AUSQUEST LIMITED — Capital/Financing Update 2010

Oct 21, 2010

22 October 2010

ASX Announcement

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DRAGON ENERGY ACQUIRES

ADVANCED IRON ORE PROJECTS IN THE PILBARA

• Dragon Energy executes agreements to acquire two advanced iron ore projects in the Pilbara

• The Rocklea Project has a Channel Iron Deposit (CID) with a JORC Inferred Resource of 63.1Mt @ 53.4% Fe (60.4% caFe)

• The Nameless Project hosts CID & mineralised Marra Mamba Iron Formation with identified mineralisation over 12.5km in strike length

• Significant Exploration upside potential for both projects located close to infrastructure

• Total cash consideration of A$7.5m over staged payments for 100% interests

• Dragon Energy continues to pursue consolidation opportunities for its iron ore growth strategy.

Dragon Energy Ltd (ASX: DLE ) is pleased to announce it has entered into agreements with AusQuest Limited (ASX: AQD), Fortescue Resources Pty Ltd (a wholly owned subsidiary of AusQuest), and their Joint Venture partners to acquire the Rocklea Project (E47/1024-I) and the Nameless Project (E47/1485-I and an overlying conversion mining lease application M47/1452) in the Pilbara iron ore province.

Located within short distances to the major iron ore mining towns of Tom Price and Paraburdoo, the Rocklea and Nameless projects are close to existing infrastructure that is favourable to immediate exploration and future development activities.

The major commercial terms of the two acquisitions are:

• A cash consideration of $500,000 (plus GST) for 100% of the Nameless Project; this cash consideration has been paid.

• The acquisition of 100% of the Rocklea Project is conditional on Dragon finalising a proposed capital raising to be completed before 19 January 2011. The cash consideration of $7.0m (plus GST) comprises:

  • A cash payment of $4.5m (plus GST) upon the completion of the proposed capital raising (within 3 months after signing the Asset Sale Agreement)

  • A second cash payment of $1.5m (plus GST) on or before the first anniversary of the first cash payment;

  • A final cash payment of $1.0m (plus GST) on or before the second anniversary of the first cash payment.

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Suite 8 1297 Hay Street, West Perth, Western Australia, 6005 T: (61-8) 9322 6009 F: (61-8) 9322 6128

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Commenting on the acquisition, Dragon Energy’s Managing Director Gang Xu said:

“Dragon Energy’s project evaluation team has been working diligently since the GFC to secure sizable iron ore projects such as Rocklea and Nameless with sound technical and commercial merits. These projects provide Dragon Energy with a strategic landholding and resource base to pursue its mid-term iron ore aspirations. We are very excited about the exploration potential and the development opportunity presented by these two projects.

With a pipeline of iron ore and manganese projects, Dragon will review further acquisition possibilities to consolidate its position.”

Dragon Energy is currently negotiating a significant capital raising to fund these acquisitions and their associated exploration activities.

Rocklea Project (E47/1024-I):

The Rocklea Project comprising 35km[2] in area is located 33km southwest of the mining town of Tom Price, and immediately north of Murchison Metals’ Rocklea CID Project.

In the 1970s Hamersley Exploration Pty Ltd (now Rio Tinto) outlined a small resource on this project. Between 2005 and 2009, AusQuest enhanced and expanded the resource. On 17 August 2009 AusQuest reported a JORC Inferred Resource of 63.1Mt grading 53.4% Fe (60.4% caFe), including a higher grade component of 28.2Mt grading 55.6% Fe (62.7% caFe). Calcined Iron grade (caFe) is a measure of iron content upon the removal of volatiles (i.e. LOI), and is a more relevant measure of the quality of iron ore deposits.

	Milliontonnes	Fe(%)	caFe(%)	SiO2(%)	Al2O3(%)	P(%)	LOI (1000°C)(%)	Cut-offgrade
Inferred	63.1	53.38	60.37	7.69	2.54	0.03	11.59	50%
Inferred	28.2	55.58	62.68	6.04	2.26	0.03	11.33	54%

*Source: AusQuest 17 August 2009 ASX announcement

This resource is open to the south and east, and outcropping CID in the NE corner of the tenement has not been drill tested.

An assessment of the project will be carried out with the aim of undertaking a step-out and exploratory drilling programme targeted to expand the resource, followed by a scoping study.

Nameless Project (E47/1485-I & M47/1452):

The Nameless Project is located 10km northwest of the mining town of Tom Price. It comprises 14 blocks of 31km[2] in area, and includes considerable CID style mineralisation, in addition to lesser mineralised Marra Mamba Iron Formation and detrital iron.

AusQuest mapping delineated up to 15km strike of a prospective 200-600m wide palaeochannel, of which 12.5km was drill tested by Ausquest on 400m to 1200m spaced drilling traverses. A total of 89 holes for 3,044m on 400-1200m spaced traverses were drilled in 2006 and 2008. CID mineralisation is up to 24m in thickness and infill drilling is required to define its continuity.

Dragon will undertake an assessment of the project with the aim of planning infill and step-out drilling programmes in order to define a mineral resource.

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Authorised by:

Gang Xu Managing Director

For further information please contact:

Gang Xu Mark Hafer Managing Director Exploration Manager Telephone: +61 8 9322 6009 Telephone: +61 8 9322 6009 Mobile: +61 411 039 645 Mobile: +61 403 966 776

About Dragon

Dragon Energy Limited (“Dragon”) listed on the Australian Securities Exchange (ASX) in February 2009 ( ASX: DLE ). The Company’s listing on the ASX was facilitated by cornerstone investor the China-based Shandong Taishan Sunlight Group Company Limited (“Shandong Group”), which controls 1.5Bt of coal and 100Mt of iron ore resources in China as well as engaging in steel making and power generation. It has also facilitated many large commercial mining transactions in the Chinese resources sector. Shandong Group is essentially a private enterprise and provides Dragon with direct and indirect financial capacity, wide industry connections, and mining know how, to underpin Dragon’s growth and pursuit of mineral projects.

Dragon has 12 tenements in Western Australia totalling 1,193km[2] and has an 85% Joint Venture interest in 13 coal tenements in Queensland totalling 4,558km[2] .

Competent Person’s Statement

The information in the report to which this statement is attached that relates to Exploration Results is based on information compiled by Mr Mark Hafer, who is a Member of The Australian Institute of Geoscientists. Mr Hafer is a fulltime employee of the company. Mr Hafer has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Hafer consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

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Figure 1: WA Project Location

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Figure 2: Rocklea & Nameless Geology

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Figure 3: Rocklea & Nameless- Tenement Location

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Figure 4: Rocklea- Resource Location

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Figure 5: Nameless- Regional Geology

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Figure 6: Nameless- Cross Section (572,000E)

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