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Appendix 3 - Industry Overview

Profile of zircon industry

Zircon is produced from heavy mineral sands mining operations, from which it is extracted as a coproduct with rutile and ilmenite. Zircon has a high thermal shock resistance and melting point, and is chemically resistant, stable and non-toxic. The main use for zirconium compounds is in refractory bricks, ceramics, foundry castings and furnace lining which account for approximately 80 percent of the demand for zircon. Zirconium metals are also applied as an alloying agent and in nuclear reactors and chemical processing equipment.

Historically, there has been low substitution for zircon principally due to the substitutes experiencing similar pricing cycles and not offering the same quality characteristics as zircon.

The zircon market is characterised by a high level of concentration on supply side and a fragmented customer base. The top five producers of zircon accounted for approximately 73 percent of global production in 2006. Zircon producers sell their products to various millers and a diverse group of endusers directly.

Barriers to entry

The principal barriers to entry are capital requirements, government regulations, access to technology and suitable marketing agreements for the products. A relatively large amount of capital is required to set up operations including factory, laboratory, large-scale earth moving equipments and processing facilities and the like.

In addition, the zircon industry is subject to considerable demand and price volatility. It is notable that the zircon price has experienced increased volatility over the past several years. Therefore, the players within this industry tend to require sufficient capital or access to long-term sales agreement to mitigate the risk raised during the periods of lower demand and weaker prices.

In Australia, the State Governments are generally responsible for the administration of zircon sands exploration and production activity. Royalties are payable on the volume of zircon sands produced. Environmental control plays a critical role in this industry and as such participants must comply with native title and environmental legislation.

Demand

Zircon

The demand for zircon is strongly linked to general economic growth worldwide. However, it is notable that consumption demand was insulated from the adverse impacts of the 2001-02 global recession by strong demand from China.

Zircon consumption has grown at an average 2.7 percent per annum since 1980. In 2005, global zircon consumption increased by 3.0 percent. While this rate is above the long-term trend of 2.7 percent, it is

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

important to note that the ultimate level of global zircon consumption is largely dependent upon the availability of zircon sand.

Over the past few years the demand growth for zircon has been mainly from the ceramics and zirconia/zirconium chemicals market sectors; foundry and refractory sectors have remained stable while consumption in TV glass has declined due to technology change.

On a geographical basis the Asia-Pacific and Europe are the dominant zircon consuming regions, accounting for 45 percent and 34 percent respectively in 2005. Western Europe remains the major importing region for zircon sand, but China is now becoming the single largest consuming country of zircon and accordingly the market influence has shifted from Europe to China.

The key to the future level of zircon consumption is principally dependent upon the global ceramics industry and China to the extent it increases in both its production and consumption levels. Over the longer term, provided there is sufficient supply, zircon demand is expected to grow at an average of 3.0 percent per annum from 1.20 million tonnes in 2005 to 1.39 million tonnes in 2010.

Supply

Zircon

Australia, South Africa and the US are the three main mining producing countries for zircon material in the world. In 2006, Australia accounted for 37 percent of the world’s zircon production.

There has been a supply shortage over the past three years, mainly due to a reduction in supplies from existing sources and insufficient production from new projects.

It is expected that the increase in global demand will outweigh the increase in supply over the long-term, the world market will experience supply deficits that have to be satisfied from new supply arriving from the expansion of existing operations or the development of new projects. The timing of these new projects is uncertain and historical evidence indicates that there are frequently delays in bringing new projects into production.

Fused zirconia

The production of fused zirconia has become increasingly important due to its lower cost than chemical zirconia and to the reduced availability of baddeleyite. The total global capacity of fused zirconia production in 2005 was approximately 64,000 tonne per annum.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

ABCD

Astron Limited Independent expert report & Financial services guide 14 December 2007

Zirconium chemicals

The production of zirconium chemicals is highly fragmented. The total global capacity of zirconium chemicals production in 2005 is approximately 16,000 tonne per annum. Japanese production capacity accounts for nearly 50 percent of global capacity.

Pricing

Zircon free on board prices have been volatile over the past 36 years mainly due to zircon’s historical status as a co-product of titanium mineral production. The average FOB price for zircon has steadily increased by over 175 percent from an average of approximately US$280 per tonne in 1999 to average around US$770 per tonne in 2006 with spot prices well above $900. The strong rise in prices has been driven by continuing strong growth in consumption from the ceramics industry and the demand from China as the fastest growing producing country.

Market commentators have speculated that the average export nominal FOB price will peak at approximately US$780 per tonne by 2007 and will stabilise later in 2007 and then likely decline assuming increased production volume is available.

Astron-07 Fact Acc Fianl report1412-PFL (2).doc

Notice of Meeting

116755317 \ 0414315 \ JRT01

Notice of Meeting

NOTICE OF EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF ASTRON LIMITED (ABN 97 000 285 272)

Notice is given that a Meeting of Shareholders of Astron Limited ( Astron ) will be held at 10.00am on 17 January 2008 at Level 19 2 Market Street Sydney NSW 2000.

The Explanatory Memorandum that accompanies and forms part of this Notice of Meeting contains information in relation to the Resolution.

The Notice of Meeting and Explanatory Memorandum should be read in their entirety. Terms used in this Notice of General Meeting will, unless the context otherwise requires, will have the same meaning given to them in the Explanatory Memorandum.

Business of Meeting

Resolution - Approval of the Proposed Transaction

To consider and, if thought fit, pass the following Resolution as an ordinary resolution:

“That for the purposes of ASX Limited Listing Rule 11.2 and all other purposes, the Shareholders approve the Proposed Transaction involving the sale of all the share capital in operating companies which comprise Astron China to Imerys SA for a purchase price of Rmb1.2 billion (excluding adjustments at completion)."

Voting Exclusion Statement

Astron will disregard any votes cast on the Resolution by:

any person who might obtain a benefit, except a benefit solely in the capacity as a shareholder, if the Resolution is passed; and
any associate of that person.

However, Astron need not disregard a vote if:

it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form, to vote as the proxy decides.

Information for Shareholders

Independent Expert’s Report

Astron has obtained an Independent Expert’s Report that states whether the Proposed Transaction in the best interests of Astron's shareholders who are entitled to vote on the Resolution. The Independent Expert’s Report accompanies and forms part of this Notice of Meeting.

116755317 \ 0414315 \ JRT01

Eligibility to Vote

Astron has determined that for the purpose of voting at the meeting, shares will be taken to be held by the persons who are the registered holders of those shares at 10.00am on 15 January 2008. Accordingly, transactions registered after that time will be disregarded in determining entitlement to attend and vote at the meeting.

Proxies

If you do not plan to attend the meeting, you are entitled to appoint a proxy to vote on your behalf and you are encouraged to do so. You can appoint a proxy by completing and returning the enclosed proxy form.

A proxy need not be a Shareholder of Astron. The proxy form must specify the proxy’s name or the name of the office held by the proxy. To be valid, the form appointing the proxy must be lodged in one of the ways described in the proxy form accompanying this Notice of Meeting.

A Shareholder entitled to attend and vote at the meeting is entitled to appoint no more than two proxies. If you wish to appoint two proxies please refer to the back of the proxy form for instructions.

By Order of the Board

Matthew Suttling

Secretary

Astron Limited

Level 19, 2 Market Street, Sydney NSW 2000

17 December 2007

116755317 \ 0414315 \ JRT01

Proxy Form

==> picture [101 x 56] intentionally omitted <==

Mark this box with an ‘X’ if you have made any changes to your address details (see reverse) X

All correspondence to: Astron Limited PO Box 1035 Dee Why NSW 2099 Telephone +61 2 9984 1379 Fax +61 2 9984 0279 www.astronchem.com

I/We of being a member/s of Astron Limited and entitled to attend and vote hereby appoint:

==> picture [35 x 52] intentionally omitted <==

----- Start of picture text -----

X
----- End of picture text -----

The Chairperson of the Meeting OR (mark with an ‘X’)

==> picture [191 x 52] intentionally omitted <==

Insert name of person that you are appointing if that person is someone other than the Chairperson of the Meeting

or failing the person named, or if no person is named, the Chairperson of the Meeting as my/our proxy to act generally at the meeting on my /our behalf and to vote in accordance with in accordance with following directions (or if no directions have been given vote on my/our behalf at the Annual General Meeting of the Company to be held at Level 19, 2 Market Street Sydney NSW 2000 on 17 January 2007 at 10.00am and at any adjournment of that Meeting.

IMPORTANT: FOR ITEM 1 BELOW

==> picture [42 x 46] intentionally omitted <==

If the Chairperson of the Meeting is to be your proxy and you have not directed your proxy as how to vote on Item 1 , please place an ‘X’ in this box. By marking this box you acknowledge that the Chairperson of the Meeting may exercise your proxy even if the Chairperson has an interest in the outcome of that Item and that votes cast by the Chairperson, other than as proxy holder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy as how to vote, the Chairperson of the Meeting will not cast your votes on Item 1 and your votes will not be counted in computing the required majority if a poll is called on that Item. The Chairperson intends to vote undirected proxies in favour of Item1 .

VOTING DIRECTIONS TO YOUR PROXY

(Please mark ‘ X ’ to indicate your directions if you wish to direct the proxy how to vote)

Special Business

That for the purposes of ASX Listing Rule 11.2 and all other purposes, the Shareholders approve the Proposed Transaction involving the sale of all the share capital in operating companies which comprise Astron China to Imerys Asia Pacific for a purchase price of Rmb1.2 billion (excluding adjustments at completion)

For Against Abstain*

==> picture [111 x 44] intentionally omitted <==

*If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show or hands or on a poll and your votes will not be counted in computing the majority required on a poll.

PLEASE SIGN HERE (this section must be signed in accordance with the instructions overleaf)

If the member is a natural person or joint shareholder

........................................................................ ......................................................................... Signature Signature (of other joint shareholder) If the member is a Company Executed by acting by the following persons or, if the seal is affixed, witnessed by ......................................................................... the following persons: Name of corporate member

........................................................................ ......................................................................... (Signature of director/sole director and sole secretary) (Signature of secretary/director) cross out which ever is inapplicable cross out which ever is inapplicable

...................................................... ...................................................... .........../ ............/ ......... Contact Name Contact Daytime Telephone Date

116588691 \ 0414315 \ JZK07

HOW TO COMPLETE THE PROXY FORM

Your name and address

This is your name and address as it appears on the share register. If this information is incorrect, please mark the box and make the appropriate corrections on this form. Security holders sponsored by a broker should advise their broker of any changes. Please note that you cannot use this form to change ownership of your securities.

Appointment of proxy

A member entitled to attend and vote at this Meeting is entitled to appoint a proxy. A proxy need not be a member of the Company. However, if you do not lodge this Proxy Form then your vote will not be counted.

To appoint the Chairperson of the Meeting as your proxy, mark the box. If you wish to appoint someone other than the Chairperson of the Meeting as your proxy, insert that person’s name in the space provided. If you leave that section blank, or your named proxy does not attend the Meeting, the Chairperson of the Meeting will be your proxy.

Votes on items of business

To direct your proxy how to vote, place an ‘ X ’ in the box that reflects your intention as to how the proxy should vote on that item of business. All of your securities will be voted in accordance with that direction unless you indicate that only a portion of voting rights should be voted on a particular item by inserting the percentage or number of securities you wish to vote in the appropriate box(es).

On any other business arising at the meeting (including any motion to amend a resolution or to adjourn the meeting) the proxy may act at their discretion.

If you do not mark any of the boxes on an item, your proxy may vote as he or she chooses. If you mark more than 1 box on an item your vote on that item will be invalid.

Appointment of a second proxy

If you are entitled to cast 2 or more votes at the meeting, you may appoint not more than 2 proxies. You may specify the proportion of votes each proxy is appointed to exercise. If you require an additional Proxy Form, please telephone the Company’s share registry or copy this Form.

To appoint a second proxy you must:

(a) On each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of securities applicable to that Form. If the appointments do not specify this information, each proxy may exercise half your votes. Fractions of votes will be disregarded.
(b) Return both forms together in the same envelope, or facsimile both forms to an address set out below.

Signing of form

Each person registered as the holder of the above shares must sign the Proxy Form in the following way:

Individual: where the entitlement to vote is held by 1 person, that person must sign.

Joint holding: where the entitlement to vote is held by more than 1 person, all holders of that entitlement must sign.

Power of Attorney: to sign under a Power of Attorney which has not previously been lodged with the Company’s share registry, please attach a certified photocopy of the Power of Attorney to this Form when you return it. In signing as attorney you declare that you have no notice of revocation of the Power of Attorney.

Companies: where the company has a sole director who is also the sole company secretary this Form must be signed by that person. If the company (under section 204A of the Corporations Act 2001 (Cth)) does not have a company secretary, a sole director can also sign alone. Otherwise, this Form must be signed by a director jointly with either another director or a company secretary. The office held by the signatory should be indicated in the appropriate place.

A corporate representative must produce the appropriate ‘Certificate of Appointment of Corporate Representative’ prior to admission to the Meeting, the form of which can be obtained from the Company’s share registry.

Lodgment of Proxy Form

This Proxy Form (and, if relevant, the Power of Attorney under which it is signed) must be received at an address given below not later than 10.00am on 15 January 2008, being 48 hours before the commencement of the Meeting. A Proxy Form received after that time will not be valid for the scheduled Meeting.

Documents may be lodged as follows:

By posting, delivery, facsimile or email to the Company: By post: PO Box 1035 Dee Why NSW 2099 By delivery: Level 19, 2 Market Street Sydney NSW 2000 By facsimile: +61 2 9984 0279 By email: [email protected]

116588691 \ 0414315 \ JZK07

AI assistant

ASTRON LIMITED — AGM Information 2007

64449_rns_2007-12-17_2497bbdd-0094-411c-9647-28956fde493f.pdf

Explanatory Memorandum and Notice of Extraordinary General Meeting

EXTRAORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF ASTRON LIMITED

Astron Limited (ABN 97 000 285 272)

Table of contents

Important Notice

This is an important document. You should read it in its entirety and consult your professional adviser if you have any queries.

Regulatory Information

Independent Expert’s Report

Disclaimer

Important Dates

Key Dates

Chairman’s letter

1. Executive Summary

1.1 Overview

1.2 Proposed Transaction

Overview of the Transaction

Remaining Business

1.3 Benefits and Risks of the Proposed Transaction

1.4 Independent Expert’s Report

1.5 Conditions

1.6 Directors’ Recommendation

THE DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOUR OF THE RESOLUTION TO APPROVE THE PROPOSED TRANSACTION.

2. What should you do?

2.1 Action required by Shareholders

Step 1: Read the entire document carefully

Step 2: Vote on the Resolution

In person at:

2.2 Voting Restrictions

3. Proposed transaction

3.1 Overview

3.2 Key Terms of Proposed Transaction

Share Sale Agreement, as varied by the Novation and Amendment Deed

3.3 Financial Impact of the Proposed Transaction

3.4 Requirement for Shareholder Approval

3.5 Benefits and Risks of the Proposed Transaction

3.6 Conditions To The Proposed Transaction

3.7 Directors’ Recommendation (Recommendation of the Full Board of Astron Limited)

4. Frequently Asked Questions

What is the Proposed Transaction?

What approvals are required for the Proposed Transaction to proceed?

What is the Resolution?

Who is entitled to vote on the Resolutions?

When and where will the Meeting be held?

How can shareholders be sure the best possible price has been obtained for Astron China?

Did Astron consider selling Astron China to parties other than Imerys?

What Will Astron Look Like Following the Proposed Sale?

Why isn’t the offer from Imerys for all of Astron?

What restraints are imposed on Astron as a consequence of the Astron China sale?

What is Astron’s plan if the Proposed Transaction is not approved?

What is the role of the Independent Expert?

How do I vote?

What is the deadline for lodging proxies?

What if I don’t vote?

What do the Independent Directors recommend?

What should I do next?

5. Glossary

Australian Securities Exchange or ASX means ASX Limited.

6. Independent Expert’s Report

ABCD

Independent expert report & Financial services guide

Introduction

Summary and conclusion

In our opinion, the Proposed Transaction is in the best interests of Astron shareholders

The assessed value of the consideration to be received of between $199 million and $209 million is fair as the high end of the consideration falls within our range of assessed fair market values for Astron China

The Proposed Transaction provides Astron with a significant pool of funds to pursue other opportunities

In the event the Proposed Transaction is not approved it is possible that the share price of Astron will fall

Other considerations

2.1

Taxation

2.2

General warning advice

FINANCIAL SERVICES GUIDE

Financial Services Guide

Financial services we are licensed to provide

General Financial Product Advice

Benefits that we may receive

Remuneration or other benefits received by our employees

ASTRON LIMITED AGM Information 2007