DOTZ NANO LIMITED — Capital/Financing Update 2009

Dec 10, 2009

10 December 2009

Company Update

Northern Iron Limited (ASX Code: NFE) wishes to advise that the Company is continuing to make steady progress towards rectifying the issues announced to the market in a Company update on 26 November 2009.

These issues have prevented the Sydvaranger Iron Project from achieving nameplate production and quality targets during the ramp up phase of production. A number of initiatives implemented by the Company since the issues were identified have resulted in significant improvements in product quality.

Quality Update

As previously advised, the Company has experienced challenges in the ramp up phase of production, including achieving optimal grinding performance from the secondary mills, resulting in concentrate iron and silica grades outside of expected product specifications at post ramp up operating levels. Since the Company update on 26 November, the Company has implemented processing changes within the concentrator at Kirkenes to improve the grinding of oversize particles, namely:

• Redirecting material produced by the primary grinding mill directly into the secondary mills to prevent oversize material bypassing the secondary mills; and

• Changing the size of the mill balls being used in the secondary mills to achieve a finer grind.

The Company reports that since these changes were implemented significant improvements have been made in product quality, including an average 22% reduction in the amount of silica contained in the concentrate, and several shifts where a 45% reduction was achieved.

Metallurgical testwork performed by an independent laboratory continues to confirm that the material produced at the correct size fraction of less than 53 microns is of the required grade to meet the Company’s quality target (3% silica and 68% iron).

The Company and its consultants continue to advise that removal of the oversize fraction is the solution to the concentrate quality issue. The Company believes the removal is possible using screens in the concentrator and increasing the secondary milling capacity by refurbishing a fifth secondary mill, which is already installed on site. Plans to implement both these solutions are discussed in the Quality and Production Improvement Plan section.

Further reduction of oversize particles in the concentrate has been hampered by production related issues that have resulted in stopping and starting of the grinding circuit. To achieve the targeted grinding results steady state production in the grinding mills is required.

Production Update

Since commissioning, the Company has identified production bottlenecks that need to be addressed to achieve 100% nameplate capacity. The net effect of the identified issues has resulted in the Company revising down estimated production for 2009 to 210,000 dry metric tonnes of concentrate, equivalent to three Panamax class ships.

The Company expects 75% of nameplate capacity to be achieved by January 2010, and 100% of capacity to be achieved by May 2010 when the identified issues have been addressed. The Company therefore advises expected 2010 production of 2.6 million dry metric tonnes, versus a previous expectation of 2.8 million dry metric tonnes.

Quality and Production Improvement Plan

To address the quality and production issues the Company is preparing to implement the following initiatives.

Initiatives that will improve product quality are:

• Refurbishment of on-site concentrate screens: The Company has conducted trials with screens previously used in the old plant and early results confirm this will be effective at removing coarse silica oversize from the concentrate. Work has commenced recommissioning these screens and it is expected they will be operating by February treating 30% of the concentrate produced, resulting in a step change improvement in concentrate grade and product quality;

• Installation of new concentrate screens: the Company intends to install sufficient new screens to achieve 100% screening of the concentrate. The Company is working with its suppliers and consultants to achieve the fastest practical implementation of this solution, but it expects it will be mid 2010 before this additional capacity will be operational. This is expected to result in concentrate quality at the targeted specification;

• Refurbishment of a fifth secondary mill: the Company is preparing its consultants and suppliers to commence work on refurbishing a fifth secondary mill. This mill exists on site and is in relatively good condition. It is expected the work could be completed and the mill put into operation by Q2 2010. Increasing the secondary milling capacity will result in a further improvement in quality performance.

Initiatives that will improve production capacity are:

• Filter capacity: the Company expects the installed filter capacity will be sufficient to achieve only 75% of nameplate capacity. Concentrate must have moisture content below the Transportable Moisture Limit (TML) to be shipped, and in order to achieve the measured TML of the concentrate the filters have to operate at a lower production rate. Therefore to achieve nameplate capacity, an additional filter is expected to be required;

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• Tertiary and Secondary crusher screen: the screen located between the tertiary and secondary crushers has proved to be capable of handling production rates of up to 80% of nameplate capacity but will require some design modifications or replacement to achieve 100% of capacity. Note this screen is part of the fine crushing circuit, and is a separate part of the plant from the concentrator where it is proposed to screen the concentrate to remove the oversize fraction (described in the Quality Update);

• Secondary magnetic separators: it is expected that based on observed operational performance to date, these separators will be incapable of handling production rates above 75% of nameplate capacity without excessive magnetite loss in the tailings stream. Additional capacity will be required to achieve 100% nameplate capacity. This capacity can be installed relatively easily and quickly by constructing additional separator units from spare parts stock held on site, and citing them adjacent to existing units in the concentrator;

• Operational and maintenance performance (OMP): The Company has improved OMP by engaging additional experienced maintenance and processing technicians to support and train the Company’s employees as they continue to build their skills by operating the plant.

The Company estimates a cost of approximately USD 15 million to implement the above initiatives.

Mining Update

Mining rates continue to be flexible to match the ore requirement for the concentrator. This includes a decision implemented in late November to reclaim ore from stockpiles only until such time as production rates improve in the concentrator. It is expected full mining operations will recommence in late December. Head grades from the Hyttemalmen and Kjellmannsåsen deposits continue to match reserve estimates and have been confirmed by assays received from ore processed at Kirkenes.

Sales and Marketing Update

The Company continues to work with its benchmark contract customers and other related parties to facilitate sales of the higher than anticipated silica product currently being produced. Interest in, and demand for, the product remains high, and the Company is confident of achieving 100% sales of production, albeit at lower prices than those that will be received when the quality issues have been resolved.

The lower production levels and price are expected to have a negative impact on the Company’s reported revenue and net result for the year ended 31 December 2009.

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Financial Update

The Company continues to closely monitor the implications of product quality and production rates on cash flow.

As previously advised, the Company is in the process of agreeing a Forward Sales Agreement with MRI Trading AG. Documentation for this facility is at an advanced stage and draw down will occur when complete.

The Company has also received a conditional credit committee approved offer of a NOK 60 million (approx. US$10 million) working capital facility from the Company’s Norwegian bank, DnB NOR, to assist funding during early stage of production. As a requirement of this funding the Company needs to be able to demonstrate its ability to raise additional capital either to support these finance facilities or, if required, provide further working capital. To this end the Company is calling an EGM of shareholders for 20[th] January 2010 to approve a resolution reinstating the Company’s ability to place securities up to 15% of its capital.

The Company will continue to provide updates to the market as and when new information becomes available.

For and on behalf of the board.

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John Sanderson Chief Executive Officer

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