AUSQUEST LIMITED — Capital/Financing Update 2008

Sep 16, 2008

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15 September, 2008

Dear Shareholders,

I am pleased to take this opportunity to update you on a significant announcement made recently by AusQuest regarding a Strategic Alliance agreement with the leading North American mining company, Cleveland-Cliffs Inc. ( see copy of ASX Announcement – 11[th] September 2008 enclosed ).

The AusQuest Board believes this to be a very positive development for your Company, with key elements including:

• a A$26 million investment by Cleveland-Cliffs at a share subscription price of 40 cents;

• Cleveland-Cliffs to become our largest shareholder with a 30% fully diluted interest, subject to shareholder approval being obtained to issue the allocated number of shares and options;

• Cleveland-Cliffs nominating a representative to join the AusQuest Board and providing the company with strategic, corporate and technical assistance.

Listed on the New York Stock Exchange, Cleveland-Cliffs is a successful international mining company with a market capitalisation of approximately US$9.5 billion. It owns several coal and iron ore mines in North America and 85% of the Australian-based iron ore company, Portman Limited.

Securing the strategic involvement of such a substantial industry player represents a strong validation of the exploration strategy which AusQuest has been pursuing with respect to specifically focussing on the discovery of world-class orebodies in new geologically favourable environments. It also represents a strong endorsement of the quality of our exploration team.

The subscription price of the placement represents a premium of 110% to the trading price of AusQuest shares prior to the announcement – a substantial achievement in the current equity market environment.

The proceeds of the placement will enable AusQuest to aggressively continue with the very significant exploration campaign already underway at our various base metal, iron, and manganese projects in Western Australia, which includes the exciting Table Hill region. It will also allow us to further investigate the Diamantina copper-gold prospect in Queensland and accelerate exploration at our other key projects.

You will soon receive details of a shareholder meeting which we now expect to convene in November to approve the share placement and Strategic Alliance agreement. Because of the significant strategic benefits, all of the Directors intend to vote in favour of the resolutions to be put to this meeting in respect of their own shares. You will receive further information regarding this proposed transaction along with the Notice of Meeting.

Together with my fellow Directors I look forward to your continued support as AusQuest embarks on this exciting new chapter in its growth and development.

John Innes Chairman

AusQuest Limited 6 Kearns Crescent Ardross WA 6153 (T): 08 9364 3866 (F): 08 9364 4892 www.ausquest.com.au

September 11, 2008 ASX Release

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AusQuest Agrees Strategic Alliance with Cleveland-Cliffs

• AusQuest has reached agreement on a Strategic Alliance with Cleveland-Cliffs

• Cleveland-Cliffs to acquire a 30% interest in AusQuest

• Cleveland-Cliffs to make an initial $26 million subscription at $0.40 per share

• Subscription monies to aggressively accelerate the exploration of AusQuest’s portfolio of projects in Australia

Diversified Australian exploration company AusQuest Limited (“AusQuest”, or “the Company”, ASX: AQD) is pleased to announce that it has entered into a Strategic Alliance with Cliffs Australia Holdings Pty Ltd, a wholly-owned subsidiary of international mining company Cleveland-Cliffs Inc (“Cleveland-Cliffs”).

Headquartered in Cleveland, Ohio, Cleveland-Cliffs is the largest producer of iron ore pellets in North America and a major supplier of metallurgical coal to the global steel-making industry. It operates six iron ore mines and three coking coal mines in North America, and also owns 85% of Portman Limited, a large iron ore mining company in Australia serving Asian markets. Cleveland-Cliffs currently has a market capitalisation of approximately US$9.5 billion.

Transaction Structure

Under the agreement reached today, Cleveland-Cliffs will acquire a 30% fully diluted interest in AusQuest through a staged issue of shares and options.

AusQuest will issue Cleveland-Cliffs with 21,590,000 options with an exercise price of $0.40 per share and an expiry date of around 31 March 2011. This initial issue of options will occur pursuant to AusQuest’s 15% placement capacity in accordance with ASX Listing Rule 7.1 with allotment expected to occur within the next 5 days.

Subject to AusQuest shareholder and FIRB approval:

• Cleveland-Cliffs will subscribe for 66.7 million new AusQuest shares at $0.40 per share for a total subscription price of $26 million;

• Cleveland-Cliffs will be issued approximately 29 million additional options with an exercise price of $0.40 per share and an expiry date of around 31 March 2011 to increase Cleveland Cliff’s fully diluted interest in AusQuest to 30% post the placement; and

• Under the Strategic Alliance, Cleveland-Cliffs will appoint a representative to the AusQuest board.

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Among other things, the Strategic Alliance Agreement also:

• gives Cleveland-Cliffs the right to support future capital raisings by AusQuest;

• grants Cleveland-Cliffs certain rights in relation to any future sale or other disposal of AusQuest’s assets;

• confirms Cleveland-Cliff’s intention not to acquire further shares in AusQuest (other than in certain agreed circumstances) until the earlier of 30 November 2010 and the 2010 AusQuest Annual General Meeting.

Commentary

Commenting on the transaction, AusQuest’s Managing Director, Graeme Drew, said: “We are very pleased to announce this landmark Strategic Alliance and we look forward to welcoming ClevelandCliffs to our share register and working closely with them to progress both our existing exploration portfolio and new opportunities”.

“The investment by Cleveland-Cliffs and formation of a Strategic Alliance validates the exploration strategy that AusQuest has been pursuing by targeting potentially significant discoveries in worldclass mineral provinces and represents a strong endorsement of the quality of our exploration team”.

“The $26 million cash injection will provide us with substantial funding to implement a very significant exploration campaign over the next three years, enabling us to do justice to the exciting results we have achieved at our Table Hill project in the Pilbara and our Diamantina Project in Queensland and to accelerate activity at our other key exploration assets”.

The President and CEO of Cliffs Asia-Pacific Pty Ltd, Richard Mehan said:

“Cleveland-Cliffs is delighted to have the opportunity to invest directly into AusQuest and to work with AusQuest’s board and management through the Strategic Alliance we have entered into today.

AusQuest has a first class exploration portfolio and we believe that the quality of that portfolio, coupled with the talent and experience at all levels of the company, will provide many opportunities for future exploration success and subsequent project development. We are looking forward to developing a long and mutually beneficial relationship with the AusQuest team.”

A meeting of AusQuest shareholders is expected to be held in October to seek the approvals needed to complete this transaction. Ausquest will distribute a Notice of Meeting in due course to all shareholders, which will include further details about the Strategic Alliance together with an Independent Expert’s Report.

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For comment call:

Graeme Drew Managing Director AusQuest Limited Phone: 08 9364 3866

Corporate Adviser: Grey Egerton-Warburton Lead Director – Corporate Finance Hartleys Limited Phone: 08 9268 2851

Media: Nicholas Read Managing Director Read Corporate Phone: 08 9388 1474

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