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ABN 35 091 542 451 8 Kearns Crescent Ardross WA 6153 Telephone: 08 9364 3866 Facsimile: 08 9364 4892 Email: [email protected] Web: www.ausquest.com.au

26 October 2012

The Manager Company Announcement Office Australian Securities Exchange

By Electronic Lodgement

Dear Sir

NOTICE OF ANNUAL GENERAL MEETING

Please find attached the Notice of Annual General Meeting which has been dispatched to shareholders today.

Yours faithfully

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Darren Crawte Company Secretary

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AUSQUEST LIMITED

ABN 35 091 542 451

NOTICE OF ANNUAL GENERAL MEETING

EXPLANATORY STATEMENT AND

PROXY FORM

TIME : 10.00 am (WST) DATE : 27 November 2012 PLACE : Heritage Room, South of Perth Yacht Club, Applecross, Western Australia

Included with this Notice of Meeting is an independent expert’s report commissioned by the Company for the purposes of Resolution 5 in accordance with Listing Rule 10.1. The report finds that the transaction is fair and reasonable to the Shareholders not excluded from voting on Resolution 5. This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting.

Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary on (+61 8) 9463 2463.

CONTENTS PAGE

Notice of Annual General Meeting	3
Explanatory Statement	6
Glossary	16
Annexure A – Independent Experts Report
Proxy Form

T IME AND PLACE OF MEET ING A ND HOW TO VOTE

VENUE

The Annual General Meeting of the Shareholders to which this Notice of Meeting relates will be held at 10.00 am (WST) on 27 November 2012 at:

Heritage Room, South of Perth Yacht Club, Applecross, Western Australia

YOUR VOTE IS IMPORTANT

The business of the Annual General Meeting affects your shareholding and your vote is important.

VOTING IN PERSON

To vote in person, attend the Annual General Meeting on the date and at the place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the enclosed Proxy Form and return by:

(a) post to AusQuest Limited, 8 Kearns Crescent, Ardross WA 6153; or

(b) facsimile to the Company on facsimile number +61 8 9364 4892.

so that it is received not later than 10.00 am (WST) on 25 November 2012.

Proxy Forms received later than this time will be invalid.

NOTICE OF ANNUAL GEN ERAL MEET ING

Notice is given that the Annual General Meeting of Shareholders will be held at 10.00 am (WST) on 27 November 2012 at The Heritage Room, South of Perth Yacht Club, Applecross, Western Australia.

The Explanatory Statement to this Notice of Meeting provides additional information on matters to be considered at the Annual General Meeting. The Explanatory Statement and the Proxy Form are part of this Notice of Meeting.

The directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the Annual General Meeting are those who are registered Shareholders of the Company at 5.00 pm (WST) on 25 November 2012.

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary.

AGENDA

1. ANNUAL REPORT

To receive and consider the financial report of the Company together with the reports of the directors and the auditor for the financial year ended 30 June 2012.

2. RESOLUTION 1 – ADOPTION OF THE REMUNERATION REPORT

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

“That, for the purposes of section 250R(2) of the Corporations Act and for all other purposes, the remuneration report for the financial year ended 30 June 2012 be adopted”.

Short Explanation: The Remuneration Report is in the Directors' Report section of the Company's Annual Report. Listed companies are required to put the Remuneration Report to the vote for adoption at the Company's Annual General Meeting. The vote on this resolution is advisory only and does not bind the Directors or the Company.

Voting Prohibition Statement: A vote on this resolution must not be cast (in any capacity) by or on behalf of either of the following persons:

(a) a member of the key management personnel, details of whose remuneration are included in the Remuneration Report;
(b) a closely related party of such a member.

However any of those persons may cast a vote on the resolution if:

(a) the person does so as a proxy appointed in writing that specifies how the proxy is to vote on the proposed resolution; and
(b) the vote is not cast on behalf of a person described in paragraphs (a) or (b) above.

If you appoint the Chairman of the Meeting as your proxy, the Company encourages you to direct the Chairman how to vote on this advisory Resolution. The Chairman, as one of the Key Management Personnel of the Company, is not permitted to cast any votes in respect of this advisory Resolution that arise from undirected proxies held unless the proxy expressly authorises the Chairman to do so.

3. RESOLUTION 2 – ELECTION OF MR CHRIS ELLIS AS A DIRECTOR

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

“That, Mr Chris Ellis, a director of the Company who retires in accordance with clause 3.6 of the Company’s constitution and, being eligible, offers himself for re-election, be re-elected as a director of the Company”.

4. RESOLUTION 3 – ELECTION OF MR JOHN ASHLEY AS A DIRECTOR

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

“That, Mr Ashley, a director of the Company who retires in accordance with clause 3.6 of the Company’s constitution and, being eligible, offers himself for re-election, be re-elected as a director of the Company”.

5. RESOLUTION 4 – APPROVAL OF 10% PLACEMENT FACILITY

To consider and, if thought fit, to pass the following, with or without amendment, as a special resolution :

"That, pursuant to and in accordance with Listing Rule 7.1A and for all other purposes, Shareholders approve the issue of Equity Securities up to 10% of the issued capital of the Company (at the time of the issue) calculated in accordance with the formula prescribed in Listing Rule 7.1A.2 and on the terms and conditions in the Explanatory Memorandum."

Voting Exclusion: The Company will disregard any votes cast on this Resolution by a person (and any associates of such a person) who may participate in the 10% Placement Facility and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of Shares, if this Resolution is passed.

However, the Company will not disregard a vote if:

(a) it is cast by the person as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or
(b) it is cast by the Chairman 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.

6. RESOLUTION 5 – APPROVAL OF SELECTIVE BUY BACK OF 68,308,791 SHARES FROM CLIFFS AND SALE OF 70% INTEREST IN THE STANLEY PROJECT TO CLIFFS

To consider and, if thought fit, to pass the following, with or without amendment, as a special resolution :

“That for the purposes of section 257D of the Corporations Act and Listing Rule 10.1, and for all other purposes, the Shareholders approve the selective buy back of 68,308,791 Shares from Cliffs Australia Holdings Pty Ltd, in consideration for which the Company will assign a 70% interest in the Stanley Project to Cliffs Australia Holdings Pty Ltd and sole fund exploration expenditure of $1m on the Stanley Project, for the purpose and on the terms and conditions set out in the Explanatory Statement.”

Voting Prohibition Statement: In accordance with section 257D of the Corporations Act, no votes may be cast in favour of this Resolution by any person whose Shares are proposed to be bought back and any of their associates.

Voting Exclusion : In accordance with Listing Rule 10.1, the Company will disregard any votes cast by a party to the transaction and any associate of that party.

However, and subject to the Voting Prohibition Statement above, the Company will not disregard a vote if:

(a) it is cast by the person as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or
(b) it is cast by the Chairman 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.

DATED: 26 OCTOBER 2012

BY ORDER OF THE BOARD

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_____ DARREN CRAWTE COMPANY SECRETARY

EXPLANATORY STATEMEN T

This Explanatory Statement has been prepared for the information of the Shareholders in connection with the business to be conducted at the Annual General Meeting to be held at 10.00 am (WST) on 27 November 2012 at The Heritage Room, South of Perth Yacht Club, Applecross Western Australia.

The purpose of this Explanatory Statement is to provide information which the directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions in the Notice of Meeting.

1. ANNUAL REPORT

Section 317 of the Corporations Act requires the reports of the Directors and of the auditors and the Annual Report, including the financial statements to be put before the Annual General Meeting and the Constitution provides for those reports and statements to be received and considered at the Annual General Meeting. Neither the Corporations Act nor the Constitution requires a vote of Shareholders at the Annual General Meeting on the reports or statements. However, Shareholders will be given the opportunity to raise questions on the reports and the statements at the Annual General Meeting.

The Company’s 2012 Annual Report is available at www.ausquest.com.au. Those shareholders that elected to receive a printed copy of the Annual Report will have received a copy with this Notice of Annual General Meeting.

2. RESOLUTION 1 – ADOPTION OF THE REMUNERATION REPORT

The Remuneration Report is in the Directors Report section of the Company's Annual Report.

By way of summary, the Remuneration Report:

(a) explains the Company's remuneration policy and the process for determining the remuneration of its Directors and executive officers;
(b) addresses the relationship between the Company's remuneration policy and the Company's performance; and
(c) sets out remuneration details for each Director and each of the Company's executives named in the Remuneration Report for the financial year ended 30 June 2012.

Section 250R(2) of the Corporations Act requires companies to put a resolution to their members that the Remuneration Report be adopted. The vote on this resolution is advisory only, however, and does not bind the Board or the Company. The Board will consider the outcome of the vote and comments made by Shareholders on the Remuneration Report at the meeting when reviewing the Company's remuneration policies.

The Chairman will give Shareholders a reasonable opportunity to ask questions about or to make comments on the Remuneration Report.

Under the Corporations Act, if 25% or more of votes that are cast are voted against the adoption of the Remuneration Report at two consecutive AGMs, Shareholders will be required to vote at the second of those AGMs on a resolution that a further meeting is held at which all of the Company’s Directors (other than the Managing Director) must go up for re-election. Voting on this resolution will be determined by a poll at the meeting rather than a show of hands.

At the Company’s 2011 AGM, less than 25% of the votes cast opposed the adoption of the Remuneration Report.

Undirected proxies

The Chairman intends to exercise all undirected proxies in favour of Resolution 1. If the Chairman of the Meeting is appointed as your proxy and you have not specify the way the Chairman is to vote on Resolution 1,

by signing and returning the Proxy Form, the Shareholder is considered to have provided the Chairman with an express authorisation to vote the proxy in accordance with the Chairman’s intention.

Any undirected proxies held by any other Key Management Personnel or any of their Closely Related Parties will not be voted on this resolution.

Key management personnel of the Company has the same meaning as set out in the accounting standards and includes the Directors of the Company and those other persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. The Remuneration Report identifies the Company’s key management personnel for the financial year to 30 June 2012. Their closely related parties are defined in the Corporations Act, and include certain members of their family, dependents and companies they control.

3. RESOLUTION 2 – ELECTION OF MR CHRIS ELLIS AS A DIRECTOR

Listing Rule 14.4 and Clause 3.6 of the Constitution provide that a re-election of Directors must be held at each annual general meeting. The Directors to retire are to be those who have been in office for 3 years since their appointment or last re-appointment or who have been longest in office since their appointment or last re-appointment or, if the Directors have been in office for an equal length of time, by agreement. Mr Chris Ellis retires from office in accordance with these requirements and being eligible, offers himself for reelection by shareholders as a director of the Company, with effect from the end of the meeting.

Chris is an experienced mining executive with over 30 years’ experience in geology, exploration, mine planning and project development in Australia and overseas. He was a founding member and Executive Director of Excel Coal Limited which was the subject of a take-over bid by the US coal giant Peabody Energy Inc, and has held senior positions within Shell Coal’s Exploration, BP Coal (London and USA), Agipcoal Australia and the Stratford Joint Venture.

The Board unanimously recommends that shareholders vote in favour of the re-election of Mr Ellis as a director.

4. RESOLUTION 3 – ELECTION OF MR JOHN ASHLEY AS A DIRECTOR

Listing Rule 14.4 and Clause 3.6 of the Constitution provides that an election of directors must be held at each annual general meeting. The Directors to retire are to be those who have been in office for 3 years since their appointment or last re-appointment or who have been longest in office since their appointment or last reappointment or, if the Directors have been in office for an equal length of time, by agreement. Mr John Ashley retires from office in accordance with these requirements and being eligible, offers himself for reelection by shareholders as a director of the Company, with effect from the end of the meeting.

John is a former Director of Southern Geoscience Consultants (SGC), which he established in 1985, and is a former Director of Aerodata Holdings and Conquest Mines NL (unlisted). John has over 4 decades experience as a geophysicist in the exploration industry with government agencies, exploration companies, and consulting companies and has worked in many countries. He has had significant involvement in discoveries of El Sherana West (uranium), Prieska (copper/lead/zinc), Red October, Ulysses (gold).

The Board unanimously recommends that shareholders vote in favour of the re-election of Mr Ashley as a director.

5. RESOLUTION 4 – APPROVAL OF 10% PLACEMENT FACILITY

5.1 General

Listing Rule 7.1A enables eligible entities to issue Equity Securities up to 10% of its issued share capital through placements over a 12 month period after the annual general meeting ( 10% Placement Facility ). The 10% Placement Facility is in addition to the Company's 15% placement capacity under Listing Rule 7.1.

An eligible entity for the purposes of Listing Rule 7.1A is an entity that is not included in the S&P/ASX 300 Index and has a market capitalisation of $300 million or less. The Company is an eligible entity.

The Company is now seeking shareholder approval by way of a special resolution to have the ability to issue Equity Securities under the 10% Placement Facility.

The exact number of Equity Securities to be issued under the 10% Placement Facility will be determined in accordance with the formula prescribed in Listing Rule 7.1A.2 (refer to Section 5.2(c) below).

The Company may use the 10% Placement Facility to fund ongoing exploration on its existing projects, according to results and capital needs, or acquire new resource assets. If and when the Company does utilise the 10% Placement Facility within the 12 months following the AGM, assuming Resolution 4 is passed, the Company will be required to give ASX details of who the allottees are and how many Equity Securities they each received. In addition the Company will be required to release by way of ASX announcement the information set out in Listing Rule 3.10.5A, namely:

(a) details about the dilution to the existing Shareholders caused by the issue of Equity Securities under the Special Placement Facility;
(b) if cash is raised, an explanation why a pro rata issue or other type of issue allowing existing shareholders to participate was not adopted instead of or as well as using the 10% Placement Facility;
(c) details about any underwriting and underwriting fees paid; and
(d) details about any other fees or costs incurred in connection with the issue of Equity Securities under the 10% Placement Facility.

The Directors of the Company believe that Resolution 4 is in the best interests of the Company and unanimously recommend that Shareholders vote in favour of this Resolution.

5.2 Description of Listing Rule 7.1A

(a) Shareholder approval

The ability to issue Equity Securities under the 10% Placement Facility is subject to shareholder approval by way of a special resolution at an annual general meeting.

(b) Equity Securities

Any Equity Securities issued under the 10% Placement Facility must be in the same class as an existing quoted class of Equity Securities of the Company.

The Company, as at the date of the Notice, has on issue one class of quoted Equity Securities, namely Shares.

(c) Formula for calculating 10% Placement Facility

Listing Rule 7.1A.2 provides that eligible entities which have obtained shareholder approval at an annual general meeting may issue or agree to issue, during the 12 month period after the date of the annual general meeting, a number of Equity Securities calculated in accordance with the following formula:

(A x D) – E

A

is the number of shares on issue 12 months before the date of issue or agreement:
(A) plus the number of fully paid shares issued in the 12 months under an exception in Listing Rule 7.2;
(B) plus the number of partly paid shares that became fully paid in the 12 months;
(C) plus the number of fully paid shares issued in the 12 months with approval of holders of shares under Listing Rule 7.1 and 7.4. This does not include an issue of fully paid shares under the entity's 15% placement capacity without shareholder approval;
(D) less the number of fully paid shares cancelled in the 12 months.

Note that A is has the same meaning in Listing Rule 7.1 when calculating an entity's 15% placement capacity.

D

is 10%
E is the number of Equity Securities issued or agreed to be issued under Listing Rule 7.1A.2 in the 12 months before the date of the issue or agreement to issue that are not issued with the approval of shareholders under Listing Rule 7.1 or 7.4.

(d) Listing Rule 7.1 and Listing Rule 7.1A

The ability of an entity to issue Equity Securities under Listing Rule 7.1A is in addition to the entity's 15% placement capacity under Listing Rule 7.1.

At the date of this Notice, the Company has on issue 228,312,235 Shares and therefore has a capacity to issue:

(i) 34,246,835 Equity Securities under Listing Rule 7.1; and
(ii) subject to Shareholder approval being sought under Resolution 4, 22,831,223 Equity Securities under Listing Rule 7.1A.

The actual number of Equity Securities that the Company will have capacity to issue under Listing Rule 7.1A will be calculated at the date of issue of the Equity Securities in accordance with the formula prescribed in Listing Rule 7.1A.2 (refer to Section 7.2(c) above).

(e) Minimum Issue Price

The issue price of Equity Securities issued under Listing Rule 7.1A must be not less than 75% of the VWAP of Equity Securities in the same class calculated over the 15 Trading Days immediately before:

(i) the date on which the price at which the Equity Securities are to be issued is agreed; or
(ii) if the Equity Securities are not issued within 5 Trading Days of the date in paragraph (i) above, the date on which the Equity Securities are issued.

(f) 10% Placement Period

Shareholder approval of the 10% Placement Facility under Listing Rule 7.1A is valid from the date of the annual general meeting at which the approval is obtained and expires on the earlier to occur of:

(i) the date that is 12 months after the date of the annual general meeting at which the approval is obtained; or
(ii) the date of the approval by shareholders of a transaction under Listing Rules 11.1.2 (a significant change to the nature or scale of activities) or 11.2 (disposal of main undertaking),

or such longer period if allowed by ASX ( 10% Placement Period ).

5.3 Listing Rule 7.1A

The effect of Resolution 4 will be to allow the Directors to issue the Equity Securities under Listing Rule 7.1A during the 10% Placement Period in addition to or without using the Company’s 15% placement capacity under Listing Rule 7.1.

Resolution 4 is a special resolution and therefore requires approval of 75% of the votes cast by shareholders present and eligible to vote (in person, by proxy, by attorney or, in the case of a corporate Shareholder, by a corporate representative).

5.4 Specific information required by Listing Rule 7.3A

Pursuant to and in accordance with Listing Rule 7.3A, information is provided in relation to the approval of the 10% Placement Facility as follows:

Minimum issue price

(a) The Equity Securities will be issued at an issue price of not less than 75% of the VWAP for the Company's Equity Securities over the 15 Trading Days immediately before:
(i) the date on which the price at which the Equity Securities are to be issued is agreed; or
(ii) if the Equity Securities are not issued within 5 Trading Days of the date in paragraph (i) above, the date on which the Equity Securities are issued.

Risk of economic and voting dilution

(b) If Resolution 4 is approved by Shareholders and the Company issues Equity Securities under the 10% Placement Facility, the existing Shareholders' voting power in the Company will be diluted as shown in the below table. There is a risk that:
(i) the market price for the Company's Equity Securities may be significantly lower on the date of the issue of the Equity Securities than on the date of the Meeting; and
(ii) the Equity Securities may be issued at a price that is at a discount to the market price for the Company's Equity Securities on the issue date or the Equity Securities are issued as part of consideration for the acquisition of a new asset.

which may have an effect on the amount of funds raised by the issue of the Equity Securities.

The below table shows the dilution of existing Shareholders on the basis of the current market price of Shares and the current number of ordinary securities for variable "A" calculated in accordance with the formula in Listing Rule 7.1A(2) as at the date of this Notice.

The table also shows:

(i) one example where variable “A” has increased by 100%. Variable “A” is based on the number of ordinary securities the Company has on issue. The number of ordinary securities on issue may increase as a result of issues of ordinary securities that do not require Shareholder approval (for example, a pro rata entitlements issue or scrip issued under a takeover offer) or future specific placements under Listing Rule 7.1 that are approved at a future Shareholders’ meeting;
(ii) one example where variable “A” has decreased, consistent with the outcome of proposed Resolution 5 if it is passed. A selective buy back of ordinary shares will cause the number of ordinary shares to decrease to the extent of the shares bought back by the Company;
(iii) one example where variable “A” has increased by 100% as if Resolution 5 had been passed and implemented. A selective buy back of ordinary shares will cause the number of ordinary shares to

decrease to the extent of the shares bought back by the Company. ASX requires the Company to disclose an example where variable “A” has increased by 100%. Since Resolution 5 has been proposed it is appropriate to include this example, using the number of shares on issue after Resolution 5 has been passed and implemented, to satisfy ASX disclosure requirements; and

(iv) two examples of where the issue price of ordinary securities has decreased by 50% and increased by 50% as against the current market price.

Variable ‘A’ in Listing Rule 7.1A.2			Dilution

		$0.0175	$0.035	$0.0700


		50% decrease in Issue Price		100% increase in

			Issue Price	Issue Price
Current Variable A	10% Voting Dilution	22,831,223 shares	22,831,223 shares	22,831,223 shares
228,312,235 Shares

	Funds raised	$399,546	$799,093	$1,598,186

100% increase in current Variable A	10% Voting Dilution	45,662,447 shares	45,662,447 shares	45,662,447 shares
456,624,470 Shares

	Funds raised	$799,093	$1,598,186	$3,196,371

decrease in current Variable A by 68,308,791 Shares (assumes Resolution 5 is passed)	10% Voting Dilution	16,000,344 shares	16,000,344 shares	16,000,344 shares
160,003,444 Shares

	Funds raised	$280,006	$560,012	$1,120,024

100% increase in Variable A after the buy back of 68,308,791 Shares (assumes Resolution 5 is passed)	10% Voting Dilution	32,000,688 shares	32,000,688 shares	32,000,688 shares
320,006,888 Shares

	Funds raised	$560,012	$1,120,024	$2,240,048

The table has been prepared on the following assumptions:

(i) The Company issues the maximum number of Equity Securities available under the 10% Placement Facility.
(ii) The 10% voting dilution reflects the aggregate percentage dilution against the issued share capital at the time of issue. This is why the voting dilution is shown in each example as 10%.
(iii) The table does not show an example of dilution that may be caused to a particular Shareholder by reason of placements under the 10% Placement Facility, based on that Shareholder’s holding at the date of the Meeting.
(iv) The table shows only the effect of issues of Equity Securities under Listing Rule 7.1A, not under the 15% placement capacity under Listing Rule 7.1.
(v) The issue of Equity Securities under the 10% Placement Facility consists only of Shares. If the issue of Equity Securities includes Listed Options, it is assumed that those Listed Options are exercised into Shares for the purpose of calculating the voting dilution effect on existing Shareholders.
(vi) The issue price is $0.035, being the closing price of the Shares on ASX on 19 October 2012.

Period within which the Special Placement Facility can be implemented

(c) The Company will only issue and allot the Equity Securities during the 10% Placement Period. The approval under Resolution 4 for the issue of the Equity Securities will cease to be valid in the event that Shareholders approve a transaction under Listing Rule 11.1.2 (a significant change to the nature or scale of activities or Listing Rule 11.2 (disposal of main undertaking).

Purpose for which the Special Placement Facility may be implemented

(d) The Company may seek to issue the Equity Securities for the following purposes:
(i) non-cash consideration for the acquisition of the new resources assets. In such circumstances the Company will provide a valuation of the non-cash consideration as required by Listing Rule 7.1A.3; or
(ii) cash consideration. In such circumstances, the Company intends to use the funds raised towards an acquisition of new assets (including expense associated with such acquisition), continued exploration and expenditure on the Company’s current assets and/or general working capital.

The Company will comply with the disclosure obligations under Listing Rules 7.1A(4) and 3.10.5A upon issue of any Equity Securities.

Allocation policy when the Special Placement Facility may be implemented

(e) The Company’s allocation policy is dependent on the prevailing market conditions at the time of any proposed issue pursuant to the 10% Placement Facility. The identity of the allottees of Equity Securities will be determined on a case-by-case basis having regard to the factors including but not limited to the following:
(i) the other methods (and time constraints which may be applicable in relation to raising funds) that are available to the Company, including but not limited to, a rights issue or other issue in which existing security holders can participate;
(ii) the effect of the issue of the Equity Securities on the control of the Company;
(iii) the financial situation and solvency of the Company; and
(iv)
advice from corporate, financial and broking advisers (if applicable).

The allottees under the 10% Placement Facility have not been determined as at the date of this Notice but may include existing substantial Shareholders and/or new Shareholders who are not related parties or associates of a related party of the Company.

Further, if the Company is successful in acquiring new resources assets, it is likely that the allottees under the 10% Placement Facility will be the vendors of the new resources assets.

Prior Approvals under Listing Rule 7.1A:

(e) The Company has not previously obtained Shareholder approval under Listing Rule 7.1A.

Voting Exclusions:

(f) A voting exclusion statement is included in the Notice. At the date of the Notice, the Company has not approached any particular existing Shareholder or security holder or an identifiable class of existing security holder to participate in the issue of the Equity Securities. No existing Shareholder's votes will therefore be excluded under the voting.

6. RESOLUTION 5 – APPROVAL OF SELECTIVE BUY BACK OF 68,308,791 SHARES FROM CLIFFS AND SALE OF 70% INTEREST IN THE STANLEY PROJECT TO CLIFFS

Under the Corporations Act, the Company may buy back its own shares if the Buy-Back does not materially prejudice the Company's ability to pay its creditors and the Company follows the procedures in Division 2 of Part 2J.1 of the Corporations Act. Under section 257D of the Corporations Act, a buy back by the Company of Shares from selected Shareholders requires a special resolution, with no votes being cast in favour of the resolution by any people whose Shares are proposed to be bought back or by their associates. Following completion of a buy back, the shares bought back must be cancelled, in accordance with the Corporations Act.

The Company announced on 4 October 2012 that non legally binding terms had been agreed between the Company and Cliffs for the proposed Buy Back of Shares from Cliffs comprising approximately 29% of the total Shares on issue. Following consideration of an independent expert’s report commissioned by the Company, a legally binding Heads of Agreement was subsequently negotiated and executed on 22 October 2012. The material terms of the Heads of Agreement are that the Company will buy back 68,308,791 Shares (representing approximately 29% of the total Shares on issue) from Cliffs in consideration for which the Company will assign a 70% interest in the Company’s Stanley Project to Cliffs, and the Company will sole fund exploration expenditure of $1million on the Stanley Project within the two years following the Completion Date (as defined below).

Completion of the Heads of Agreement is subject to Shareholder approval for the Buy Back and the nature of the consideration being paid, for the purposes of section 257D of the Corporations Act and Listing Rule 10.1. In addition Cliffs is required to obtain approval for the transaction in accordance with the Foreign Acquisitions and Takeovers Act 1975 (Cth) in relation to the acquisition of the Project Interest (" FIRB Condition "). The Buy Back and the assignment of the Project Interest will occur 2 business days following the date of satisfaction of the shareholder approval condition and the FIRB Condition (or such other date as the Company and Cliffs may agree) (" Completion Date" ). In any event the shareholder condition and the FIRB Condition must be satisfied by 31 January 2013 otherwise the transaction will not proceed. Following completion of the Buy Back, the Buy Back Shares will be cancelled as required under the Corporations Act.

The Shares on issue before and after the proposed Buy Back is as follows, assuming Resolution 5 is passed:

	Before Meeting	After Meeting
Total Shares on Issue	228,312,235	160,003,444

The Directors have resolved that the Buy Back does not materially prejudice the Company’s ability to pay its creditors.

The proposed consideration to be paid by the Company for the Buy Back is the assignment of a 70% interest in the Company’s Stanley Project, and the agreement by the Company to sole fund exploration expenditure of $1million on the Stanley Project within the two years following completion of the Buy Back. The value of this consideration has been assessed independently of the parties by an independent expert, BDO Corporate Finance (WA) Pty Ltd, commissioned by the Company. A copy of the Independent Expert's Report, compiled by the Expert is annexed to this Notice of Meeting. The Expert concludes that the range of values for the consideration to be paid by the Company for the Buy Back Shares is between $1,330,000 and $1,960,000, with a preferred value of $1,610,000. For the purposes of the Heads of Agreement, the Company has agreed to a deemed Buy Back price of $1,802,000 with Cliffs, which aligns with the Independent Expert’s preferred valuation of the Buyback Shares.

This equates to a Buy Back price of $0.026 per Buy Back Share being paid by the Company to Cliffs for the Buy Back Shares.

The proposed sale of the Project Interest by the Company to Cliffs, and the agreement by the Company to sole fund exploration expenditure of $1million on the Stanley Project within the two years following the Completion Date, constitutes a transaction regulated by ASX Listing Rule 10.1.

The purpose of ASX Listing Rule 10.1 is to regulate a transaction between a listed entity and persons in a position to influence the entity, because there is a perceived potential for a transfer of value from the entity to the person in a position of influence to the detriment of the entity’s shareholders.

Cliffs is a substantial shareholder of the Company, because Cliffs holds more than 10% of the Company’s shares on issue. As such ASX Listing Rule 10.1 applies to an acquisition by Cliffs of an asset from the Company where the value of the asset, or the value of the consideration being paid for the asset, exceeds 5% of the consolidated equity interests of the Company in the last financial statements of the Company lodged with ASX. The Expert’s preferred and higher values for the consideration being paid, exceeds 5% of the consolidated equity interests of the Company in the last financial statements of the Company lodged with ASX.

Accordingly, ASX Listing Rule 10.1 requires the Shareholders to approve the transaction by ordinary resolution, and ASX Listing Rule 10.10 requires Shareholders to receive a copy of an independent expert’s report on the transaction.

In the Report the Expert is required to provide an opinion as to whether the transaction is fair and reasonable to Shareholders other than Cliffs. The Expert’s Report commissioned by the Company appears in Annexure A to this Explanatory Statement, and concludes that the transaction is fair and reasonable to the Shareholders who are not excluded from voting on Resolution 5. Shareholders are requested to read the Report before deciding how to vote in relation to Resolution 5.

Part of the consideration for the Buy Back involves agreement by the Company to sole fund exploration expenditure of $1million on the Stanley Project, and act as manager of the Project during this time, by the second anniversary of the Completion Date. The intention of the Company and Cliffs is that within 60 days after the Completion Date, they will agree a program and budget applicable during the Company’s sole funding period, with industry standard provisions to ensure the tenements are maintained in good standing and operated in accordance with good mining industry practice. Once the sole funding obligation has been completed, and subject to the parties agreeing terms for a joint venture agreement, Cliffs then has the right to elect whether to sole fund $3million exploration expenditure in the subsequent 4 year period to earn an additional 10% interest in the Project (having sole discretion in relation to the program and budget), or, whether to form an unincorporated joint venture on the basis that Cliffs holds a 70% percentage interest in the Stanley Project and the Company holds a 30% percentage interest in the Stanley Project, or whether to withdraw, retaining its interest, and seek to sell its interest (which activates pre-emptive rights under the Heads of Agreement). The Heads of Agreement will terminate if Cliffs withdraws. If Cliffs does not make the election within 30 days of the Company satisfying its sole funding obligation, Cliffs, subject to the parties agreeing the terms of a joint venture agreement, is deemed to have elected to form the joint venture with the Company immediately (under which Cliffs holds a 70% percentage interest in the Stanley Project and the Company holds a 30% percentage interest in the Stanley Project).

The terms of the Joint Venture are to be negotiated by the parties. The parties have agreed a base document for that process, a model joint venture agreement provided by Cliffs' lawyers which contains industry standard dilution provisions during the exploration phase of the joint venture, and usual and appropriate terms for the evolution of the exploration joint venture into a development and mining joint venture. If no joint venture agreement can be agreed there is no obligation on Cliffs to sole fund any expenditure on the Project. There is no certainty that the parties will be able to reach agreement on the terms of the joint venture agreement, in which case, either party is able to sell their interest in the Project (subject to preemptive rights granted to the other party), the Company will be responsible for rehabilitation on the tenements, and both parties will contribute to the costs of maintaining the tenements in good standing in proportion to their 70%/30% interests in the tenements, until such time as a purchaser acquires the interest offered for sale in the Project (or one party acquires the interest of the other party in the Project pursuant to

the pre-emptive rights.) In the event that the parties cannot negotiate the terms of a joint venture agreement, the Heads of Agreement will terminate.

Resolution 5 is proposed as a special resolution to satisfy the higher voting requirements of the share buy back provisions under the Corporations Act, notwithstanding that ASX Listing Rule 10.1 only requires an ordinary resolution. The parties to the Heads of Agreement and their associates are excluded from voting on Resolution 5.

The Company’s rationale for the transaction is to facilitate a departure of Cliffs from the Company’s share register and to instead continue its strong relationship with Cliffs, in this case as set out in the Heads of Agreement in relation to the Stanley Project. (The parties are already in joint venture in Peru.) The Company’s retention of a 30% interest (or a 20% interest if Cliffs elects to sole fund $3m exploration expenditure over 4 years if a joint venture agreement is executed ) allows the Company to share in the upside of joint venture work. The Buy Back will increase the proportionate holdings of all other Shareholders in the Company, reducing the number of Shares on issue. Accordingly the transaction is viewed by the Company as a “win win” transaction for both parties.

GLOSSARY

$ means Australian dollars.

Annual General Meeting means the meeting convened by the Notice of Meeting.

ASIC means the Australian Securities and Investments Commission.

ASX means ASX Limited.

ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of Directors of the Company.

Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.

Buy Back means the selective buy back of the Buy Back Shares by the Company from Cliffs, the subject of Resolution 5 .

Buy Back Shares means 68,308,791 Shares currently held by Cliffs.

Cliffs means Cliffs Australia Holdings Pty Ltd (ACN 123 528 227).

Company means AusQuest Limited (ABN 35 091 542 451).

Constitution means the Company’s Constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current Directors of the Company.

Expert means BDO Corporate Finance (WA) Pty Ltd.

Explanatory Statement means the explanatory statement accompanying the Notice of Meeting.

Heads of Agreement means the legally binding Heads of Agreement between the Company and Cliffs dated 22 October 2012 concerning the transaction the subject of Resolution 5.

Notice of Meeting or Notice of Annual General Meeting means this notice of annual general meeting including the explanatory statement.

Project Interest means a 70% interest in the Company’s Stanley Project.

Remuneration Report means the remuneration report in the Directors' Report section of the Company's Annual Report.

Resolutions means the resolutions set out in the Notice of Meeting, or any one of them, as the context requires.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

WST means Western Standard Time as observed in Perth, Western Australia.

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AUSQUEST LIMITED Independent Expert’s Report

22 October 2012

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Financial Services Guide

22 October 2012

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (“ we ” or “ us ” or “ ours ” as appropriate) has been engaged by AusQuest Limited (“ AusQuest ”) to provide an independent expert’s report on the Proposal to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs Australia Holding Pty Ltd (“Cliffs”) in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest. You will be provided with a copy of our report as a retail client because you are a shareholder of AusQuest.

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. 316158;
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; and
Our internal and external complaints handling procedures and how you may access them.

Information about us

BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services.

We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business.

Financial services we are licensed to provide

We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients.

When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you.

General Financial Product Advice

We only provide general financial product advice, not personal financial product advice. Our report does not take 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.

BDO CORPORATE FINANCE (WA) PTY LTD

Financial Services Guide

Page 2

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Fees, commissions and other benefits that we may receive

We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee for this engagement is approximately $22,000.

Except for the fees referred to above, neither BDO, 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. We have received a fee from AusQuest for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this 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.

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, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872.

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 Ombudsman Service (“ FOS ”). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is 12561. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below.

Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll free: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: [email protected]

Contact details

You may contact us using the details set out at the top of our letterhead on page 1 of this FSG.

This is a draft document and must not be relied on or disclosed or referred to in any document. We accept no duty of care or liability to you or any third party for any loss suffered in connection with the use of this document.

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1.	Introduction	1
2.	Summary and Opinion	1
3.	Scope of the Report	3
4.	Outline of the proposal	5
5.	Profile of AusQuest	6
6.	Economic analysis	13
7.	Industry analysis	14
8.	Valuation approach adopted	15
9.	Valuation of the consideration	17
10.	Valuation of the assets being disposed	24
11.	Is the proposal fair?	25
12.	Is the proposal reasonable?	26
13.	Conclusion	27
14.	Sources of information	27
15.	Independence	27
16.	Qualifications	28
17.	Disclaimers and consents	29

Appendix 1 – Glossary

Appendix 2 – Valuation Methodologies

Appendix 3 - Independent valuation report prepared by CSA Global

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22 October 2012

The Directors AusQuest Limited C/-Nexia Perth Level 7, The Quadrant 1 William Street Perth WA 6000

Dear Sirs

INDEPENDENT EXPERT’S REPORT

1. Introduction

On 4 October 2012 AusQuest Limited (“AusQuest” or “the Company”) announced that it had reached a non binding agreement with its major shareholder, Cliffs Australia Holding Pty Ltd (“Cliffs”) , to sell a 70 per cent interest in its Stanley Manganese Project (“Stanley Project”) to Cliffs in exchange for the buyback and cancellation of its 29.92 per cent holding in AusQuest (“the Proposal”). On 22 October 2012 a binding Heads of Agreement was signed by AusQuest and Cliffs.

2. Summary and Opinion

2.1 Purpose of the report

The directors of AusQuest have requested that BDO Corporate Finance (WA) Pty Ltd (“ BDO ”) prepare an independent expert’s report (“ our Report ”) to express an opinion as to whether or not the Proposal is fair and reasonable to the non associated shareholders of AusQuest (“ Shareholders ”).

Our Report is prepared pursuant to ASX listing rule 10.1 and is to be included in the Notice of Meeting and Explanatory Memorandum for AusQuest in order to assist the Shareholders in their decision whether to approve the Proposal.

2.2 Approach

Our Report has been prepared having regard to Australian Securities and Investments Commission (“ ASIC ”) Regulatory Guide 111 (“ RG 111 ”), ‘Content of Expert’s Reports’ and Regulatory Guide 112 (“ RG 112 ”) ‘Independence of Experts’.

In arriving at our opinion, we have assessed the terms of the Proposal as outlined in the body of this report. We have considered:

How the value of the assets being disposed compares to the value of the consideration to be paid for the assets;

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

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The likelihood of a superior alternative offer being available to AusQuest;
Other factors which we consider to be relevant to the Shareholders in their assessment of the Proposal; and
The position of Shareholders should the Proposal not proceed.

2.3 Opinion

We have considered the terms of the Proposal as outlined in the body of this report and have concluded that the Proposal is fair and reasonable to Shareholders.

2.4 Fairness

In Section 11 we determined that the Proposal consideration compares to the value of the Stanley Project, as detailed hereunder.

			Low value	Preferred value	High value
			$m	$m	$m
Value of	the consideration: 68,308,791 AusQuest shares	9.4	1.619	1.802	2.021
Value of	the assets being sold	10.3	1.330	1.610	1.960

The above valuation ranges are graphically presented below:

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

Value of the assets being sold
Value of the consideration: 68,308,791 AusQuest shares
0 0.5 1 1.5 2 2.5
Valuation ($m)
----- End of picture text -----

The above pricing indicates that, the Proposal is fair for Shareholders.

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2.5 Reasonableness

We have considered the analysis in Sections 12 of this report, in terms of both

advantages and disadvantages of the Proposal; and
alternatives, including the position of Shareholders if the Proposal does not proceed.

In our opinion, the position of Shareholders if the Proposal is approved is more advantageous than the position if the Proposal is not approved. Accordingly, in the absence of any other relevant information and/or a superior proposal we believe that the Proposal is reasonable for Shareholders.

The respective advantages and disadvantages considered are summarised below:

ADVANTAGES AND DISADVANTAGES	ADVANTAGES AND DISADVANTAGES
Section	Advantages	Section Disadvantages
12.3	The Proposal is fair	12.4 Loss of diversification
12.3	Relief from future funding obligations related to the Stanley Project
12.3	Increased percentage interest in the Company for the Shareholders of AusQuest.
12.3	Potential for improved liquidity of AusQuest shares

3. Scope of the Report

3.1 Purpose of the Report

ASX Listing Rule 10.1 requires that a listed entity must obtain shareholders’ approval before it acquires or disposes of a substantial asset, when the consideration to be paid for the asset or the value of the asset being disposed constitutes more than 5% of the equity interest of that entity at the date of the last audited accounts.

Based on the audited accounts as at 30 June 2012, 5% of AusQuest’s equity interest is $1.1 million. It is our opinion that the potential value of 70 per cent of the Stanley Project exceeds 5% of AusQuest’s current equity interest.

ASX Listing Rule 10.1 applies where the vendor or acquirer of the relevant assets is a related party or a ‘substantial holder’ of the listed entity. Cliffs is considered a substantial shareholder of AusQuest because it holds a relevant interest in more than 10% of the total votes attaching to Ausquest’s voting securities. As at the date of this report, Cliffs holds an interest of 29.92%.

Listing Rule 10.10.2 requires the Notice of Meeting for shareholders’ approval to be accompanied by a report by an independent expert expressing their opinion as to whether the transaction is fair and reasonable to the shareholders whose votes are not to be disregarded in respect of the transaction nonassociated shareholders.

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Accordingly, an independent experts’ report is required for the Proposal. The report should provide an opinion by the expert stating whether or not the terms and conditions in relation thereto are fair and reasonable to non-associated shareholders of AusQuest.

3.2 Regulatory guidance

Neither the Listing Rules nor the Corporations Act defines the meaning of ‘fair and reasonable’. In determining whether the Proposal is fair and reasonable, we have had regard to the views expressed by ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions.

This regulatory guide suggests that, where an expert assesses whether a related party transaction is ‘fair and reasonable’ for the purposes of ASX Listing Rule 10.1, this should not be applied as a composite test— that is, there should be a separate assessment of whether the transaction is ‘fair’ and ‘reasonable’, as in a control transaction. An expert should not assess whether the transaction is ‘fair and reasonable’ based simply on a consideration of the advantages and disadvantages of the proposal.

We do not consider the Proposal to be a control transaction. As such, we have used RG 111 as a guide for our analysis but have considered the Proposal as if it were not a control transaction.

3.3 Adopted basis of evaluation

RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the value of the securities subject of the offer. In the case of AusQuest 70% of the Stanley Project is the subject of the offer. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length. RG 111 states that when considering the value of the securities subject of the offer in a control transaction the expert should consider this value inclusive of a control premium. However, as stated in Section 3.2 we do not consider that the Proposal is a control transaction. As such, we have not included a premium for control when considering the value of AusQuest shares.

RG 111 states that when consideration is in the form of scrip then the expert should consider this value on a minority interest basis.

Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if despite being ‘not fair’ the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid.

Having regard to the above, BDO has completed this comparison in two parts:

A comparison between the value of 70% of the Stanley Project and the value of the 68,308,791 AusQuest shares (excluding a premium for control) to be issued as consideration (fairness – see Section 11 “Is the Proposal Fair?”); and
An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness – see Section 12 “Is the Proposal Reasonable?”).

This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards Board professional standard APES 225 ‘Valuation Services’ (“ APES 225 ”).

A Valuation Engagement is defined by APES 225 as follows:

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“an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time.”

This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.

4. Outline of the proposal

On 4 October AusQuest announced that it had reached a non binding agreement with its major shareholder Cliffs, to sell a 70 per cent interest in its Stanley Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest. On 22 October 2012 a binding Heads of Agreement was signed by AusQuest and Cliffs.

The key points relating to the Proposal are summarised below:

AusQuest will sole fund exploration expenditure of $1.0 million on the Stanley Project for a period of two years following the sale, at which point Cliffs may elect to sole fund $3.0 million to earn an additional 10% interest in the project before forming an exploration joint venture with AusQuest. (“sole funding agreement”)
In consideration for the sale of the Stanley Project AusQuest will accept a transfer of 68,308,791 million AusQuest shares currently owned by Cliffs, comprising of 29.92% of AusQuest’s issued capital
The proposed transaction will result in the reduction in the number of AusQuest shares on issue. As a result each of the remaining Shareholders will have an increased percentage ownership in the Company.

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5. Profile of AusQuest

5.1 History

AusQuest Limited is an exploration company with key interests in gold, copper, nickel platinum and manganese. The Company was incorporated on 15 February 2000 and listed on the ASX on 25 November 2003.

The current directors of AusQuest are:

Mr Greg Hancock – Non Executive Chairman
Mr Graeme Drew – Managing Director
Mr John Ashley – Non Executive Director
Mr Christopher Ellis – Non Executive Director
Mr Craig Moulton – Non Executive Director (Resigned 4 October 2012)

5.2 Projects

Stanley Project – Western Australia

AusQuest currently holds a 100% interest in the Stanley Project. The Stanley Project represents the Company’s primary interest in manganese and is located within the Earaheedy Basin in Western Australia. The Stanley Project covers an area of approximately 2,300km[2 ] and exploration results have indicated potential for high grade deposits of between 20% to 48% manganese.

For more detail regarding the Stanley Project refer to Appendix 3 of the report.

Comoe Project - Burkina Faso, West Africa

On 19 January 2012 AusQuest announced that it had increased its equity interest in its West African gold project from 80 % to 100 %. The Company purchased the equity from Endeavour Exploration Limited (“Endeavour”), its partner under the now dissolved Comoe Joint Venture, in exchange for a 1.5% Net Smelter Royalty, payable to Endeavour out of future production revenue.

During the year 2011, the Company focused its exploration activity in the Phaco Hill area. On 29 August 2012 the Company announced that it had identified at least five gold prospects for follow up target drilling within its Comoe Project. High grade intersections of up to 8.66g/t were returned from reconnaissance drilling.

Peru

AusQuest entered into a joint venture with Cliffs Natural Resources Exploration (“CNRE”) to explore the potential for iron oxide copper gold (“IOCG”) in Peru. Reconnaissance exploration commenced in the year ended 30 June 2012 and although limited field work has been completed to date, copper values ranging from 0.3% to 1.68% Cu and occasional gold of up to 12g/t with an area of 4km[2 ] have been recorded.

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The key terms of the joint venture are identified below:

AusQuest and CNRE are required to contribute US$ 2.0 million each on a 50:50 basis during the initial prospect identification phase.
CNRE are then required to sole fund the further exploration of selected projects. The sole funding includes up to US$ 4.0 million on projects that are chosen at the discretion of CNRE. The fulfilment of this funding agreement will entitle CNRE to secure 70% interest in the project.

Dundas – Western Australia

The Dundas project is located approximately 100km east-south east of Norseman in WA and covers an area of approximately 1,100km[2] . In the Company’s most recent quarterly activities report, released to the public on 23 July 2012, AusQuest announced that broad zones (30-40m) of elevated gold and base metals had been intersected.

Other Projects

The Company’s other projects include:

Earoo Nickel Project – Western Australia
Teriwa Copper/Gold Project – Queensland

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5.3 Historical Balance Sheet

Statement of Financial Position	Audited for Audited for
	the year ended the year ended
	30-Jun-12 30-Jun-11
	$ $
CURRENT ASSETS
Cash and cash equivalents	5,076,798 11,434,507
Trade and other receivables	1,272,405 2,073,276
Other assets	75,350 91,267
TOTAL CURRENT ASSETS	6,424,553 13,599,050

NON-CURRENT ASSETS
Other receivables	- 750,000
Property, plant and equipment	102,456 127,705
Exploration and Evaluation	17,071,623 19,267,933
TOTAL NON-CURRENT ASSETS	17,174,079 20,145,638
TOTAL ASSETS	23,598,632 33,744,688

CURRENT LIABILITIES
Trade and other payables	823,728 2,265,695
Provisions	82,148 81,185
TOTAL CURRENT LIABILITIES	905,876 2,346,880
TOTAL LIABILITES	905,876 2,346,880

NET ASSETS	22,692,756 31,397,808

EQUITY
Issued Capital	52,307,672 52,307,672
Reserves	1,061,634 278,944
Accumulated losses	(30,676,550) (22,817,119)
PARENT ENTITY INTEREST	22,692,756 29,769,497
Non ControllingInterests	- 1,628,311
TOTAL EQUITY	22,692,756 31,397,808

Source: AusQuest Limited 2012 Annual Report

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Cash decreased from $11.4 million as at 30 June 2011 to $5.08 million as at 30 June 2012. Over this period the Company incurred cash flows of approximately $6.91 million relating to exploration and evaluation expenditure. The Company also injected the funds received in 2011 from the sale of the two iron ore projects in the Pilbara region of WA.
During the 2011 financial year the Group entered into an agreement with Dragon Energy Ltd to sell its two iron ore projects in the Pilbara region of WA. Under the agreement, the combined assets were sold for $7.5million. This included a payment of $0.5million for the Nameless project, which was received in October 2010, and $7.0 million for the Rocklea Project (75% AQD) to be paid in three installments.
On completion of the Rocklea sale, Dragon Energy paid a first installment, being $3.375 million (75% of $4.5 million). The two remaining installments payable to AusQuest were as follows:
$1.125 mil (75% of $1.5mil) which was paid on 19 Jan 2012, being 12 months after completion date; and
$0.75 mil (75% of $1mil) to be paid by 19 Jan 2013, being 24 months after completion

The two aforementioned events help to explain the decline in the trade and other receivables balance from 30 June 2011 to 30 June 2012.

The balance for exploration and evaluation decreased from $19.27 million as at 30 June 2011 to $17.07 million as at 30 June 2012. This decrease is largely caused by impairments to the Table Hill, Plenty River and Mt Ramsay projects. Impairment for the period was approximately $7.91 million.
There was an increase in the reserves account of $0.78 million from 30 June 2011 to 30 June 2012. The increase in the reserves balance includes an adjustment of $0.58 million which reflects the Company’s change in non-controlling interests in its subsidiary. There was also an increase of $0.300 million in the foreign currency translation reserve.

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5.4 Historical Statement of Comprehensive Income

Statement of Comprehensive Income	Audited for Audited for
	the year ended the year ended
	30-Jun-12 30-Jun-11
	$ $
Revenue	450,776 4,693,672

Consultants and employee benefits expense	(368,697) (679,985)
Occupancy Expenses	(109,174) (127,542)
Administration Expense	(1,040,028) (1,555,850)
Exploration expenditure expensed as incurred	(71,043) (682,363)
Impairment of exploration expenditure	(7,909,791) (12,141,108)
Loss before income tax	(9,047,957) (10,493,176)
Income tax expense	- -
Loss for the year	(9,047,957) (10,493,176)
Other Comprehensive Income:
Exchange gain/(loss) on translation of foreign operations	342,905 (23,104)
Total comprehensive loss for year	(8,705,052) (10,516,280)

Source: AusQuest Limited 2012 Annual Report

The revenue recognised for the period ended 30 June 2012 declined considerably compared to the revenue recognised for the period ended 30 June 2011. Approximately $3.79 million of the amount recognised as revenue for the period ended 30 June 2011 relates to the profit on the disposal tenements. Revenue that is recognised for the period ended 30 June 2012 comprises solely of interest income
The impairment of exploration expenditure relates to the Table Hill, Plenty River and Mt Ramsay projects as explained in section 5.3

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5.5 Capital Structure

The share structure of AusQuest as at 20 September 2012 is outlined below:

	Number
	Total ordinary shares on issue 228,312,235
	Top 20 shareholders 125,540,456
	Top 20 shareholders - % of shares on issue 54.99%

Source: Company share registry information

The range of shares held in AusQuest as at 20 September 2012 is as follows:

	Number of Ordinary	Number of Ordinary	Percentage of Issued
Range of Shares Held	Shareholders	Shares	Shares (%)
1 - 1,000	227	24,509	0.01%
1,001 - 5,000	285	840,423	0.37%
5,001 - 10,000	235	1,910,343	0.84%
10,001 - 100,000	816	32,049,295	14.04%
100,001 - and over	262	193,487,665	84.74%
TOTAL	1,825	228,312,235	100.00%

Source: Company share registry information

The ordinary shares held by the most significant shareholders as at 20 September 2012 are detailed below:

	Number of Ordinary	Percentage of
Name	Shares Held	Issued Shares (%)
Cliffs Australia Holdings Pty Ltd	68,308,791	29.92%
Hamersley Holdings Limited	10,500,000	4.60%
Chrysalis Investments Pty Ltd	6,160,000	2.70%
Mr Ross Jeremy Taylor	6,040,000	2.65%
Subtotal	91,008,791	39.87%
Others	137,303,444	60.13%
Total ordinary shares on Issue	228,312,235	100.00%

Source: Company share registry information

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The outstanding unlisted options held in AusQuest as at 20 September 2012 are detailed below:

			Exercise Price	Cash raised if exercised
Number	No.of Holders	Expiry	($)	($)
1,250,000	6	31/12/2012	0.350	437,500
500,000	1	30/11/2013	0.300	150,000
2,250,000	11	30/11/2013	0.400	900,000
1,350,000	7	1/12/2013	0.200	270,000
1,150,000	6	1/12/2013	0.400	460,000
6,500,000				2,217,500

Source: Company share registry information

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6. Economic analysis

6.1 Current Economic Conditions

The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside. Economic activity in Europe is contracting, while growth in the United States remains modest. Growth in China has also slowed, and uncertainty about near-term prospects is greater than it was some months ago. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.

Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks. The terms of trade have declined by over 10% since the peak last year and will probably decline further, though they are likely to remain historically high.

Financial markets have responded positively over the past few months to signs of progress in addressing Europe's financial problems, but expectations for further progress remain high. Low appetite for risk has seen long-term interest rates faced by highly rated sovereigns, including Australia, remain at exceptionally low levels. Nonetheless, capital markets remain open to corporations and well-rated banks, and Australian banks have had no difficulty accessing funding, including on an unsecured basis. Share markets have generally risen over recent months.

In Australia, most indicators suggest that growth has been running close to trend, led by very large increases in capital spending in the resources sector. Consumption growth was quite firm in the first half of 2012, though some of that strength was temporary. Investment in dwellings has remained subdued, though there have been some tentative signs of improvement, while non-residential building investment has also remained weak. Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.

Labour market data have shown moderate employment growth and the rate of unemployment has thus far remained low. The Reserve Bank of Australia’s assessment, though, is that the labour market has generally softened somewhat in recent months.

Inflation has been low, with underlying measures near 2% over the year to June, and headline CPI inflation lower than that. The introduction of the carbon price is affecting consumer prices in the current quarter, and this will continue over the next couple of quarters. Moderate labour market conditions should work to contain pressure on labour costs in sectors other than those directly affected by the current strength in resources. This and some continuing improvement in productivity performance will be needed to keep inflation low as the effects of the earlier exchange rate appreciation wane. The Reserve Bank of Australia's assessment remains, at this point, that inflation will be consistent with the target over the next one to two years.

Interest rates for borrowers have for some months been a little below their medium-term averages. There are tentative signs of this starting to have some of the expected effects, though the impact of monetary policy changes takes some time to work through the economy. However, credit growth has softened of late and the exchange rate has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.

Source: www.rba.gov.au Statement by Glenn Stevens, Governor: Monetary Policy Decision 2 October 2012

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7. Industry analysis

As outlined in section 5.2 of the report, AusQuest’s portfolio of projects includes interests in gold, copper, manganese and base metals. The Proposal relates to the Stanley Project, which involves the exploration of manganese. For further industry information relevant to the Stanley Project refer to Appendix 3.

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8. Valuation approach adopted

There are a number of methodologies which can be used to value a business or the shares in a company. The principal methodologies which can be used are as follows:

Capitalisation of future maintainable earnings (“ FME ”)
Discounted cash flow (“ DCF ”)
Quoted market price basis (“ QMP ”)
Net asset value (“ NAV ”)
Market based assessment

Different methodologies are appropriate in valuing particular companies, based on the individual circumstances of that company and available information. A summary of each of these methodologies is outlined in Appendix 2.

8.1 Valuation of the consideration

In our assessment of the value of 68,308,791 shares in AusQuest, which represents Cliff’s current holding in Ausquest, we have chosen to employ the following methodologies:

Net asset value: primary methodology

We have adopted the NAV as our primary valuation method because the most significant assets of AusQuest, in particular the Stanley Project which is most relevant to the Proposal, require a specialist valuation that may not be accurately provided by other methodologies.

A number of Ausquest’s projects are currently in exploration and development stage and so do not generate any income. Therefore there are no related historic profits that could be used to represent future earnings. This means that the FME basis is not appropriate.

AusQuest has no foreseeable future net cash inflows for a number of its projects therefore the application of DCF is not possible.

The NAV method provides the NAV of an AusQuest share on a controlling basis. As such, we have determined an appropriate minority discount to determine the value of an AusQuest share on a minority interest basis, such that it is comparable to our valuation under the quoted market price basis.

We consider that we have been conservative in our implementation of the NAV method. This is reflected by our removal of the book value of exploration and evaluation as at 30 June 2012. We note that inclusion of exploration and evaluation in our NAV of an AusQuest share can only make the value of the consideration higher and as a consequence the Proposal more fair.

� Quoted Market Price Basis: secondary methodology

The QMP basis is a relevant methodology to consider because AusQuest’s shares are listed on the ASX. This means there is a regulated and observable market where AusQuest’s shares can be traded. However, in order for QMP to be considered appropriate, the company’s shares should be liquid and the market should be fully informed as to AusQuest’s activities.

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Under RG 111.58, if the market price of the securities offered as consideration is used as a measure of value, the expert should consider, among other things, the depth of the market for those securities and the volatility of the market price. We have considered these factors in section 9.2.

8.2 Valuation of the assets being disposed

We have instructed CSA Global (“CSA”) to provide an independent market valuation of the Stanley Project.

CSA has used the following methods in its valuation:

The Kilburn Method
Appraisal Value Method; and
A review of Australian market transactions involving manganese exploration

We are satisfied with the valuation methodologies adopted by CSA which are in accordance with industry practices and in accordance with the requirements of the Valmin Code.

A copy of CSA’s report is attached in Appendix 3.

In our assessment of the value of the assets being disposed by AusQuest, we have also had regard to the sole funding agreement. We have considered this factor in section 10.2.

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9. Valuation of the consideration

9.1 Net Tangible Asset Valuation of AusQuest

The value of AusQuest assets on a going concern basis is reflected in our valuation below:

Statement of Financial Position
	30-Jun-12 Low value Preferred value High value
	$ $ $ $
CURRENT ASSETS
Cash and cash equivalents	5,076,798 5,076,798 5,076,798 5,076,798
Trade and other receivables	1,272,405 1,272,405 1,272,405 1,272,405
Other assets	75,350 75,350 75,350 75,350
TOTAL CURRENT ASSETS	6,424,553 6,424,553 6,424,553 6,424,553

NON-CURRENT ASSETS
Property, plant and equipment	102,456 102,456 102,456 102,456
Exploration and Evaluation	17,071,623 900,000 1,300,000 1,800,000
TOTAL NON-CURRENT ASSETS	17,174,079 1,002,456 1,402,456 1,902,456
TOTAL ASSETS	23,598,632 7,427,009 7,827,009 8,327,009

CURRENT LIABILITIES
Trade and other payables	823,728 823,728 823,728 823,728
Provisions	82,148 82,148 82,148 82,148
TOTAL CURRENT LIABILITIES	905,876 905,876 905,876 905,876
TOTAL LIABILITES	905,876 905,876 905,876 905,876
NET ASSETS	22,692,756 6,521,133 6,921,133 7,421,133
Shares on issue (number)	228,312,235 228,312,235 228,312,235 228,312,235
Value of a AusQuest share on a control basis ($)	$0.029 $0.030 $0.033

We have been advised that there has not been a significant change in the net assets of AusQuest since 30 June 2012. The following adjustments were made to the net assets of AusQuest as at 30 June 2012 in arriving at our valuation.

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a) Exploration and evaluation

Removal of Existing Exploration and Evaluation Book Value

We have adopted a conservative approach in our NAV of AusQuest by removing the entire book value of exploration and evaluation as at 30 June 2012 and replaced it with the value attributable to the Stanley Project. We note that the inclusion of exploration and evaluation relating to other projects in our NAV can only have the impact of making the consideration being provided for the asset increasing in value which would lead to our opinion remaining as fair and reasonable.

Addition of one hundred per cent value of AusQuest’s Stanley Project

We instructed CSA to provide an independent market valuation of the Stanley Project held by AusQuest. CSA considered a number of different valuation methods when valuing the exploration assets of AusQuest. CSA applied the Kilburn Method, the Appraised Value Method and the Comparable transaction method in valuing the Stanley Project. The Kilburn method is a valuation technique based on geological prospectivity. The Appraised Value Method, which considers costs and results of historical exploration and the program and cost of future exploration if warranted, was used to cross-check the value under the Kilburn Method. The comparable transaction method was also considered and involves calculating a value per common attribute in a comparable transaction and applying that value to the subject asset. A common attribute could be the amount of resource or the size of a tenement. We consider these methods to be appropriate given the pre feasibility stage of development for AusQuest’s exploration assets.

One hundred per cent of the value of the Stanley Project was added to exploration and evaluation. The range of values for the Stanley Project as calculated by CSA is set out below:

Mineral Asset	Low Value	Preferred Value	High Value
	$m	$m	$m
Stanley Project	$0.900	$1.300	$1.800

A summary of the adjustments made to exploration and evaluation is outlined in the table below.

Exploration & Evaluation	Low Value $ Preferred Value $ High Value $
Balance as @ 30 June 2012 (Less) existing exploration and evaluation Add 100% value of the Stanley Project	17,071,623 17,071,623 17,071,623 (17,071,623) (17,071,623) (17,071,623)
	- - - 900,000 1,300,000 1,800,000
Value adopted in NAV	900,000 1,300,000 1,800,000

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9.1.1 Minority Discount

The value of an AusQuest share derived under the NAV method is reflective of a controlling interest. This suggests that the acquirer obtains an interest in the company which allows them to have an individual influence in the operations and value of that company. Ausquest currently has a controlling interest over its assets and as such would not be expected to pay a premium for control for the buyback of Ausquest shares as per the terms of the Proposal.

In order to provide a comparison to our value of an AusQuest share determined under the QMP method, which reflects a minority basis, to our value of an AusQuest share under NAV method, we must adjust our NAV to reflect a minority interest. Therefore, we have adjusted our valuation of an AusQuest share to reflect a minority interest holding as shown below:

We have applied a minority discount of between 9% and 17%. This range has been determined as the inverse of a control premium as calculated in our control premium study below.

We note that the market for transactions involving manganese exploration projects is illiquid. Our control premium study is based on announced premiums paid by acquirers of Australian general mining companies, both listed and unlisted, since 2006. We have summarised our findings below:

	Number of	Average Deal Value	Average Announced
Year	Transactions	(A$m)	Control Premium
2012	7	106.25	66.66
2011	18	625.86	19.55
2010	21	398.86	45.51
2009	23	108.12	39.13
2008	8	553.76	38.87
2007	21	356.91	24.52
2006	19	71.35	25.47
Median		356.91	38.87
Mean		317.30	37.10

The table above indicates that the average announced control premium in 2012 has been relatively high compared to the long term control premium paid for Australian general mining companies. From the database of transactions used to compile the table above, we considered the announced control premiums most relevant to determining an appropriate control premium for Ausquest. In particular we analysed the announced control premiums relating to the acquistion of Australian gold exploration companies. Our research indicates that an appropriate range for a premium to be paid for a controlling interest in AusQuest to be in the order of 10% to 20%. Therefore, the minority discount is calculated to be between 9% and 17%, being the inverse of a control premium.

	Minority interest value of a AusQuest share	Low value Preferred value High value
	Value of an AusQuest share (control basis)	$0.029 $0.030 $0.033
	Minority discount	17% 13% 9%
	Value of AusQuest share (minority interest basis)	$0.024 $0.026 $0.030

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We consider the value of an AusQuest share using the NAV method and on a minority interest basis to be between $0.024 and $0.030 with a preferred value of $0.026.

9.2 Quoted Market Prices for AusQuest Securities

To provide a comparison to the valuation of AusQuest in Section 9.1, we have also assessed the quoted market price for an AusQuest share.

The quoted market value of a company’s shares is reflective of a minority interest. A minority interest is an interest in a company that is not significant enough for the holder to have an individual influence in the operations and value of that company.

As stated in section 3.2, we do not consider that the Transaction is a control transaction and as such, we have not included a premium for control when considering the value of AusQuest shares.

Minority interest value

Our analysis of the quoted market price of an AusQuest share is based on the pricing prior to the announcement of the Proposal. This is because the value of an AusQuest share after the announcement may include the affects of any change in value as a result of the Proposal. However, we have considered the value of an AusQuest share following the announcement when we have considered reasonableness in Section 12.

Information on the Proposal was announced to the market on 4 October 2012. Therefore, the following chart provides a summary of the share price movement over the 12 months to 3 October 2012 which was the last trading day prior to the announcement.

AQD share price and trading volume history

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

0.10 6.0
0.09
0.08 5.0
0.07 4.0
0.06
0.05 3.0
0.04
0.03 2.0
0.02 1.0
0.01
0.00 -
Volume Closing share price
Share Price ($)
Volume (millions)
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Source: Bloomberg

The daily price of AusQuest shares from 3 October 2011 to 3 October 2012 has ranged from a low of $0.023 on 17 August 2012 to a high of $0.090 on 22 February 2012.

The chart above illustrates low trading volumes of AusQuest shares over the first half of the measurement period. The low levels of liquidity of AusQuest shares over the first half of the measurement period is reflected by significant plateaus in the daily closing share price of AusQuest that span several days at a

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time. Over the second half of the measurement period AusQuest shares displayed a higher volume of trading which was accompanied by a general decline in the daily closing share price.

During this period a number of announcements were made to the market. The key announcements are set out below:

Date Announcement	Closing Share Price Following Announcement Closing Share Price Three Days After Announcement
	$ (movement) $ (movement)
29/08/2012 New Gold Prospects in Burkina Faso	0.033 (�32.0%) 0.027 (�18.2%)
23/07/2012 Quarterly Activities and Cashflow Statement	0.030 (�3.4%) 0.027 (�10.0%)
11/05/2012 Drilling Update - Burkina Faso	0.060 (�Nil) 0.055 (�8.3%)
30/04/2012 Quarterly Activities and Cashflow Report	0.072 (�Nil) 0.066 (�8.3%)
17/04/2012 Drilling Commences at Dundas	0.080 (�19.4%) 0.077 (�3.8%)
13/04/2012 Drilling Update - Burkina Faso	0.065 (�4.8%) 0.067 (�3.1%)
8/02/2012 Drill Target at Dundas	0.079 (�21.5%) 0.081 (�2.5%)
31/01/2012 Quarterly Activities and Cashflow Report	0.070 (�Nil) 0.065 (�7.1%)
19/01/2012 AusQuest Gains 100% Equity in Comoe JV	0.065 (�Nil) 0.075 (�15.4%)
18/01/2012 Anomalous Drill Results at Dundas	0.065 (�8.3%) 0.075 (�15.4%)
22/11/2011 Drilling Commences at Dundas	0.072 (�1.4%) 0.070 (�2.8%)
26/10/2011 Quarterly Activities and Cashflow Report	0.075 (�6.3%) 0.075 (�Nil)
21/10/2011 Exploration JV Commences in Peru	0.080 (�3.9%) 0.080 (�Nil)

On 29 August 2012 the Company announced that it had identified at least five gold prospects for follow up target drilling within its Comoe Project. The closing share price of AusQuest responded positively by increasing 32% on the day of the announcement. The closing share price of AusQuest subsided over the following three days but still finished stronger than the closing share price of AusQuest prior to the day of the announcement.

The Company made announcements regarding drilling at its Dundas project on 18 January 2012, 8 February 2012 and 17 April 2012. The announcements, relating to anomalous drilling results, to the identification a drilling target and the commencement of drilling respectively, saw significant increases in the share price of AusQuest.

The most significant decreases in AusQuest share price have followed announcements of the Company’s quarterly activities and cash flow statements. The most recent quarterly activities and cashflow statements, released to the market on 23 July 2012 initially resulted in a 3.4% increase, but decreased 10 per cent over the next three days. In the announcement made on 23 July 2012, the Company reported a strong cash position as well as positive exploration results for several of its exploration projects. We consider the decrease in Ausquest share price following the initial increase on 23 July 2012 to be a significant unexplained movement.

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To provide further analysis of the market prices for an AusQuest share, we have also considered the volume weighted average price (“VWAP”) for 10, 30, 60 and 90 day periods to 3 October 2012.

	3	October 2012	10 Days	30 Days	60 Days	90 Days
Closing Price		$0.045
VWAP			$0.035	$0.032	$0.031	$0.031

The above weighted average prices are prior to the date of the announcement of the Proposal, to avoid the influence of any increase in price of AusQuest shares that has occurred since the Proposal was announced.

An analysis of the volume of trading in AusQuest shares for the twelve months to 3 October 2012 is set out below:

	Share price	Share price	Cumulative volume	As a % of
	low	high	traded	Issued capital
1 Day	$0.038	$0.045	1,139,642	0.50%
10 Days	$0.028	$0.045	4,954,529	2.17%
30 Days	$0.025	$0.045	8,435,604	3.69%
60 Days	$0.023	$0.045	17,905,921	7.84%
90 Days	$0.023	$0.045	20,323,312	8.90%
180 Days	$0.023	$0.080	30,247,138	13.25%
1 Year	$0.023	$0.090	38,084,187	16.68%

This table indicates that AusQuest’s shares display a low level of liquidity, with 16.68% of the Company’s current issued capital being traded in a twelve month period. We note that although still low, the liquidity of AusQuest shares was greater over the last six months when compared to the entire measurement period. For the quoted market price methodology to be reliable there needs to be a ‘deep’ market in the shares. RG 111.69 indicates that a ‘deep’ market should reflect a liquid and active market. We consider the following characteristics to be representative of a deep market:

Regular trading in a company’s securities;
Approximately 1% of a company’s securities are traded on a weekly basis;
The spread of a company’s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and
There are no significant but unexplained movements in share price.

A company’s shares should meet all of the above criteria to be considered ‘deep’, however, failure of a company’s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares cannot be considered relevant.

In the case of AusQuest, we do not consider the market for the Company’s shares to be deep. This is reflected by 13.25% and 16.68% of the Company’s current issued capital being traded over a six month and twelve month period respectively. Our assessment of an appropriate range of values for AusQuest shares has been heavily weighted towards the VWAP for 10, 30, 60 and 90 day periods to 3 October 2012. This is because AusQuest shares were most liquid over the most last 90 days in the measurement period.

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Our assessment is that a range of values for AusQuest shares based on market pricing, after disregarding post announcement pricing, is between $0.030 and $0.036.

9.3 Assessment of AusQuest’s value

The results of the valuations performed are summarised in the table below:

		Low	Preferred	High
	Ref
		$	$	$
NAV	9.1	$0.024	$0.026	$0.030
QMP Basis	9.2	$0.028	$0.032	$0.036

We consider the NAV of AusQuest (on a minority basis) to be the most reliable measure to value an AusQuest share due to the shares being illiquid and consistently trading low volumes of shares.

Based on the results above we consider the value of an Ausquest share to be between $0.023 and $0.028, with a preferred value of $0.026.

9.4 Assessment of the value of the consideration

The consideration payable to AusQuest will be satisfied by the buy back and cancellation of 68,308,791 AusQuest shares, which represents Cliff’s total current holding in AusQuest.

For the purpose of our assessment of the value of the consideration, we have used the value of an AusQuest share derived in section 9.3.

		Low value	Preferred value	High value
	Ref	$	$	$
Value of an AusQuest share	9.3	$0.024	$0.026	$0.030
Value of the consideration: 68,308,791 AusQuest shares		$1.619 m	$1.802m	$2.021m

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10. Valuation of the assets being disposed

10.1 Valuation of 70% of the Stanley Project

We have instructed CSA Global (“CSA”) to provide an independent market valuation of the Stanley Project.

CSA has used the following methods in its valuation:

The Kilburn Method
Appraisal Value Method; and
A review of Australian market transactions involving manganese exploration

CSA valued the Stanley project between $0.9 million and $1.8 million with a preferred value of $1.3million. The value of 70% of the Stanley project is as reflected in the table below.

	Low value	Preferred value	High value
	$m	$m	$m
CSA valuation of Stanley Project	0.900	1.300	1.800
% ofproject beingdisposed	70%	70%	70%
Value of 70% of the Stanley Project	0.630	0.910	1.260

Based on the results from the table above we consider the value of 70% of the Stanley project to be between $0.630 million and $1.260 million with a preferred value of $0.910 million.

10.2 Sole funding agreement

A key term of the proposal requires AusQuest to sole fund exploration expenditure of $1.0 million on the Stanley Project for a period of two years following the sale. We have considered the sole funding agreement with respect to the valuation of the Stanley Project as determined by CSA. We consider it appropriate to include 70 per cent of the sole funding agreement in determining the total value of the assets being disposed. A level amount will be included in the value of assets being disposed as outlined in the table below.

	Low value	Preferred value	High value
	$m	$m	$m
Sole funding agreement	1.000	1.000	1.000
% of sole fundingagreement included	70%	70%	70%
Value of 70% of the sole funding agreement	0.700	0.700	0.700

Note: We have not reduced the value of the sole funding agreement to reflect its present value as the difference is not material.

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10.3 Assessment of the value of the assets being disposed

			Low value	Preferred value	High value
		Ref	$m	$m	$m
Value of	70% of the Stanley Project	10.1	0.630	0.910	1.260
Value of	70% of the sole fundingagreement	10.2	0.700	0.700	0.700
Value of	the assets being sold		1.330	1.610	1.960

11. Is the proposal fair?

The comparison between the value of consideration offered by Cliffs and the value of the assets being disposed by AusQuest is compared below:

			Low value	Preferred value	High value
			$m	$m	$m
Value of	the consideration: 68,308,791 AusQuest shares	9.4	1.619	1.802	2.021
Value of	the assets being sold	10.3	1.330	1.610	1.960

We note from the table above that the value of the consideration provided by Cliffs is greater than the value of assets being sold. Therefore, we consider that the Proposal is fair.

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12. Is the proposal reasonable?

12.1 Alternative Proposal

We are unaware of any alternative proposal that might offer the Shareholders of AusQuest a premium over the value ascribed to, resulting from the Proposal.

12.2 Consequences of not Approving the Scheme

Potential decline in share price

As at the date of this report we do not consider there to be an adequate amount of data regarding the share price movements of Ausquest shares, since the Proposal was announced. We are unable to provide comment regarding the potential movements in Ausquest’s share price if the Proposal is not approved.

12.3 Advantages of Approving the Proposal

We have considered the following advantages when assessing whether the Proposal is reasonable.

Advantage	Description
The Proposal is fair	As set out in Section 11 the Proposal is fair. RG 111 states that an
	offer is reasonable if it is fair.
Relief from future funding obligations related	Subsequent to the fulfilment of the sole funding agreement,
to the Stanley Project	AusQuest will incur limited responsibility regarding the further
	exploration and development of the Stanley Project. This will
	enable AusQuest to create a more focus driven business, enabling it
	to concentrate on its other exploration assets. This can potentially
	improve and create shareholder value.
Increased percentage interest in the Company	The total shares currently on issue is 228,312,235. If the Proposal is
for the Shareholders of AusQuest.	accepted the total number of shares on issue will decrease to
	160,003,444. Given the current position of the Shareholders, each
	non-associated shareholder’s interest in the Company will increase
	by approximately 43%.
Potential for improved liquidity of AusQuest	Cliffs currently holds a 29.92% interest in AusQuest. If the Proposal
shares	is accepted, the removal of a substantial holder may improve the
	liquidity of AusQuest shares. This may help the Shareholders to
	realise the value of their investment in the Company

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12.4 Disadvantages of Approving the Proposal

If the Proposal is approved, in our opinion, the potential disadvantages to Shareholders include those listed in the table below:

Disadvantage	Description
Loss of diversification	If the Proposal is accepted AusQuest will have reduced interest in
	the Stanley Project. The Stanley Project represents the sole
	manganese project in the Company’s portfolio of exploration assets.
	Hence the Company’s portfolio subsequent to the approval of the
	Proposal is likely to have greater exposure to various economic
	variables. For example the Company’s future earnings may become
	more sensitive to changes in gold prices.

13. Conclusion

We have considered the terms of the Proposal as outlined in the body of this report and have concluded that the Proposal is fair and reasonable to the Shareholders of AusQuest.

14. Sources of information

This report has been based on the following information:

Draft Notice of General Meeting and Explanatory Statement on or about the date of this report;
Audited financial statements of AusQuest for the years ended 30 June 2012 and 30 June 2011;
Independent Valuation Report of AusQuest’s Stanley Project dated 10 October 2012 performed by CSA;
Share registry information;
Information in the public domain; and
Discussions with Directors and Management of AusQuest.

15. Independence

BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $22,000 excluding GST and reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report.

BDO Corporate Finance (WA) Pty Ltd has been indemnified by AusQuest in respect of any claim arising from BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by the AusQuest, including the non provision of material information, in relation to the preparation of this report.

Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence with respect to AusQuest and Cliffs and any of their respective associates with reference to ASIC Regulatory Guide 112 “Independence of Experts”. In BDO Corporate Finance (WA) Pty Ltd’s opinion it is independent of AusQuest and Cliffs and their respective associates.

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Neither the two signatories to this report nor BDO Corporate Finance (WA) Pty Ltd, have had within the past two years any professional relationship with AusQuest, or their associates, other than in connection with the preparation of this report.

The provision of our services is not considered a threat to our independence as auditors under Professional Statement APES 110 – Professional Independence. The services provided have no material impact on the financial report of AusQuest.

A draft of this report was provided to AusQuest and its advisors for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review.

BDO is the brand name for the BDO International network and for each of the BDO Member firms.

BDO (Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of Independent Member Firms. BDO in Australia, is a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).

16. Qualifications

BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions.

BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of independent expert reports, valuations and mergers and acquisitions advice across a wide range of industries in Australia and were supported by other BDO staff.

Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of the Institute of Chartered Accountants in Australia. He has over twenty five years experience working in the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has been responsible for over 200 public company independent expert’s reports under the Corporations Act or ASX Listing Rules. These experts’ reports cover a wide range of industries in Australia with a focus on companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia, Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader for BDO in Australia.

Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam’s career spans 14 years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the preparation of independent expert reports and valuations in general for companies in a wide number of industry sectors.

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17. Disclaimers and consents

This report has been prepared at the request of AusQuest for inclusion in the Explanatory Memorandum which will be sent to all AusQuest Shareholders. AusQuest engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert's report to consider the Proposal for AusQuest to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest.

BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Explanatory Memorandum. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Corporate Finance (WA) Pty Ltd.

BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Explanatory Memorandum other than this report.

BDO Corporate Finance (WA) Pty Ltd has not independently verified the information and explanations supplied to us, nor has it conducted anything in the nature of an audit or review of AusQuest or Cliffs in accordance with standards issued by the Auditing and Assurance Standards Board. However, we have no reason to believe that any of the information or explanations so supplied are false or that material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting as an independent expert to perform any due diligence procedures on behalf of the Company. The Directors of the Company are responsible for conducting appropriate due diligence in relation to Cliffs. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process.

The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions prevailing at the date of this report. Such conditions can change significantly over short periods of time.

We note that the forecasts provided do not include estimates as to the effect of any future emissions trading scheme should it be introduced as it is unable to estimate the effects of such a scheme at this time.

With respect to taxation implications it is recommended that individual Shareholders obtain their own taxation advice, in respect of the Proposal, tailored to their own particular circumstances. Furthermore, the advice provided in this report does not constitute legal or taxation advice to the Shareholders of AusQuest, or any other party.

BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for mineral assets held by AusQuest.

The valuer engaged for the mineral asset valuation, CSA Global, possess the appropriate qualifications and experience in the industry to make such assessments. The approaches adopted and assumptions made in arriving at their valuation is appropriate for this report. We have received consent from the valuer for the use of their valuation report in the preparation of this report and to append a copy of their report to this report.

The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete.

The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to update this report for events occurring subsequent to the date of this report.

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Yours faithfully BDO CORPORATE FINANCE (WA) PTY LTD

Sherif Andrawes

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Director

Adam Myers

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Director

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A endix 1 – Glossar of Terms pp y

Reference	Definition
The Act	The Corporations Act
APES 225	Accounting Professional & Ethical Standards Board professional standard APES 225
	‘Valuation Services’
ASIC	Australian Securities and Investments Commission
ASX	Australian Securities Exchange
AusQuest	AusQuest Limited
BDO	BDO Corporate Finance (WA) Pty Ltd
Cliffs	Cliffs Australia Holding Pty Ltd
CNRE	Cliffs Natural Resources Exploration
CSA	CSA Global
The Company	Ausquest Limited
DCF	Discounted Future Cash Flows
EBIT	Earnings before interest and tax
EBITDA	Earnings before interest, tax, depreciation and amortisation
Endeavour	Endeavour Exploration Limited
FME	Future Maintainable Earnings
FOS	Financial Ombudsman Service
FSG	Financial Services Guide
IOCG	Iron Oxide Copper Gold
NAV	Net Asset Value
Our Report	This Independent Expert’s Report prepared by BDO
RG111	Content of expert reports (March 2011)

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RG112	Independence of experts (March 2011)
The Proposal	The proposal for AusQuest to sell a 70 per cent interest in the Stanley Project to Cliffs
	in exchange for the buyback and cancellation of its 29.92 per cent holding in
	AusQuest.
The Shareholders	Shareholders of AusQuest not associated with Cliffs
Sole funding agreement	The requirement for AusQuest to sole fund exploration expenditure of $1.0 million on
	the Stanley Project for a period of two years following the sale.
VWAP	Volume Weighted Average Price
Valuation Engagement	An Engagement or Assignment to perform a Valuation and provide a Valuation Report
	where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and
	Valuation Procedures that a reasonable and informed third party would perform taking
	into consideration all the specific facts and circumstances of the Engagement or
	Assignment available to the Valuer at that time.

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A endix 2 – Valuation Methodolo ies pp g

Methodologies commonly used for valuing assets and businesses are as follows:

1 Net asset value (“NAV”) Asset based methods estimate the market value of an entity’s securities based on the realisable value of its identifiable net assets. Asset based methods include:

Orderly realisation of assets method
Liquidation of assets method
Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity’s valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for exploration and mining companies where investments are in finite life producing assets or prospective exploration areas.

These asset based methods ignore the possibility that the entity’s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when an entity is not making an adequate return on its assets, a significant proportion of the entity’s assets are liquid or for asset holding companies.

2 Quoted Market Price Basis (“QMP”)

A valuation approach that can be used in conjunction with (or as a replacement for) other valuation methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume trading, creating a “deep” market in that security.

3 Capitalisation of future maintainable earnings (“FME”) This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data.

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The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax (“ EBIT ”) or earnings before interest, tax, depreciation and amortisation (“ EBITDA ”). The capitalisation rate or "earnings multiple" is adjusted to reflect which base is being used for FME.

4 Discounted future cash flows (“DCF”) The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks.

Considerable judgement is required to estimate the future cash flows which must be able to be reliably estimated for a sufficiently long period to make this valuation methodology appropriate.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start up phase, or experience irregular cash flows.

5 Market Based Assessment

The market based approach seeks to arrive at a value for a business by reference to comparable transactions involving the sale of similar businesses. This is based on the premise that companies with similar characteristics, such as operating in similar industries, command similar values. In performing this analysis it is important to acknowledge the differences between the comparable companies being analysed and the company that is being valued and then to reflect these differences in the valuation.

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Appendix 3 – Independent valuation re ort re ared b CSA Global p p p y

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Date: 10[th] October 2012 Report No: R366.2012

Independent Technical Assessment & Valuation

A US Q UEST LIMITED

Independent Technical Valuation of Stanley Manganese Project Earaheedy Basin

By Paddy Reidy BSc, MAusIMM

For: Approved: BDO Corporate Finance (WA) Pty Ltd 38 Station Street Subiaco, Perth ______ WA 6008 Daniel Wholley Director

AusQuest Limited Earaheedy Basin

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27[th] September 2012 The Directors BDO Corporate Finance (WA) Pty Ltd 38 Station Street Subiaco, Perth WA 6008

Dear Sirs,

Re; Valuation of Stanley Manganese Project

CSA Global Pty Ltd (“CSA”) has been commissioned by BDO Corporate Finance (WA) Pty Ltd (“BDO”) to provide an independent technical valuation on the Stanley Manganese Project (“Stanley Project”) which is owned and operated by AusQuest Limited (“AusQuest” or “the Company”), and located in the eastern Earaheedy Basin of Western Australia.

This Report is for inclusion in an Independent Experts Report in connection with obtaining shareholder approval of the agreement with its major shareholder, Cliffs Australia Holding Pty Ltd, to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest .

CSA has based its valuation of the Stanley Project on information available to the principal author and by investigations of published and unpublished data as well as on information provided by AusQuest. CSA has relied upon discussions with AusQuest management as well as recent company exploration reports for information contained within this valuation. A site visit has not been made to the Stanley Project as CSA is satisfied that there is sufficient information available to allow an informed appraisal to be made without an inspection.

The Independent Technical Report has been prepared in accordance with the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (the “VALMIN Code”), which is binding upon Members of the Australasian Institute of Mining and Metallurgy (AusIMM), and the Australian Institute of Geoscientists (AIG).

This Independent Technical Report is complete up to and including 27[th] September 2012. CSA has provided and not withdrawn written consent for the inclusion of the valuation of the Stanley Project in the Report, and to the inclusion of statements made by CSA and to the references of its name in other sections of the document, in the form and context in which the Report and those statements appear.

CSA accepts responsibility for this report for the purposes of an Independent Expert’s Report under the ASX Rules. Having taken all reasonable care to ensure that such is the case, CSA and the authors confirm that, to the best of their knowledge, the information contained in the Independent Technical Report is in accordance with the facts, contains no omission likely to affect its import, and no change has occurred from 27[th] September 2012 to the date hereof that would require any amendment to the Independent Technical Report.

The primary technical Expert of the report is CSA's associate consultant geologist, Paddy Reidy (B.Sc., 1994) a Member of the Australasian Institute of Mining and Metallurgy (“AusIMM”), who has worked for 16 years as a professional geologist with experience in the

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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evaluation and mining of mineral properties within Australia and worldwide. Mr Reidy has the relevant qualifications, experience, competence and independence to be considered an “Expert” under the definitions provided in the VALMIN Code and a “Competent Person” as defined in the JORC Code.

Neither CSA nor any of the CSA staff or the author of this Report have or have previously had any material interest in AusQuest Limited, or the mineral properties which are the subject of this report. CSA, Paddy Reidy, and Daniel Wholley are independent of the Company, the Directors, senior management of the Company and its other advisers. The relationship with AusQuest is solely one of professional association between client and independent consultant. This report is prepared in return for professional fees based upon agreed commercial rates and the payment of those fees is in no way contingent on the results of this Report.

Yours faithfully

CSA Global Pty Ltd

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Director

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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Executive Summary

This Independent Technical Valuation has been prepared at the request of BDO Corporate Finance (WA) Pty Ltd (“BDO”) on behalf of AusQuest Limited (“AusQuest” or “the Company”). This Report is for inclusion in an Independent Experts Report in connection with obtaining shareholder approval of the agreement with its major shareholder, Cliffs Australia Holding Pty Ltd, to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest .

The Stanley Manganese Project (“Stanley Project”) is located 170km east of Wiluna and comprises 14 granted tenements covering approximately 2,000km[2] . The Project was acquired following the results of Geological Survey of Western Australia (“GSWA”) regional geochemistry, which indicated large areas of anomalous manganese in the Frere, Chiall and Wongawol Formations of the Earaheedy Basin.

Exploration by AusQuest during the period 2009 to 2012 has included desk-top studies of historical exploration data, field traversing and mapping, soil and rock chip sampling, VTEM and gravity surveying as well as Reverse Circulation (“RC”) drilling with 75 holes for 5,438m completed.

This work has located extensive areas of manganiferous float and subcrop at the Niminga, Dome and Windidda prospects at different stratigraphic locations. RC drilling at each prospect has intersected thick sequences of low grade manganese, ranging from 5m @ 7.2% Mn at Dome to 16m @ 7.0% Mn at Windidda and 99m @ 3.1% Mn at Niminga. Narrow higher grade intercepts were recorded at Niminga (1m @ 11.8% Mn) and Windidda (3m @ 13.1% Mn).

Valuation of the Stanley Project is based upon the Kilburn method. As a confirmation of this, the Appraised value method has also been reviewed and compared to the Kilburn method for the mineral properties under consideration.

The Comparable transaction or Market Approach method was also considered and CSA has conducted a review of Australian market transactions involving manganese exploration projects. The market for these projects is however relatively illiquid, and it was not possible to establish a dataset of transactions which may be considered as relevant to the Stanley Project.

A range of technical values for 100% of the Stanley Project of $0.9M to $1.8M has been derived, within which range a preferred value of $1.3M has been selected which is at the mid-point of the valuation ranges. These figures also reflect the current market value as CSA does not believe that a premium or discount to the technical value is warranted.

All references to units of currency in this Report are to Australian Dollars (“A$”). Standard abbreviations used are kilometres (“km”), metres (“m”), million (“M”), and tonnes (“t”).

Report No: R366.2012

III

AusQuest Limited Earaheedy Basin

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Executive Summary .............................................................................................................. III	Executive Summary .............................................................................................................. III	Executive Summary .............................................................................................................. III
Contents		.............................................................................................................................. IV
1	Introduction ................................................................................................................... 5
	1.1	Context, Scope and Terms of Reference ............................................................................. 5
	1.2	Compliance with the VALMIN Code .................................................................................... 5
	1.3	Principal Sources of Information......................................................................................... 5
	1.4	Author of Report ................................................................................................................ 6
	1.5	Independence .................................................................................................................... 6
	1.6	Declarations ....................................................................................................................... 6
	1.7	Property Location, Access and Infrastructure...................................................................... 7
	1.8	Tenure ............................................................................................................................... 8
2	Geological Setting and Metallogeny ............................................................................. 12
	2.1	Regional Geological Setting .............................................................................................. 12
3	Stanley Manganese Project .......................................................................................... 16
	3.1	Historical Exploration ....................................................................................................... 16
	3.2	Current AusQuest Exploration .......................................................................................... 17
	3.2.1	Niminga Prospect......................................................................................................... 17
	3.2.2	Windidda Prospect ...................................................................................................... 20
	3.2.3	Dome Prospect ............................................................................................................ 21
4	Technical Valuation Background ................................................................................... 23
	4.1	Valuation Methods .......................................................................................................... 23
	4.2	Stanley Project Valuation Methodology ............................................................................ 25
5	Technical Valuation ...................................................................................................... 27
	5.1	Introduction ..................................................................................................................... 27
	5.2	Preferred Value of Stanley Project .................................................................................... 27
6	Bibliography ................................................................................................................. 31
	6.1	Mineral Property Valuation References ............................................................................ 31
	6.2	Regional Geology References ........................................................................................... 31
7	Glossary ....................................................................................................................... 32

Figures

Figure 1. Schematic Project Location – Stanley Manganese Project in Western Australia .................... 8 Figure 2. Windidda and Dome granted Tenement Locations ............................................................. 10 Figure 3. Niminga Prospect Tenement Locations .............................................................................. 11 Figure 4. Regional Geology of the Earaheedy Basin (after Pirajno 2004) ............................................ 12 Figure 5. Stratigraphy of the Earaheedy Basin (from Matonia, 2009) ................................................ 13 Figure 6. Earaheedy Basin aeromagnetic data .................................................................................. 15 Figure 7. Dome Prospect VTEM image and Gravity contours ............................................................. 19

Tables

Table 1. Stanley Project Tenement schedule as at September 2012 .................................................... 9 Table 2. Stanley Project historical drill intersections ......................................................................... 16 Table 3. Niminga Prospect significant drill intersections ................................................................... 18 Table 4. Windidda Prospect significant drill intersections ................................................................. 20 Table 5. Dome Prospect significant drill intersections ....................................................................... 22 Table 6. Kilburn Geoscientific Ranking .............................................................................................. 26 Table 7. Stanley Project – Kilburn Tenement rankings and valuations ............................................... 29 Table 8. Stanley Project tenement expenditure ................................................................................ 30

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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1 Introduction

1.1 Context, Scope and Terms of Reference

AusQuest Limited (“AusQuest” or “the Company”) is a public company listed on the Australian Securities Exchange (“ASX”), with exploration projects located in Australia, Burkina Faso and Peru. The Company has a diversified portfolio of gold, base metal and bulk commodity projects in Australia which includes the Stanley manganese project (“Stanley Project”) located 170km east of Wiluna in Western Australia, and within the Earaheedy Basin.

The Company has engaged BDO Corporate Finance (WA) Pty Ltd (“BDO”) to prepare an Independent Expert’s Report (“IER”) for inclusion with a Notice of Meeting and Explanatory Memorandum to be sent to shareholders of AusQuest. The IER is being prepared in connection with obtaining shareholder approval of the agreement with its major shareholder, Cliffs Australia Holding Pty Ltd, to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest .

BDO has in turn commissioned CSA Global Pty Ltd (“CSA”) to prepare an Independent Technical Assessment and Valuation of the Stanley Project (“Report”) for inclusion in the IER. The Report, or a summary of it, is to be appended to the IER, and as such, will become a public document.

1.2 Compliance with the VALMIN Code

This Valuation has been prepared in accordance with the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (the “VALMIN Code”), which is binding upon Members of the Australasian Institute of Mining and Metallurgy (“AusIMM”), and the Australian Institute of Geoscientists (“AIG”). The author has taken due note of the rules and guidelines issued by such bodies as the Australian Securities and Investments Commission (“ASIC”) and the ASX, including ASIC Regulatory Guide 111 – Content of Expert Reports, and ASIC Regulatory Guide 112 – Independence of Experts.

1.3 Principal Sources of Information

This Report has been based upon information available up to and including 27th September 2012 (“Valuation Date”). The information was provided to CSA by AusQuest or has been sourced from the public domain, and includes both published and unpublished technical reports prepared by consultants, and other data relevant to the project area.

The author has endeavoured, by making all reasonable enquiries, to confirm the authenticity and completeness of the technical data upon which this report is based. AusQuest and BDO were provided a final draft of this Report and requested to identify any material errors or omissions prior to its lodgement.

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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A site visit was not made to the Stanley Project as CSA considers it to be at an early stage of exploration and evaluation and it is CSA’s opinion that no significant additional benefit would be gained from a visit to the site. In addition, CSA is satisfied that there is sufficient information available to allow an informed appraisal to be made without an inspection.

The statements and opinions contained in this report are given in good faith and in the belief that they are not false or misleading. The conclusions are based on the reference date of the 27th September 2012 and could alter over time depending on exploration results, mineral prices and other relevant market factors.

1.4 Author of Report

This Report has been prepared by CSA Global Pty Ltd. The primary author of the report is CSA's associate consultant geologist, Paddy Reidy (B.Sc, 1994) a Member of the AusIMM, who has worked for 16 years as a professional geologist with experience in the evaluation and mining of mineral properties within Australia and worldwide. Mr Reidy has the relevant qualifications, experience, competence and independence to be considered an “Expert” under the definitions provided in the VALMIN Code and a “Competent Person” as defined in the JORC Code.

1.5 Independence

Neither CSA, nor the authors of this report, has or has had previously, any material interest in AusQuest or the mineral properties in which AusQuest has an interest. CSA’s relationship with AusQuest is solely one of professional association between client and independent consultant.

CSA is an independent geological consultancy. Fees are being charged to AusQuest at a commercial rate for the preparation of this report, the payment of which is not contingent upon the conclusions of the report. No member or employee of CSA is, or is intended to be, a director, officer or other direct employee of AusQuest. No member or employee of CSA has, or has had, any shareholding in AusQuest. There is no formal agreement between CSA and AusQuest as to AusQuest providing further work for CSA.

1.6 Declarations

This Report has been prepared by CSA Global Pty Ltd at the request of, and for the sole benefit of BDO Corporate Finance (WA) Pty Ltd. Its purpose is to provide an Independent Technical Assessment and Valuation of the Stanley Project. The Report is to be included in its entirety or in summary form within an Independent Expert’s Report to be prepared by BDO in connection with a Notice of Meeting and Explanatory Memorandum to be sent to shareholders of AusQuest for the purpose of obtaining shareholder approval of the agreement with its major shareholder, Cliffs Australia Holding Pty Ltd, to sell a 70 per cent interest in its Stanley Manganese Project to Cliffs in exchange for the buy-back and cancellation of its 29.92 per cent holding in AusQuest . It is not intended to serve any purpose beyond that stated and should not be relied upon for any other purpose.

The information in this report that relates to exploration results at the Stanley Project is based upon information compiled by Mr Graeme Drew, a full-time employee of AusQuest

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Limited. Mr Drew is a Fellow of the Australasian Institute of Mining and Metallurgy and has sufficient experience in the activity which he is undertaking to qualify as a Competent Person as defined in the December 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (JORC Code). Mr Drew consents to the inclusion in the Report of the matters based upon his information in the form and context in which it appears.

CSA has consented to the inclusion of the Report within the IER in the form and context in which it is to appear. Neither the whole nor any part of the Report, nor any reference to it, may be included in or with, or attached to any other documents, circular, resolution, letter or statement without the prior written consent of CSA as to the form and context in which it is to appear.

1.7 Property Location, Access and Infrastructure

The Stanley Manganese Project is located approximately 190km ENE of Wiluna in the Earaheedy Basin and along the northern, western and southern side of Lake Carnegie. (Figure 1). Road access from Wiluna is via the main access to Wongawol, Lorna Glen, Windidda and Prenti Downs Stations and then by station tracks. Access throughout the project area is then generally possible off road via 4WD vehicle.

The country is moderately remote with the Aboriginal community at Windidda and Wongawol, Lorna Glen, Prenti Downs and Carnegie Homesteads being the closest permanent habitation. Supplies and logistic support can be sourced from Wiluna.

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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Figure 1. Schematic Project Location – Stanley Manganese Project in Western Australia

1.8 Tenure

Mineral properties at the Stanley Project comprise a total of 14 granted exploration licences (Figures 2 and 3), and 2 applications covering a total area of 2,355km[2] (Table 1). The tenements are located in the Earaheedy Basin on the Stanley and Kingston 1:250,000 map sheets.

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AusQuest Limited Earaheedy Basin

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Table 1. Stanley Project Tenement schedule as at September 2012

Tenement	Sub Blocks	Area km2	Commitment ($)	Rent ($)	Grant Date	Expiry Date
E69/2502	6	19	61,000	1,088	6/07/2009	5/07/2014
E69/2503	68	217	151,000	12,338	6/07/2009	5/07/2014
E69/2587	64	204	40,000	7,589	27/10/2010	26/10/2015
E69/2794	63	201	32,625	14,187	17/03/2011	16/03/2016
E53/1402	40	128	29,000	7,060	30/06/2009	29/06/2014
E53/1403	21	67	43,000	3,810	30/06/2009	29/06/2014
E53/1460	30	96	80,000	3,405	13/01/2010	12/01/2015
E53/1589	44	140	64,000	5,134	8/07/2011	7/07/2016
E38/2166	29	92	41,000	5,262	25/08/2009	24/08/2014
E38/2167	43	137	37,000	7,802	25/08/2009	24/08/2014
E38/2168	80	256	58,000	14,516	25/08/2009	24/08/2014
E38/2238	41	131	30,000	4,653	23/03/2010	22/03/2015
E38/2239	37	118	78,500	4,199	23/03/2010	22/03/2015
E38/2240	58	185	44,000	6,583	23/03/2010	22/03/2015
E38/2764	44	140	44,000	5,134	under application
E38/2765	70	224	70,000	8,169	under application
Totals	738	2,355	903,125	110,929

CSA has not undertaken an assessment regarding tenure or associated legal agreements. Information relating to mineral tenure provided in this Report is based on information provided by AusQuest and has not been validated in any way.

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AusQuest Limited Earaheedy Basin

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Figure 2. Windidda and Dome granted Tenement Locations

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Figure 3. Niminga Prospect Tenement Locations

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2 Geological Setting and Metallogeny

2.1 Regional Geological Setting

The Stanley Manganese Project lies within the Palaeoproterozoic Earaheedy Basin which unconformably overlies rocks of the Yilgarn Craton, Yerrida Basin, and possibly the Bryah Basin. It is interpreted to have been much larger than its present-day exposure, extending farther to the southwest, southeast and to the north and east where it is covered by the Proterozoic Collier and Officer Basins. The Earaheedy Basin lies at the eastern end of the Capricorn Orogen (Jones, et al, 2000). Pirajno et al (2004) described the regional structure of the Earaheedy Basin as an asymmetrically east-plunging syncline with a vertical to locally overturned northern limb due to compressive movements from the northeast which created the Stanley Fold Belt exposed along the northern margin of the Basin (Figure 4).

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Figure 4. Regional Geology of the Earaheedy Basin (after Pirajno 2004)

The Earaheedy Group ranges in age from about 1.81 to 1.65 Ga and comprises a sequence of granular iron formation, clastic sediments and carbonates with minor intrusive dolerite sills and dykes within the Tooloo Subgroup and the overlying Miningarra Subgroup (Matonia, 2009). The stratigraphy of the Earaheedy Basin is summarised in Figure 5. The Tooloo Subgroup has an estimated thickness of 2,700 m and contains the Yelma, Frere and Windidda Formations, and the Yadgimurrin, and Sweetwaters Well Members. The Miningarra Subgroup consists of the Chiall, Wongawol, Kulele and Mulgarra Formations.

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Figure 5. Stratigraphy of the Earaheedy Basin (from Matonia, 2009)

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Within the project area, outcrop of the Frere iron formation and the Chiall Formation quartzites is generally good but the interbedded siltstone units, the Windidda Carbonate Member and the Wongawol Formation have subdued outcrop. In some areas Permian aged glacial sediments also limit exposure of the Proterozoic sequence.

Detailed 400m spaced aeromagnetic data are available over the entire Earaheedy Basin (Figure 6) highlighting stratigraphic variations across the basin, intrusive activity post sedimentation, and regional structures that may have influenced the formation of manganese deposits in the basin. Features of interest include:

Major structural breaks in the Frere Formation iron formations that may have provided passage ways for hydrothermal fluids that could have enriched primary manganese accumulations in the Windidda Member carbonates. The Dome prospect occurs at the intersection of two of these major breaks.
A major change in the magnetic character of the iron formations at the Windidda prospect where they become essentially non-magnetic to the east possibly representing a change in the iron mineralogy from magnetite to hematite or carbonate.
The extent of the approximately 1070 Ga dolerite sills that intrude the Earaheedy Basin and that appear to have some relationship to the major structural breaks. Fluids associated with these sills are likely to have been acidic and high in manganese.

Structures interpreted from the magnetic data are either parallel to the underlying Archaean Granite-Greenstone trends or the E-W dolerite dykes that are common within the Yilgarn.

The NW–SE structures show evidence of reactivation post and possibly during sedimentation, whilst the E-W structures have a close association with the dolerite sills that intrude the basin sediments and may provide a source for hydrothermal fluids.

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Figure 6. Earaheedy Basin aeromagnetic data

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3 Stanley Manganese Project

3.1 Historical Exploration

The eastern Earaheedy Basin has historically been explored for iron ore, diamonds, base metals and uranium. The most significant work with relevance to manganese potential was an exploration program by RGC Exploration Pty Ltd (“RGC”) in the region covered by the Windidda Prospect in the mid 1990’s. Thirty five RC holes drilled at approximately 20km by 5km spacing to follow up anomalous stream and rock chip base metal geochemistry intersected widespread anomalous manganese along the southern margin of the basin.

The majority of the low grade manganese intersections (Table 2) occur near the top of the iron formation component of the Frere Formation adjacent to the contact with the overlying Windidda Carbonate Member.

Table 2. Stanley Project historical drill intersections

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In 2008 the GSWA conducted surface sampling over the Kingston, Stanley and Nabberu 1:250,000 sheets on a triangular grid at approximately 3km spacing. This sampling highlighted strong manganese anomalies within the Frere Formation (Windidda Carbonate Member) on the southern side of the basin and within the Wongawol Formation and Kulele Limestone on the northern side of the basin. AusQuest’s initial tenement applications were largely made based on this data. Exploration work by RGC and others identified regionally anomalous manganese within the Earaheedy Basin including:

An intersection of high grade manganese (6m @ 34% Mn) associated with anomalous lead and zinc within the Sweetwaters Well Member of the Yelma Formation, below the Frere Formation at RGC’s Teague prospect.
Wide spaced intersections of manganese at RGC’s Hawkins Knob Prospect including 20m @ 10.2% Mn, 10m @ 11.7% Mn, 20m @ 2.6% Mn and 16m @ 2.3% Mn within the Frere Formation Banded Iron Formations (“BIF”).

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Recent results reported by Zenith Minerals (formerly Zinc Co) from their Lockeridge Prospect west of AusQuest’s Dome and Windidda Prospects, highlighted anomalous manganese in the Karri Karri Member of the Chiall Formation including 12m @ 11.1% Mn and 12m @ 10.9% Mn in the oxide zone and 16m @ 4.6% Mn in primary carbonate mineralisation.
Zenith Minerals also reported 31m @ 7.9% Mn from their Black and Blue Prospect in the northern Earaheedy Basin again demonstrating the widespread nature of manganese within the basin.

3.2 Current AusQuest Exploration

Exploration of the Stanley Project by AusQuest during the period 2009 to 2012 has included desk-top studies of historical exploration data, field traversing and mapping, soil and rock chip sampling, Versatile Time Domain Electro-Magnetics (“VTEM”) and gravity surveying. Drilling at the Project has consisted of RC drilling with 75 holes for 5,438m completed at the Niminga, Windidda and Dome prospects.

3.2.1 Niminga Prospect

Follow up sampling (49 rock-chips) of elevated manganese values reported by the GSWA reported numerous highly anomalous Mn values in the range 20-34% Mn over a wide area (approximately 12km by 2km). The high manganese values appear to occur at the base of the Wongawol Formation immediately above the Chiall Formation quartzite. Outcrop was generally subdued and it was often difficult to determine thickness or orientation of the mineralised horizon.

A program of soil sampling (279 samples) was completed in areas of residual soil and subcrop. Samples of -2mm soil were collected from a depth of approximately 10-20cm on 15 lines varying between approximately 400m and 1,200m apart and at approximately 50m sample spacing. Results outlined a number of coherent anomalies with the best response containing numerous values >4% Mn over a 2.5km strike length.

An isolated soil sample line approximately 16km west of the main Niminga grid, also returned anomalous Mn values (max 2.77% Mn) from the same stratigraphic position, indicating significant potential strike continuity of the mineralised horizon(s).

A program of 27 RC holes totalling 1,851m was drilled to test the soil geochemical anomalies and help determine the extent and possible controls on the manganese mineralisation.

Five of the holes were inclined at 60 degrees; the remainder were vertical. Hole depths ranged from 41 to 99m.

Long intersections of low grade manganese (1-6% Mn) were intersected in several drillholes (Table 3). Analysis of the drill-hole geochemistry indicated significant correlations between Mn and Ca, Cu and Sr, particularly in fresh rock.

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Table 3. Niminga Prospect significant drill intersections

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An airborne VTEM survey (approximately 200 line km, 500m line spacing) flown over the Niminga Prospect, outlined a number of linear conductive zones interpreted to reflect clay alteration +/- Mn within fault zones cutting the sediments, adjacent to the 2010 RC drilling.

A detailed gravity survey (400m x 50m) was subsequently completed and a strong antipathetic relationship between the gravity and the VTEM data sets was evident, with the VTEM highs coinciding with gravity lows and vice versa (Figure 7). It is thought that the gravity highs are representing shallow carbonate rich rocks (+/- manganese) adjacent to more deeply weathered clay-rich structural zones that may contain manganese that has been enriched through hydrothermal and/or supergene processes.

These features have been recommended by AusQuest for drill testing and heritage clearance and DMP approvals have been obtained to complete the initial program.

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Figure 7. Dome prospect VTEM image and gravity contours

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3.2.2 Windidda Prospect

Follow up sampling (71 rock-chips) of elevated manganese values reported by the GSWA and by RGC suggested the high Mn background within limestone was the likely cause of the regional Mn anomaly.

Highly anomalous rock-chip samples (max 48.2% Mn) located up dip from the RGC drilling suggested ore grade manganese could be found in the area. A program of RC drilling consisting of 31 holes for 2,533m was designed to test beneath the manganese rich outcrop, and to test the basal contact of the Windidda Member at six locations over a 30km strike length.

Drillholes spaced approximately 1km apart, intersected a sequence of siltstones, iron formation and carbonate within the Frere Formation near the basal contact of the Windidda Carbonate Member (“WCM”). The WCM as drilled was primarily limestone but became more dolomitic towards its base. Significant intersections are presented in Table 4.

Table 4. Windidda Prospect significant drill intersections

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The mineralisation in drill holes 10STRC020 and 21 is at least partly related to supergene effects but the remainder of the intersections are mostly primary mineralisation located

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approximately 15-20m above the base of the Windidda Member. On the westernmost drillsection containing holes 10STRC020 and 21, the Windidda Member limestone is absent and is interpreted to be totally leached out in this location.

No significant manganese mineralisation was intersected below the high grade Mn outcrop. Minor anomalous base metal values however, were recorded with a best result of one metre (from 55m) at 2,630 ppm Zn, 530 ppm Pb and 1.49% S at the basal contact of the Windidda Member in drillhole 10STRC011.

An airborne VTEM survey (approximately 699 line km) was flown over the Windidda Prospect in April 2011. The survey covered approximately 342 km² with flight lines spaced at 500m intervals.

Interpretation of the data indicated a number of weak to moderate conductive targets under shallow cover, north of the 2010 drill-holes. RC drilling was subsequently planned to test these targets but only 6 holes were completed in late 2011 before wet weather caused the early cessation of the program. No significant results were received from this drilling.

No gravity data was collected at Windidda.

3.2.3 Dome Prospect

The Dome prospect is an area of manganiferous lag that coincides with an anticlinal dome of Windidda Carbonate within an area of Chiall Formation quartzite and siltstone. A total of 13 rock chip samples were collected at the prospect with a maximum value reported of 52.7% Mn.

A program of soil sampling (212 samples) was completed over the area of manganiferous lag. Samples of -2mm soil were collected from a depth of approximately 10-20cm over eight lines approximately 400m apart and at 50m sample spacing. Results outlined a coherent manganese anomaly (>1% Mn) coincident with the Windidda Member/Chiall Formation contact.

A program of 11 RC holes (526m) on two sections approximately 200m apart, was completed to test the manganese anomaly, however the most Mn-rich outcrop was not tested due to a rig breakdown. All holes were inclined at 60 degrees to the west.

The holes intersected a sequence of siltstones and limestone at the top of the Windidda Member with minor manganese intersected in the upper part of several holes. Significant intersections are outlined in Table 5.

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Table 5. Dome Prospect significant drill intersections

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An airborne VTEM survey (384 line km) was flown over the Dome Prospect in April 2011. The survey covered approximately 189 km² with flight lines spaced at 500m intervals.

A strong NNW trending linear conductor (10km long) was located by the survey, approximately 500m east of the RC drill sections. The anomaly parallels mapped structural trends in the area and is considered a priority target for clay-rich structural zones that may contain manganese mineralisation.

A detailed gravity survey was subsequently completed over the VTEM anomaly in late September and early October 2011 using a line spacing of 400m with stations every 50m over the target, and 100m on selected lines to provide background gravity gradient information.

Similarly to the Niminga Prospect, a strong antipathetic relationship between the gravity and VTEM anomalies is apparent, suggesting the gravity highs may represent shallow carbonate rich rocks (+/- manganese) adjacent to more deeply weathered clay-rich structural zones that may contain manganese which has been enriched by hydrothermal and/or supergene processes. These features were recommended for drill testing and heritage clearance and DMP approvals obtained to complete the initial program.

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4 Technical Valuation Background

4.1 Valuation Methods

The choice of valuation methodology applied to mineral assets, including exploration licences, will depend on the amount of data available and the reliability of that data.

The VALMIN Code which is binding upon “Experts” and “Specialists” involved in the valuation of mineral assets and mineral securities, classifies mineral assets into categories which represent a spectrum from areas in which mineralisation may or may not have been found through to Operating Mines which have a well-defined Ore Reserve: -

“Exploration Areas” - properties where mineralisation may or may not have been identified, but where a Mineral or Petroleum Resource has not been identified;
“Advanced Exploration Areas” - properties where considerable exploration has been undertaken and specific targets have been identified that warrant further detailed evaluation, usually by drill testing, trenching or some other form of detailed geological sampling. A resource estimate may or may not have been made but sufficient work will have been undertaken on at least one prospect to provide both a good understanding of the type of mineralisation present and encouragement that further work will elevate one or more of the projects to the resource category;
“Pre-Development Projects” - properties where Mineral or Petroleum Resources have been identified and their extent estimated (possibly incompletely) but where a decision to proceed with development has not been made;
“Development Projects” - properties for which a decision has been made to proceed with construction and/or production, but which are not yet commissioned or are not yet operating at design levels; and
“Operating Mines” - mineral properties, particularly mines and processing plants that have been commissioned and are in production.

Each of these different categories will require different valuation methodologies, but regardless of the technique employed, consideration must be given to the perceived “fair market valuation”. This is described in the VALMIN Code under Definition 34: -

“It is the amount of money (or the cash equivalent of some other consideration) determined by the Expert in accordance with the provisions of the VALMIN Code for which the mineral or Petroleum Asset or Security should change hands on the Valuation Date in an open and unrestricted market between a willing buyer and a willing seller in an “arm’s length” transaction, with each party acting knowledgeably, prudently and without compulsion.”

The Fair Market Value of Exploration Properties and Undeveloped Mineral Resources can be determined by four general approaches: Geoscience Factor; Cost; Market; or Income.

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Geoscience Factor Method seeks to rank and weight geological aspects, including proximity to mines, deposits and the significance of the camp and the commodity sought;
Appraised Value Method considers the costs and results of historical exploration and the program and cost of future exploration if warranted;
Market Approach Method or Comparable Transaction looks at prior transactions for the property and recent arm’s length transactions for comparable properties; and
The Income Approach is relevant to exploration properties on which undeveloped mineral resources have been identified by drilling. Value can be derived with a reasonable degree of confidence by forecasting the cash flows that would accrue from mining the deposit and discounting to the present day (‘DCF’) and determining a Net Present Value (‘NPV’).

The Income Approach is not appropriate for properties without Mineral Resources.

The Comparable Transaction method provides a useful guide where a mineral asset that is comparable in location and commodity has in the recent past been the subject of an “arm’s length” transaction, for either cash or shares.

When considering the valuation of Exploration Areas, and in some cases Advanced Exploration areas, the Appraised Value Method utilises a Multiple of Exploration Method (“MEE”) which involves the allocation of a premium or discount to the relevant and effective Expenditure Base (past expenditure) through the use of the Prospectivity Enhancement Multiplier (“PEM”). This involves a factor which is directly related to the success (or failure) of the exploration completed to date. The Expenditure base includes only the current owner’s relevant past expenditures.

Guidelines for the selection of a PEM value have been proposed by several authors in the field of mineral asset valuation. Some of these guidelines are as follows:-

“ A positive PEM is one that adds to the value of a given exploration expenditure (e.g., core drilling that shows ore-grade mineralization). A positive PEM should generally be in the range of >1.0 to 3.0 ” (Gregg and Pickering 2007).

“ The Prospectivity Enhancement Multiplier (“PEM”)” which is applied to the effective expenditure therefore ranges from 0.5 to 3.0. The PEM generally falls within the following ranges:

0.5 to 1.0 where work to date or historic data justifies the next stage of exploration (but where past expenditure may have discounted some of the property’s mineral potential);
1.0 to 2.0 where strong indications of potential for economic mineralisation have been identified; and
2.0 to 3.0 where ore grade intersections or exposures indicative of economic resources are present.” (Onley, P, 1994).

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The Geoscience Factor or Kilburn method provides an appropriate approach for the technical valuation of the exploration potential of mineral properties, on which there are no defined resources.

Valuation is based upon a calculation in which the geological prospectivity, commodity markets, and mineral property markets are assessed independently. The Kilburn method is essentially a technique to define a value based upon geological prospectivity. The method appraises a variety of mineral property characteristics:

Location with respect to any off-property mineral occurrence of value, or favourable geological, geochemical or geophysical anomalies:
Location and nature of any mineralisation, geochemical, geological or geophysical anomaly within the property and the tenor of any mineralisation known to exist on the property being valued;
Number and relative position of anomalies on the property being valued;
Geological models appropriate to the property being valued.

The Kilburn method systematically assesses and grades these 4 key technical attributes of a tenement to arrive at a series of multiplier factors (Table 6).

The Basic Acquisition Cost (“BAC”) is an important input to the Kilburn Method and it is calculated by summing the application fees, annual rent, work required to facilitate granting (eg native title, environmental etc) and statutory expenditure for a period of 12 months. This has been established at $300 to $350 per square kilometre for Exploration Licences in Western Australia. Each factor is then multiplied serially by the BAC to establish the overall technical value of each mineral property. A fifth factor, the market factor, is then multiplied by the technical value to arrive at the fair market value.

4.2 Stanley Project Valuation Methodology

The Income Approach was not considered for this valuation as is not appropriate for properties without Mineral Resources.

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Table 6. Kilburn Geoscientific Ranking

Rating	Off Property Factor	On Property Factor	Anomaly Factor	Geological Factor
0.1				Generally unfavourable lithology
0.2				Generally unfavourable lithology with structures
0.3				Generally favourable lithology (10%-20%)
0.4
0.5			Extensive previous exploration with poor results	Alluvium covered, generally favourable lithology (50%)
0.6
0.7
0.8
0.9				Generally favourable lithology (50%)
1	No known mineralisation	No known mineralisation	No targets outlined	Generally favourable lithology (70%)
1.5	Minor Workings	Minor Workings		Generally favourable lithology
2	Several Old Workings	Several Old Workings	Several well defined targets	Generally favourable lithology with structures
2.5	Abundant Workings	Abundant Workings
3			Several significant sub-economic intersections	Generally favourable lithology with structures alongstrike of a major mine
3.5	Abundant Workings/mines with significant historicalproduction	Abundant Workings/mines with significant historicalproduction
4
4.5
5	Along strike from major mine(s)	Major mine with significant historical production	Several significant ore grade co-relatable intersections
10	Along strike from major world class mine(s)

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5 Technical Valuation

5.1 Introduction

Following a review of publicly available information, and technical data as provided by AusQuest, The Geoscience Factor Approach, Income Approach, Appraised Value and the Market Approach Methods were reviewed for their suitability to the Project.

The Income Approach Method is not considered appropriate to the Projects as Mineral Reserves have not been incorporated into the detailed studies required to forecast future cashflows.

CSA has conducted a review of Australian market transactions involving manganese exploration projects. The market for these projects is however relatively illiquid, and it was not possible to establish a dataset of transactions which may be considered as relevant to the Stanley Project. It is therefore not appropriate to use the Market Approach method for a valuation of the Stanley Project

Exploration by AusQuest during the period 2009 to 2012 across granted tenements has included desk-top studies of historical exploration data, field traversing and mapping, soil and rock chip sampling, VTEM and gravity surveying. It has also included RC drilling with 75 holes drilled for 5,438m. This work has identified several targets for further drill testing which may be considered prospective for manganese mineralisation. Based upon this work to date, the Kilburn method has been used to derive a value for the Stanley Project.

The Appraised Value method has also been used as a confirmation of the values derived from the Kilburn method.

5.2 Preferred Value of Stanley Project

Based upon the results of exploration programs to date at the Stanley Project and the results of exploration by other groups within the Earaheedy Basin, CSA believes that an assessment of the technical value of the Stanley can be derived as per Table 7.

A BAC has generally been established at $300 to $350 per square kilometre for Exploration Licences in Western Australia. For the purposes of this valuation a BAC of $350/km[2] has been used to reflect the increased cost of exploration activities throughout the West Australian minerals sector.

No discount factor has been applied to tenements E38/2764 and E38/2765 which are currently under application as CSA believes that there is a reasonable expectation that the licences will be granted.

A range of technical values for 100% of the Stanley project of $0.9M to $1.8M is derived, within which range a preferred value of $1.3M has been selected which is at the mid-point

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of the valuation ranges. These figures also reflect the current market value as CSA does not believe that a premium or discount to the technical value is warranted.

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Table 7. Stanley Project – Kilburn Tenement rankings and valuations

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As a confirmation of the Kilburn valuation method, the value of the Stanley Project was also considered using the Appraised Value method. Tenement expenditures by AusQuest to June 2012 are $1.97M (Table 8) and consist primarily of RC drilling, VTEM and gravity surveys. Whilst exploration drilling to date has intersected anomalous manganese mineralisation over wide intervals, economic intersections have not been drilled. This work has added significantly to the geological understanding of manganese mineralisation at the Stanley project, and justifies the next stage of exploration (Dome and Niminga targets), however the manganese potential over certain portions of the tenement holding has been discounted by exploration to date.

Table 8. Stanley Project tenement expenditure

Prospect	Tenement	Year 1 (A$)	Year 2 (A$)	Year 3 (A$)	Total (A$)
Windidda	E38/2166	47,922	69,259		117,181
Windidda	E38/2167	139,274	75,045		214,319
Windidda	E38/2168	83,621	15,655		99,276
Windidda	E38/2238	43,718	121,919		165,637
Windidda	E38/2239	60,974	86,690		147,664
Windidda	E38/2240	62,844	27,712		90,556
Dome	E53/1402	43,379	98,180	28,185	169,744
Dome	E53/1403	44,955	35,532	45,793	126,280
Dome	E53/1460	112,194	56,151		168,345
Dome	E53/1589	39,325			39,325
Niminga	E69/2502	55,411	6,222	22,346	83,979
Niminga	E69/2503	130,742	241,735	95,094	467,571
Niminga	E69/2587	38,865			38,865
Niminga	E69/2794	45,048			45,048
		948,272	834,100	191,418	1,973,790

Applying the Exploration Base (costs to date) of $2.0M and a range of PEM’s of between 0.5 and 1.0, a range of values for 100% of the Stanley Project of $1.0M to US$2.0M may be considered reflective. These values lie within the range of those derived from the Kilburn method.

Signed by:

Paddy Reidy BSc, MAusIMM

Date: 27[th] September 2012

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6 Bibliography

6.1 Mineral Property Valuation References

Gregg L. T. and Pickering Sam M. Jr 2007. Methods for Valuing Previous Exploration Programs During Consideration of Prospective Mineral Ventures in 42nd Industrial Minerals Forum in Asheville, NC.
Lawrence R. D. 2000 Valuation of Mineral Properties Without Mineral Resources: A Review of Market-Based Approaches in Special Session on Valuation of Mineral Properties, Mining Millennium 2000, Toronto, Canada.

CIMVAL 2003 Standards and Guidelines for Valuation of Mineral Properties.

AUSIMM (VALMIN Code) 2005, “Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports”, 2005 edition, Carlton, Vic, Australia.

AusIMM, (1998): "Valmin 94 - Mineral Valuation Methodologies". Conference Proceedings.

Thompson Ian S. 2000 A critique of Valuation Methods for Exploration Properties And Undeveloped Mineral Resources in Special Session on Valuation of Mineral Properties, Mining Millennium 2000, Toronto, Canada.

Kilburn, LC, 1990, “Valuation of Mineral Properties which do not contain Exploitable Reserves” CIM Bulletin, August 1990.

6.2 Regional Geology References

Bolton, B.R., 2011, An appraisal of the manganese potential, Stanley Prospect, Earaheedy Basin, WA, Barrie Bolton Consulting Pty Ltd, Unpublished report for AusQuest Ltd.

Jones, J.A., Pirajno, F., Hocking, R.M. & Grey, K., 2000. Revised stratigraphy for the Earaheedy Group: implications for the tectonic evolution and mineral potential of the Earaheedy Basin. GSWA Annual Review, 1999-2000, p. 57-64.

Matonia, K.J., 2009. U-Pb and Hf analysis of detrital zircons: Implications for provenance of the Earaheedy Basin, Capricorn. GSWA Record 2009/19, 81pp.

Pirajno, F., Jones, J.A., Hocking, R.M., Halilovic, J., 2004. Geology and tectonic evolution of Palaeoproterozoic basins of the eastern Capricorn Orogen, Western Australia. Precambrian Research 128, 315-342.

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7 Glossary

A metamorphic crystalline rock consisting mainly of amphiboles and some plagioclase.

amphibolite:

Widely used term for the earliest era of geological time spanning the interval from the formation of Earth to about 2,500 million years ago.

Archaean: Widely used term for the earliest era of geological time spanning the interval from the formation of Earth to about 2,500 million years ago. basalt: A dark, fine-grained volcanic rock of low silica (<55%) and plagioclase feldspar and pyroxene. biotite: A type of black mica breccia: A rock made up of mainly angular fragments. carbonate: A sediment formed from the organic or inorganic precipitation from aqueous solution of carbonates of calcium, magnesium, or iron; e.g., limestone and dolomite. chlorite: Family of tetrahedral sheet silicates of iron, magnesium, and aluminum, characteristic of low-grade metamorphism. craton: Large, and usually ancient, stable mass of the Earth’s crust. Cretaceous: Final period of the Mesozoic era, 135-65 million years ago. diamond drilling: A method of obtaining a cylindrical core of rock by drilling with a diamond-set or diamond impregnated bit. dolerite: A fine to medium grained intrusive mafic rock dyke: Thin, sheet-like intrusion of magmatic (igneous) rock. electromagnetic (EM) survey: A geophysical survey technique where potential fields are measured under the influence of an applied current. en echelon: Geologic features that are in an overlapping or staggered arrangement, epigenetic: A hydrothermal event imposed upon rocks (usually by the hydrothermal phase of felsic intrusions). facies: Changes in composition, mineral associations or crystallisation sequence brought about by different depositional environments, increasing distance from source, or differing physical and chemical parameters. ferruginous: Containing iron. foliation: The banding or lamination of metamorphic rocks as distinguished from stratification in sedimentary rocks. GIS: Acronym for Geographical Information Systems. granite: A coarse-grained igneous rock containing mainly quartz

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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	and feldspar minerals and subordinate micas
greenstones:	Compact dark green altered or metamorphosed basic
	igneous rocks that owe their colour to the presence of
	green minerals,
greenstone belt:	Term applied to elongate or belt-like areas within
	Precambrian shields that are characterised by abundant
	greenstones
hydrothermal:	Hot water associated with thermal springs or felsic
	intrusive rocks.
igneous:	Rocks that have solidified from a magma.
JORC:	The Joint Ore Reserves Committee (Australia). The JORC
	Code for the classification and reporting of mineral
	resources and ore reserves has now become an
	internationally accepted standard.
laterite:	Red residual soil developed in humid, tropical, and
	subtropical regions of good drainage.
Ma:	An abbreviation for ‘million years ago’.
mafic:	Descriptive of rocks composed dominantly of magnesium,
	iron and calcium-rich rock-forming silicates.
magnetite:	A naturally occurring magnetic oxide of iron (Fe3O4)
mantle:	The zone between the core and crust of the earth
meta-:	A prefix meaning ‘metamorphosed’.
percussion drilling (RC):	Drilling method employing a repeated hammering action
	on a drill bit, also known as Reverse Circulation (RC)
	drilling.
pluton:	A body of igneous rock formed beneath earth surface by
	consolidation from magma.
porphyry:	An igneous rock of any composition that contains
	conspicuous phenocrysts (coarse crystals) in a fine-grained
	groundmass.
Proterozoic:	An era of geological time spanning the period from 2,500
	million years to 570 million years before present.
Quartzite	Compact granular rock composed of quartz and derived
	from sandstone by metamorphism
shear:	Deformation resulting from stresses that cause contiguous
	parts of a body to slide relative to each other in a direction
	parallel to their plane of contact.
stratigraphic:	The arrangement of strata.
strike:	The direction or trend taken by a structural surface.

Report No: R366.2012

AusQuest Limited Earaheedy Basin

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supergene:	Oxidation, electrolytic and solution effects brought about
	by low temperature, ground-water activity.
syncline:	A configuration of folded, stratified rocks in which rocks
	dip downward from opposite directions to come together
	in a trough.
synform:	A fold whose limbs close downward in strata for which the
	stratigraphic sequence is unknown.
tectonised:	Rocks that have been deformed by movement of the crust
thrust:	An overriding movement of one crustal unit over another.

Report No: R366.2012

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AI assistant

AUSQUEST LIMITED — AGM Information 2012

64406_rns_2012-10-25_2539882d-4724-4a94-b2ca-e04fc2bf8811.pdf

NOTICE OF ANNUAL GENERAL MEETING

AUSQUEST LIMITED

NOTICE OF ANNUAL GENERAL MEETING

EXPLANATORY STATEMENT AND

PROXY FORM

CONTENTS PAGE

T IME AND PLACE OF MEET ING A ND HOW TO VOTE

VENUE

YOUR VOTE IS IMPORTANT

VOTING IN PERSON

VOTING BY PROXY

NOTICE OF ANNUAL GEN ERAL MEET ING

AGENDA

1. ANNUAL REPORT

2. RESOLUTION 1 – ADOPTION OF THE REMUNERATION REPORT

3. RESOLUTION 2 – ELECTION OF MR CHRIS ELLIS AS A DIRECTOR

4. RESOLUTION 3 – ELECTION OF MR JOHN ASHLEY AS A DIRECTOR

5. RESOLUTION 4 – APPROVAL OF 10% PLACEMENT FACILITY

6. RESOLUTION 5 – APPROVAL OF SELECTIVE BUY BACK OF 68,308,791 SHARES FROM CLIFFS AND SALE OF 70% INTEREST IN THE STANLEY PROJECT TO CLIFFS

EXPLANATORY STATEMEN T

1. ANNUAL REPORT

2. RESOLUTION 1 – ADOPTION OF THE REMUNERATION REPORT

Undirected proxies

3. RESOLUTION 2 – ELECTION OF MR CHRIS ELLIS AS A DIRECTOR

4. RESOLUTION 3 – ELECTION OF MR JOHN ASHLEY AS A DIRECTOR

5. RESOLUTION 4 – APPROVAL OF 10% PLACEMENT FACILITY

5.1 General

5.2 Description of Listing Rule 7.1A

(a) Shareholder approval

(b) Equity Securities

(c) Formula for calculating 10% Placement Facility

(A x D) – E

A

D

(d) Listing Rule 7.1 and Listing Rule 7.1A

(e) Minimum Issue Price

(f) 10% Placement Period

5.3 Listing Rule 7.1A

5.4 Specific information required by Listing Rule 7.3A

Minimum issue price

Risk of economic and voting dilution

The table has been prepared on the following assumptions:

Period within which the Special Placement Facility can be implemented

Purpose for which the Special Placement Facility may be implemented

Allocation policy when the Special Placement Facility may be implemented

Prior Approvals under Listing Rule 7.1A:

Voting Exclusions:

6. RESOLUTION 5 – APPROVAL OF SELECTIVE BUY BACK OF 68,308,791 SHARES FROM CLIFFS AND SALE OF 70% INTEREST IN THE STANLEY PROJECT TO CLIFFS

GLOSSARY

$ means Australian dollars.

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY

Financial Services Guide

22 October 2012

Financial Services Guide

Information about us

Financial services we are licensed to provide

General Financial Product Advice

Fees, commissions and other benefits that we may receive

Remuneration or other benefits received by our employees

Referrals

Complaints resolution

Referral to External Dispute Resolution Scheme

Contact details

TABLE OF CONTENTS

INDEPENDENT EXPERT’S REPORT

1. Introduction

2. Summary and Opinion

2.1 Purpose of the report

2.2 Approach

2.3 Opinion

2.4 Fairness

2.5 Reasonableness

3. Scope of the Report

3.1 Purpose of the Report

3.2 Regulatory guidance

3.3 Adopted basis of evaluation

4. Outline of the proposal

AUSQUEST LIMITED AGM Information 2012