GRANGE RESOURCES LIMITED

ACN 009 132 405

NOTICE OF GENERAL MEETING

Date of Meeting: 12 December 2008 Time of Meeting: 10.00 am (WDT) Place of Meeting: QV1 Conference Centre Level 2, QV1 Building 250 St George's Terrace PERTH WA 600 0

This Notice of General Meeting and accompanying Explanatory Memorandum and Proxy Form should be read in their entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser prior to voting.

Should you wish to discuss any matters referred to in this document, please contact the Company Secretary by telephone on +61 8 9321 1118.

GRANGE RESOURCES LIMITED ACN 009 132 405

NOTICE OF GENERAL MEETING

Notice is hereby given that a Meeting of Grange Resources Limited ( Grange or Company ) will be held at QV1 Conference Centre, Level 2, QV1 Building, 250 St George's Terrace, Perth WA 6000 at 10.00 am (WDT) on 12 December 2008 for the purposes of transacting the business outlined below.

The Explanatory Memorandum that accompanies and forms part of this Notice of General Meeting describes the various matters to be considered at the Meeting.

Terms used in this Notice of General Meeting will, unless the context otherwise requires, have the same meaning given to them in the glossary as contained in the Explanatory Memorandum.

AGENDA

Resolutions 1 to 4 (inclusive) are interdependent. If any of the resolutions 1 to 4 (inclusive) are not passed, then resolutions 1 to 4 (inclusive) will all be taken to have failed. Resolution 5 is dependent on resolutions 1 to 4 (inclusive) being passed. If any of the resolutions 1 to 4 (inclusive) are not passed, then resolution 5 will be taken to have failed.

Item 1 - Resolution 1 - Proposed issue of Shares to the Ever Green Sellers

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

"That, subject to and conditional on resolutions 2 to 4 (inclusive) being passed, for the purposes of item 7 of section 611 of the Corporations Act and for all other purposes, approval is given for the Company to allot and issue:

(a) 232,575,639 ordinary shares in the capital of the Company to Shagang International Holdings Limited;
(b) 68,404,600 ordinary shares in the capital of the Company to RGL Holdings Co., Ltd; and
(c) 41,042,760 ordinary shares in the capital of the Company to Pacific International Co. Pty Ltd,

(collectively, Ever Green Sellers ),

as consideration for the acquisition of 100% of the issued capital in Ever Green Resources Co., Ltd on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice of General Meeting."

Voting Exclusion: In accordance with item 7 of section 611 of the Corporations Act, the Company will disregard any votes cast on this resolution by Shagang International Holdings Limited, RGL Holdings Co., Ltd, Pacific International Co. Pty Ltd and Stemcor Pellets Limited (collectively, ABM Shareholders ) and any of their Associates.

Item 2 - Resolution 2 - Proposed issue of Shares to Stemcor

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

"That, subject to and conditional on resolutions 1, 3 and 4 being passed, for the purposes of item 7 of section 611 of the Corporations Act and for all other purposes, approval is given for the Company to allot and issue to Stemcor Pellets Limited ( Stemcor ) up to 38,002,555 ordinary shares in the capital of the Company as consideration for the acquisition of 10% of the issued capital in Shagang Mining (Australia) Pty Ltd on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice of General Meeting."

Voting Exclusion: In accordance with item 7 of section 611 of the Corporations Act, the Company will disregard any votes cast on this resolution by the ABM Shareholders and any of their Associates.

Item 3 - Resolution 3 - Approval of off-take agreements

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

"That, subject to and conditional on resolutions 1, 2 and 4 being passed, and for the purposes of Listing Rule 10.1 and for all other purposes, approval is given for the following agreements on and from completion of the Merger:

(a) off-take agreement dated 15 March 2005 between Goldamere Pty Ltd and Evergain International Corporation; and

(b) off-take agreements dated 24 September 2008 between Goldamere Pty Ltd and Jiangsu Shagang International Trading Co. Ltd,

details of which are set out in section 3.9 of the Explanatory Memorandum accompanying this Notice of Meeting."

Voting Exclusion: In accordance with Listing Rules 10.10 and 14.11, the Company will disregard any votes cast on the resolution by Evergain International Corporation, Jiangsu Shagang International Trading Co. Ltd and Goldamere Pty Ltd, and any of their Associates.

However, the Company need not disregard a vote if it is cast by Evergain International Corporation, Jiangsu Shagang International Trading Co. Ltd or Goldamere Pty Ltd as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form or if it is cast by a representative of Evergain International Corporation, Jiangsu Shagang International Trading Co. Ltd or Goldamere Pty Ltd chairing the meeting as proxy for a person who is entitled to vote in accordance with a direction on the proxy form to vote as the proxy decides.

Item 4 - Resolution 4 - Change in scale of activities

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

"That, subject to and conditional on resolutions 1 to 3 (inclusive) being passed, for the purposes of Listing Rule 11.1.2 and for all other purposes, Shareholders approve a change to the scale of the Company's activities as a result of the acquisition of 100% of the issued capital in Ever Green Resources Co., Ltd and 10% of the issued share capital in Shagang Mining (Australia) Pty Ltd on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice of General Meeting."

Voting Exclusion: In accordance with Listing Rules 11.1.2 and 14.11, the Company will disregard any votes cast on this resolution by the ABM Shareholders, an Associate of an ABM Shareholder, and a person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if this resolution is passed ( Excluded Person ) and an Associate of an Excluded Person.

However, the Company need not disregard a vote if it is cast by an ABM Shareholder or an Excluded Person, as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is cast by a representative of an ABM Shareholder or an Excluded Person chairing the Meeting as a proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Item 5 - Resolution 5 - Remuneration of Directors

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

"That, subject to and conditional on resolutions 1 to 4 (inclusive) being passed, pursuant to Article 10.12 of the Company's Constitution, and for the purposes of Listing Rule 10.17 and for all other purposes, the maximum aggregate remuneration payable by the Company to the Directors (as a whole) for their non-executive services be increased by $300,000, from $300,000 per annum to $600,000 per annum, divided amongst the Directors in such proportion and manner as the Directors agree or, in default of that agreement, equally. "

Voting Exclusion: In accordance with Listing Rules 10.17 and 14.11, the Company will disregard any votes cast on this resolution by a Director and an Associate of a Director.

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

DATED 4[th] DAY OF NOVEMBER 2008

BY ORDER OF THE BOARD

==> picture [159 x 37] intentionally omitted <==

NEIL MARSTON COMPANY SECRETARY

Proxy instructions

Shareholders are entitled to appoint up to two individuals to act as proxies to attend and vote on their behalf. Where more than one proxy is appointed each proxy may be appointed to represent a specific proportion of the Shareholder's voting rights. If the appointment does not specify the proportion or number of votes each proxy may exercise, each proxy may exercise half of the votes.

The proxy form (and the power of attorney or other authority, if any, under which the proxy form is signed) or a copy or facsimile which appears on its face to be an authentic copy of the proxy form (and the power of attorney or other authority) must be completed and posted or delivered to Computershare Investor Services Pty Ltd, the Company's share registry, at GPO Box 242, Melbourne, or faxed to Computershare Investor Services Pty Ltd on facsimile number +61 8 9323 2033, not less than 48 hours before the time for holding the Meeting, or adjourned meeting as the case may be, at which the individual named in the proxy form proposes to vote.

The proxy form must be signed by the Shareholder or his/her attorney duly authorised in writing or, if the Shareholder is a corporation, in a manner permitted by the Corporations Act. The proxy may, but need not, be a Shareholder of the Company.

In the case of Shares jointly held by two or more persons, all joint holders must sign the proxy form.

A proxy form is attached to this Notice of General Meeting.

Corporate representative

A corporation may elect to appoint an individual to act as its representative in accordance with section 250D of the Corporations Act, in which case the Company will require a certificate of appointment of the corporate representative executed in accordance with the Corporations Act. The certificate of appointment must be lodged with the Company and / or the Company's share registry, Computershare Investor Services Pty Ltd, before the Meeting or at the registration desk on the day of the Meeting. Certificates of appointment of corporate representative are available at www.computershare.com or on request by contacting Computershare Investor Services Pty Ltd on telephone number (08) 9323 2000.

Voting entitlement

For the purposes of determining voting entitlements at the Meeting, Shares will be taken to be held by the persons who are registered as holding the Shares at 5.00 pm (WDT) on 10 December 2008. Accordingly, transactions registered after that time will be disregarded in determining entitlements to attend and vote at the Meeting.

==> picture [143 x 56] intentionally omitted <==

Lodge your vote:

==> picture [16 x 12] intentionally omitted <==

By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

000001 000 GRR MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For all enquiries call:

(within Australia) 1300 850 505 (outside Australia) +61 3 9415 4000

Proxy Form

==> picture [9 x 352] intentionally omitted <==

==> picture [16 x 11] intentionally omitted <==

For your vote to be effective it must be received by 10.00am (WDT) Wednesday 10 December 2008

How to Vote on Items of Business

Signing Instructions

All your securities will be voted in accordance with your directions.

Individual: Where the holding is in one name, the securityholder must sign.

Appointment of Proxy

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote as they choose. If you mark more than one box on an item your vote will be invalid on that item.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate ''Certificate of Appointment of Corporate Representative'' prior to admission. A form of the certificate may be obtained from Computershare or online at www.computershare.com.

A proxy need not be a securityholder of the Company.

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

==> picture [15 x 12] intentionally omitted <==

Turn over to complete the form

View your securityholder information, 24 hours a day, 7 days a week:

www.investorcentre.com

Your secure access information is:

Review your securityholding

SRN/HIN: I9999999999

Update your securityholding

PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

999999_SAMPLE_0_0_PROXY/000001/000001/i

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

==> picture [18 x 18] intentionally omitted <==

==> picture [157 x 38] intentionally omitted <==

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

I9999999999
----- End of picture text -----

Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a I9999999999 broker (reference number commences with ' X ') should advise your broker of any changes. I 9999999999 I ND

==> picture [15 x 16] intentionally omitted <==

Proxy Form

Please mark to indicate your directions

==> picture [57 x 16] intentionally omitted <==

Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Grange Resources Limited hereby appoint

==> picture [16 x 12] intentionally omitted <==

PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

==> picture [19 x 19] intentionally omitted <==

the Chairman of the Meeting[OR]

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the General Meeting of Grange Resources Limited to be held at the QV1 Conference Centre, Level 2, QV1 Building, 250 St Georges Terrace, Perth WA 6000 on Friday, 12/12/2008 at 10.00am (WDT) and at any adjournment of that meeting.

Important for Items 1 to 5: If the Chairman of the Meeting is your proxy and you have not directed him/her how to vote on Items 1 to 5 below, please mark the box in this section. If you do not mark this box and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes on Items 1 to 5 and your votes will not be counted in computing the required majority if a poll is called on these Items. The Chairman of the Meeting intends to vote undirected proxies in favour of Items 1 to 5 of business.

==> picture [19 x 18] intentionally omitted <==

I/We acknowledge that the Chairman of the Meeting may exercise my proxy even if he/she has an interest in the outcome of that Item and that votes cast by him/her, other than as proxy holder, would be disregarded because of that interest.

==> picture [57 x 15] intentionally omitted <==

==> picture [16 x 12] intentionally omitted <==

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

Items of Business

==> picture [88 x 23] intentionally omitted <==

Resolution	1	Proposed Issue of Shares to the Ever Green Sellers
Resolution	2	Proposed Issue of Shares to Stemcor
Resolution	3	Approval of off-take agreements
Resolution	4	Change in scale of activities
Resolution	5	Remuneration of Directors

The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business.

==> picture [57 x 16] intentionally omitted <==

Signature of Securityholder(s) This section must be completed.

==> picture [504 x 77] intentionally omitted <==

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

Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact
Contact Daytime
Name Telephone Date / /
----- End of picture text -----

==> picture [15 x 15] intentionally omitted <==

==> picture [97 x 17] intentionally omitted <==

==> picture [16 x 15] intentionally omitted <==

G R R

9 9 9 9 9 9 A

Explanatory Memorandum

in relation to the proposed merger of Grange Resources Limited and Australian Bulk Minerals

The Directors of Grange unanimously recommend that you vote in favour of the transaction

The Independent Expert has concluded that the transaction is fair and reasonable to the non-associated Grange shareholders

This document is important and requires your immediate attention

==> picture [143 x 57] intentionally omitted <==

==> picture [426 x 170] intentionally omitted <==

==> picture [22 x 24] intentionally omitted <==

GRANGE RESOURCES LIMITED ACN 009 132 405

Important Notices

Purpose of this Explanatory Memorandum

This document is important. It contains information for Grange Shareholders relating to the Merger. This Explanatory Memorandum provides Grange Shareholders with necessary information to assist them in deciding how to vote on the resolutions to be considered at the Meeting. This Explanatory Memorandum does not take into account the individual investment objectives, financial situation and particular needs of Grange Shareholders or any other person. Accordingly, it should not be relied upon as the sole basis for any decision in relation to the Merger.

You should read this Explanatory Memorandum in its entirety before making a decision as to how to vote at the Meeting.

The frequently asked questions section of this Explanatory Memorandum answers some common questions about the Merger generally. They are not intended to address all issues relevant to Grange Shareholders.

If you have any doubt as to what you should do once you have read this Explanatory Memorandum, you should consult your legal, financial or other professional adviser.

Forward looking statements

Certain statements in this Explanatory Memorandum relate to the future. Those statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or

achievements of the Company to be materially different from future results, performance or achievements expressed or implied by those statements. These statements reflect views only as of the date of this Explanatory Memorandum.

While Grange believes that the expectations reflected in the forward looking statements in this document are reasonable, neither the Company nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this Explanatory Memorandum will actually occur and you are cautioned not to place undue reliance on those forward looking statements.

Notice to persons outside Australia

This Explanatory Memorandum has been prepared in accordance with Australian laws, disclosure requirements and accounting standards. These laws, disclosure requirements and accounting standards may be different to those in other countries.

Disclaimer

No person is authorised to give any information or make any representation in connection with the Merger which is not contained in this Explanatory Memorandum. Any information or representation not contained in this Explanatory Memorandum may not be relied on as having been authorised by Grange or the Directors in connection with the Merger.

==> picture [568 x 261] intentionally omitted <==

Privacy

Grange may collect personal information during the Merger process (including implementing the Merger). Such information may include the names, contact details and shareholding of Grange Shareholders and the names of persons appointed by Grange Shareholders to act as proxy at the Meeting. The primary purpose of the collection of this personal information is to assist Grange to conduct the Meeting. Without this information, Grange may be hindered in its ability to achieve these purposes to full effect.

Personal information of the type described above may be disclosed by Grange to Grange’s Share Registry, print and mail service providers and authorised securities brokers. Grange Shareholders have certain rights to access their personal information that has been collected and should contact the Company Secretary of Grange on +61 8 9321 1118 if they wish to access their personal information.

Explanatory Memorandum, including information as to the intentions of the ABM Shareholders, has been provided by the ABM Shareholders and is the responsibility of the ABM Shareholders. Neither the Company nor its advisers assume any responsibility for the accuracy or completeness of that information.

Lonergan Edwards & Associates has prepared the Independent Expert’s Report in relation to resolutions 1 to 4 (inclusive) and takes responsibility for that report and has consented to the inclusion of that report in this Explanatory Memorandum. Lonergan Edwards & Associates is not responsible for any other information contained within this Explanatory Memorandum.

Shareholders are urged to read the Independent Expert’s Report carefully to understand the scope of the report, the methodology of the assessment, the sources of information and the assumptions made.

ASX involvement

Responsibility for Information

The information concerning the Company contained in this Explanatory Memorandum including information as to the views and recommendations of the Directors has been prepared by the Company and is the responsibility of the Company. None of the ABM Shareholders, their associates or their advisers assume any responsibility for the accuracy or completeness of that information.

Information concerning ABM, the Transaction Entities, the ABM Shareholders and their associates in this

A copy of this Explanatory Memorandum has been lodged with ASX pursuant to the Listing Rules. Neither ASX nor any of its officers takes any responsibility for the contents of this Explanatory Memorandum.

Definitions

Capitalised terms used in this Explanatory Memorandum are defined in the glossary in section 17 of this Explanatory Memorandum.

==> picture [567 x 261] intentionally omitted <==

Highlights of the merger

Strong strategic fit between production and development assets

Immediate cash generation with materially enhanced funding ability

Outstanding opportunity to maximise value for Grange Shareholders

Becomes the largest Australian exporter of high value magnetite products
Combines large resources with long production life and substantial expansion potential
Incorporates substantial installed infrastructure with an estimated replacement value in excess of $1 billion
Absorbs experienced management team with operational expertise in magnetite
Provides proven ABM planning and production model that can be adopted at the Southdown Project
Provides Grange with a positive operating cashflow from 1 July 2008 on a pro forma basis
Provides an enhanced financial platform to develop Southdown, which will better position the Company to deal with the recent financial market turmoil
Incorporates a strategic Chinese shareholder providing access to potential new funding sources
Reduces reliance on equity capital markets which minimises dilution to shareholders
Enhanced scale and market position is expected to attract greater interest from institutional investors
Grange will join the ranks of significant producers targeted by investors
Pure play exposure to current high iron ore prices
Improved risk profile of Grange through diversification

Important Notices....................................................................................................................................................................2	Important Notices....................................................................................................................................................................2
Highlights of the Merger.......................................................................................................................................................4
Letter from Chairman of Grange Resources Limited.....................................................................................................8
How to Vote and Directors’ Recommendations..............................................................................................................9
Frequently asked questions (FAQs)...................................................................................................................................10
1.	Rationale for the Merger.........................................................................................................................................14
2.	Overview of the Merger...........................................................................................................................................24
3.	Overview of ABM.......................................................................................................................................................26
4.	Overview of Grange..................................................................................................................................................38
5.	Key implications and risks of the Merger............................................................................................................44
6.	Financial Information.................................................................................................................................................50
7.	Impact on Grange’s capital structure and level of control.............................................................................66
8.	Directors and management.....................................................................................................................................70
9.	Corporate Governance..............................................................................................................................................74
10.	Intentions of the ABM Shareholders ...................................................................................................... 76
11.	Independent Expert’s Report.................................................................................................................................78
12.	Directors’ Recommendations..................................................................................................................................80
13.	Background to resolutions 1 to 4 (inclusive).......................................................................................................82
14.	Information relating to parties to the Merger...................................................................................................84
15.	Additional information relating to resolutions 1 to 4 (inclusive)...................................................................88
16.	Resolution 5 – Remuneration of Directors..........................................................................................................94
17.	Glossary........................................................................................................................................................................96
Schedule 1 – Summary of the Share Sale Agreement...............................................................................................101
Schedule 2 – Summary of the Merger Implementation Agreement......................................................................105
Schedule 3 – Associates of ABM Shareholders............................................................................................................108
Annexure A – Independent Expert’s Report................................................................................................................110

Letter from Chairman of Grange Resources Limited

Dear Shareholder

I am pleased to enclose an Explanatory Memorandum containing information regarding the merger between Grange Resources Limited (Grange or the Company) and Australian Bulk Minerals (ABM).

ABM owns the Savage River iron ore pellet project in Tasmania which currently produces 2.3 million tonnes of iron ore pellets per annum from its integrated magnetite mine and pellet processing plant.

Savage River offers Grange immediate exposure to current high iron ore prices, strong cash flows and a mine life that extends to at least 2023. The Merger will also give Grange access to the extensive knowledge and expertise in production and project development that is present at Savage River and will provide us with an enhanced financial platform to accelerate the development of our primary project, Southdown at a time when accessing capital from financial markets is extremely difficult.

On completion of the Merger, Grange will be catapulted into the top ranks of the mid tier resources companies listed on the ASX. Existing shareholders of Grange will hold 23.3% of Grange on an undiluted basis with the ABM Shareholders receiving 76.7%. The Company will continue to be known as Grange Resources and Russell Clark will remain as Managing Director and Chief Executive Officer.

A transaction of this importance requires your approval at a general meeting of shareholders which will be held on 12 December 2008 at QV1 Conference Centre (Theatrette), Level 2 QV1, 250 St Georges Terrace, Perth.

Your Directors unanimously recommend that you vote to approve the Merger and will vote their personal holdings in favour of the Merger, subject to there being no superior proposal.

The Independent Expert, Lonergan Edwards & Associates, has concluded that the Merger is fair and reasonable to Grange Shareholders not associated with the ABM Shareholders.

This Explanatory Memorandum sets out in detail the rationale for the Merger and the benefits for you as a Grange Shareholder. It also includes the report from the Independent Expert, Lonergan Edwards & Associates setting out the reasons for their “fair and reasonable” conclusion.

I encourage you to read the details of the Merger as outlined in this Explanatory Memorandum and to vote on the Merger either in person at the Meeting or by returning the enclosed proxy form by 10.00am WDT on Wednesday, 10 December 2008 (being 48 hours before the Meeting). If you require any assistance in completing or lodging your proxy form, please feel free to contact our Company Secretary by telephone on +61 8 9321 1118 or by email at [email protected].

I would like to take this opportunity to thank you for your continued support of Grange as the Company enters into a new and exciting phase of growth as Australia’s leading magnetite iron ore pellet producer.

Yours faithfully

==> picture [144 x 54] intentionally omitted <==

Anthony Bohnenn Chairman

How to Vote

Vote in person

Attend the Meeting on the date and at the place set out above.

Vote by proxy

If you are not able to attend the Meeting, please complete and sign the proxy form enclosed with the Notice of General Meeting as soon as possible.
To complete the proxy form, record your vote on the proxy form in relation to the resolutions to be considered at the Meeting as follows:
if you wish to approve the resolution, place a cross (X) in the space provided under the word ‘FOR’.
if you do not wish to approve the resolution, place a cross (X) in the space provided [under] the word ‘AGAINST’.
if you do not wish to vote in respect of the resolution, place a cross (X) in the space provided [under] the word ‘ABSTAIN’.
Once you have completed and signed the proxy form, then either:
post the proxy form to Computershare Investor Services Pty Ltd, the Company’s share registry, at GPO Box 242, Melbourne, VIC 3001; or
fax the proxy form to Computershare Investor Services Pty Ltd, on facsimile number 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia),

so that it is received by Computershare Investor Services Pty Ltd, before 10.00am (WDT) or 2.00am (Central European time) on Wednesday, 10 December 2008.

PRoxY foRMS RECEIvED LATER ThAn ThIS TIME wILL BE InvALID.

Vote by corporate representative or power of attorney

If you are a corporate Grange Shareholder and wish to appoint a representative to attend the Meeting, you should ensure that your representative can provide appropriate evidence of his or her appointment.
You may appoint another person, by power of attorney, to attend the meeting and vote on your behalf. You will need to provide appropriate evidence of that power of attorney.

If you are an overseas Shareholder and hold your Shares through a broker or nominee holder

Further information on how to vote is set out in the Notice of General Meeting.

You should contact your broker or nominee holder as soon as possible to instruct them how to vote on your behalf.

Independent Expert’s Opinion

The Independent Expert, Lonergan Edwards & Associates has provided an opinion that the Merger is fair and reasonable to Grange Shareholders not associated with the ABM Shareholders.

Directors Recommendation

The Directors of Grange unanimously recommend that you vote to approve the Merger and will vote the Shares that they hold or control in the Company in favour of the Merger in the absence of a superior proposal. As at the date of this Explanatory Memorandum, the Directors are not aware of any superior proposal.

Frequently asked questions (FAQs)

Why did I receive this document?

This document contains information relating to the proposed merger between Grange and ABM.

A transaction of this importance requires your approval at a general meeting of shareholders before it can be implemented.

The Merger will be considered at a meeting of Grange Shareholders on 12 December 2008.

The information set out in this document will assist you, as a Grange Shareholder, to decide how you wish to vote on the Merger.

Who is ABM and what does it do?

ABM operates a magnetite iron ore mine and produces iron ore pellets and concentrate at its 100% owned integrated Savage River and Port Latta facilities – collectively known as the Savage River Project – in Tasmania, Australia. The Savage River Project is Australia’s largest operating magnetite pellet project. Further details of the Savage River Project are set out in section 3 of this Explanatory Memorandum.

What is the Merger?

The Merger is between Grange and ABM.

The Merger will be effected through Grange acquiring 100% of the holding companies of ABM in exchange for the issue of approximately 380 million shares in the issued capital of Grange (Consideration Shares).

Further information on the Merger is set out in section 2 of this Explanatory Memorandum.

Why should I vote to approve the Merger?

If implemented, the Merger has the following benefits for Shareholders:

Grange will become Australia’s largest exporter of high value magnetite products;
Grange will have a large resource base with long production life and substantial expansion potential;
Grange will own substantial installed infrastructure with an estimated replacement value in excess of A$1 billion;
Grange will have an experienced management team with developmental and operational expertise in magnetite;
Grange will be able to apply ABM’s proven planning and production model at the Southdown Project;
Grange will have a positive operating cashflow from 1 July 2008 on a pro forma basis;
Grange will have an enhanced financial platform to develop the Southdown Project and will be better placed to deal with recent financial market turmoil;
Grange will have strategic Chinese shareholders providing access to new funding sources;
Grange will have less reliance on equity capital markets for the development of the Southdown Project which is expected to minimise dilution to Shareholders;
Grange’s enhanced scale and market position is expected to attract greater interest from institutional investors;
Grange will be transformed into a pure play magnetite producer with exposure to current high iron ore prices; and
Grange will have an improved risk profile through diversification.

Please see section 1 for further details on the benefits of the Merger.

How does the Grange Board recommend that I vote?

The Grange Board unanimously recommends that Grange Shareholders vote to approve the Merger in the absence of a superior proposal.

Each Grange Director will vote in favour of the Merger in respect of the Shares they hold or control, subject to there being no superior proposal.

As at the date of this Explanatory Memorandum, the Directors are not aware of any superior proposal.

What is the opinion of the Independent Expert?

The terms and conditions of the Merger have been reviewed by an Independent Expert, Lonergan Edwards & Associates.

Lonergan Edwards & Associates has concluded that the Merger is fair and reasonable to Grange Shareholders not associated with the ABM Shareholders.

Lonergan Edwards & Associates has also reviewed the terms of ABM’s existing off-take agreements with companies associated with Shagang.

Lonergan Edwards & Associates has concluded that, as it is a requirement for the Merger to proceed, agreement to the continued performance of these off-take agreements is fair and reasonable to Grange Shareholders not associated with the ABM Shareholders.

Lonergan Edwards & Associates’ report is set out in Annexure A of this Explanatory Memorandum.

If the Merger is approved what will happen?

If the majority of Shareholders approve resolutions 1 to 4 (inclusive) and all other conditions of the Merger are either satisfied or waived by agreement, Grange will acquire ABM, transforming Grange into Australia’s leading magnetite producer, and the Consideration Shares will be allotted and issued to the ABM Shareholders.

The ABM Shareholders will acquire an interest of approximately 76.7% of the undiluted issued share capital in Grange and the existing Shareholders will retain 23.3%

When will the Merger take place?

The Directors anticipate that the Merger will be completed before the end of December 2008. The Merger is subject to a number of conditions. These include approval by Shareholders at the Meeting, Foreign Investment Review Board approval and approvals from relevant Chinese authorities.

Given the nature of the conditions, it is not possible to precisely state the proposed date for completion of the Merger.

Please refer to Schedule 1 of this Explanatory Memorandum for further details of the conditions of the Merger.

How will the structure of the Company’s ownership change?

The number of Shares held by existing Grange Shareholders will not change, however, by issuing additional Shares to the ABM Shareholders, the total of Grange’s issued Shares will increase from approximately 115 million Shares to approximately 495 million Shares.

The existing Grange Shareholders will hold 23.3% of the undiluted issued share capital of Grange. The ABM Shareholders will hold the balance of 76.7% of the undiluted issued capital of Grange.

Please see section 7 for further details on capital structure of Grange if the Merger proceeds.

What does this dilution mean to me?

If the Merger proceeds there will be more Shares on issue and therefore your overall percentage holding in Grange will be reduced. However, Grange will be much larger and you will own a smaller percentage of a far more significant company.

The value of your Shares will be determined by the price that Grange Shares trade at on the ASX.

Will anything happen to my Shares? Will I still be able to sell them on the ASX after the Merger?

Nothing will happen to your Shares. You will continue to own the same number of Shares.

Grange will remain listed on the ASX and you can continue to trade your Shares as you normally would.

Frequently asked questions (FAQs) continued

Who will sit on the Grange Board post completion of the Merger?

If the Merger proceeds, the Board of Directors of Grange will change to reflect the new shareholder ownership of the Company following the Merger. The new Grange Board will comprise 8 members.

Russell Clark will remain on the Board as Managing Director and Chief Executive Officer. Anthony Bohnenn, Grange’s current Chairman, will also remain on the Board as a Non-executive Director.

New Board members will include Dave Sandy, current Managing Director of ABM, Clement Ko, President of Pacific Minerals and Bin Shen and Feng Gao as representatives of Shagang.

Two new independent Non-executive Directors will also be appointed to the Board.

The Chairman of the Board will be determined from the director group.

Further information on composition of the Board is set out in sections 8 and 9 of this Explanatory Memorandum.

Who will manage Grange post Merger?

If the Merger proceeds, the management team of Grange will comprise a combination of Grange and ABM’s current senior management teams.

Russell Clark will continue as the Managing Director and Chief Executive Officer.

The combined management team will be stronger, with over 131 years of combined mining experience, including experience in the production, processing and marketing of magnetite iron ore pellets and concentrate.

Further information on management is set out in section 8.4 of this Explanatory Memorandum.

What will Grange’s asset portfolio look like if the Merger proceeds?

If the Merger proceeds, Grange’s assets will include 100% of the Savage River Project which has substantial plant, equipment and infrastructure with an estimated replacement value of greater than A$1 billion. Grange will also acquire ABM’s forward sales contracts with major customers including Shagang and Bluescope Steel.

The ABM assets will be added to Grange’s existing 70% of the Southdown joint venture with Sojitz, and its 51% holding in the Bukit Ibam magnetite project in Malaysia.

Will the Company still be named Grange after the Merger is completed?

Yes, the Company name will continue to be Grange Resources Limited.

Where will the Company be headquartered post completion of the Merger?

Grange will remain headquartered in Perth, Western Australia with a regional office in Burnie, Tasmania.

What am I being asked to vote on?

Shareholders are being asked to vote on five separate resolutions, in relation to the Merger:

1) The proposed issue of Consideration Shares to the Ever Green Sellers (Shagang, PI and RH) who collectively own 100% of Ever Green which owns 90% of SMAPL, the holding company of ABM;
2) The proposed issue of Consideration Shares to Stemcor who currently owns 10% of SMAPL, the holding company of ABM;
3) The approval of existing off-take agreements between ABM and Jiangsu Shagang International Trading Co. Ltd and between ABM and Evergain International Corporation, on and from completion of the Merger;
4) The approval of a change in the scale of activities of the Company; and
5) Due to the expansion of the Board to eight Directors, the approval of an increase in maximum aggregate remuneration payable by the Company to the Directors (as a whole) for their non-executive services.

Further information on resolutions 1 to 5 (inclusive) is set out in sections 13 to 16 of this Explanatory Memorandum.

Why is my approval required?

You are a Shareholder and given the nature and size of the Merger, approval of the Shareholders is required under the Corporations Act and the ASX Listing Rules.

When and where will the Meeting be held?

The Meeting will take place on 12 December 2008 at 10am WDT at QV1 Conference Centre (Theatrette), Level 2 QV1, 250 St Georges Terrace, Perth.

See section 3 for more details on ABM and section 4 for more details on the assets of Grange.

Who can vote?

In accordance with the Corporations Regulations 2001 (Cth), the Board has determined that the Shareholders entitled to attend and vote at the Meeting shall be those persons who are recorded in Grange’s register of members at 5.00pm WDT on 10 December 2008.

In accordance with the Listing Rules and the Corporations Act, each of the resolutions to be put to the Meeting in relation to the Merger has a voting exclusion statement. These voting exclusion statements are set out in this Explanatory Memorandum and require the Company to exclude the votes of certain persons.

What will happen if Shareholders do not approve the resolutions relating to the Merger?

The Merger is conditional on (amongst other things) each of resolutions 1 to 4 (inclusive) being approved. Accordingly, if any of resolutions 1 to 4 (inclusive) are not approved, the Merger will not proceed and Grange will continue to operate as a standalone entity and Grange Shareholders will not receive any of the benefits of the Merger.

Further information on what will happen if Shareholders do not approve the resolutions relating to the Merger is set out in section 5 of this Explanatory Memorandum.

What are the voting approval thresholds?

Further Questions

All of the resolutions being put to Shareholders are ordinary resolutions, requiring simple majority approval (approval of Shareholders holding at least 50% of the Shares and who are eligible to vote on the resolutions and who actually vote).

If you have any questions regarding the Merger after having read this Explanatory Memorandum and the Independent Expert’s Report, please contact the Company Secretary of Grange by telephone on +61 8 9321 1118 or by email at [email protected] or contact your financial or other professional adviser.

Is voting compulsory?

Voting is not compulsory, though your vote is important. If you cannot attend the Meeting to be held on 12 December 2008, you are strongly encouraged to complete and return the proxy form that is enclosed with this document.

If you are an overseas shareholder and hold your Shares through a broker or nominee holder, you should contact them as soon as possible to instruct them to vote on your behalf.

If you require any assistance in completing or lodging your proxy, please feel free to contact our Company Secretary by telephone on +61 8 9321 1118 or by email at [email protected] or contact your financial or other professional advisor.

==> picture [305 x 27] intentionally omitted <==

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

1. Rationale for the Merger
----- End of picture text -----

ABM is currently Australia’s largest exporter of high value blast furnace grade pellets and concentrate.

1.1 Strong strategic fit between production and development assets

(a) Becomes the largest Australian exporter of high value magnetite products

ABM is currently Australia’s largest exporter of high value blast furnace grade pellets and concentrate. Pellets are a premium iron ore product, which are used by many steel manufacturers which attract a premium price over lump and fines.

Whilst making up a large proportion of global iron ore production, magnetite production currently comprises a relatively small proportion of the Australian iron ore industry, with ABM being the only current Australian exporter of significant volumes of magnetite pellets. There are a number of magnetite projects being developed in Australia, particularly in the Western Australian Mid-West region, but none of those are currently producing.

Most Australian iron ore exports are hematite ores, otherwise referred to as “direct shipping ore” or DSO. They typically require no further beneficiation after being extracted from the ground before being ready for use in the blast furnace steel making process.

Magnetite has a lower grade and requires beneficiation. However, once concentrated and converted into pellets it has a much higher value per tonne than hematite.

During the 2008 international iron ore price contract negotiations, Vale benchmark blast furnace pellets achieved a premium of 48% over the Brockman benchmark fines. Pellets also received a higher increase on the previous contract price than fines (86.7% versus 79.9%) due to the significant supply constraints of the current pellet market.

==> picture [206 x 17] intentionally omitted <==

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

2007 JFY 2008 JFY
----- End of picture text -----

	Pilbara/Brockman fnes (USc/mtu)	80.4	144.7
	Vale BFpellets (USc/mtu) Pelletpremium to fnes	114.4 42%	213.6 48%

Higher grade Direct Reduction (DR) grade pellets (which the Southdown Project is expected to commence producing from 2012/2013) attract approximately 10% additional premium to BF pellets.

It is expected that the increasing availability of magnetite ores in Australia and elsewhere and the falling quality of hematite ore grades will lead to a long-term shift from hematite ores towards pellets.

The Merger with ABM will make Grange the leading Australian exporter of this premium product to seaborne customers in South East Asia.

==> picture [472 x 145] intentionally omitted <==

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

Pilbara Fines
Vale BF Pellet
250
200
150
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
USc/mtu
----- End of picture text -----

The combination of Grange and ABM is also expected to create the largest magnetite iron ore company listed on the ASX by equity market capitalisation. Set out below is the market capitalisation of existing ASX listed iron ore companies (including the indicative equity market value of Grange post Merger), which have a significant component of their iron ore resource base in magnetite iron ore.

==> picture [235 x 268] intentionally omitted <==

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

$300
$250
$200
$150
$100
$50
0
2
post mergerGrange atlas Gindalbie australasian resources Sphere Grange
Market caPitaliSation (a$M)1
----- End of picture text -----

Source: IRESS[3]

Notes:

Based on closing prices as at 30 October 2008. Given current market volatility the market capitalisations of the companies included in this chart could change significantly between the date of this Explanatory Memorandum and the date of the Meeting.
Grange post Merger market capitalisation calculated as total shares outstanding post Merger (undiluted) multiplied by the closing price for Grange as at 30 October 2008.
IRESS has not consented to the inclusion of the trading data in this Explanatory Memorandum.
(b) Combines large resources with long production life and substantial expansion potential

Currently, Grange has magnetite iron ore Mineral Resources of 336.0 Mt and Ore Reserves of 271.6 Mt through its 70% stake in the Southdown Project and 51% stake in the Bukit Ibam Project. ABM has Mineral Resources of 323.2 Mt and Ore Reserves of 131.0 Mt at its Savage River operation in Tasmania. The Merger will materially increase Grange’s Mineral Resources and Ore Reserves to 659.0 Mt and 402.6 Mt respectively, which are expected to support a combined mine life of over 20 years.

Please refer to sections 3 and 4 for details of the Mineral Resources and Ore Reserves of both ABM and Grange.

In addition to the combined JORC compliant Mineral Resources and Ore Reserves outlined above, Grange will also continue to explore its tenements and further drilling and test work which is currently underway may lead to increases to Ore Reserves and Mineral Resources.

Grange recently acquired Exploration Licence 70/2512 from Rio Tinto which covers the eastern extension of the Southdown magnetite deposit (30% of which Grange has agreed to sell to Grange’s joint venture partner Sojitz). This extension is expected to supply ore for magnetite concentrate and pellet production in addition to the initial 20 to 25 years of production from the western end of the deposit. Further resource drilling at the eastern extension is underway, where previous drilling undertaken has shown that the quality of the magnetite is comparable to that in the western portion of the deposit.

ABM’s Long Plains deposit close to Savage River also offers exploration upside.

Grange is currently working towards bringing the Southdown Project into operation, with plans to commence production in 2012/2013 at a rate of 6.8 Mtpa of pellets (or 4.8 Mtpa based on Grange’s ownership level of 70%). ABM’s Savage River operation currently produces 2.3 Mtpa of blast furnace pellets. ABM is also currently examining an expansion of Savage River operations to 2.9 Mtpa of pellets. Capital expenditure for this expansion would primarily be in the concentrator as the pipeline to and the facilities at Port Latta were originally constructed to allow for the higher capacity.

The chart below shows the 2013 targeted production level for the Company post Merger.

==> picture [226 x 245] intentionally omitted <==

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

8
6
4
2
0
2.30 0.60 4.76 7.71
current aBM aBM capacity Development 2013 target
Production expansion of Southdown Production
(under study) (70%)
PelletS (Mt)
----- End of picture text -----

The Savage River Project comprises several open pit mines, a concentrator, an 83 km slurry pipeline, a pellet plant and bulk ship loading facilities at Port Latta, in addition to other associated infrastructure.

Since the Savage River Project was acquired by the ABM Shareholders in August 2007, A$106 million has been spent on project improvements including a new loading and hauling fleet and an in-pit maintenance facility. The capital improvement program has ensured that the project’s infrastructure is maintained in good condition. The replacement value of the Savage River infrastructure has been recently estimated by Grange’s technical consultants, ProMet Engineers, to be greater than A$1 billion.

The Merger allows Grange Shareholders to benefit from the significant work and investment that has gone into the Savage River Project.

==> picture [567 x 306] intentionally omitted <==

(d) Absorbs experienced management team with operational expertise in magnetite

Development and hands on operational experience in magnetite iron ore is rare in Australia, given the small number of operating projects that exist. Through the operation of Savage River, ABM’s management has gained considerable expertise in the mining, beneficiation, pelletising and handling of magnetite pellets. ABM’s management has a combined 131 years of experience in development and production. The Merger will combine the significant technical, industrial, commercial, developmental and operational knowledge of the management of Grange and ABM. This knowledge and experience will be applied to the continued optimisation of the ABM assets and the successful development of the Southdown Project.

(e) Provides proven ABM planning and production model that can be adopted at the Southdown Project.

It is envisioned that the Southdown Project’s production model will be very similar to that of the Savage River Project – mined by open pit methods with the mineralisation being processed on site to produce a magnetite concentrate. Like the Savage River Project, the magnetite concentrate will be pumped via a slurry pipeline to a filtration plant and storage facility at a port. From there, it will be loaded onto vessels and shipped to a pellet plant located at Kemaman, Malaysia or an alternative location if considered more suitable following the Merger. The vast experience of the combined management team with this style of mineralisation and production process is expected to greatly enhance the development and operation of the Southdown Project.

1.2 Immediate cash generation with materially enhanced funding ability

(a) Grange will have a positive operating cashflow from 1 July 2008 on a pro forma basis.

If the Merger is approved, Shareholders will gain exposure to the strong cash flows that the Savage River Project will generate from 1 July 2008, the effective date of the Merger for economic purposes.

EBITDA for Grange post-Merger on a pro-forma basis for the six months ending 31 December 2008 is expected to be approximately A$96 million. In the absence of the Merger, Grange is not expected to generate a positive cashflow until after production commences at the Southdown Project.

(b) Enhanced financial platform to develop the Southdown Project will better position the Company to deal with the recent financial market turmoil.

The Savage River Project is expected to substantially improve Grange’s debt carrying capacity given the project’s long anticipated life, strong cashflow and the diversification benefits of having multiple mines.

In addition, the free cashflow expected to be generated by ABM by 2012 can be applied towards meeting Grange’s share of the equity (i.e. non-debt) component of the US$1.6 billion (A$2.3 billion based on the USD/AUD exchange rate of 0.686 as at 30 October 2008) of capital required to develop the Southdown Project.

In the current financial climate, several companies with large capital requirements have been facing difficulty in raising capital or could only do so at very unattractive terms. The Merger with ABM will materially reduce Grange’s reliance on public equity and debt markets.

Recent turmoil in world financial markets has seen iron ore stocks on the ASX trade down 70% over the past 6 month period and Grange has experienced a similar trend to its peers falling 68%, albeit on low volumes (average 0.56 million shares traded per week).

The charts below show the performance of Grange’s Share price against other iron ore companies listed on the ASX for the six months from 1 May 2008 to 30 October 2008.

SHARE PRICE PERFORMANCE OF ASX LISTED IRON ORE COMPANIES

(6 MontHS to 30 octoBer 2008).

==> picture [233 x 190] intentionally omitted <==

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

average (excl. BHP Billiton and rio tinto)
Grange resources
160%
140%
120%
100%
80%
60%
40%
20%
0%
May Jun Jul aug Sep oct
08 08 08 08 08 08
USc/mtu
----- End of picture text -----

==> picture [235 x 334] intentionally omitted <==

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

(100%) (80%) (60%) (40%) (20%)
Mount Gibson iron (86%)
Murchison Metals (81%)
australasian resources (80%)
Ferraus (78%)
Bc iron (78%)
Strike resources (77%)
atlas iron (76%)
Brockman resources (75%)
aurox (71%)
territory resources (70%)
Sphere (69%)
Golden West (68%)
Grange resources (68%)
red Hill iron (67%)
iron ore Holdings (66%)
Fortescue Metals (60%)
Gindalbie Metals (57%)
United Minerals (54%)
Sundance (53%)
rio tinto (43%)
BHP Billiton (33%)
0
----- End of picture text -----

Source: Bloomberg[3]

Note:

Based on closing prices as at 30 October 2008
Given current market volatility, the share price performance of the ASX listed iron companies included in the charts above may change significantly between the date of the Explanatory Memorandum and the date of the Meeting
Bloomberg has not consented to the inclusion of this trading data in this Explanatory Memorandum

(c) Strategic Chinese shareholder providing access to potential new funding sources

Shagang is a wholly owned subsidiary of JSG, China’s third largest steel producer and largest private steel producer in 2007. Shagang currently holds 68% of Ever Green shares on issue. If the Merger is approved Shagang will hold a 47.2% stake in Grange (on an undiluted basis and including Shares currently held by Ever Lucky). JSG is a well capitalised company with a profit before tax of approximately RMB 9.7 billion in 2007. In addition to the Shagang Off-take Agreements described in Section 3.9, Grange has granted Shagang a right to negotiate in good faith for 80% of Grange’s share of the Southdown Project’s off-take for a fair market price. Therefore, Shagang has a strong vested interest in the successful development of the Southdown Project. Having a large and well funded shareholder and partner, who is also a leader in its market, is expected to assist Grange in raising capital.

Shagang may provide access to competitive development funding sourced from its existing network throughout Asia. Shagang may also be able to provide access to Chinese and European manufactured equipment which could accelerate the Southdown Project’s development and reduce its capital requirements and cost.

(d) Less reliance on equity capital markets minimising dilution to shareholders

The Merger will involve approximately 380 million Grange Shares being issued to ABM Shareholders, resulting in existing Grange Shareholders owning 23.3% and ABM Shareholders receiving 76.7% of the Grange Shares on an undiluted basis.

While the Merger dilutes existing Shareholders’ ownership of the Southdown Project, it has the benefit of reducing the requirement to source external capital to fund development of the Southdown Project.

In addition to assisting Grange in accessing capital from traditional markets, Shagang may be able to help Grange access capital from other sources. Such sources may include Chinese financial institutions who, given the current weakness in Western capital markets, may open up and be able to provide more attractive funding opportunities for Grange.

==> picture [568 x 306] intentionally omitted <==

The capital cost of the Southdown Project is currently estimated at approximately US$1.6 billion (A$2.3 billion based on the USD/AUD exchange rate of 0.686 as at 30 October 2008). Under the current Sojitz Joint Venture Agreement, Grange is responsible for funding 70% of the capital requirement (A$1.6 billion) and Sojitz the remaining 30% (A$0.7 billion) through a combination of debt (at the project level) and equity contributions by Grange and Sojitz in their respective shares.

The Grange Directors believe that in the current environment raising debt or equity to develop the Southdown Project would be extremely difficult and there are no guarantees that it could be sourced on favourable terms, if at all.

Even if debt could be obtained in the current market, a significant amount of the total funding would still need to be raised through equity contributions by the joint venture partners. This would require Grange to issue a substantial amount of new equity which would be extremely difficult given the size of the raising relative to Grange’s current market capitalisation of $62 million and would result in significant dilution to existing Shareholders.

1.3 Outstanding opportunity to maximise value for Grange Shareholders

(a) Grange will join the ranks of significant producers targeted by investors

The Merger will transform Grange into Australia’s leading pure play magnetite iron ore companies and the largest pellet producer in Australia. This enhanced market position provides a unique iron ore exposure to Shareholders. Grange’s status as a significant iron ore producer is also expected to attract a greater level of interest from potential investors and industry analysts, due to increased certainty of near term cashflows and decreased funding risk for the Southdown Project’s development.

The chart set out below shows the 2008 expected production and potential additional production for the ASX listed iron ore producers (excluding BHP Billiton and Rio Tinto).

==> picture [235 x 301] intentionally omitted <==

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

25
138.0
22.0
20
15
11.5
12.0
10
5.0
4.8
5
5.0
0.6
2.3
1.0
0
Fortescue Mount Grange Murchison atlas [2]
Gibson post Merger
2008 expected production
Future potential additional production
1
Production (Mt)
----- End of picture text -----

Source: Company reports

Excludes Midwest Corporation Limited and Portman Limited due to pending takeovers
Atlas commenced production in November 2008, but has not released a production forecast for 2008

(b) Pure-play exposure to current high iron ore prices

As a result of the Merger, Grange will be one of the few mid-cap pure play iron ore companies listed on the ASX which is in production and generating cash and therefore benefiting from current high iron ore prices. This provides an attractive investment opportunity for investors seeking an exposure to the current high iron ore prices. This attractive investment case may facilitate increased liquidity in the market for Grange Shares.

The chart below sets out the price settlements and annual changes for iron ore pellets.

==> picture [235 x 286] intentionally omitted <==

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

250
86.7%
200
150
92.6% (3.0%) 5.3%
100
19.0%
50
0
2003 2004 2005 2006 2007 2008
1. Vale (CVRD) BF pellet price for Japan/Asia shipments
BF Pellets (USc/dmtu)1
----- End of picture text -----

(c) Improves the risk profile of Grange through diversification

The Merger presents a valuable opportunity to reduce the risk associated with your investment in Grange given that post-Merger Shareholders will be exposed to multiple iron ore assets, including one already in production.

Grange’s current investment in the Southdown Project provides opportunities for Shareholders but it also presents risks.

Whilst many commentators still have a bullish medium term outlook for iron ore, short term demand has softened resulting in the spot price for iron ore shipments falling below the contracted price. The ability for companies such as Grange to raise the significant funds required to develop their projects, has become particularly challenging.

The Merger mitigates some of these risks as it provides Grange with:

diversification into a producing asset with strong cashflow;
better access to alternative funding sources, particularly from China; and
a committed off-take agreement for existing production with a strategic Shareholder in the Company.

As a result of the Merger, Grange will become a producer of iron ore pellets with a strong partner and a more secure financial position. The entire infrastructure at Savage River is already built (with a replacement value exceeding A$1 billion) and it is currently producing iron ore pellets, making sales against firm contracts and generating profits. This can be contrasted with the Southdown Project where the infrastructure is yet to be built and financed, carrying the incumbent risks and costs associated with development and construction. In addition, Grange is not expected to generate a positive cashflow until after production commences at the Southdown Project, whereas through the Merger, Grange will benefit from Savage River’s cashflow and profit from 1 July 2008.

If the Merger is not approved, the Grange Directors believe that the process of building an equivalent portfolio of mining assets of similar size and quality would take a number of years and the development of the Southdown Project would be considerably more uncertain and difficult.

Grange Shareholders will benefit from the Merger through an improved risk profile, access to immediate cashflows and enhanced capability for growth and value creation.

(d) Enhanced scale and market position is expected to attract greater interest from institutional investors

The Grange Directors believe that the increased scale, incorporation of a cashflow generating operation and combination of quality assets achieved through the Merger will enhance the strategic position and capability of the Company. The Grange Directors believe that this will assist the Company’s plan to successfully develop the Southdown Project and position Grange as a leading Australian iron ore mining company.

Additionally, the increased market capitalisation and operational scope of Grange, could attract a greater level of interest from potential investors and research analysts, providing Grange with a higher profile in the financial markets. A higher profile and increased investor and analyst coverage may lead to Grange’s Shares becoming more actively traded.

On completion of the Merger, Grange is expected to be the fourth largest pure play iron ore company in Australia. Set out below is the market capitalisation of selected ASX listed pure play iron ore companies.

A greater level of interest from investors and a strengthened balance sheet position are likely to improve Grange’s potential to raise debt finance on more attractive terms and additional equity (if required). The Directors believe that Grange should be in an improved position to accelerate the Southdown development and to take advantage of other potential growth opportunities to enhance Shareholder value.

Grange Shareholders will benefit from the Merger through an improved risk profile, access to immediate cashflows and enhanced capability for growth and value creation

==> picture [377 x 236] intentionally omitted <==

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

900
800
700
600
500
400
300
200
100
FortescueMurchisonMount GibsonGrange post merger atlasGindalbieaustralasian resourcesSundance SphereUnited Mineralsred Hill ironBrockmanGolden Westterritory StrikeGrangeFerrausiron ore Holdingsaurox Bc iron
Market capitalisation (a$m)1
0
----- End of picture text -----

Source: IRESS[3]

Notes:

Based on closing prices as at 30 October 2008. Given current market volatility the market capitalisations of the companies included in the chart above could change significantly between the date of this Explanatory Memorandum and the date of the Meeting.
Excludes Midwest Corporation Limited and Portman Limited due to pending takeovers
IRESS has not consented to the inclusion of this trading data in this Explanatory Memorandum

2. Overview of The Merger

The Merger involves the acquisition by Grange of ABM through the issue of approximately 380 million Shares to the ABM Shareholders. The diagram below sets out the proposed transaction structure.

If the Merger is approved Grange will effectively acquire all the equity interest in ABM and 100% of the Savage River Project. The diagram below sets out the structure of Grange post Merger on an undiluted basis.

==> picture [499 x 540] intentionally omitted <==

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

100% ever Green shares
Ever Green Existing
342m Grange shares Shareholders Grange ShareholdersNew Grange
Shareholders
100.0%
10% 23.3% 76.7%
aBM
shares
Stemcor Ever Green
38m
Grange
Grange
shares
10.0% 90.0%
51.0% 70.0% 100.0% 10.0%
Grange ABM
Bukit Ibam Southdown Ever Green
51.0% 70.0% 100.0% Project
90.0%
Bukit Ibam Southdown Savage River
Project Project
ABM
100.0%
Savage River
----- End of picture text -----

3. Overview of ABM

ABM’s key asset is its 100% owned Savage River Project.

3.1 Overview of ABM

ABM’s key asset is its 100% owned Savage River Project.

ABM also owns 100% of the Long Plains magnetite deposit, which is an exploration tenement located 10km south of Savage River.

3.2 Overview of the Savage River Project

The Savage River iron ore mine in northwest Tasmania has been in operation for almost 40 years. The mine is an open cut operation which produces an iron ore concentrate by means of magnetic separation. The concentrate is pumped through an 83 km pipeline to Port Latta on the north-west coast where the majority of it is pelletised and exported to consumers in Asia and other parts of Australia. A relatively small quantity of magnetite concentrate is sold for use in the Australian coal mining industry.

3.3 Location, Description and Geology

The Savage River mine and concentrator are located approximately 100 km south west of Burnie, Tasmania. The pelletising plant and dedicated port facilities at Port Latta are located 70 km northwest of Burnie, Tasmania (Figure 1).

Local topography surrounding the mine is rugged, with incised valleys and steep hills. The west flowing Savage River dissects the deposit. Regional vegetation includes undisturbed rain forest with the mine area comprising wet eucalypt, acacia and open heath land. Climate is wet temperate with an average annual rainfall of 1,950 mm and mean monthly temperatures ranging from 3-19ºC.

The Savage River magnetite deposit lies within and near the eastern margin of the Proterozoic Arthur Metamorphic Complex in north-western Tasmania.

==> picture [332 x 342] intentionally omitted <==

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

Bass Strait AUSTRALIA
TASMANIA
PORT LATTA
SAVAGE RIVER MINE
N
0 500km
----- End of picture text -----

Figure 1: Savage River Project Location

==> picture [550 x 612] intentionally omitted <==

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

Northwest
Dump
Broderick
Creek North
Dump Pit
South
Lens
North
Centre Dump
Pit
North
Old
Tailings
Dam
Mill Area
Centre
Pit
South ‘A’
Dump
Emergency
Tailings
Dam
South Main Creek Tailings Dam
West ‘B’
Dump Dump
South
Dump
South
Deposit
----- End of picture text -----

The magnetite deposits at Savage River represent the largest of a series of discontinuous lenses that extend in a narrow belt for some 25 km south of the Savage River township. The deposit is subdivided into sections on the basis of areas that have been mined. The areas are referred to as North Pit, South Lens, Centre Pit North, Centre Pit South, Centre Pit Southern Extension and South Deposit (Figure 2).

3.4 Project Assets

(a) Mining and Exploration Leases

ABM operates under the conditions of Mining Lease 2M/2001 (Mining Lease) which is valid for 30 years from 2001 unless surrendered. Located on the Mining Lease are the Savage River mine, concentrator and the pelletising plant, shiploading facilities located at Port Latta. The Mining Lease encompasses a total of 4975 hectares. Mining Lease 14M/2007 was granted in May 2008 and extends the coverage of the Mining Lease to allow additional areas for rock dumps, and to include the Savage River townsite.

In late 2005, ABM was granted Exploration Lease EL19/2005 over the northern portion of the Long Plains Deposit, located approximately 19 km south of Savage River. Exploration Lease EL462007 was granted in November 2007 and covers the remainder of the Long Plains deposit which is along strike to the north to adjoin the Mining Lease. Exploration Lease EL30/2003 is immediately adjacent to the Long Plains deposit and was transferred to ABM in February 2008 covering potential mining infrastructure sites and haulage routes.

The Figure adjacent shows the location of each lease.

(b) facilities

The ore processing facilities comprise a crusher and magnetite concentrator at Savage River, and a pellet plant and bulk shiploading facility located approximately 80 km north of the mine site on the north-west coast of Tasmania.

At Savage River, the ore, which comprises massive magnetite volumes with accompanying sulphide and silicate minerals, is crushed, ground and concentrated using magnetic separation as the major mineral separation methodology. The magnetite concentrate, ground to a sizing of approximately 85% finer than 43 microns (µm), is pumped to the pellet plant. A pump station at the mine site utilises positive displacement pumps to pump the concentrate slurry through an 83 km long, 229 mm diameter pipeline which crosses rugged terrain ranging from 360m above sea level down to sea level.

==> picture [235 x 263] intentionally omitted <==

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

2M/2001 EXTENDS
TO PORT LATTA
14M/2007
2M/2001
EL30/2003
EL46/2007
EL19/2005
----- End of picture text -----

Figure 3: Savage River Tenure

At the pellet plant the pipeline discharge is received into a tank farm and is filtered and converted into pellets in vertical shaft furnaces. The pellets are then screened and stockpiled and loaded into bulk ore carriers for shipment to customers. The shiploading facility comprises a 2 km long jetty, on which a belt conveyor transports the pellets to an off-shore shiploader capable of loading Panamax size bulk vessels.

3.5 Mineral Resources and Ore Reserves

Estimates of Mineral Resources and Ore Reserves at Savage River as at the end of March 2008 are set out below. Mineral Resources and Ore Reserves are categorised in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves (JoRC Code, 2004). Estimated Measured and Indicated Mineral Resources include those Mineral Resources modified to produce the estimated Ore Reserves. Mineral Resources which are not Ore Reserves did not have demonstrated economic viability at the time of last review.

(a) Mineral Resources

The total Mineral Resource for Savage River as at the end of March 2008 is as follows:

==> picture [207 x 17] intentionally omitted <==

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

Mineral Resources Tonnes (Mt) Grade (%DTR)
----- End of picture text -----

Measured	92.84	52.0
indicated	138.17	51.8
inferred	92.22	47.2
Total	323.23	50.5

(b) ore Reserves

The total Ore Reserve for Savage River as at the end of March 2008 is as follows:

==> picture [207 x 17] intentionally omitted <==

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

Ore Reserves Tonnes (Mt) Grade (%DTR)
----- End of picture text -----

Proved	56.92	48.7
Probable	74.11	49.0
Total	131.02	48.9

==> picture [568 x 306] intentionally omitted <==

(c) Qualifying Statements

The information in this report that relates to Mineral Resources and Ore Reserves at Savage River is based on information compiled by Ben Maynard, who is a member of the Australasian Institute of Mining and Metallurgy and is a full-time employee of ABM. Mr Maynard 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 JORC Code, 2004. Mr Maynard consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The information contained in this Explanatory Memorandum, in so far as it relates to Savage River’s Mineral Resources and Ore Reserves, is reported in accordance with the JORC Code, 2004. The Measured and Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce the Ore Reserves. The Inferred Mineral Resources are, by definition, additional to the Ore Reserves. A lower cut-off grade of 15% DTR was used in the calculation of both Mineral Resources and Ore Reserves.

==> picture [305 x 306] intentionally omitted <==

3.6 Processing Operation

The current mining method comprises an open pit mine with a conventional drill and blast and shovel and haul truck operation. Drilling and blasting occurs in 15 m lifts, with excavation in two flitches. The ore processing operation at Savage River comprises:

primary crushing;
stockpiling of crushed ore;
autogenous milling;
screening of autogenous mill discharge and recirculation of the oversize through a cone crusher and magnetic cobbing circuit;
primary magnetic concentration of magnetite;
regrinding of the rougher magnetite concentrate in ball mills, close-circuited by cyclones;
hydro-separation to remove fine gangue minerals; and
finisher magnetic separation to produce a final magnetite concentrate.

The Port Latta plant receives the concentrate slurry discharged from the pipeline. The pellet plant comprises five furnace lines, of which four are currently in operation. The fifth furnace line (i.e. the No. 4 line) has been de-commissioned, but can be brought back into operation if required, and this will become necessary if pellet production is to be increased to 2.9 Mtpa.

Concentrate is thickened and vacuum filtered prior to agglomeration. Balling drums, operated in closed circuit with either vibrating or roller screens of 9 mm aperture, produce closely sized balls, which are fed by an index feeder to the top of each shaft furnace. Energy for the furnace is supplied from three sources:

heat of oxidation of the magnetite to hematite;
natural gas burnt in combustion chambers located beside each furnace; and
sized anthracite coal added to the furnace feed.

The fired pellets are discharged from the bases of the furnaces, and belt conveyed to a hot pellet screening plant to remove fine chips and pellet clusters. The pellets are stored in a stockyard from which they are reclaimed for shipment. The shiploader comprises two bucket-wheel reclaimers and a 2 km long jetty, on which pellets are belt conveyed to the off-shore ship loading facility.

The operating plan has been designed to utilise existing infrastructure, proven technology and conventional mining methods.

3.7 Key Project Stages

The operating plan has been designed to utilise existing infrastructure, proven technology and conventional mining methods. All the unit operations of the process including mining, concentrating and pelletising have been successfully applied at Savage River since ownership by ABM.

Project milestones which have been reached include:

feasibility study completed in late 2006;
project approval granted by the ABM board in January 2007;
new mining equipment acquired and commissioned first quarter 2008;
new infrastructure and major capital works to support mining operations commissioned in August 2008;
material movement from prestrip and new design in North Pit commenced in January 2008 with the arrival of a new mining fleet; and
major capital works for the project going forward have been identified and included in the operating plan.

3.8 Expansion Prospects

ABM’s normal business planning process involves development and annual review of a 5 year life of mine business plan. An expansion plan to increase the production rate to 2.9 Mtpa is currently being reviewed. Initial work carried out by Mining One and ProMet Engineering indicates that the expansion is technically feasible and ABM expects to implement the expansion upon completion of the detailed feasibility study.

The feasibility study is expected to be completed by the end of 2008 and will then be subject to the new Grange Board approval. It is planned to begin the plant upgrades in early to mid 2009.

The 2.9 Mtpa expansion plan maximises the existing concentrate pipeline capacity between Savage River and Port Latta. The options for increasing the production through the Concentrator and Port Latta are being reviewed by ProMet Engineers and Northern Engineering & Technology Corporation (nETC), a mining/ metallurgical/engineering design group in China.

This expansion targets additional mining of Mineral Resources and Ore Reserves from North Pit, Centre Pit South, South Deposit and Long Plains (current exploration target) as appropriate.

Centre Pit South and South Deposit are preexisting pits that have further potential for development and production. Long Plains is an exploration target that has been recently acquired after amalgamating numerous other leases providing direct access to the established infrastructure. Initial studies have identified magnetite and exploration is proceeding over the coming 6 months to establish an initial resource.

3.9 Shagang Off-take Agreements

(a) Iron ore Pellet Sales Agreement with Evergain International Corporation (Evergain) – 2005 – 2010

Under a Sales Agreement dated 15 March 2005, ABM will sell and Evergain will purchase 485,000 dry metric tonnes (DMT) of pellets in 2005 and 500,000 DMT of pellets per annum for the remaining years. The term of the agreement is 5 years from 1 April 2005 to 31 March 2010. The price for the pellets was US$50 per DMT in 2008 and will be US$43 per DMT in 2009. The prices under this agreement are below current market price as the agreement was entered into when the long term outlook for iron ore prices was much lower than it is today.

Evergain is not a subsidiary of JSG but is associated with the JSG Group.

(b) Iron ore Pellet Sales and Purchase Agreement with Jiangsu Shagang International Trading Co. Ltd (SI) – 2008/2009

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase 490,713 DMT of pellets. The term of the agreement is from 1 September 2008 to 30 June 2009. The price for the pellets will be the CVRD Asian Tubarao Blast Furnace Pellet price for the corresponding financial year ending 31 March (this year’s price has been fixed at US$139 per DMT). Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. If ABM elects to permanently cease operations ABM may terminate the agreement with 12 months notice.

SI is a subsidiary of JSG.

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase 27,390,185 DMT pellets in total (an annual average of 2,106,937 DMT). The term of the agreement is 13 years from 1 July 2009 to 30 June 2022. The price for the pellets will be the fair market value as agreed by the parties, having regard to:

seaborne iron ore supply and demand conditions;
available published price benchmarks for iron ore; and
product quality differentials and potential freight costs.

Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. If ABM elects to permanently cease operations ABM may terminate the agreement with 12 months notice.

(d) Iron ore Chip Sales and Purchase Agreement with SI – 2008 – 2022

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase approximately 90,000 DMT of chip annually. The term of the agreement is 14 years from 1 October 2008 to 31 December 2022. The price for the chip will be the BHPB Newman Fines price for the corresponding financial year ending 31 March. Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. If ABM elects to permanently cease operations ABM may terminate the agreement with 12 months notice.

3.10 Other Off-take Agreements

(a) Iron ore Concentrate Sales and Purchase Agreement with Stemcor – 2007 – 2022

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and Stemcor will purchase 80,000 wet metric tonnes of concentrate per annum. The term of the agreement is 15 years from 16 August 2007 to 16 August 2022. The price for the concentrate will be the Vale Japan Tubarao Blast Furnace Pellet price for the corresponding Japanese financial year less the cost of pellet production at Port Latta and the additional production costs. Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given.

(b) Iron ore Pellet Sales and Purchase Agreement with Bluescope Steel (AIS) Pty Limited (ABn 30 073 634 581) (Bluescope) – 2009 – 2012

Under a Sales and Purchase Agreement dated 28 February 2008, ABM will sell and Bluescope will purchase 800,000 DMT of pellets per annum. The term of the agreement is 3 years from 1 July 2009 to 30 June 2012. Either party may terminate the agreement if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. Bluescope may terminate if there is a substantial change in the grade of iron ore with 3 months notice.

The Shagang Off-take Agreements and the other Off-take Agreements cover 100% of ABM’s current production of 2.3 Mtpa.

3.11 Project management structure and ABM employees

The current ABM management team comprises:

Dave Sandy – Managing Director
Bruce Lorking – Chief Financial Officer
Ross Carpenter – General Manager Projects
Brian Burdett – General Manager Operations
John Galbraith – General Manager Services

ABM currently has 404 employees, of whom 312 are operational staff and 92 are administrative staff. All employees have their principal place of work at either Savage River, Port Latta or the Burnie administration office.

3.12 Environmental

(a) Legislative Approval

ABM obtained environmental and planning approval in 1997 and 1998 allowing it to operate under the Tasmanian Land Use Planning and Approvals Act 1993 (LUPA), the Tasmanian Environmental Management and Pollution Control Act 1994 (EMPCA), the Tasmanian Goldamere Pty Ltd (Agreement) Act 1996 (Goldamere Act) and the Tasmanian Mineral Resources Development Act 1995. This approval covers an expected 15 to 20 year mine and processing life using open cut mining at Savage River, gangue removal at Savage River and pelletising beneficiation at Port Latta.

(b) Goldamere Act

The Goldamere Act overrides all other Tasmanian legislation in respect of Goldamere’s operations. The Goldamere Act limits ABM’s liability for remediation of contamination, under Tasmanian law, to damage caused by ABM’s operations, and indemnifies ABM for certain environmental liabilities arising from past operations. Where pollution is caused or might be caused by previous operations and that pollution may be impacting on ABM’s operations or discharges, ABM is indemnified against that pollution. ABM is required to operate to Best Practice Environmental Management (BPEM).

(c) Planning Approvals

ABM obtained planning approval subject to a series of environmental permit conditions on 29 January 1997. Planning approval was issued by the Waratah Wynyard Council for Savage River and by the Circular Head Council for Port Latta. The approvals were conditional on the provision of an Environmental Management Plan (EMP) incorporating a Rehabilitation Plan (ERP) prior to the commencement of operations. Various other studies were also required.

(d) Environmental Management Plans

The EMP incorporating the ERP and study results were approved by the (now) Department of Environment Parks, Heritage and the Arts (DEPhA) and operations commenced in October 1997. The latest revision of the approval documents occurred on 6 October 2000 when Environmental Protection Notices 248/2 and 302/2 (EPn) were issued to replace the environmental permit conditions for Savage River and Port Latta respectively.

Approvals are required from DEPHA and relevant Councils for major infrastructure developments and operational expansions and changes. These approvals are in the form of approved EMP amendments and reflect changing operational circumstances and an increasing knowledge base and include approvals designed to extend operations, amend management plans and provide for dumping and treatment facilities.

An amendment to the EMP was approved for an extension of mine and pelletising operations in early 2007 to approve the Mine Life Extension Plan to operate until 2021.

EMPs and ERPs must be resubmitted every 3 years from 2001 and the next revision is expected in January 2010. The revised EPM will reflect the BPEM and current mine planning and focus on closure requirements and rehabilitation. EPN amendments are being negotiated to update permit conditions in conjunction with the Mine Life Extension Plan.

==> picture [306 x 306] intentionally omitted <==

(e) Goldamere Agreement

The Goldamere Agreement (which forms part of the Goldamere Act) provides a framework for ABM to repay the Tasmanian Government for the purchase of the mine through remediation works. Significant variations to the Goldamere Agreement were signed on 4 October 2000 and 10 September 2002 following extensive negotiations. The amended Goldamere Agreement provides a framework for ABM to co-manage the Savage River Rehabilitation Project (SRRP) and carry out contracted works in lieu of paying the purchase price of the operation to the Government. The agreement also allows ABM to integrate its rehabilitation obligations with those of the State under the SRRP. Interest under the agreement was capped at $1,555,431 in October 2000. The 2002 variation capitalised this interest while retaining the balance of the purchase price loan. This variation allowed the interest as well as the purchase price loan to be paid off through remedial works whereas the previous variation had insisted on the interest being paid to the Tasmanian government through separate cash payments.

(f) Savage River Rehabilitation Project

ABM representatives meet with representatives from DEPHA on a monthly basis to develop and implement remediation works at Savage River. ABM has contracted with the SRRP for works including construction, treatment and management and development.

The SRRP objective is to capture and treat 65% of the site’s Copper load to remove the possibility of an acutely toxic aquatic environment. The scope of works to meet this objective has been completed and costed to feasibility level. A strategic plan outlining the works required to achieve the objective and repay ABM’s purchase price debt has been approved by the Tasmanian Environment Protection Authority and is being implemented by the SRRP committee.

(g) Principal Environmental Issues

Actions taken by ABM to ensure BPEM (as defined by approved EMPs and EPNs and subsequent amendments) include:

==> picture [567 x 306] intentionally omitted <==

upgrading air emissions from furnaces at Port Latta with emphasis on reducing Ground Level Concentrations of sulphur dioxide (SO2) and fugitive dust from site, and also preventing acid burns. Since 2002, operation of an acid burn forecasting system is successfully managing this issue. Longer-term operation necessitates construction of a 70m stack to disperse furnace emissions. Air emissions models are being reworked to ensure success prior to construction; and
water, tailings and waste rock management at Savage River. Development of waste rock dumps which exclude oxygen to minimise the formation of acid mine drainage and utilisation of these dumps to form seals on old waste rock dumps. Sub aqueous tailings deposition and maintenance of saturated tailings. Providing a centralised water treatment system using a disused pit to reduce turbidity from mine runoff. ABM is in current compliance with requirements and appropriate management and monitoring systems are in place.

(h) Rehabilitation Plans

ABM has a A$2.2M financial assurance lodged with DEPHA. The original ERP and ERPs from 2001 onwards require forecasting of potential environmental harm should the operation cease during the period of the ERP (notionally 3 years). The financial assurance was based on the cost estimates to mitigate the potential environmental harm based on the submitted and approved 2007 EMP review.

Liability for rehabilitation is not limited to the financial assurance. ABM is required to plan for closure and departure on completion of the mining plan. Principal issues in respect of the closure include maintenance, the deposit of tailings, future use of infrastructure and a 5 year monitoring and maintenance plan.

Additionally, internal (non legislative) water quality objectives for emissions to Savage River and air quality objectives for Port Latta have been implemented.

==> picture [568 x 306] intentionally omitted <==

ABM operates an integrated safety system based on the DNV International Safety System framework.

3.13 Safety

ABM operates an integrated safety system based on the DNV International Safety System framework. The system has been customised to meet the requirements of Open Cut mining and is documented in a company-wide operating manual called ABM Cares. The system is audited internally annually and externally bi-annually.

ABM takes an active role in safety and has developed a Generic Induction programme in partnership with TAFE Tasmania which is accessible to employees, contractors and other mining and industrial organisations.

ABM maintains a level 4 award on all sites. A level 4 award reflects that the safety system implemented adequately controls identified risks within the business.

ABM’s “lost time incident frequency rate” has steadily improved and for the past two years has been below the average for the Tasmanian Mining industry.

3.15 Community Relations

ABM operates a Community Liaison Committee which meets at least once a year to provide information regarding the operation to community representatives and receive feedback from the community. This meeting is augmented by open meetings at Port Latta, mine site inspections and occasional public newsletters. The community is generally supportive of ABM’s operations with an average of less than one complaint received per year. The work ABM has done to remediate the Savage River has been important in this regard.

ABM has funded and co-managed Coastcare projects and local weed management projects on the north-west coast of Tasmania in the Stanley and Rocky Cape regions since 1997. These have been successful in mapping and reducing weed infestations and in raising a positive profile for ABM within the community. ABM promotes the mining industry as a career path by supporting on-site visits with school groups, provision of on-site vocational education training, and provides university scholarships for mining students.

3.14 Training

ABM has had a training partnership with TAFE Tasmania since 2001. The partnership pioneered the use of the national Metalliferous Mining package as a pathway for mining and process employees to gain skills recognition and career progression. The programme trains all mine operators to Certificate III level and the quality of ABM’s training programme was recognised at the 2008 Tasmanian Training Awards with ABM winning the Employer of the Year category. ABM has 13% of Australia’s trainees and apprentices in Certificate III Metalliferous Mining and uses advanced training systems such as truck simulator training to provide new employees with real experience in a controlled and safe environment. Future training development is focused on Certificate III training in Blast hole drilling, Certificate IV in Metalliferous Mining for supervisors and an Apprenticeship program commencing in 2009.

4. Overview of Grange

Grange’s key project is its 70% share of the Southdown Project.

4.1 Overview of Grange

Grange’s key project is its 70% share of the Southdown Project. The Southdown Project is owned through a joint venture with Sojitz. Grange also owns 51% of the Bukit Ibam iron ore project in Malaysia and has a number of exploration properties and rights to royalties. Further information on Grange can be found at www.grangeresources.com.au

4.2 Overview of the Southdown Project

The Southdown Project is located 90 kilometres northeast of the Port of Albany on the south coast of Western Australia. The Southdown magnetite deposit is approximately 12 kilometres in length and represents the largest known premium quality magnetite deposit of its kind in southern Western Australia.

The Southdown Project comprises three granted mining leases, M70/433, M70/718 and M70/719, and an exploration licence, E70/2512. The mining leases covering the western 6 kilometre section of the deposit are subject to a joint venture, with Grange holding a 70% interest and Sojitz holding the remaining 30%. The exploration licence, of which Grange acquired 100% from Rio Tinto Exploration Pty Ltd in September 2007, covers the eastern 6 kilometre extension of the deposit. Grange has agreed to sell a 30% stake in Exploration Licence E70/2512, which covers the eastern extension of the Southdown Magnetite deposit, to Sojitz. The Directors expect that the sale will be completed between the date of this Explanatory Memorandum and the date of the Meeting.

==> picture [497 x 348] intentionally omitted <==

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

Geraldton
Leonora
Australia
Indian Ocean Koolyanobbing
KALGOORLIE
Southern Cross ROAD
RAILWAY
PERTH
Fremantle Norseman
Grass Patch
Bunbury
Esperance
N
SOUTHDOWN
MAGNETITE
Albany DEPOSIT
0 200km
----- End of picture text -----

==> picture [497 x 334] intentionally omitted <==

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

6829 6843
6841 Wellstead
E70/2512
6849
6830
6842
4
6831 G70/234 1
M70/718
G70/236
M70/433 6832
6859
6836 SOUTHDOWN
M70/719 MAGNETITE
DEPOSIT
6833
6857
6
6902
G70/235
6897
N G70/217 6856
7
4
Freehold land acquired
0 4km
1
----- End of picture text -----

4.3 Southdown Project – Mineral Resources and Ore Reserves

Grange has previously reported Mineral Resources within the granted mining leases of 479 million tonnes containing 37.3% magnetite grading 69.2% Fe as set out below. The estimate was classified in accordance with the JORC Code, 2004.

Mineral Resources Classifcation Tonnes (Mt)	Mineral Resources Classifcation Tonnes (Mt)	DTR %	Conc. Fe%	Conc. SiO2%	Conc. Al2O3%	Conc. TiO2%	Conc. S%	Conc. P%
indicated	427.3	38.2	69.2	1.9	1.40	0.37	0.42	0.002
inferred	51.8	30.1	69.0	2.0	1.30	0.44	0.62	0.003
Total	479.1	37.3	69.2	1.9	1.30	0.37	0.44	0.002

The information in this table that relates to the Southdown Mineral Resource is based on information compiled by Mr Richard Gaze who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Gaze is employed by Golder Associates Pty Ltd. Mr Gaze 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 JORC Code, 2004. Mr Gaze consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

Grange has previously reported Ore Reserves within the granted mining leases of 388 million tonnes at 35.5% magnetite grading 68.8% Fe as set out below.

Ore Reserves Classifcation	Tonnes (Mt)	DTR %	Conc. (Mt)	Conc. Fe%	Conc. SiO2%	Conc. Al2O3%	Conc. TiO2%	Conc. S%	Conc. P%
Probable	388	35.5	131	68.8	2.06	1.41	0.45	0.55	0.003
Total	388	35.5	131	68.8	2.06	1.41	0.45	0.55	0.003

The information in this table that relates to the Southdown Ore Reserve is based on information compiled by Mr Ross Bertinshaw who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Bertinshaw is employed by Golder Associates Pty Ltd. Mr Bertinshaw has sufficient experience in Ore Reserve estimation relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the JORC Code, 2004. Mr Bertinshaw consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

Grange previously announced a Memorandum of Understanding (MoU) with Metso Minerals (Australia) Limited (Metso). Under the terms of the MoU, Metso has been undertaking extensive metallurgical test work on a 30 tonne bulk sample from the Southdown deposit, resulting in the identification of the preferred processing circuit for the Southdown Project. Latest metallurgical test work has confirmed the ore is suitable for the production of direct reduction grade iron ore pellets.

4.4 Southdown Project – Development Plan

Grange is planning to mine the Southdown magnetite deposit using proven open pit mining methods with the mineralisation being crushed, ground, screened and then magnetically separated to produce a magnetite concentrate at a planned production rate of 6.6 million tonnes per annum.

Diamond drilling undertaken on the exploration licence has shown the quality of the magnetite is comparable to the western portion of the deposit.

==> picture [567 x 306] intentionally omitted <==

The magnetite concentrate will be pumped as a slurry, via a pipeline which is approximately 100 kilometres long to a filtration plant and concentrate storage facility at the port of Albany, before being loaded onto vessels and shipped to an iron ore pellet plant.

A new berth will need to be constructed at the Albany Port, and the Albany Port Authority will provide up to 9 hectares of land to accommodate a concentrate storage facility and ship loading infrastructure. It is currently planned that the size of the bulk shipping vessels will necessitate the widening of the existing shipping channel into the Princess Royal Harbour and the extension of the channel into King George Sound in order to facilitate the export of the concentrate. Grange is working very closely with the Albany Port Authority to model this aspect of the Southdown Project.

The Environmental Protection Authority (EPA) Bulletin for the Southdown Project was released in June 2008. The EPA recommended approval of the project to the Minister for the Environment. Grange has also worked closely with Albany Port Authority to assist it to make significant progress on environmental approval work for the new berth facility at Albany Port.

4.5 Southdown Project – Pellet Plant

Grange is currently intending to build the pellet plant with a design capacity of 6.8 million tonnes per annum at Kemaman, situated on the east coast of peninsular Malaysia. Kemaman is an ideal location from which to service local and regional direct reduction iron or hot briquetted iron plants.

Kemaman has an existing deep water wharf. Grange has a heads of agreement with subsidiaries of Malaysian company IJM Corporation Bhd to secure the future use of the Kemaman Port and the 60 hectares of land on which the pellet plant will be built situated 3 kilometres from the port. Environmental approval for the plant was received from the Ministry of Natural Resource and Environment in late 2006.

Following the Merger, Grange will undertake a review of the various options for the location of the pellet plant including Kemaman, Tasmania and China.

4.6 Bukit Ibam Project

Grange holds a 51% interest in the Bukit Ibam Project in joint venture with a privately owned Malaysian mining company, Esperance Mining Sdn Bhd.

The Bukit Ibam Project is located at the former Bukit Ibam iron ore mine in Pahang State, Malaysia. The mine opened in 1962 and produced approximately 22 million tonnes of hematite and magnetite ore before closing in 1970.

In June 2008, Grange announced the joint venture had approved development of an operation initially producing 100,000 tonnes per annum of magnetite concentrate. The concentrate will have a grade of approximately 60% Fe and be sold on the spot market and shipped out of Kuantan Port.

Bukit Ibam contains a Mineral Resource of 831,000 tonnes at 36.7% Fe as set out below. The Mineral Resource provides for a mine life of approximately 3 years. Potential expansion and mine life extension opportunities are available from existing low grade stockpiles and a tailings dam nearby.

==> picture [235 x 242] intentionally omitted <==

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

KEMAMAN PORT
KUANTAN PORT
Transport Route KUANTAN
South
China
Sea
BUKIT IBAM
Nenasi
Muadzam
Shah
N
Kuala Rompin
0 30km
----- End of picture text -----

Mineral Resources
Classifcation	Tonnes ('000 t)	Fe%	Al2O3%	SiO2%	P%	S%	LOI
Measured	560	36.2	2.19	20.7	0.011	0.40	7.5
indicated	186	38.7	2.58	21.6	0.010	0.51	5.9
Inferred	86	36.4	3.99	23.0	0.011	0.78	6.8
Total	831	36.7	2.46	21.1	0.011	0.46	7.1

The information in this table that relates to Exploration Results and Mineral Resources for Bukit Ibam is based on information compiled by Mr Stuart Hall who is a Fellow of the Australasian Institute of Mining and Metallurgy. Mr Hall is a former full time employee of the Company. Mr Hall has sufficient experience which is relevant to the style of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code, 2004. Mr Hall consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

Capital expenditure for Grange is expected to be A$1 million with operating costs per tonne of concentrate produced of approximately A$50 per tonne.

All statutory approvals are in place and work has commenced on procurement and construction. The pit has been prepared for mining which is scheduled to recommence in January 2009, and the concentrator is forecast to be commissioned by the end of 2008, initially treating the existing ore stockpiles on the mining lease.

5. Key implications and risks of the Merger

Should the Merger proceed, Grange will issue approximately 380 million Shares to the ABM Shareholders.

5.1 Key implications if the Merger is approved by Shareholders and the Merger proceeds

(a) voting rights and shares

Should the Merger proceed, Grange will issue approximately 380 million Shares to the ABM Shareholders. This will increase Shares on issue from approximately 115 million to approximately 495 million and will change the capital structure of the Company as outlined in section 7 of this Explanatory Memorandum. Existing Shareholders will hold 23.3% of the undiluted issued capital of Grange although the number of Shares held by current Shareholders will not change.

The ABM Shareholders will hold interests in 76.7% of the undiluted issued share capital of Grange.

Although the Ever Green Sellers do not intend to hold their respective holdings in Grange as a block (and will retain the ability to sell or otherwise deal with their Shares independently), as joint investors who have worked together during their ownership of ABM, there may be times following the Merger where the Ever Green Sellers’ interests are aligned and they act jointly in respect of their investment. As a result, they are deemed to be “associates” for the purposes of the Corporations Act.

Therefore the voting power of each Ever Green Seller in Grange will be equal to the aggregate relevant interests held by the Ever Green Sellers, which will be 69.3% on an undiluted basis following completion of the Merger. This represents a controlling interest in Grange and a significant change in the voting dynamic of Grange and there is a risk that the Ever Green Sellers will pursue interests that differ from the current Shareholders.

The Directors consider that it is important to note that Shareholder approval will need to be obtained for significant transactions between the Ever Green Sellers and Grange where required by legislation or the Listing Rules. Where Shareholder approval is required, the Ever Green Sellers and their associates will be excluded from voting.

Further information on the relationship between the Ever Green Sellers is set out in section 15.5. There is no association between any of the Ever Green Sellers and Stemcor.

(b) Assets

If the Merger proceeds, Grange’s assets will include 100% of the Savage River Project as well as 70% of the Southdown joint venture with Sojitz and 51% of the Bukit Ibam Project. See sections 3 for more details on ABM and section 4 for more details on Grange.

Grange will also take on ABM’s balance sheet as at 30 June 2008 as set out in section 6.1(d) and 6.1(e). Further details on the liabilities of ABM are included in section 6 – Financial Information.

(c) Administration and reporting

Grange will remain headquartered in Perth, Western Australia. To comply with ASX disclosure requirements, Grange’s half yearly reports will be lodged by the end of February each year instead of by mid-March. No changes are anticipated to the timing of lodgement and release of Grange’s annual report dates. It is not expected that there will be any material changes to Grange’s Constitution.

Governance

Following the Merger, Grange will have a board of eight Directors, only two of whom are existing Directors, four are representatives of the ABM Shareholders and two are independent Directors. This represents a change in the governance dynamic of Grange and there is a risk that the new Board will pursue interests which differ from those expected by existing Shareholders.

As a mitigant to any perceived risk in relation to the operation of the Board, Shagang has agreed to the inclusion of additional corporate governance provisions in the Merger Implementation Agreement as follows:

as outlined in section 5.1(a) new Grange Shareholder approvals will be obtained for transactions between Shagang and Grange where required by legislation or the Listing Rules;
laws relating to conflicts of interest for directors and related party transactions will be contractually enforceable; and
all Grange Directors will comply with legal obligations to act in good faith, in the best interests of Grange, and for proper purposes and having regard to the interests of the Grange Shareholders and Grange as a whole.

These provisions apply in addition to the statutory and common law obligations applying to all new and existing Grange Directors. Further information on Grange’s corporate governance following the Merger is contained in section 9.

5.2 Key implications if the Merger is not approved

If resolutions 1 to 4 (inclusive) are not approved, the Merger will not proceed. Existing Shareholders will retain their current interest in Grange and no Shares will be issued to the ABM Shareholders. There will be no change to the Board of Grange, other than the retirement and re-election of Directors pursuant to Grange’s Constitution.

Grange will continue to operate as it did prior to the intended Merger, exploring all available alternatives to develop the Southdown Project and other growth opportunities. However, given the current difficult global financial markets and constrained borrowing conditions, the Directors of Grange believe the Merger represents the best available option for Shareholders.

Should the Merger not proceed, Grange will continue to examine possibilities to finance the Southdown Project including issuing new equity in Grange and the introduction of an additional joint venture partner.

No changes are currently expected to the Southdown Project timeline, however, given the funding proposition the Merger represents, the Board considers it unlikely that opportunities to secure funding for the Southdown Project in the near term will arise. There may be delays or difficulty in securing appropriate alternative project funding in the short term without substantial incremental cost/dilution to the Company and ultimately, to the Shareholders.

5.3 Risks of the Merger

If the Merger proceeds, Grange will issue approximately 380 million shares to the ABM Shareholders as consideration for ABM. Given the size of the ABM business relative to the current Grange business, the operating and financial performance of ABM in the future will have a material impact on the performance of the Grange and on the value of Grange Shares.

The factors outlined in Sections 5.4 to 5.6 below are not an exhaustive list and there may be other matters which cannot now be foreseen that may, in the future affect the performance of the Merged Entity and the value of Grange Shares.

==> picture [568 x 305] intentionally omitted <==

5.4 Risk factors specific to the ABM business

The risks and uncertainties described below are not exhaustive and relate specifically to the ABM business. Additional risks and uncertainties that ABM is unaware of, or that it currently considers to be immaterial, may also become important factors that can adversely affect ABM’s operating and financial performance.

(a) operating and Development Risk

ABM’s ability to achieve production targets, or meet operating and capital expenditure estimates on a timely basis cannot be assured. The nature of ABM’s mining operation as any other is subject to uncertainty with ore tonnes, grade, metallurgical recovery, ground conditions, operational environment, funding for development, regulatory changes, accidents, and other unforeseen circumstances such as unplanned mechanical failure of plant or equipment.

(b) Mining Risks

There is a risk of geotechnical failure in the open pit interrupting concentrate production and/or increasing operating costs.

As with many open pits, wall stability can be an issue depending on the geology of the host material in the open pit. At Savage River, the North Pit has been subject to a number of historical failures. Such failures have always been recognised as a risk to mining activity. ABM has undertaken detailed modelling of failures and has a management strategy for mitigating the risk which begins with pit design, and includes geotechnical monitoring and mapping. Other mitigation strategies include maintaining adequate ore stockpiles to remove the risk of loss of concentrate production.

(d) Shortages of Skilled Personnel

The tight labour market, an accelerating ageing population and a current skills shortage present challenging conditions for ABM to staff its operations. The success of ABM’s operations relies on ABM being able to recruit skilled staff. Not being able to access skilled staff may impact the implementation of the business plan and ABM’s ability to achieve production targets within budgetary constraints.

ABM recognises that these conditions require innovative strategies in its recruitment and retention of a capable workforce. ABM is currently utilising and investigating procedures designed to reduce risks associated with its workforce including:

creating and maintaining a more diverse workforce (people with disabilities / immigrant labour);
recruiting and retaining mature age employees;
participation in traineeships/cadetships; and
identification of skilled/semi skilled tasks and balancing the workforce accordingly.

5.5 General risk factors that may affect Grange post-Merger

The risks and uncertainties in this section are not exhaustive and are general risk factors which may have an impact on Grange post-Merger (Merged Entity). Additional risks and uncertainties that Grange is unaware of, or that it currently considers to be immaterial, may also become important factors that adversely affect the Merged Entity’s operating and financial performance.

(c) water Management Risks

The key aspects to water management are the management of colloidal turbidity run off caused by the grinding of soils under loaded truck tyres and the management of Acid Rock Drainage (ARD). The latter is carried out for the Savage River Rehabilitation Project (SRRP). The risk is that water outflow from the mining operations could enter the surrounding environment. These aspects are managed by centralising water collection in South Lens for Total Suspended Solids (TSS) and turbidity management, and by utilising naturally available alkalinity where possible to adjust pH and treat ARD.

Financial performance of the Merged Entity is exposed to iron ore price fluctuations.

(a) Risks relating to fluctuations in Iron ore Market Price

Substantially all of the Merged Entity’s revenues and cash flows will be derived from the sale of iron ore. Therefore, the financial performance of the Merged Entity is exposed to iron ore price fluctuations. Iron ore prices may be influenced by numerous factors and events which are beyond the control of Grange which include costs of production of other iron ore producers and other macro-economic factors such as inflationary expectations, interest rates, currency exchange rates (particularly the strength of the US dollar), as well as general global economic conditions and political trends. If the market price for iron ore should fall below or remain below the cost of production for any sustained period due to these and other factors and events, the Merged Entity’s business and results of operations could be materially and adversely affected.

(b) foreign Exchange Rate Risk

Grange is an Australian business that reports in Australian dollars. The Merged Entity’s revenue is in US dollars derived from the sale of iron ore. However, costs are mainly in Australian dollars therefore movements in the USD/AUD exchange rate and/or the USD iron ore price may adversely or beneficially affect the Merged Entity’s results of operations and cash flows.

(c) Regulatory Risks

The operations of the Merged Entity are subject to various Federal, State and local laws and plans including those relating to mining, prospecting, development, permit and licence requirements, industrial relations, environment, land use, royalties, water, native title and cultural heritage, mine safety and occupational health.

Approvals, licences and permits required to comply such rules are subject to the discretion of the applicable government or government officials. No assurance can be given that the Merged Entity will be successful in obtaining any or all of the various approvals, licences and permits or maintaining such authorisations in full force and effect without modification or revocation. To the extent such approvals are required and not retained or obtained in a timely manner or at all, the Merged Entity may be curtailed or prohibited from continuing or proceeding with production and exploration.

(d) funding Risks

In the ordinary course of operations and development, the Merged Entity will be required to issue financial assurances, particularly insurances and bond/bank guarantee instruments, to secure statutory and environmental performance undertakings and commercial arrangements. The Merged Entity’s ability to provide such assurances is subject to external financial and credit market assessments, and its own financial position.

The ability of Grange to raise the funds required to develop the Southdown Project, whilst materially enhanced by the Merger will also be subject to external financial and credit markets and the financial performance of the Merged Entity.

(e) Estimates of Mineral Reserves & Resources Risks

The Mineral Resources and Ore Reserves for the Merged Entity’s iron ore assets are estimates only and no assurance can be given that any particular recovery level of iron ore will in fact be realised. The Merged Entity’s estimates comply with the JORC Code, 2004, however Mineral Resources and Ore Reserves are expressions of judgment based on knowledge, experience and industry practice, and may require revision based on actual production experience. Estimates that are valid when made may change significantly when new information becomes available.

(f) Rising Energy and Commodity Costs

The Merged Entity will have significant commodity (diesel) and energy (gas and electricity) requirements and it relies on being able to fulfil those requirements at a cost which does not negatively impact on its cash flows. A number of factors (such as rising oil prices, macro-economic factors such as inflationary expectations, interest rates, currency exchange rates (particularly the strength of the US dollar), as well as general global economic conditions and political trends) may lead to an increase in commodity and energy costs which may materially adversely affect the earnings of the Merged Entity.

(g) Insurance

ABM and Grange currently maintain insurance coverage as determined appropriate by their respective Boards and Management, but no assurance can be given that the Merged Entity will continue to be able to obtain such insurance coverage at reasonable rates (or at all), or that any coverage it obtains will be adequate and available to cover all claims.

(h) Climate Change Risk

ABM’s activities are energy intensive which makes it a significant emitter of greenhouse gases as will the Southdown Project when it commences operations. The Kyoto Protocol imposes a legallybinding obligation on industrialised nations to reduce their greenhouse gas emissions by a combined average of 5% from 1990 levels during the period from 2008 to 2012.

The Australian Federal Government has proposed a national emissions trading scheme, to be implemented by July, 2010. It released its Green Paper on the proposed scheme, titled the Carbon Pollution Reduction Scheme (CPRS), on 16 July 2008. The Green Paper indicates that the Government is considering a scheme which requires carbon emitters to purchase permits that are equivalent to their emissions volume, at a price that has not yet been determined. Until the CPRS is finalised the impact on the Merged Entity is uncertain.

Possible risks include increased regulatory costs to buy permits, as well as increased capital expenditure to introduce greenhouse gas abatement measures. The Merged Entity may be required to record and disclose its greenhouse gas emissions under the National Greenhouse and Energy Reporting Act 2007 (Cth) (nGERA). While it is anticipated that some of the costs of buying permits can be passed on to customers, the extent to which that will be possible depends on the final form of the CPRS.

5.6 Risk factors that arise from the Merger

(a) operational Integration Risk

As with any merger, combining the businesses of Grange and ABM may carry some integration risk, including potential delays or costs in implementing necessary changes and difficulties in integrating various operations.

However, Grange is currently a small company with only 15 employees and therefore the integration risk is seen as minimal.

(b) Change of Control Risk

If the Merger proceeds, the ABM Shareholders will hold 76.7% of the Shares and existing Grange shareholders will hold 23.3% on an undiluted basis. In addition, the Grange Board will change to reflect the new ownership structure and will comprise eight Directors including two from the existing Grange Board, two independent Directors and four representatives of the ABM Shareholders. This represents a change in the governance and voting dynamic of Grange and there is a risk that the new Shareholders and the Board will pursue interests which differ from those expected by existing Shareholders.

The Ever Green Sellers will also hold a controlling interest in Grange, as outlined in section 5.1(a) above. However, Shareholder approval will need to be obtained for significant transactions between Grange and the Ever Green Sellers, where required by legislation or the Listing Rules. Where Shareholder approval is required, the Ever Green Sellers and their associates will be excluded from voting.

ABM is monitoring the Australian Federal Government’s plans to introduce the CPRS and has already implemented procedures to ensure it complies with its reporting obligations under the NGERA.

6. Financial Information

6.1 Overview of financial information

This section provides relevant financial information for Grange Shareholders to consider when assessing the Merger including details of the financial impact of voting to approve the Merger.

All information in this section assumes that the Merger took place on 30 June 2008. To the extent that the actual acquisition date varies, information presented may vary considerably.

The pro forma financial information should be read in conjunction with the limitations explained in the ‘Responsibility for Information’ statement contained within the Important Notices section of this Explanatory Memorandum.

All financial information is presented in accordance with the measurement and recognition principles under AIFRS unless otherwise noted.

This section contains the following financial information:

(a) Ever Green (section 6.3)
Pro forma historical earnings for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008;
Pro forma balance sheet as at 30 June 2008;
Pro forma historical cash flow statement for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008; and
Pro forma forecast earnings for the six months ending 31 December 2008 and the year ending 31 December 2008.
(b) Grange (section 6.4)
Pro forma historical earnings for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008;
Balance sheet as at 30 June 2008;
Pro forma historical cash flow statement for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008; and
Pro forma forecast earnings for the six months ending 31 December 2008 and the year ending 31 December 2008.
(c) Merged Equity (section 6.5)
Pro forma historical earnings for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008;
Pro forma balance sheet as at 30 June 2008;
Pro forma historical cash flow statement for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008; and
Pro forma forecast earnings for the six months ending 31 December 2008 and the year ending 31 December 2008.

The financial information in this section should be read in conjunction with the risks described in section 5 and other information contained in this Explanatory Memorandum.

The financial information contained in this section has been presented in abbreviated form. It does not contain all the disclosures usually provided in an annual report prepared in accordance with the Corporations Act.

6.2 Overview of forecast earnings and general assumptions

The pro forma forecast earnings for the period ending 31 December 2008 have been prepared for illustrative purposes for use in this Explanatory Memorandum only. The pro forma forecast earnings is based on circumstances as at the date of this Explanatory Memorandum and an assessment of the present economic and operating conditions, and on a number of assumptions regarding future events and actions. The forecast earnings information should be read in conjunction with the assumptions upon which they are based in sections 6.3(h) and 6.4(h).

In addition to the assumptions noted in sections 6.3(h) and 6.4(h) the directors of Ever Green and Grange have also made the following general assumptions that there will be:

no changes of a material nature in accounting policies, the Australian Accounting Standards (including Accounting Interpretations) and the Corporations Act which could have a material effect on Ever Green and Grange forecast earnings;
no significant changes in legislation, regulatory requirements, government policy, or to the political or economic environments within which Ever Green and Grange operate;
no significant industrial, contractual, competitive or political disturbances impacting Ever Green and Grange and/or the continuity of their operations;
no material environmental losses or material legal claims not previously recognised; and
no change in taxation legislation which will have a material impact on Ever Green and Grange forecast earnings.

6.3 Ever Green Financial Information

(a) Basis of preparation for Ever Green financial information

(i) Ever Green historical financial information

The pro forma historical financial information has been derived from the audited or reviewed financial statements of Ever Green and its wholly owned subsidiaries which have been adjusted for certain pro forma adjustments detailed in Table 6.1, Table 6.2 and Table 6.3.

Ever Green was incorporated on 18 May 2007, accordingly the historical financial information relating to prior periods has been compiled from audited or reviewed financial statements of its subsidiaries prior to the date of Ever Green’s acquisition of ABM in August 2007.

(ii) Ever Green accounting policies

The AIFRS accounting policies adopted by Ever Green and its subsidiaries in the preparation of the financial information for the years ended 31 December 2006, 31 December 2007 and the six months ended 30 June 2008 are consistent with those set out in the financial report of its subsidiary, SMAPL, for the year ended 31 December 2007 (which is available on ABM’s website, www.ausbm.com.au).

(b) Ever Green earnings

The Ever Green historical and forecast pro forma earnings are summarised in Table 6.1.

The pro forma historical earnings for the years ended 31 December 2006 and 2007 have only been included to an EBIT level as the previous acquisition of ABM by SMAPL (90% owned by Ever Green and 10% by Stemcor) in August 2007 resulted in changes to the funding structure and asset profile of the Ever Green group.

Table 6.1 – Ever Green pro forma earnings

==> picture [483 x 239] intentionally omitted <==

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

`
$ in millions Pro forma Pro forma Pro forma Pro forma Pro forma
historical historical historical forecast forecast
earnings earnings earnings earnings earnings
Year Year Six month Six month Year
ended ended period ended period ending ending
31 December 31 December 30 June 31 December 31 December
2006 2007 [1] 2008 [2] 2008 [4,5] 2008
Revenue from continuing operations 157.5 210.2 88.3 180.7 269.0
EBITDA from continuing operations 60.0 61.2 42.3 100.9 143.2
Depreciation (13.0) (7.9) (8.5) (10.0) (18.5)
amortisation – (13.1) (17.5) (17.5) (35.0)
EBIT from continuing operations 47.0 40.2 16.3 73.4 89.7
interest income 0.4
Financing expenses (9.8)
EBT 6.9
income tax expense (3.1)
nPAT 3.8
outside equity interest [3] (0.1)
Profit attributable to Ever Green Shareholders 3.7
----- End of picture text -----

notes:

Excludes the impact of a $157.5 million discount on acquisition arising from the acquisition of ABM by SMAPL in August 2007.
Excludes the impact of a revaluation of deferred consideration of $148.4 million arising from the acquisition of ABM by SMAPL in August 2007.
Profit attributable to outside equity interest arises from Stemcor owning 10% of SMAPL following SMAPL’s acquisition of ABM in August 2007. In accordance with the terms of the Merger, Stemcor has agreed to transfer its 10% interest in SMAPL to Grange for 38,002,555 Grange Shares.
During September 2008, SMAPL and other parties (including the previous owners of ABM) executed a deed of amendment to the sale and purchase agreement (as supplemented by a subsequent deed of novation) for the previous acquisition of ABM (Savage River Sale and Purchase Agreement) which reduced the amount due and payable for two remaining fixed consideration payments from US$20 million to US$18 million. The resulting adjustment is a A$4.4 million reduction in the non-current deferred consideration liability as well as an increase in earnings. The earnings impact of this agreement has not been reflected in the pro forma forecast earnings for the six month period ending 31 December 2008.
Forecast revenues for the six month period ending 31 December 2008 are translated using the weighted average exchange rate of Ever Green’s forward exchange contracts.

As the forecast earnings information have been prepared purely for the purpose of providing illustrative Merged Entity earnings, the Directors have decided to present a forecast to the EBIT level as information below this level will not be representative of the business structure post Merger.

(c) Commentary on Ever Green pro forma earnings

Year ended 31 December 2007

Revenue

Ever Green had off-take agreements with Evergain and Bluescope. Further detail in relation to these agreements can be found in Sections 3.9 and 3.10 of this Explanatory Memorandum.

Revenue growth of 33% was driven by:

an increase in the average iron ore pellet price from US$67.03 to US$69.98;
an increase in pellets sold from 1.65 Mt to 2.49 Mt as a result of mill fire in 2006 which significantly reduced volumes;
offset by:
an appreciation in the average realised A$/US$ exchange rate from 0.7467 in 2006 to 0.8782 in 2007, due to the fact that all sales are denominated in US$.

EBITDA

EBITDA remained stable between 2006 and 2007; however EBITDA margin per pellet sold reduced from 36% in 2006 to 24% in 2007. The reduction in the EBITDA per pellet sold primarily related to a 9.0% increase in direct production costs and additional royalty payments arising from increased sales volumes.

Depreciation and amortisation

The reduction in depreciation expense arose from an extension to the remaining life of the Savage River mine from 2.5 years to 15 years was as a result of the ABM Board approving a mine life extension in January 2007.

The introduction of an amortisation charge in 2007 relates to the amortisation of a mine properties and leases asset recognised at fair value as part of SMAPL’s acquisition of ABM during August 2007. The asset is being depreciated by management over the remaining period of mining operations at Savage River.

Year ending 31 December 2008

Revenue

Revenue growth of 28% is forecast to be driven by:

a forecast increase in the average iron ore pellet price from US$69.98 to US$98.44 as a result of sales prices for off-take agreements (refer to Section 3.9 and Section 3.10 for further details) reverting to market prices during the six months ended 31 December 2008;

offset by:

a forecast decrease in pellets sold from 2.49 Mt to 2.32 Mt as a result of a reduction in ore grade and resulting production; and
a forecast appreciation in the realised exchange rate from 0.8782 in 2007 to 0.8923 in 2008 as a result of forward exchange contracts entered into by ABM to manage exposures to fluctuations in the US$ foreign exchange rates.

EBITDA

EBITDA is forecast to increase by $82.0 million during 2008 with a corresponding improvement in the EBITDA margin from 24% in 2007 to 62% in 2008. This significant improvement in the EBITDA margin is primarily a result of the increased realised iron ore price in the second half of 2008, coupled with a reduction in unit mining costs.

Depreciation and amortisation

The increase in forecast depreciation relates to the depreciation of new mining equipment acquired and commissioned during the first quarter of 2008 and the new infrastructure and major capital works which were commissioned in August 2008.

The increase in forecast amortisation relates to the first full year of amortisation of the mine properties and lease assets recognised as part of SMAPL’s acquisition of ABM during 2007. The assets continue to be amortised over the remaining period of mining operations at Savage River.

Financing expenses

Financing expenses for the six month period ending 30 June 2008 relate to the unwinding of a discount applied against deferred consideration obligations (A$7.6 million), interest charges on a shareholder loan with Stemcor (US$0.3 million) and leasing arrangements with a third party. The Stemcor shareholder loan will be assigned to Grange upon completion of the Merger.

(d) Ever Green pro forma balance sheet

Set out below is the pro forma balance sheet for Ever Green as at 30 June 2008. The Ever Green pro forma balance sheet is derived by consolidating the parent entity balance sheet of Ever Green and the consolidated balance sheet of SMAPL as at 30 June 2008.

Table 6.2 – Ever Green pro forma balance sheet – 30 June 2008

==> picture [207 x 23] intentionally omitted <==

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

$ in millions Pro forma
Ever Green
----- End of picture text -----

Current assets
cash and cash equivalents	3.4
trade and other receivables	10.3
inventories	79.2
Derivative fnancial assets1	–
other	6.7
Total current assets2	99.6
non current assets
receivables	–
Property, plant and equipment	535.5
exploration and evaluation / Goodwill	12.9
other	11.6
Total non-current assets	560.0
Total assets	659.6
Current liabilities
trade and other payables	51.3
Deferred consideration	48.4
Derivative fnancial liabilities1	35.6
current tax liabilities	1.1
Borrowings	118.2
Provisions	4.9
Total current liabilities2	259.5
non current liabilities
Borrowings	55.9
net deferred tax liabilities	49.5
Deferred consideration3	299.5
Provisions	10.8
Total non-current liabilities	415.7
Total liabilities	675.2
net assets /(liabilities)	(15.6)

As at 30 June 2008, Ever Green has a working capital deficiency but continues to maintain a net cash inflow from operating activities for the six month period ended 30 June 2008. Ever Green is expected to generate additional cash for the remainder of the iron ore year as a result of sales contracts reverting to market prices. The Directors believe that this increase in contract pricing will provide additional operating cash flows which will enable Ever Green to pay its short term debts as and when they fall due. Furthermore, as part of the Merger A$74.8 million of current shareholder borrowings (i.e. with Shagang, RH and PI) will be reassigned to Grange and subsequently capitalised by Grange. Refer to section 6.5 for further details regarding the reassignment of current borrowings.
During September 2008, SMAPL and other parties (including the previous owners of ABM) executed a deed of amendment to the Savage River Sale and Purchase Agreement which reduced the amount due and payable for two remaining fixed consideration payments from US$20.0 million to US$18.0 million. The resulting adjustment is a A$4.4 million reduction in the non-current deferred consideration liability and an increase in earnings. The balance sheet movement has been reflected as a pro forma adjustment.

(e) Commentary on Ever Green pro forma balance sheet

Assets:

Cash and cash equivalents

Cash and cash equivalents primarily pertains to cash at bank and in hand.

Trade and other receivables

Receivables are amounts owing from customers through the sale of iron ore products and a GST refund as at 30 June 2008.

Inventories

Inventory on hand consists of ore stockpiles of $43.0 million (3.1 Mt), work in progress of $1.7 million, finished pellet stockpiles of $18.8 million (265 Kt) and consumable stores of $15.7 million.

Derivative financial assets

Sales of iron ore by Ever Green are denominated in US$. ABM has entered into forward exchange contracts in order to manage exposures to fluctuations in the US$ foreign exchange rates.

A derivative financial asset or liability is recognised on the mark to market valuation of these forward exchange contracts. Refer to the notes to Table 6.2 for further detail regarding the pro forma presentation of these derivative financial assets.

notes:

The reviewed balance sheet as at 30 June 2008 recorded a derivative financial asset in respect of foreign exchange forward contracts of $5.1 million. Recent market volatility has resulted in the fair value of the contracts reverting to a liability of $35.6 million as at 17 October 2008. This movement has been reflected as a pro forma balance sheet adjustment. The forecast earnings impact is reflected by translating US$ revenues at the forward rate rather than the spot rate.

As at 30 June 2008, Ever Green’s outstanding contracts were as follows:

Options Maturity Weighted average rate A$/US$ Jun-08	Jun-08 $
Purchase US$ put options less than 1 year 0.8603 1-5 years 0.8740 Sell US$ call options less than 1 year 0.9115 1-5 years 0.9550	110,000,000 8,000,000
	118,000,000 110,000,000 8,000,000
	118,000,000

Recent market volatility and a depreciation in the A$/US$ exchange rate has resulted in the fair value of the contracts reverting to a liability of $35.6 million as at 17 October 2008.

The financier of these contracts has agreed to accept $8.5 million from ABM and a cash backed bank guarantee of $10 million from another JSG subsidiary, Shagang (Australia) Pty Ltd, to cover the out of the money position. However the financier has retained the right to demand funds to cover the out of the money position should market volatility and depreciation of the A$/US$ continue. Management is still in the process of establishing the bank guarantee which is expected to remain effective until the Merger completes. In addition to the above, the shareholders of Ever Green (Shagang, RH & PI) have also provided a letter of support for this out of the money position until the Merger completes or upon termination of the Share Sale Agreement and Merger Implementation Agreement.

At the expected transaction completion date, a significant number of the contracts will have been delivered and the remaining exposure based on forecast exchange rates is expected to be covered by cash held by Ever Green at that time.

Other current assets

Other current assets primarily relate to $5.5 million of pre paid expenses, with the balance pertaining to other individually immaterial items.

Property, plant and equipment

Property, plant and equipment comprises the following items of property, plant and equipment (at written down value):

Buildings – $16.7 million
Equipment under lease – $66.7 million
Capital works in progress – $28.1 million

Refer to Section 6.3(g) for details of payments for property, plant and equipment.

Exploration and evaluation

Long Plains is an exploration target that has been recently acquired after amalgamating numerous other leases providing direct access to the established ABM infrastructure. Initial studies have identified a magnetite target and exploration will continue during 2009.

Other Non Current Assets

Two bonds (totalling $5.2 million) are held in favour of the Tasmanian government. These bonds are security for environmental liabilities and a loan from the Tasmanian Government. Interest is paid at commercial rates on both of these bonds.

In addition, there is also a security deposit, equivalent to 6 months of lease payments, of $6.4 million held in relation to the group’s equipment lease facility. Upon full repayment of the facility this deposit will be refunded. Interest is paid at commercial rates on this security deposit.

Liabilities:

Trade & Other Payables

Included within trade and other payables is a prepayment of pellet revenue of $21.2 million which was received from Evergain during March and April 2008. This liability will be discharged by pellet sales and is expected to be fully repaid by December 2008.

The remaining $30.1 million included within this item pertains to trade payables and accruals incurred as part of normal business operations.

Deferred consideration

Deferred consideration arose from the acquisition of ABM by SMAPL during August 2007 and is due and payable to the previous owners of ABM.

The deferred consideration balance consists of the following:

Fixed Consideration

As at 30 June 2008, a fixed consideration amount of US$40.0 million (A$43.6 million) is due and payable in equal instalments on 31 October 2009 and 31 October 2010 subject to the successful production of ore from the mine life expansion project.

Plant and equipment – $77.5 million
Mine properties and leases (including capitalised pre-stripping) – $346.5 million

During September 2008, SMAPL and other parties (including the previous owners of ABM) executed a deed of amendment to the Savage River Sale and Purchase Agreement which reduced the amount due and payable for the two remaining fixed consideration payments from US$20.0 million to US$18.0 million. The resulting adjustment is a A$4.4 million reduction in the non-current deferred consideration liability.

Head Agreement Consideration

As at 30 June 2008, a head agreement consideration of US$48.1 million (A$59.3 million) is due and payable to Ivanhoe in two instalments (US$38.9 million on 31 March 2009 and US$9.2 million on 31 March 2010 in accordance with a Head Agreement between Stemcor and other parties, (including the owners of ABM prior to the execution of the Savage River Sale and Purchase Agreement) which was reassigned to SMAPL as part of its August 2007 acquisition of ABM. In addition, A$1.2 million was still due and payable as at 30 June 2008 for a head consideration payment which was due on 31 March 2008.

Deferred Consideration

As at 30 June 2008, a deferred amount of US$200.6 million (A$248.2 million) is due and payable in annual instalments for each ore year beginning 1 April 2010 until the ore year ending 31 March 2022. This deferred amount is capped at 20% of US dollar revenues generated by ABM during this period above a pre-determined benchmark price of US$47.50 per pellet. It is important to note that where the calculated deferred consideration is a negative amount, no deferred consideration will be payable in respect of that ore year.

The amounts recognised in respect of head agreement consideration and deferred consideration balances represent management’s best estimate of the consideration required to settle the obligation as at 30 June 2008, taking into account the risks and uncertainties surrounding the obligation. The deferred amounts are measured using the cash flows estimated to settle the obligation and is recorded at the present value of those cash flows.

The amount of deferred consideration (including fixed consideration, head agreement consideration and deferred consideration) payable is recalculated at each balance sheet date using updated market forecasts for iron ore pellet prices and USD/AUD exchange rates.

Current tax liabilities

Current tax obligation to the Australian taxation office for the SMAPL tax consolidated group as at 30 June 2008. Ever Green has no income tax obligations in Hong Kong as at 30 June 2008.

Borrowings

Borrowings consist of the following:

Finance lease

To facilitate the extension to the Savage River mine life a new fleet of mining equipment was required. A lease facility of US$70 million was established with a third party during November 2007 to finance the purchase of the fleet over a term of 5 years.

As at 30 June 2008, the outstanding balance of the lease facility was A$62.3 million. Interest is charged on the outstanding balance of this facility at an annual interest rate of LIBOR plus a margin of 1.8%

Stockpile financing

A financing facility secured over the pellet stockpile presently exists with Stemcor to assist ABM in meeting its short term working capital commitments. As at 30 June 2008, the outstanding balance of the stockpile financing facility was US$20.6 million (A$21.4 million). Interest is charged on the outstanding US$ balance of these loans at an agreed annual interest rate of 6%. The obligation was discharged during July 2008.

Shareholder loans

As at the 30 June 2008, the outstanding balance of various shareholder loans with Shagang, PI, RH and Stemcor totalled US$78 million (A$81.0 million).

The shareholder loans with Shagang, PI and RH of US$72 million (A$74.8 million) are presented as a current liability at 30 June 2008 as they are repayable on demand by the ABM Shareholders. These shareholder loans are non-interest bearing.

The shareholder loan with Stemcor of US$6.0 million (A$6.2 million) is governed by a shareholder loan agreement and is not due and payable until 5 years after the first draw-down date which occurred in August 2007. Interest is charged on the outstanding US$ balance of this loan at an agreed effective annual interest rate of 8.85% (including indemnity for withholding tax).

As part of the Merger, the various shareholders have agreed to reassign the loans to Grange. Refer to section 6.5 for details of the impact of this reassignment post the Merger.

Other loans

ABM has a loan with the Tasmanian Government in relation to the purchase of the Savage River Project in 1997. This loan is covered under the Goldamere Agreement (refer section3.14 (g)) which provides a framework for repayment of this amount through remediation of environmental disturbance caused by a previous operator. As at 30 June 2008, the outstanding balance of this loan is A$9.4 million. It is expected that this obligation will be discharged during 2009.

Provisions

Provisions include an amount for the cost of dismantling and removing assets and infrastructure from the mine lease and rehabilitating environmental disturbance at the end of the mining and processing activities.

As at 30 June 2008, the balance of the rehabilitation provision is $9.6 million. The amount recognised for rehabilitation represents management’s best estimate of the amount required to discharge the obligation as at 30 June 2008, taking into account the risks and uncertainties surrounding the obligation. The deferred amounts are measured using the cash flows estimated to settle the obligation and is recorded at the present value of those cash flows.

The remaining balance of provisions of $6.1 million relate to employee benefits, consisting of annual leave and long service leave obligations.

Net deferred tax liabilities

(f)

(g)

Ever Green pro forma cash flow statement

The Ever Green historical cash flows are summarised in Table 6.3.

Commentary on Ever Green pro forma cash flow statement

Year ended 31 December 2007

Cash flow from operating activities increased by $38.4 million from 2006 to 2007. This is driven by a $42.9 million increase in receipts from customers, which is directly correlated to the growth in revenue, offset by a marginal increase in payments to suppliers and employees of $4.5 million.

Cash flows used in investing activities increased significantly between 2006 and 2007 as a result of investment in new mining equipment, infrastructure and capital works to facilitate the commencement of the Savage River mine life extension project.

Six month period ended 30 June 2008

Cash flow from operating activities for the six month period ended 30 June 2008 did not include recognition of the price increase related to the 2008 ore year. The structure of Off-take Agreements as specified in sections 3.9 and 3.10 results in recognition of the increase in the six month period ending 31 December 2008. The increase in payments to suppliers and employees is a result of full mobilisation of the mining fleet and inflationary impact on direct costs.

Temporary taxable differences consisting of deferred tax liabilities of $58.2 million offset by deferred tax assets of $8.7 million.

Table 6.3 – Ever Green pro forma cash flow statement

==> picture [483 x 41] intentionally omitted <==

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

$ in millions Year Year Six month
ended ended period ended
31 December 31 December 30 June
2006 2007 2008
----- End of picture text -----

Cash fows from operating activities
receipts from customers (inclusive of GSt)	166.6	209.5	114.0
Payments to suppliers and employees(inclusive of GSt)	(136.9)	(141.4)	(86.0)
net cash infow / (outfow) from operating activities	29.7	68.1	28.0
Cash fows from investing activities
Payments for property, plant and equipment	(22.2)	(77.4)	(42.0)
Payments for exploration and evaluation	–	–	–
net cash infow / (outfow) from investing activities	(22.2)	(77.4)	(42.0)

notes:

There are no pro forma adjustments affecting the presented Ever Green pro forma cash flow statements.

Cash flows used in investing activities for the six month period ended 30 June 2008 is a continuation from 2007 of investment in infrastructure associated with the Savage River mine life extension project. The major projects completed during the period were the construction of an in-pit maintenance and reliability centre, and finalising the commissioning of the new mobile equipment fleet. Forecast cash outflows from investing activities for the six month period ended 31 December 2008 are expected to reduce by approximately 50% in comparison to the results for the six month period ended 30 June 2008.

(h) Assumptions underlying the Ever Green forecasts

In forecasting earnings for the six months ending 31 December 2008 as disclosed in Table 6.1, the Ever Green Directors have made the assumptions below.

(i) Revenue assumptions

	Six month period ending 31 December 2008
Pellet volumes sold (Mt)	1.24
Weighted average iron ore pellet sellingprice (US$)1	120.09
average effective a$/US$ exchange
rate2	0.8654

notes:

The number shown represents the weighted average actual selling price for pellet off-takes during the period 1 July 2008 to 30 September 2008 and the weighted average forecasted selling price for the period 1 October 2008 to 31 December 2008.
Represents the realised exchange rate for the period 1 July 2008 to 30 September 2008 and the forward rate for the period 1 October 2008 to 31 December 2008.

(ii) Cost assumptions

Direct operating costs

Direct operating costs include diesel, labour, and materials. These costs were reviewed in June 2008 and were re-forecast at that time to recognise the inflationary impact on these key inputs This forecast process included reviewing and rescheduling mining production parameters and detailed review of costing assumptions related to operating and maintaining the mobile mining fleet and both operational plants.

General and administrative costs

These costs are not expected to vary significantly from historical trends and have been reviewed as part of the June review mentioned above

Depreciation and amortisation

Depreciation and amortisation have been calculated in a manner consistent with historical periods.

For additional information pertaining to general assumptions refer to section 6.2 of this Explanatory Memorandum.

6.4 Grange Financial Information

(a) Basis of preparation for Grange financial information

(i) Grange historical financial information

The pro forma historical financial information has been derived from the audited or reviewed financial statements of Grange which have been adjusted for certain pro forma adjustments detailed in Table 6.4, Table 6.5 and Table 6.6.

Grange has a financial year end of 30 June. The presentation of historical earnings and cash flow statements for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008 has been provided to allow the financial information of Grange to be presented on a consistent basis with the financial information presented for Ever Green.

(ii) Grange accounting policies

The AIFRS accounting policies adopted by Grange in the preparation of the pro forma financial information for the years ended 31 December 2006 and 2007 and the six months ended 30 June 2008 are consistent with those set out in the financial report of Grange for the year ended 30 June 2008 (which is available on Grange’s website, www.grangeresources.com.au).

(b) Grange pro forma earnings

The Grange historical and forecast pro forma earnings are summarised in Table 6.4.

The pro forma historical earnings for the years ended 31 December 2006 and 2007 and for the pro forma forecast earnings for the six month period ended 31 December 2008 have only been included to an EBIT level to ensure a consistent presentation of pro forma earnings with that of Ever Green.

Table 6.4 – Grange pro forma earnings

==> picture [483 x 239] intentionally omitted <==

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

$ in millions Pro forma Pro forma Pro forma Pro forma Pro forma
historical historical historical forecast forecast
earnings earnings earnings earnings earnings
Year Year Six month Six month Year
ended ended period ended period ending ending
31 December 31 December 30 June 31 December 31 December
2006 [1] 2007 [1] 2008 2008 [2,3] 2008
Revenue from continuing operations 1.7 0.2 – 0.3 0.3
EBITDA from continuing operations 0.6 2.3 (3.4) (4.9) (8.3)
Depreciation – – – (0.1) (0.1)
amortisation – – – – –
EBIT from continuing operations 0.6 2.3 (3.4) (5.0) (8.4)
interest income 0.4
Financing expenses –
EBT (3.0)
income tax expense –
nPAT (3.0)
outside equity interest –
Profit / (Loss) attributable to Grange Shareholders (3.0)
----- End of picture text -----

notes:

The full year financial information has been prepared by aggregating the relevant half year results of Grange
Includes a $2.1 million loss arising from the recent agreed sale of a 30% interest in the eastern extension of Southdown Magnetite deposit to Sojitz.
Excludes $7.2 million of costs estimated to be incurred by Grange in relation to the Merger. As outlined in section 6.4, transaction costs incurred by Grange will need to be expensed in its parent entity financial statements and represent pre-merger costs.
(c) Commentary on Grange pro forma earnings

Year ended 31 December 2007

Revenue

Mining operations at the Reward Deeps and Conviction underground mine ceased in July 2005. A final shipment of copper concentrate was exported in August 2005, of which Grange received $1.7m as a deferred settlement amount in February 2006.

Following the cessation of mining operations at the Reward Deeps and Conviction underground mine, 2007 revenues decreased 90% to $0.2m.

2007 revenues of $0.2m relate to the sale of 500 tonnes of Bukit Ibam ore concentrate used for test production in May 2007.

EBITDA

2007 EBITDA from continuing operations increased $1.7m from 2006. The key driver of the 283% increase in EBITDA was a $4.5m gain following the one-off sale to Sojitz of a 30% interest in the eastern extension of the Southdown Magnetite Deposit.

Offsetting the $4.5m uplift to 2007 EBITDA, was a 53% decline in royalty revenues associated with the Red Hill Project, which decreased from $3.2m in 2006 to $1.7m in 2007, due to the completion of mining operations at Red Hill in May 2007.

(d)

Grange pro forma balance sheet

Set out below is the balance sheet for Grange as at 30 June 2008

Table 6.5 – Grange balance sheet – 30 June 2008

Year ended 31 December 2008

Revenue

2008 revenues of $0.3m relate the forecast commencement of mining operations and iron ore concentrate production at Bukit Ibam from December 2008.

EBITDA

The 2008 EBITDA loss of $3.4m is forecast to decline $5.7m from the 2007 EBITDA due to the following:

A loss associated with the one off sale of the 30% interest to Sojitz in the Southdown Exploration Licence is expected to be recorded in the 6 months to December of $2.1 million. As per the agreement, the purchase consideration from Sojitz was $13.4 million cash and a 0.3% royalty, which as per a management estimate should equal the carrying value of a 30% interest in the exploration licence for the Southdown project. Since the value of the 0.3% royalty cannot be reliably estimated, a loss of $2.1 million is expected to be recorded in the 6 months to 31 December 2008. The royalty is in addition to Sojitz’s existing royalty and increases total royalties payable by Sojitz to 3.8% of the value of Sojit’z share of production (based on 2008 benchmark prices);
Bukit Ibam mining production costs of $0.2m are forecast in December 2008;
2008 overhead costs of $5.7m are forecast to increase by $1.6m over 2007 overhead costs. This is attributable to increasing activity across projects and additional support staff hires in 2008; and

==> picture [207 x 23] intentionally omitted <==

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

$ in millions Pro forma
Grange
----- End of picture text -----

Current Assets
cash and cash equivalents	7.7
trade and other receivables1	14.5
inventories	–
Derivative fnancial assets	–
other	–
Total Current Assets	22.2
non Current Assets
receivables	5.2
Property, plant and equipment	5.9
exploration and evaluation1	65.5
other	–
Total non-Current assets	76.6
Total Assets	98.8
Current Liabilities
trade and other payables3	1.3
Deferred consideration	–
current tax liabilities	–
Borrowings	–
Provisions	0.4
Total Current Liabilities	1.7
non Current Liabilities
Borrowings	–
net deferred tax liabilities2	–
Deferred consideration	–
Provisions	4.0
Total non-Current Liabilities	4.0
Total Liabilities	5.7
net Assets	93.1

notes:

The full year effect of a cessation of royalty revenues following the completion of mining operations at Red Hill in May 2007.
During September 2008, Grange announced the sale of a 30% interest in the eastern extension of Southdown Magnetite deposit to Sojitz. The resulting adjustment from this sale is a $13.4 million increase in trade and other receivables; a $15.5 million reduction in exploration and evaluation assets and a $2.1 million loss on sale (refer Table 6.4). As a forecast balance sheet is not presented, this transaction has been reflected as a pro forma adjustment to the 30 June 2008 balance sheet.
As at 30 June 2008, Grange has carried forward taxation losses of $26.8 million of which $22.8 million is recognised in the balance sheet to off-set deferred tax liabilities. The remaining $4.0 million has not been recognised in the balance sheet as realisation was not regarded as probable. Management is yet to assess the ability of Grange to continue utilising these taxation losses post the Merger.
Based on presently available information management has prepared the pro forma balance sheet assuming that there are no transaction taxes or similar taxes due and payable by Grange as a result of the Merger. Management will need to confirm this assumption once the Merger is completed and all relevant information is obtained.

(e) Commentary on Grange balance sheet

Assets:

Cash

Cash and cash equivalents primarily pertains to cash at bank and in hand.

Trade and other receivables (current)

Trade and other receivables principally consists of the receivable in relation to the sale of a 30% interest in the eastern extension of Southdown Magnetite Deposit to Sojitz (A$13.4 million) and contributions from Sojitz in relation to the Southdown Project ($0.6 million).

Trade and other receivables (non-current)

Non Current receivables of A$5.2 million consist of an insurance claim of $2.2 million against Gregory Development Road and security deposits of A$3 million.

The security deposits consist of (a) A$1.9 million as performance bonds against the rehabilitation of Highway Reward Mine and Horseshoe Lights Mine, (b) A$1 million with Road Building (M) Holdings Bhd against acquisition of land at Kemaman, Malayasia and securing of port facilities, and (c) A$0.1 million with Perth Diocesan Trustees against the office lease.

Property, plant and equipment

Property, plant and equipment includes freehold land (A$4.6 million) acquired for the Southdown Project

The balance of A$1.3 million is comprised of (a) restoration assets of $0.8 million, (b) plant & equipment of A$0.3 million, and (c) leasing assets of A$0.2 million.

Exploration and evaluation

Exploration and Evaluation consists of capitalised exploration and evaluation costs incurred on the Southdown Project.

Liabilities:

Trade and other payables

Trade and other payables comprises trade payables and accruals incurred as part of normal business operations.

Provisions

Provisions relate to provisions for employee benefits ($0.2 million) and mine rehabilitation ($4.2 million).

==> picture [567 x 306] intentionally omitted <==

(f) Grange pro forma cash flow statement

Table 6.6 – Grange pro forma cash flow statement

==> picture [455 x 41] intentionally omitted <==

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

$ in millions Year ended Year Six month
31 December ended period ended
2006 31 December 30 June
2007 2008
----- End of picture text -----

Cash fows from operating activities
receipts from customers (inclusive of GSt)	3.7	2.7	–
Payments to suppliers and employees(inclusive of GSt)	(2.2)	(5.1)	(3.0)
net cash infow / (outfow) from operating activities	1.5	(2.4)	(3.0)
Cash fows from investing activities
Payments for property, plant and equipment	(0.1)	(4.6)	(1.3)
Payments for exploration and evaluation	(12.2)	(11.5)	(3.9)
net cash infow / (outfow) from investing activities	(12.3)	(16.1)	(5.2)

notes:

There are no pro forma adjustments affecting the presented Grange pro forma cash flow statements.

(g) Commentary on Grange pro forma cash flow statement

Year ended 31 December 2007

Receipts from customers decreased by $1.0 million from 2006 to 2007 as a result of the cessation of copper concentrate production at Reward Deeps and Conviction under ground mines in August 2005. Furthermore, royalty receipts from the Red Hill mine ceased during 2007.
Payments for property plant and equipment were $4.6m in 2007 due to the purchase of farm land near the Southdown mining leases.
Total payments for exploration and evaluation in 2007 were $14.1m, of which Grange funded $11.5m and Sojitz funded $2.6m as part of its acquisition of a 30% interest in the Southdown Project.

Six months ended 30 June 2008

Total payments for exploration and evaluation were $6.6m, of which Grange funded $3.9m and Sojitz funded $2.7m.

(h) Assumptions underlying the Grange forecasts

In forecasting earnings for the six months ending 31 December 2008 as disclosed in Table 6.4, the Grange Directors have made the assumptions below:

(i) Revenue assumptions

Bukit Ibam is expected to commence producing iron ore concentrate in December 2008. Grange’s forecast share of 51% of production for the six month period ending 31 December 2008 is forecast to be 2,965 tonnes of iron ore concentrate at a forecast value of $97.83 per tonne ($0.3m).

(ii) Cost assumptions

General and administrative costs

Overhead costs are forecast in a manner comparable with the historical period.

Payroll costs are expected to increase in the forecast period based on the appointment of additional staff during the six month period ended 31 December 2008.

Depreciation and amortisation

Amortisation expense of $0.1 million has been recognised for the six month period ending 31 December 2008.

Bukit Ibam Joint Venture

The cost of treating the 20,000 tonnes of stockpiled ore in December 2008 is forecast at $17 per tonne of which Grange will be charged 51%. Additional overhead charges result in a cost of production of $0.2m.

Mt Windsor Joint Venture

Grange incurs 30% of Mt Windsor Joint Venture costs. Budgeted costs for the period are $0.1m.

6.5 Merged Entity Financial Information

(a) Basis of preparation of Merged Entity financial information

The Merged Entity pro forma historical financial information has been prepared on a basis consistent with the assumptions in Section 6.3 and Section 6.4 unless noted.

(i) Merge Entity pro forma earnings

The pro forma historical earnings of Merged Entity for the years ended 31 December 2006 and 2007 and the six month period ended 30 June 2008 are based on the historical Ever Green and Grange pro forma earnings summarised in Table 6.1 and Table 6.4, respectively.

The pro forma forecast earnings of Merged Entity for the six month period ending 31 December 2008 is based on the forecast earnings of Ever Green and Grange summarised in Table 6.1 and 6.4 respectively.

(ii) Merged Entity pro forma balance sheet

The Merged Entity pro forma balance sheet has been prepared from the Ever Green and Grange pro forma balance sheets summarised in Table 6.2 and 6.5 respectively, adjusted to reflect:

i. the Merger which is deemed a reverse acquisition under AASB 3, Business Combinations due to the resulting ownership percentages and board and management composition following the Merger;

Accordingly, for accounting purposes the acquirer is deemed to be the legal subsidiary, Ever Green, and the acquiree is deemed to be the legal parent, Grange. Reverse acquisition accounting will only apply in the consolidated financial statements of Merged Entity;

ii. the reassignment to Grange and subsequent capitalisation of loans between Ever Green and its shareholders;
iii. the deferred tax implications arising from the Merger; and

(iii) Merged Entity pro forma cash flow statement

The Merge Co pro forma cash flow statement has been prepared from the Ever Green and Grange pro forma cash flow statements summarised in Table 6.3 and Table 6.6 respectively.

(b) Merged Entity pro forma earnings

The historical Merged Entity pro forma earnings are summarised in Table 6.7

Table 6.7 – Merged Entity historical pro forma earnings

==> picture [454 x 248] intentionally omitted <==

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

$ in millions Pro forma Pro forma Pro forma Pro forma Pro forma
historical historical historical forecast forecast
earnings earnings earnings earnings earnings
Year Year Six month Six month Year
ended ended period ended period ending ending
31 December 31 December 30 June 31 December 31 December
2006 2007 2008 2008 2008
Revenue from continuing operations 159.2 210.4 88.3 181.0 269.3
EBITDA from continuing operations 60.6 63.5 38.9 96.0 134.9
Depreciation (13.0) (7.9) (8.5) (10.1) (18.6)
amortisation – (13.1) (17.5) (17.5) (35.0)
EBIT from continuing operations 47.6 42.5 12.9 68.4 81.3
interest income
Financing expenses
EBT
income tax expense
nPAT
outside equity interest
Profit / (Loss) attributable to Merged
Entity shareholders
----- End of picture text -----

(c) Merged Entity pro forma balance sheet

Set out below is the pro forma balance sheet for Grange as at 30 June 2008.

Table 6.8 – Merged Entity pro forma balance sheet – 30 June 2008

==> picture [455 x 25] intentionally omitted <==

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

Pro forma Pro forma Pro forma Adjustments Pro forma
$ in millions Ever Green Grange 1 2 3 Merged Entity
----- End of picture text -----

Current Assets
cash and cash equivalents	3.4	7.7	–	–	–	11.1
trade and other receivables	10.3	14.5	–	–	–	24.8
inventories	79.2	–	–	–	–	79.2
Derivative fnancial assets	–	–	–	–	–	–
other	6.7	–	–	–	–	6.7
Total Current Assets	99.6	22.2	–	–	–	121.8
non Current Assets
receivables	–	5.2	–	–	–	5.2
Property, plant and equipment	535.5	5.9	–	–	–	541.4
exploration and evaluation / Goodwill	12.9	65.5	130.3	–	–	208.7
other	11.6	–	–	–	–	11.6
Total non-Current assets	560.0	76.6	130.3	–	–	766.9
Total Assets	659.6	98.8	130.3	–	–	888.7
Current Liabilities
trade and other payables	51.3	1.3	–	(0.4)	–	52.2
Deferred consideration	48.4	–	–	–	–	48.4
Derivative fnancial liabilities	35.6	–	–	–	–	35.6
current tax liabilities	1.1	–	–	–	–	1.1
Borrowings	118.2	–	–	(74.8)	–	43.4
Provisions	4.9	0.4	–	–	–	5.3
Total Current Liabilities	259.5	1.7	–	(75.2)	–	186.0
non Current Liabilities
Borrowings	55.9	–	–	(6.2)	–	49.7
net deferred tax liabilities	49.5	–	–	(0.1)	(49.4)	–
Deferred consideration	299.5	–	–	–	–	299.5
Provisions	10.8	4.0	–	–	–	14.8
Total non-Current Liabilities	415.7	4.0	–	(6.3)	(49.4)	364.0
Total Liabilities	675.2	5.7	–	(81.5)	(49.4)	550.0
net Assets /(Liabilities)	(15.6)	93.1	130.3	81.5	49.4	338.7

Pro forma adjustments:

Represents the difference between the implied consideration for the merger ($225.5 million) and the net assets of Grange as at 30 June 2008 ($95.2m). The implied consideration represents the aggregate of the following:
the market value of Grange’s issued share capital of 115,201,099 shares as at 30 June 2008 ($202.8 million);
the fair value of the 24.9 million options issued by Grange as at 30 June 2008 ($9.7 million) adjusted to reflect the lapsing of options held by Rio Tinto during September 2008 of 8.5 million options; and
estimated costs incurred by Ever Green in relation to the Merger ($13.0 million). It is important to note that the direct costs incurred by Grange in relation to the Merger will be expensed in its parent entity financial statements and represent pre-Merger costs.

In practice, the actual consideration of the Merger will be based on the actual value of components of the implied consideration as at the completion date of the Merger. had the Merger been completed on 20 october 2008, the implied consideration would have been $87.8 million. This actual cost will then be allocated to the fair value of the Grange identifiable assets, liabilities and contingent liabilities as at the implementation date of the Merger.

Represents the reassignment to Grange and subsequent capitalisation of loans between Ever Green Resources, including SMAPL, and its shareholders (Shagang, PI, Rh and Stemcor) to Grange Resources.
Pursuant to the current Australian income tax law, there are anticipated to be sufficient deferred tax assets arising from the Merger to off-set the deferred tax liabilities of Ever Green Resources as at 30 June 2008. further work is still required to by management to determine the extent of deferred tax assets arising from this mergerthe Merger and in particular the potential impact of (as yet) unlegislated changes in the income tax law announced in the May 2008 federal budget.

notes:

As at 30 June 2008, the Ever Green has a working capital deficiency but continues to maintain a net cash inflow from operating activities for the six month period ended 30 June 2008. Ever Green is expected to generate additional cash for the remainder of the iron ore year as a result of sales contracts reverting to market prices. The Directors believe that this increase in contract pricing will provide additional operating cash flows which will enable Ever Green to pay its short term debts as and when they fall due.

(d) Merged Entity pro forma cash flow statement

The historical Merged Entity pro forma cash flow statements are summarised in Table 6.9

Table 6.9 – Merged Entity pro forma cash flow statement

==> picture [454 x 41] intentionally omitted <==

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

$ in millions Year Year Six month
ended ended period ended
31 December 31 December 30 June
2006 2007 2008
----- End of picture text -----

Cash fows from operating activities
receipts from customers (inclusive of GSt)	170.3	212.2	114.0
Payments to suppliers and employees(inclusive of GSt)	(139.1)	(146.5)	(89.0)
net cash infow / (outfow) from operating activities	31.2	65.7	25.0
Cash fows from investing activities
Payments for property, plant and equipment	(22.3)	(82.0)	(43.3)
Payments for exploration and evaluation	(12.2)	(11.5)	(3.9)
net cash infow / (outfow) from investing activities	(34.5)	(93.5)	(47.2)

7. Impact on Grange’s capital structure and level of control

The following table outlines the Company’s current capital structure and voting power of the Company’s substantial shareholders:

==> picture [456 x 85] intentionally omitted <==

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

Pre Merger (Undiluted) Pre Merger (Fully Diluted)
# of Shares % # of Shares %
Grange Directors 14,882,337 12.9% 14,882,337 11.9%
rio tinto [1] 9,065,556 7.9% 18,065,556 [1] 14.4%
ever lucky Development limited 1,015,640 0.9% 1,015,640 0.8%
other Shareholders [2] 90,354,566 78.4% 91,429,566 [2] 72.9%
Total 115,318,099 100.0% 125,393,099 100.0%
----- End of picture text -----

Note:

1 Includes 9,000,000 options held by Hamersley Holdings Limited (a subsidiary of Rio Tinto Limited) exercisable at $1.50.
2 Includes 1,075,000 options held by Grange management and employees exercisable after March 2009 at prices between $2.05 and $3.50.

Under the Merger:

(a) Shagang will receive 232,575,639 Shares;
(b) RH will receive 68,404,600 Shares;
(c) PI will receive 41,042,760 Shares; and
(d) Stemcor will receive 38,002,555 Shares.

The total consideration for the Merger is 380,025,554 Shares.

A company in the JSG Group (Ever Lucky) currently holds 1,015,640 Shares.

Accordingly, after completion of the Merger, the ABM Shareholders, together with Ever Lucky, will hold 381,041,194 of the issued ordinary shares in the Company. This represents a maximum of 76.9% of the issued share capital in the Company based on the assumption that:

(a) the Grange capital structure will remain at its current level of 115,318,099 Shares (excluding Consideration Shares issued under the Merger);
(b) none of the holders of options currently on issue in Grange will exercise their options to subscribe for Shares; and
(c) no other Shares are issued in the meantime.

Each ABM Shareholder will, after completion of the Merger, hold the following interests in Grange (based on the same assumptions set out above):

Shagang (47.2%, including 0.2% held by Ever Lucky);
RH (13.8%);
PI (8.3%); and
Stemcor (7.7%).

The following table outlines the capital structure of the Company upon the issue of Consideration Shares and reflects the individual holdings of the ABM Shareholders.

==> picture [454 x 25] intentionally omitted <==

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

Post Merger (Undiluted)
# of Shares %
----- End of picture text -----

Existing Grange	Grange Directors	14,882,337	3.0%
Shareholders	rio tinto limited	9,065,5561	1.8%
	other Shareholders	90,354,5662	18.2%
new Grange	Shagang international Holdings limited	233,591,2793	47.2%
Shareholders	rGl Holdings co. ltd	68,404,600	13.8%
	Pacifc international co. Pty ltd	41,042,760	8.3%
	Stemcor Pellets ltd	38,002,555	7.7%
	Total	495,343,653	100.0%

Notes:

1 Assumes 9,000,000 options are not exercised by Hamersley Holdings Limited (a subsidiary of Rio Tinto Limited)
2 Assumes none of 1,075,000 options held by the Grange employees are exercised.
Includes the 1,015,640 Shares held by Ever Lucky.

The above table sets out the shareholding of each individual ABM Shareholder, on completion of the Merger. However, as disclosed in sections 5.1(a) and 15.5 the Ever Green Sellers may in certain circumstances act jointly in respect of their investment where their interests are aligned – chiefly due to the historical relationship between them as joint investors in Ever Green – which means that they are deemed to be ‘associates’ under the Corporations Act. The effect of this is that, on completion of the Merger, the voting power of each of the Ever Green Sellers is increased to 69.3% (on an undiluted basis), being the aggregate of their individual relevant interests and the Shares currently held by Ever Lucky.

Further information on the relationship between the Ever Green Sellers is set out in section 15.5. As outlined in section 5.1(a), there is no association between any of the Ever Green Sellers and Stemcor.

Grange Shareholders are therefore being asked to approve the issue of the Consideration Shares on the basis that the Ever Green Sellers, together with Ever Lucky, will between them hold a 69.3% interest in Grange following completion of the Merger.

==> picture [568 x 306] intentionally omitted <==

The table below shows the post Merger holding structure of Grange:

As outlined in the Share Sale Agreement, the Ever Green Sellers have agreed to a 12 month lock-up on their Consideration Shares which will restrict any sales of Consideration Shares by these parties during this period.

==> picture [557 x 567] intentionally omitted <==

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

Grange Rio Tinto Other International Shagang RGL Holdings International Pacific Stemcor
Directors Limited Shareholders Co. Ltd Pellets Ltd
Holdings Ltd Co. Pty Ltd
3.0% 1.8% 18.2% 47.2% 13.8% 8.3% 7.7%
Grange
70% 51% 100% 10%
Southdown JV Bukit Ibam Ever Green
90%
ABM
100%
Savage River
Project
----- End of picture text -----

8. Directors and management

8.1 Current Directors

The Grange Board is currently comprises of the following Directors:

Mr Anthony Bohnenn – Chairman;
Mr Russell Clark – Managing Director and Chief Executive Officer;
Mr Alex Nutter[1] – Non-executive Director;
Mr Richard Krasnoff – Non-executive Director;
Mr Douglas Stewart – Non-executive Director; and

8.3 Profiles

==> picture [100 x 100] intentionally omitted <==

Mr David Macoboy – Non-executive Director.
1 Mr Nutter will retire at the Annual General Meeting to be held on 28 November 2008.

8.2 Proposed new Directors

Following the Merger the composition of the Board will be changed, to reflect the new shareholder base of Grange.

The new Grange Board will comprise the following Directors:

Mr Russell Clark – Managing Director and Chief Executive Officer;
Mr Anthony Bohnenn – Non-executive Director;
Mr David Sandy[1] – Executive Director;
Mr Bin Shen – Non-executive Director;
Mr Feng Gao – Non-executive Director; and
Mr Cheung (Clement) Ko – Non-executive Director.
1 Mr Sandy intends to retire from his executive role at ABM in February 2009 and will become a Non-executive Director from the date of his retirement.

Mr Russell St John Clark

Managing Director and Chief Executive Officer

Mr Clark was appointed as Managing Director of Grange on 6 March 2008. Mr Clark holds a Mining Engineering degree (BSc Hons) from the Royal School of Mines, London, UK and a Graduate Diploma from the Securities Institute of Australia. In addition he has undertaken a number of Executive Development programs in Australia and the USA. Prior to joining Grange, Mr Clark worked for Renison Goldfields for over 18 years and with Newmont Mining Corporation Limited for 8½ years. He has over 30 years of mining experience in Africa, Papua New Guinea, the USA, New Zealand, Indonesia and throughout Australia in technical, project management, general management and executive positions. He is a member of the Institute of Materials, Minerals and Mining and the Australasian Institute of Mining & Metallurgy. He is also a Chartered Engineer, a Justice of the Peace and an Affiliate Member of the Australian Institute of Directors.

Two new independent Non-executive Directors will also be appointed to the Board.

The independent Directors will be selected based on having appropriate qualifications and experience to act as a director of an Australian publicly listed company.

The Chairman of the Board will be determined from the director group.

==> picture [100 x 101] intentionally omitted <==

Mr Anthony Clemens Maria Bohnenn Non-executive Director

Mr Bohnenn was appointed as a director of Grange in November 2001 and subsequently elected as Chairman on 1 July 2002. Mr Bohnenn has more than 25 years’ experience in the investment banking and financial services industries, with an emphasis in research and funds management. Mr Bohnenn is based in the Netherlands and his main focus has been on identifying investment opportunities in Australia, China and Asia.

==> picture [101 x 100] intentionally omitted <==

Mr David Sandy Executive Director

Mr Sandy is the current Managing Director of ABM. Mr Sandy joined ABM in 1997 when it was restarted under Ivanhoe ownership. He previously worked for Rio Tinto for a total of 17 years, firstly with Rossing Uranium, in Namibia and later with Hamersley Iron in WA as Mine Manager at Tom Price. Mr Sandy has considerable operating and organisational experience in both underground and open pit large scale operations. He also worked with Nchanga Consolidated Copper Mines on the Zambian Copperbelt for 7 years. He is a Member of the Australian Institute of Company Directors, a Fellow of the Institute of Mining and Metallurgy, a Chartered Engineer and holds a BSc (Hons) Mining Engineering and is an Associate of the Royal School of Mines, London, UK. Mr Sandy intends to resign from his executive role at ABM in February 2009 and will become a Non-executive Director from the date of his retirement.

==> picture [101 x 100] intentionally omitted <==

Mr Cheung (Clement) Ko Non-executive Director

==> picture [101 x 100] intentionally omitted <==

Mr Bin Shen Non-executive Director

Mr Shen is a Deputy General Manager and the Director of Finance of Shagang International Trade Company Ltd. Prior to his current position he was Managing Director of Shagang South-Asia (Hong Kong) Trading Co Ltd. Mr Shen has more than five years of experience in the steel trading business. Mr Shen holds a Master degree of Economics from the Staffordshire University and a Bachelor degree of Accounting from the School of Management, China University of Geosciences.

==> picture [101 x 100] intentionally omitted <==

Mr feng Gao Non-executive Director

Mr Gao is a Deputy General Manager and the Director of Mining Investment Department of Shagang International Trade Company Ltd. Prior to his current position he was a Deputy Director of the Import and Export Department of JSG. Mr Gao has more than 8 years of experience in iron ore business investments. Mr Gao holds a Bachelor degree of International Trade from the business school of Yangzhou University.

Mr Ko is Chairman and sole shareholder of Pacific Minerals Limited, one of the current shareholders of ABM. Prior to founding PML, Mr Ko worked for BHP Billiton (China) Ltd as a senior regional marketing manager. Mr Ko has more than 18 years of experience in the mining sector with extensive experience in marketing and sales. He holds an MBA degree from the Royal Melbourne Institution of Technology and a Bachelor degree from Nanjing Linling University.

8.4 Management

The Senior Management team of Grange will comprise a combination of the current ABM and Grange teams.

Key members of the Senior Management team will include:

Mr Ross Carpenter

General Manager Projects

Mr Carpenter is the current General Manager of Projects for ABM having joined the company in 2004. Prior to joining ABM, Mr Carpenter worked for Newmont Gold (USA), WMC Resources, Striker Resources, Selwyn Mines and Ivanhoe. He has more than 30 years of professional experience as a Manager and Mining Engineer in copper, gold, nickel, diamonds and iron ore in both underground and open pit mining as well as extensive experience in major mine constructions, technical management, feasibility and strategic planning. Mr Carpenter has a Bachelor of Applied Science (Mining) from the WA School of Mines. He also holds a First Class Mine Managers Certificate of Competency in both WA and Queensland and is a member of the Australian Institute of Mining and Metallurgy.

Mr Brian Burdett

General Manager Operations

Mr Burdett is the current General Manager of Operations for ABM. He joined the operation in 1997 as Refurbishment Manager and has held the positions of Project Manager and Engineering Manager. Mr Burdett has 43 years experience in the mineral processing and mining industry holding senior positions in Australia, South Africa, Kazakhstan, Myanmar, New Zealand and the USA. Mr Burdett has extensive operations and mine management experience in iron ore, gold, silver, lead, zinc, copper, tungsten, bismuth and molybdenum. He has a Diploma in Metallurgy and is a member of the Society for Mining, Metallurgy and Exploration (USA).

Mr wayne Bould

General Manager Business Readiness

Mr Bould joined the Grange Executive team in May 2008. He was previously Director, Business Excellence for Newmont Mining Corporation’s global business operations. In that role, Mr Bould worked with members of the Global, Regional, and Site Management teams to facilitate the development and execution of Newmont’s business excellence strategies.

Mr Bould began his career with Newmont as a Senior Regional Manager within Asia Pacific operations, assisting in establishing disciplined and standardized management processes in the operational and functional areas. Prior to joining Newmont, he had considerable experience as a senior manager in management consulting, in the downstream oil industry with Shell Australian Ltd, and in the manufacture and distribution of timber products.

Mr John Galbraith

General Manager Services

Mr Galbraith is currently General Manager of Services including Human Resources, Marketing and OH&S at ABM. He joined ABM in 1997. Prior to joining ABM Mr Galbraith spent 10 years with Tioxide Group Ltd, South Africa as Process Engineer and Process Manager and 5 years with Tioxide Group Malaysia as Commissioning Manager, Production Manager and Engineering Manager. He also spent 2 years at Tioxide Grimsby as Modernisation and Demolition Manager. His mining experience has been gained at ABM as Process Manager, Product Development Manager, Marketing Manager and more recently in the areas of Human Resources and Occupational Health and Safety.

Mr Bruce Lorking Chief Financial Officer

Mr Lorking is the current Chief Financial Officer and Company Secretary of ABM. He joined ABM in 1998. Mr Lorking has extensive experience at CFO and Company Secretarial level for the past 38 years within the motor vehicle (wholesale and retail) and capital equipment industries for both multinational and small private companies. During the past 10 years he has devoted those skills and experience to the mining industry including capital raising and insolvency. He has a Bachelor of Commerce from the University of New South Wales and is a Fellow of the Society of Certified Practicing Accountants and the Fellow of the Institute of Chartered Secretaries.

Mr Len Skotsch

General Manager Exploration

Len is a geologist with over 23 years experience in the mining, mineral exploration and oil and gas industries. His experience ranges from managing exploration and resource development programmes to project evaluation. Over the past 10 years Len has held a variety of senior management positions including most recently Exploration Manager (Australia) and Senior Evaluation geologist for Troy Resources NL.

9. Corporate Governance

9.1 Corporate governance and Board independence from completion of the Merger

Shagang and Grange have agreed that, on and from completion of the Merger, they will procure that the Shagang nominees appointed to the Board, and the remaining Directors will, comply with all applicable laws and the Listing Rules in relation to any dealings between Shagang (or any of its Related Bodies Corporate) and Grange (or any of its Related Bodies Corporate), including:

(a) obtaining any Shareholder approvals for transactions between Shagang and Grange, where required by any applicable law or the Listing Rules;
(b) any applicable laws relating to conflicts of interest for Directors and of Directors excluded from voting in relation to matters considered by the Board;

9.2 Director protocols

Shagang and Grange have also agreed that as soon as practicable after completion of the Merger, they will procure that the Board will establish protocols setting out:

(a) the structures and procedures which will be put in place by the Board to ensure that the consideration by the Board and management of Grange’s business and the business of its subsidiaries is undertaken free from any actual or the appearance of any conflict of interest; and
(b) the requirement for each Director of Grange to declare any interest he or she has in the matter being considered by the Board and appropriate measures to be taken upon that declaration.
(c) any applicable laws relating to “Related Party” transactions, given that, on and from completion of the Merger, Shagang (and its Related Bodies Corporate) will be treated as Related Parties of Grange for these purposes; and
(d) the legal obligations to act in good faith, in the best interests of Grange, and for the proper purposes, and to have regard to the interests of Shareholders and Grange as a whole.

Grange and Shagang have also agreed that each transaction (including any off-take arrangements) in which Shagang has an interest must either be:

(a) approved by independent Shareholders, where required by legislation or the Listing Rules; or
(b) approved by a majority of Directors who are independent of Shagang.

10. Intentions of the ABM Shareholders

This Section 10 sets out the intentions of the ABM Shareholders in relation to Grange if the Merger proceeds.

These intentions are based on information concerning Grange, its business and the business environment which is known to the ABM Shareholders at the date of this document, which is limited to the publicly available information and a due diligence review of certain non-public material provided to the ABM Shareholders by Grange.

Final decisions regarding these matters will only be made by the ABM Shareholders in light of material information and circumstances at the relevant time. Accordingly, the statements set out in this Section 10 are statements of current intention only, which may change as new information becomes available to it or as circumstances change, including as a result of the outcome of the strategic review referred to in section 10.2.

The ABM Shareholders have the following intentions in relation to Grange following implementation of the Merger.

10.1 Continued operations

It is the current intention of the ABM Shareholders that Grange will:

(a) continue to operate the businesses and projects in substantially the same manner as they are currently being conducted;
(b) preserve Grange’s business, market, customer base and supplier relationships;
(c) continue the development of the Southdown Project and the Savage River operations;
(d) retain the management and technical resources; and
(e) continue to employ the present employees.

10.2 Strategic direction

It is the intention of the ABM Shareholders that Grange will continue to pursue the shared strategic goal of ABM and Grange in becoming a leading Australian independent iron ore pellet producer.

After the Merger becomes effective, the ABM Shareholders, together with Grange’s Board and management, intend to conduct a review to explore opportunities to optimise Grange’s existing operations and development projects. This will involve assessment of the following by the ABM Shareholders in consultation with Grange’s Board, ensuring maximum value is generated for all Grange’s Shareholders:

(a) the Southdown Project’s capital expenditure requirements, development timetable and how to secure the optimal financing for the Project; and
(b) the optimal location of the Southdown Project pellet plant.

The ABM Shareholders, together with Grange’s Board and management also intend to establish a strategy to further grow Grange’s portfolio of assets through selective acquisitions. It is the current intention that the acquisition strategy will be focused on iron ore and other carbon steel mining assets.

10.3 Other intentions of ABM Shareholders

(a) The Board composition and corporate governance of Grange will be in accordance with the details set out in sections 5 and 9 of the Explanatory Memorandum.
(b) Grange will continue to operate under the name “Grange Resources Limited”.
(c) The head office of Grange will remain in Perth, Western Australia.

Other than as disclosed elsewhere in this Explanatory Memorandum, the ABM Shareholders have advised that, upon increasing their interest in Grange following the completion of the Merger, they:

(d) do not intend to redeploy any fixed assets of the Company;
(e) do not have any present intention to inject further capital into the Company;
(f) do not intend to transfer any property between the Company and an ABM Shareholder or any person associated with an ABM Shareholder; and
(g) have no current intention to change the Company’s existing policies in relation to financial matters or dividends.

==> picture [24 x 15] intentionally omitted <==

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

78
----- End of picture text -----

11. Independent Expert’s Report

The Independent Expert’s Report assesses whether the Merger and the Shagang Off-take Agreements outlined in resolutions 1 to 4 (inclusive) are fair and reasonable to the Shareholders who are not associated with the ABM Shareholders. The Independent Expert’s Report also contains an assessment of the advantages and disadvantages of the Merger and the Shagang Off-take Agreements. This assessment is designed to assist all Shareholders in reaching their voting decision.

Lonergan Edwards & Associates has provided the Independent Expert’s Report and has provided an opinion that it believes the Merger and the Shagang Off-take Agreements are fair and reasonable to Grange Shareholders who are not associated with the ABM Shareholders.

It is recommended that all Shareholders read the Independent Expert’s Report in full.

The Independent Expert’s Report is set out in Annexure A.

==> picture [567 x 306] intentionally omitted <==

12. Directors’ Recommendations

12.1 Recommendations

Based on the information available, including that contained in this Explanatory Memorandum, the Independent Expert’s Report and the advantages and disadvantages outlined, all of the Directors consider that resolutions 1 to 4 (inclusive) are in the best interests of Shareholders and the Company.

Each of the Directors recommends that Shareholders vote in favour of resolutions 1 to 4 (inclusive), in the absence of a superior proposal.

Each of the Directors voted for the proposal to put the resolutions to Shareholder contained in the Notice of General Meeting and this Explanatory Memorandum.

12.2 Directors’ voting intentions

Each Director who holds Shares in the Company (or whose associated entities hold Shares) and is entitled to vote will vote those Shares in favour of resolutions 1 to 4 (inclusive), in the absence of a superior proposal.[1]

12.3 Interests of Directors

Other than as set out below, the Directors do not have any material personal interest in the outcome of resolutions 1 to 4 (inclusive) other than their interests arising solely in their capacity as Shareholders of the Company.[2]

Details of the Directors’ interests in the Company’s securities as at 30 October 2008 are set out in the following table:

==> picture [454 x 23] intentionally omitted <==

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

Directors Fully paid ordinary shares Share options (current) [1] Share options
(to be approved at AGM) [2]
----- End of picture text -----

a.c.M. Bohnenn	13,774,338	nil	450,000
r.S. clark	30,000	nil	4,500,000
D.M. Macoboy	65,000	nil	450,000
r. krasnoff	68,000	nil	450,000
D.H. Stewart	nil	nil	450,000
a.H. nutter3	944,999	nil	nil

Notes:

1 As at the date of this Explanatory Memorandum 4 November 2008.

2 Assumes share options will be approved at the Annual General Meeting of the Company to be held on 28 November 2008 and will be issued by the time of the Meeting to be held on 10 December 2008.

3 A.H. Nutter will retire as a Director of the Company at the completion of the AGM on 28 November 2008.

1 Given the nature of resolution 5, and in accordance with Listing Rules 10.17 and 14.11, the Company will disregard any votes cast on resolution 5 by a Director and an Associate of a Director.

However, the Company need not disregard a vote if it is cast by a Director as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is cast by a Director chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

2 Please refer to footnote 1.

13. Background to resolutions 1 to 4 (inclusive)

On 25 September 2008, the Company announced that it had entered into a binding Share Sale Agreement and Merger Implementation Agreement to merge with ABM.

13.1 Outline of Merger

On 25 September 2008, the Company announced that it had entered into a binding Share Sale Agreement and Merger Implementation Agreement to merge with ABM.

The Merger will be effected through the Company acquiring 100% of the holding companies of ABM which owns the Savage River Project. Further details on the Savage River Project are set out in section 3 of the Explanatory Memorandum.

ABM is 100% held by Shagang Mining (Australia) Pty Ltd (SMAPL). Ever Green Resources Co., Ltd (Ever Green) holds 90% of the issued shares of SMAPL and Stemcor Pellets Limited (Stemcor) holds the remaining 10% of the issued shares in SMAPL.

Under the Merger, each of the following will occur:

(a) each of Shagang, RH and PI (collectively, the Ever Green Sellers) will sell their holdings in Ever Green to the Company; and
(b) Stemcor will sell its 10% holding in SMAPL to the Company.

The consideration for the Ever Green Sellers selling their holdings in Ever Green to Grange will be the issue by the Company of 342,022,999 Shares. These Shares will be divided between the Ever Green Sellers in proportion to their existing interests in Ever Green.

Accordingly if resolutions 1 to 4 (inclusive) are passed and subject to the satisfaction or waiver of the other conditions precedent of the Merger, the Company will acquire 100% of Ever Green and, effectively, 100% of SMAPL following the Merger.

If the conditions set out above are not satisfied or waived on or before 31 December 2008 or such later date as the parties agree, any party may elect to terminate the Share Sale Agreement.

Further details of the conditions of the Merger are set out in Schedule 1 of this Explanatory Memorandum.

13.2 Resolutions interdependent

Resolutions 1 to 4 (inclusive) are interdependent. That means each of those resolutions must be passed for the approvals sought to be effective.

13.3 Share Sale Agreement and Merger Implementation Agreement

Summaries of the Share Sale Agreement and Merger Implementation Agreement executed by the Company and the ABM Shareholders in relation to the Merger are set out in Schedules 1 and 2 (respectively) to this Explanatory Memorandum.

13.4 Background to Ever Green Resources Co., Ltd and Shagang Mining (Australia) Pty Ltd

Accordingly:

(c) Shagang will receive 232,575,639 Shares;
(d) RH will receive 68,404,600 Shares; and
(e) PI will received 41,042,760 Shares of the Company.

The consideration for Stemcor selling its 10% holding in SMAPL to the Company will be the issue by the Company of 38,002,555 Shares to Stemcor.

The total consideration for the Merger is 380,025,554 Shares (Consideration Shares).

The purpose of resolutions 1 to 2 (inclusive) is to enable the Company to issue the Consideration Shares to the ABM Shareholders.

The Merger is subject to a number of conditions. These include approval by Shareholders at the Meeting, approval by the Foreign Investment Review Board, approvals from relevant Chinese authorities, no material adverse change in either Grange or ABM and an Independent Expert concluding that the Merger and the Shagang Off-take Agreements are fair and reasonable to Shareholders.

(a) Ever Green Resources Co., Ltd Ever Green Resources Co., Ltd (Ever Green) is a private company incorporated in Hong Kong. Ever Green’s registered office is Unit 2902, 29/F, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong. Ever Green’s primary asset is its holding of 90% of the issued shares of Shagang Mining (Australia) Pty Ltd.

(b) Shagang Mining (Australia) Pty Ltd

Shagang Mining (Australia) Pty Ltd (SMAPL) is a proprietary company incorporated in Victoria, Australia. SMAPL’s primary asset is its holding of 100% of the issued shares of Beviron Pty Ltd ACN 078 197 323, a company incorporated in Australia (Beviron).

(c) Major subsidiaries and projects SMAPL holds 100% of the issued capital in Beviron, which holds 100% of the issued capital in Goldamere Pty Ltd (Goldamere). Goldamere trades under the name of “Australian Bulk Minerals” which operates the Savage River Project. Further details of the Savage River Project are set out in section 3.

14. Information relating to parties to the Merger

14.1 JSG

JSG has its registered head office at Jinfeng Town, Zhangjiagang City, Jiangsu Province in the People’s Republic of China (Postcode 215626). JSG’s principal business activities are conducted in the People’s Republic of China.

JSG is China’s largest private steel producer and the third largest steel producer in 2007. JSG manufactured 22.9 Mt of crude steel in 2007 and had turnover of RMB115.5 billion (US$16.9 billion) and profit before tax of RMB9.7 billion (US$1.4 billion).

JSG owns a steel sheet production line unitizing sintering, coking, iron making, steel making, casting, rolling and other assorted equipment and 1 strip galvanizing line. JSG owns two cold rolled stainless steel strip production lines in a joint venture with Korean steel company Posco.

The country of ultimate control of JSG is, and will remain, the People’s Republic of China.

Further information about JSG can be found at: http://www.sha-steel.com/doce/about/about1.htm.

The substantial holders of JSG’s issued capital are Mr Wenrong Shen – 29.8%; The Employees Stockholding Union – 18.63% and Xingde Trading Co. Ltd – 17.37%. The balance of shares in JSG are held by minority interests.

Wenrong Shen is the chairman and Shen Gong is the deputy chairman of JSG. Other directors are Jian Liu, Jinxiang Lu, Shilin Yang, Xiangrong Jia, Yonghua Wu, Zhongruo Bao and Deshi Sun.

14.2 Mr Wenrong Shen

Mr Wenrong Shen holds 29.8% of the issued capital of JSG and for the purposes of the Corporations Act will be deemed to have a relevant interest in Grange Shares following implementation of the Merger. Mr Shen is a citizen of the People’s Republic of China and is the Chairman of JSG.

14.3 Shagang International Holdings Limited

Shagang International Holdings Limited (Shagang) is a company registered in the British Virgin Islands (registration number 1497243) with its registered office at PO Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands. Shagang is a wholly owned subsidiary of Shagang International (Hong Kong) Co. Ltd and currently has no assets other than the 68% interest in Ever Green.

14.4 Shagang International (Hong Kong) Co. Ltd

Shagang International (Hong Kong) Co. Ltd is a company registered in Hong Kong (registration number 1257375). It is a subsidiary wholly owned by JSG. Shagang International (Hong Kong) Co. Ltd currently has no assets other than the 100% interest in Shagang.

14.5 RGL Group Co. Ltd

RGL Group Co. Ltd (RGL) is a company incorporated in the People’s Republic of China (registration number 110000 1527228). Its registered head office is at 23/F, New Poly Plaza, No. 1 North Chaoyangmen Street, Dongcheng District, Beijing, in the People’s Republic of China. RGL’s principal business activities are conducted in the People’s Republic of China.

RGL conducts business in the area of commodity importing and exporting (including acting as an agent in importing and exporting), storage service, economic information consultation and the sale of products such as:

(a) timber;
(b) iron;
(c) steel;
(d) minerals;
(e) mechanical and electrical equipment;
(f) automotive fittings;
(g) chemical products (excluding dangerous chemicals and precursor chemicals in Category 1);
(h) lubricants;
(i) coke; and
(j) paper pulp.

The country of ultimate control of RGL is, and will remain, the People’s Republic of China.

The major shareholder in RGL is Shanghai Huaxi Industry Co Ltd (registered number 3101132012646) which holds 75.5% of the shares. Shanghai Huaxi Industry Co Ltd is a company registered in Shanghai in the People’s Republic of China. The balance of the shares in RGL is held by minority interests.

Mr Zhenhua You is the sole director of RGL.

14.6 RGL Holdings Co. Ltd

RGL Holdings Co. Ltd (Rh) is a company registered in the British Virgin Islands (registered number 1497715) with its registered office at PO Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands. RH is a wholly owned subsidiary of RGL International Co. Ltd and currently has no assets other than the 20% interest in Ever Green.

14.7 RGL International Co. Ltd

RGL International Co. Ltd is a company registered in Hong Kong (registration number 1273053). It is a subsidiary wholly owned by RGL and currently has no assets other than the 100% interest in RH.

14.8 Pacific Minerals Limited

Pacific Minerals Limited (PML) is a company incorporated in Hong Kong. It is a private company incorporated in Hong Kong (registered number 851193). PML has its registered head office at Suite 2102, 21/F Sino Plaza, 255-257 Gloucester Road, Causeway Bay, Hong Kong. PML’s principal business activities are conducted in the People’s Republic of China.

PML is principally engaged in the provision of support services to the steel-making industry, providing end-to-end supply chain management consisting of the trading of steel-making raw materials, primarily iron ore and coking coal, sourced from Brazil, Australia, Canada and South Africa and distributed into the People’s Republic of China. PML also provides logistical solutions advice and other consultancy services, typically serving small to medium sized steel mills.

The country of ultimate control of PML is, and will remain, Hong Kong.

PML is wholly owned by Pacific International Business Ltd, which is registered in the British Virgin Islands. The shares in Pacific International Business Ltd are held by Mr Cheung (Clement) Ko (100%).

Mr Cheung (Clement) Ko is the chairman and sole director of PML. The directors of Pacific International Business Ltd are Mr Cheung (Clement) Ko and Ms Sarah Siu Ling Chan.

==> picture [568 x 306] intentionally omitted <==

14.9 Pacific International Co. Pty Ltd

Pacific International Co. Pty Ltd is a company registered in Australia (ACN 133 363 265) with its registered office at 60 Wilmot Street, Burnie 7320, Tasmania. It is a subsidiary wholly owned by PML and currently has no assets other than the 12% interest in Ever Green.

14.10 Stemcor Holdings Limited

Stemcor Holdings Limited (Stemcor holdings) is a company incorporated in the United Kingdom (company registration number 01038435). Stemcor Holdings has its registered office at Level 27, Citypoint, 1 Ropemaker Street, London EC2Y 9ST. Its principal business activities are conducted in Australia, Dubai, France, Germany, India, Italy, Singapore, South Africa, Switzerland, the United Kingdom and the USA.

Stemcor Holdings is principally engaged in international trading in both steel products and raw materials for the production of steel. Its services span every step in the steel supply chain and comprise five core competencies: steel trading, raw materials trading, distribution, stockholding and finance.

Stemcor Holdings is owned by the Oppenheimer family (71%) and by other employees (29%). Mr Ralph Oppenheimer, the Chairman, and his immediate family hold 71% of the share capital of Stemcor Holdings.

The Board, comprising twelve executive members and one non-executive member, is responsible for the overall performance of the Group. The executive chairman is Ralph Oppenheimer and the deputy chairman is Philip Edmonds. Other directors are Peter Blohm, Michael Broom, Gerry Craggs, Graham Donnell, David Faktor, Steve Graf, Colin Heritage, David Paul, Chris Rocker, Julian Verden and Paul Whitehead.

14.11 Stemcor Pellets Limited

Stemcor Pellets Limited (Stemcor) is a company incorporated in the United Kingdom (company registration number 02188847). Stemcor has its registered office Level 27, Citypoint, 1 Ropemaker Street, London EC2Y 9ST. Stemcor is a wholly owned subsidiary of Stemcor Holdings Ltd (Stemcor Holdings) and it has no other assets other than its 10% holding in SMAPL.

The country of ultimate control of Stemcor is the United Kingdom.

The country of ultimate control of Stemcor Holdings is, and will remain, the United Kingdom.

==> picture [567 x 306] intentionally omitted <==

15. Additional information relating to resolutions 1 to 4 (inclusive)

15.1 Regulatory requirements

The Corporations Act sets out a number or regulatory requirements that must be satisfied in relation to the issue of Consideration Shares under the Merger the subject of resolutions 1 to 2 (inclusive).

Pursuant to section 606 of the Corporations Act, a person must not acquire a relevant interest in issued voting shares of a listed company if the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person and because of the transaction, that person’s or someone else’s voting power in the company increases:

(a) from 20% or below to more than 20%; or
(b) from a starting point that is above 20% and below 90%.

The voting power of a person in a company is determined in accordance with section 610 of the Corporations Act. The calculation of a person’s voting power in a company involves determining the voting shares in the company in which the person and the person’s Associates have a relevant interest.

A person (second person) will be an ‘Associate’ of the other person (first person) if:

(a) the first person is a body corporate and the second person is:
(i) a body corporate the first person controls;
(ii) a body corporate that controls the first person; or
(iii) a body corporate that is controlled by an entity that controls the person;
(b) the second person has entered or proposed to enter in a relevant agreement with the first person for the purpose of controlling or influencing the composition of the company’s board or the conduct of the company’s affairs; and
(c) the second person is a person with whom the first person is acting or proposed to act, in concert in relation to the company’s affairs.
(c) have power to dispose of, or control the exercise of a power to dispose of, the securities.

It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power.

Section 611 of the Corporations Act provides that certain acquisitions of relevant interests in a company’s voting shares are exempt from the takeover provisions prohibition in section 606(1), including acquisitions approved previously by a resolution passed at a general meeting of the company in which the acquisition is made (item 7 of section 611 of the Corporations Act).

Shareholder approval under item 7 of Section 611 of the Corporations Act is required for resolutions 1 and 2.

15.2 Application of Listing Rule 7.1

Listing Rule 7.1 provides that a company must not, subject to certain exceptions, issue during any 12 month period any equity securities or other securities with rights of conversion to equity (such as an option) if the number of those securities exceeds 15% of the total ordinary securities on issue at the commencement of that 12 month period.

One circumstance where an issue is not taken into account in the calculation of this 15% threshold is where the issue has the prior approval of shareholders in a general meeting pursuant to item 7 of section 611 of the Corporations Act (see Listing Rule 7.2 exception 16). The proposed issues of Consideration Shares under the Merger are being approved under this section and accordingly the exception applies in relation to those issues.

15.3 Terms of Consideration Shares to be issued

Each of the Consideration Shares will rank pari passu with all other Shares.

A person has a relevant interest in securities if they:

(a) are the holder of the securities;
(b) have the power to exercise, or control the exercise of, a right to vote attached to the securities; or

15.4 Timing

If Shareholders approve resolutions 1 to 4 (inclusive), the issue of the Consideration Shares under the Merger will take place 5 business days after the satisfaction or waiver of the last of the conditions in the Share Sale Agreement after the Meeting at the Completion Date and the Company expects that the Consideration Shares will be quoted on ASX shortly after being issued.

15.5 Specific information required by item 7 section 611 of the Corporations Act and ASIC Regulatory Guide 74

Section 611 provides that certain acquisitions of relevant interests in a company’s voting shares are exempt from the prohibition in section 606(1), including acquisitions approved previously by a resolution passed at a general meeting of the company in which the acquisition is made (item 7 of section 611).

The information set out below is required to be provided to Shareholders under the Corporations Act and ASIC Regulatory Guide 74 in respect of obtaining approval for the issue of Consideration Shares under item 7 of section 611 of the Corporations Act. Shareholders are also referred to the Independent Expert’s Report prepared by Lonergan Edwards & Associates annexed to this Explanatory Memorandum as Annexure A.

(a) The Ever Green Sellers’ relationship

Each of the Ever Green Sellers is a member of separate corporate groups. As separate entities they have distinct and independent management and control regimes, with each entity having its own set of corporate governance principles. There is no formal agreement between the Ever Green Sellers in relation to their potential holding in Grange. The only agreements which the Ever Green Sellers have entered into in relation to the Merger are the transaction documents described in the Schedules to this Explanatory Memorandum and escrow arrangements restricting the sale of their Shares in Grange should the Merger be completed. The Ever Green Sellers do not intend to hold their respective holdings in Grange as a block and will retain the ability to sell or otherwise deal with their Shares independently.

The list of ‘Associates’ in section 15.5(b) is therefore a list of each of the Ever Green Sellers’ distinct Associates rather than one list of associated parties.

However, as joint investors who have worked together during their ownership of ABM, there may be times following the Merger where the Ever Green Sellers’ interests are aligned and they act jointly in respect of their investment. As a result, they are deemed to be ‘Associates’ for the purposes of section 606 of the Corporations Act, based on the definition described in section 15.1 and therefore the voting power of each individual Ever Green Seller in Grange will be equal to the aggregate relevant interests held by all Ever Green Sellers and with Ever Lucky, which will be 69.3% on an undiluted basis following completion of the Merger. This represents a controlling interest in Grange.

Therefore Grange Shareholders are being asked to approve the issue of the Consideration Shares to the Ever Green Sellers on the basis that they are Associates and the voting power of each is 69.3%.

As outlined in Section 5.1(a), there is no association between any of the Ever Green Sellers and Stemcor.

(b) Details of ABM Shareholders and their Associates

The background information on the ABM Shareholders is set out in section 14 of the Explanatory Memorandum. A full list of each ABM Shareholder’s Associates is set out in Schedule 3 to this Explanatory Memorandum.

(c) Identity of persons who will hold a relevant interest in the Shares to be allotted in accordance with resolutions 1 to 2 (inclusive) on completion of the Merger

On completion of the Merger, the persons set out in section 14 will hold a relevant interest in the Consideration Shares.

Details of the relevant interest, as at the date of this Explanatory Memorandum, of each ABM Shareholder is set out in section 7.

Details of the following are set out in section 7:

i. the maximum extent of the increase in each ABM Shareholder’s voting power that would result from the Merger; and
ii. the voting power each ABM Shareholder would have as a result of the Merger.

The maximum increase in the voting power of each Associate of each ABM Shareholder, and the maximum voting power that it will have on completion of the Merger is the same as that ABM Shareholder (assuming the capital structure is as set out in section 7 of this Explanatory

Memorandum and no options in Grange are exercised).

The above paragraphs assume that all of the Consideration Shares have been issued and no additional Shares are issued.

(d) Intentions of the ABM Shareholders in relation to Grange

The intentions of the ABM Shareholders in relation to Grange are set out in section 10 of this Explanatory Memorandum.

(e) Capital Structure

The proposed capital structure of the Company following completion of the Merger is set out in section 7 of the Explanatory Memorandum.

(f) Board of Directors

The proposed composition of the Board of the Company following completion of the Merger is set out in section 8 of the Explanatory Memorandum.

(g) Terms of Consideration Shares to be issued

The terms of the Consideration Shares are set out in section 15.3 of the Explanatory Memorandum.

Rationale for the Merger

(h)

An explanation of the rationale for the Merger is set out in section 1 of the Explanatory Memorandum.

(i) Timing

The timing for the issue of the Consideration Shares under the Merger is set out in section 15.4 of the Explanatory Memorandum.

Interests and Recommendations of Directors

The Directors interests and recommendations are set out in section 12 of this Explanatory Memorandum.

(k) Proposed contracts conditional upon, or directly or indirectly dependent on, shareholders’ agreement to the allotment of Consideration Shares

Details of the existing off-take arrangements are set out in section 3.9 and details of proposed off-take arrangements between Shagang and Grange that will be relevant should the Merger proceed are set out in the summary of the Merger Implementation Agreement in Schedule 2.

15.6 Resolutions 1 and 2 – Voting Exclusion Statement

In accordance with item 7 of section 611 of the Corporations Act the Company will disregard any votes cast on resolutions 1 and 2 by the ABM Shareholders and any of their Associates.

15.7 Resolutions 3 – Approval of off-take agreements

(a) Background to resolution 3

On 24 September 2008 SI entered into three off-take agreements with Goldamere Pty Ltd and on 15 March 2005 Evergain entered into an off-take agreement with Goldamere Pty Ltd (Shagang off-take Agreements). For details of the Shagang Off-take Agreements and the parties to those agreements, please see section 3.9.

(b) Listing Rule 10.1 – Acquisition and disposal of substantial assets

Listing Rule 10.1 provides that approval of holders of an entity’s ordinary securities is required where an entity proposes to dispose of a substantial asset to a second entity that is a substantial shareholder, or an Associate of that second entity.

For these purposes:

a. a person is a substantial holder if the person and the person’s “associates” (as that term is defined in section 12 of the Corporations Act) have a relevant interest, or had a relevant interest at any time in the 6 months before the transaction, in at least 10% of the total votes attached to the voting securities; and
b. an asset is a substantial asset if its value, or the value of the consideration for it, is 5% or more of the equity interests of the company as set out in the latest accounts of the company given to ASX under the Listing Rules.

(c) Approval of Shagang off-take Agreements is required

If the Merger proceeds, Shagang will become a substantial holder for the purposes of Listing Rule 10.1. SI and Evergain are Associates of Shagang for the purposes of Listing Rule 10.1.4.

The annual contract value of the assets being sold under each of the Shagang Off-take Agreements exceeds 5% of the equity interests of the Company set out in the Company’s accounts for the half year ended 30 June 2008.

Accordingly, Shareholder approval is required for the Shagang Off-take Agreements under Listing Rule 10.1.

Under Listing Rule 10.10, the notice of meeting is required to contain a report on the transaction from an independent expert stating whether the transaction is fair and reasonable to holders of the Company’s ordinary securities whose votes are not to be disregarded. The report from the Independent Expert is set out in Annexure A of this Explanatory Memorandum. The Independent Expert has concluded that the terms of the Shagang Off-take Agreements are fair and reasonable to Shareholders who are not associated with the ABM Shareholders.

Shareholders are advised to consider the Independent Expert’s Report carefully before deciding how to vote on resolution 3.

If Shareholders approve the disposals contemplated under the Shagang Off-take Agreements, no further approvals will be required in relation to the ongoing operation of those agreements, including in relation to the outcome of price negotiations pursuant to the terms of the Shagang Off-take Agreements. Grange will announce the outcome of pricing negotiations as and when they occur. However, any material amendments to the Shagang Off-take Agreements or new agreements entered into by Grange or a subsidiary of Grange with an entity mentioned in Listing Rule 10.1 will require separate prior approval by Shareholders.

(d) Resolution 3 – voting Exclusion Statement

In accordance with Listing Rules 10.10 and 14.11, the Company will disregard any votes cast on resolution 3 by Evergain, SI and Goldamere, and any of their Associates.

However, the Company need not disregard a vote if it is cast by Evergain, SI or Goldamere as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form or if it is cast by a representative of Evergain, SI or Goldamere chairing the meeting as proxy for a person who is entitled to vote in accordance with a direction on the proxy form to vote as the proxy decides.

==> picture [568 x 306] intentionally omitted <==

15.8 Resolution 4 – Change in scale of activities

Listing Rule 11.1 provides that where an entity proposes to make a significant change, either directly or indirectly, to the scale of its activities, it must provide full details to ASX as soon as practicable. Listing Rule 11.1.2 provides that, if ASX requires, the entity must get the approval of shareholders and must comply with any requirements of ASX in relation to the notice of meeting.

ASX has indicated to the Company that the acquisition of shares in Ever Green and SMAPL by the Company in accordance with resolution 4 will constitute a change in the scale of the Company’s activities and will therefore require the Company to seek the approval of Shareholders under Listing Rule 11.1.2.

For this reason, the Company is seeking Shareholder approval for the Company to change the scale of its activities under Listing Rule 11.1.2.

15.9 Resolution 4 – Voting Exclusion Statement

In accordance with Listing Rules 11.1.2 and 14.11, the Company will disregard any votes cast on resolution 4 by an ABM Shareholder, an Associate of an ABM Shareholder, and a person who might obtain a benefit, except a benefit solely in the capacity of a security holder, if resolution 4 is passed (Excluded Person) and an Associate of an Excluded Person.

==> picture [567 x 306] intentionally omitted <==

16. Resolution 5 – Remuneration of Directors

16.1 Background

The Company had previously (in 2007) set a cap for the Directors’ remuneration for ordinary services under the Constitution at a maximum aggregate of $300,000 per annum. Resolution 5 seeks Shareholder approval to increase the maximum aggregate remuneration payable by the Company to its Directors (as a whole) for their services, other than services performed in an executive capacity (non-executive Services), by $300,000, from $300,000 per annum to $600,000 per annum to be divided amongst the Directors in such proportion and manner as the Directors agree or, in default of that agreement, equally.

Article 10.12 of the Constitution provides that:

“The Directors are entitled to be paid out of the funds of the Company as remuneration for their services as Directors such sum accruing from day to day as the Company in general meeting determines. Until so determined, their aggregate remuneration is to be not more than $100,000 divided among them in such proportion and manner as they agree or, in default of agreement, equally. This Article and Article 10.13 do not apply to the remuneration of Directors for performing services in an executive capacity.”

The maximum aggregate remuneration payable to Directors for Non-executive Services, as provided for in the Constitution and previously approved by Shareholders at a general meeting of Shareholders held in September 2007, is $300,000. At that point there were 3 Non-executive Directors on the Board.

As set out in section 8 of this Explanatory Memorandum, the Company intends to increase the number of Directors to 8 including 7 Nonexecutive Directors. Should this increase in the number of Directors occur and the new Directors are paid remuneration for their Non-executive Services of a similar level to the Directors currently serving on the Board, the total remuneration paid to the Directors could exceed the current $300,000 cap.

Accordingly an increase to $600,000 is considered prudent and the new limit will provide flexibility should resolutions 1 to 4 (inclusive) be passed at the Meeting and circumstances and the size and composition of the Board change.

The total level of Directors’ fees, set at a limit of $600,000 under resolution 5, is considered desirable to ensure the Company is able to attract and retain Directors whose skills and qualifications

are appropriate for a company given the size and nature of Grange’s activities.

The responsibility and obligations of Directors are continually increasing as a result of the growing emphasis in today’s corporate environment on corporate governance. These increased responsibilities and obligations and increases in the general level of remuneration paid to nonexecutive directors in Australia since 2007 are also reasons for the proposed increase in remuneration payable to Non-executive Directors for these services.

It is not proposed initially that the full amount of the $600,000 to be approved by Shareholders will be utilised. The proposed limit is requested to provide flexibility for further increases should circumstances or the size and composition of the Board change.

Pursuant to article 10.12 of the Company’s Constitution and Listing Rule 10.17, the maximum aggregate remuneration to be paid by the Company to its Directors (as a whole) for Nonexecutive Services may only be increased with Shareholder approval. Accordingly, and on the basis of the above, Shareholders are asked to approve an increase in the maximum aggregate remuneration to be paid by the Company to its Directors (as a whole) for Non-executive Services by $300,000, from $300,000 per annum to $600,000 per annum.

16.2 Resolutions dependent

Resolution 5 is dependent on resolutions 1 to 4 (inclusive) being passed. If any of the resolutions 1 to 4 (inclusive) are not passed, then resolution 5 will be taken to have failed.

16.3 Voting Exclusion Statement

In accordance with Listing Rules 10.17 and 14.11, the Company will disregard any votes cast on resolution 5 by a Director and an Associate of a Director.

However, the Company need not disregard a vote if it is cast by a Director as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is cast by a Director chairing the Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

==> picture [135 x 26] intentionally omitted <==

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

17. Glossary
----- End of picture text -----

The following terms and abbreviations used in the Notice of General Meeting and this Explanatory Memorandum have the following meanings:

$	means Australian dollars.
ABM	means Australian Bulk Minerals ABN 30 073 634 581, the trading name of Goldamere.
ABM Shareholders	means the Ever Green Sellers and Stemcor.
AIfRS	means the Australian International Financial Reporting Standards.
ASIC	means the Australian Securities and Investments Commission.
Associate	means an ‘associate’ as defned in section 9 of the Corporations Act, except that a
	reference to ‘Associate’ in relation to a Listing Rule has the meaning given to it in
	Listing Rule 14.11.
ASx	means ASX Limited ACN 008 624 691.
Available Southdown	the Southdown Off-Take, excluding the 30% of that production to which Sojitz is entitled
off-Take	under the Sojitz Joint Venture Agreement.
Australian Consolidated	means the tax consolidated group formed by SMAPL and its wholly owned Australian
Group	subsidiaries from 16 August 2007 in accordance with part 3 – 90 of the Income Tax
	Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth).
Beviron	means Beviron Pty Ltd ACN 078 197 323.
Bluescope	means Bluescope Steel (AIS) Pty Limited ABN 19 000 019 625.
Board	means the Board of Directors from time to time.
Change in Control	in respect of the Company means any person, either alone or together with any
	Associate acquiring a relevant interest (as defned in the Corporations Act) in more than
	50% of the issued Shares in the Company.
CompanyorGrange	means Grange Resources Limited ABN 80 009 132 405.
Completion	means completion of the sale and purchase of the Sale Shares pursuant to the Share
	Sale Agreement.
Completion Date	means the date on which Completion occurs.
Consideration Shares	means 380,025,554 Shares and as set out in section 2 of this Explanatory Memorandum.
Constitution	means the constitution of the Company from time to time.
Corporations Act	means the Corporations Act 2001 (Cth).
Director	means a director of the Company from time to time.
EBIT	means earnings before interest and taxation.
EBITDA	means earnings before interest, taxation, deprecation and amortisation.
Evergain	means Evergain International Corporation registration number 451047, a company
	incorporated in Hong Kong of 1902 Wellnorne Commercial Centre, 8 Java Road,
	Hong Kong.
Ever Green	means Ever Green Resources Co, Ltd registration number 1133902, a company registered
	in Hong Kong.
Ever Green Sellers	means Shagang, RH and PI.

Ever Lucky	means Ever Lucky Developments Limited, registration number 1405866, a company
	incorporated in the British Virgin Islands.
Explanatory Memorandum	means this explanatory memorandum.
Grange Shareholder or	means a holder of a Share.
Shareholder
Goldamere	means Goldamere Pty Ltd ACN 073 634 581.
hamersley holdings	means Hamersley Holdings Limited ACN 008 446 222.
Limited
Independent Expert	means Lonergan Edwards & Associates.
Independent Expert’s	means the report by Lonergan Edwards & Associates included as Annexure A to this
Report	Explanatory Memorandum.
Ivanhoe	means Ivanhoe Mines Ltd, registration number 075217097, a company incorporated
	in Canada.
JSG	means Jiangsu Shagang Group Company Limited registration number 13478927, a
	company incorporated in the People’s Republic of China.
LIBoR	means the London Inter-Bank Offer Rate.
Listing Rules	means the listing rules of the ASX and any other rules of ASX which are applicable while
	the Company is admitted to the offcial list, each as amended from time to time, except
	to the extent of any express written waiver by ASX.
Meeting	means the general meeting of Shareholders convened by the Notice of General Meeting.
Merged Entity	means Grange post-Merger.
Merger	means the proposed merger of Grange and ABM, effected through Grange acquiring
	100% of the holding companies of ABM from Shagang, RH, PI and Stemcor in exchange
	for the issue of approximately 380 million shares in the issued capital of Grange, and as
	set out in section 2 of this Explanatory Memorandum.
Merger Implementation	means the merger implementation agreement dated 24 September 2008 between
Agreement	Shagang and the Company, the terms of which are summarised in Schedule 2 of this
	Explanatory Memorandum.
notice of General	means the notice of General Meeting which accompanies this Explanatory Memorandum.
Meeting
off-take Agreements	means the Shagang Off-take Agreements and the agreements described in section 3.10
	of this Explanatory Memorandum.
PI	means Pacifc International Co. Pty Ltd ACN 133 363 265, a company registered in
	Australia.
PML	means Pacifc Minerals Limited registered number 851193, a company incorporated in
	Hong Kong.
Related Body Corporate	has the meaning given in section 9 of the Corporations Act.
Related Party	means a related party as defned in section 228 of the Corporations Act.
RGL	means RGL Group Co. Ltd registration number 110000 1527228, a company incorporated
	in the People’s Republic of China.

Rh means RGL Holdings Co., Ltd registration number 1497715, a company registered in the British Virgin Islands. Rio Tinto means Rio Tinto Limited ACN 004 458 404. Sale Shares has the meaning given in Schedule 1 of the Explanatory Memorandum. Savage River Project means the iron ore mine and iron ore pellets and concentrate facility located at the Savage River and Port Latta facilities (respectively) in Tasmania, Australia, as described in section 3 of this Explanatory Memorandum. Shagang means Shagang International Holdings Limited registration number 1497243, a company registered in the British Virgin Islands. Shagang Group means Shagang and each of its Related Bodies Corporate (other than the Transaction Entities). Shagang off-take the agreements described in section 3.9 of this Explanatory Memorandum. Agreements Share means a fully paid ordinary share in the capital of Grange. Share Sale Agreement means the share sale agreement dated 24 September 2008 between the ABM Shareholders and the Company, the terms of which are summarised in Schedule 1 of this Explanatory Memorandum. Shareholder means a holder of a Share. SI means Jiangsu Shagang International Trading (Hong Kong) Co. Ltd registration number 320582000071017, a company incorporated in the People’s Republic of China. SMAPL means Shagang Mining (Australia) Pty Ltd ACN 124 436 335. Sojitz means Sojitz Resources & Technology Pty Ltd ABN 91 125 884 326, a subsidiary of Sojitz Corporation of 1-20 Akasaka 6-chome, Minato-ku, Tokyo. Sojitz Joint venture the Joint Venture Implementation Agreement dated 1 June 2007 between Grange and Agreement Sojitz Australia Limited (ABN 16 000 213 132) on behalf of Sojitz. Southdown off-Take the entire production of iron ore pellets and concentrate from the Southdown Magnetite (Iron Ore) Project located near Albany in Western Australia (wA) in which Grange holds a controlling interest. Southdown Project means the Southdown Magnetite (Iron Ore) Project located near Albany in WA in which Grange holds a controlling interest. SRRP means the Savage River Rehabilitation Project. Stemcor means Stemcor Pellets Limited registration number 2188847, a company registered in the United Kingdom. Stemcor holdings means Stemcor Holdings Limited company registration number 01038435, a company incorporated in the United Kingdom. Transaction Entities Ever Green, SMAPL, Beviron and Goldamere, and the Transaction Entity means any of them. wDT means Western Daylight Standard Time.

100

Schedules

101

Schedule 1 – Summary of the Share Sale Agreement

On 24 September 2008, the ABM Shareholders, Grange, Shagang International (Hong Kong) Co., Ltd, RGL International Co. Ltd and Stemcor Holdings Limited entered into the Share Sale Agreement.

The Share Sale Agreement sets out the terms and conditions under which Grange has agreed to buy and the Ever Green Sellers have agreed to sell 100% of the total issued capital in Ever Green and Stemcor has agreed to sell 10% of the total issued capital of SMAPL (together, the Sale Shares). A summary of the key terms of the Share Sale Agreement is set out below:

(a) Conditions precedent

Completion of the Merger is conditional upon:

Grange and the ABM Shareholders each receiving written notice under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (fATA), by or on behalf of the Treasurer of the Commonwealth of Australia stating that the Commonwealth Government does not object to the Merger or the Treasurer is or becomes precluded from making an order in respect of the Merger or if an interim order is made under the FATA in respect of the Merger, the subsequent period for making a final order prohibiting the Merger elapses without a final order being made;
all regulatory approvals required in the People’s Republic of China in order to carry out the Merger being obtained;
the Directors commissioning an Independent Expert’s Report and the Independent Expert’s Report concluding that the Merger is fair and reasonable to Shareholders;
Shareholders approving the Merger by the necessary majority required by any applicable law and the Listing Rules at a meeting of Shareholders;
resolutions to obtain any Shareholder approvals required under applicable laws (and in particular the Corporations Act and Listing Rules) in relation to the existing arrangements in respect of the iron ore pellets and chips produced at ABM’s mining operation in Savage River, Tasmania, being obtained at the Meeting;
there being no change to the business, financial or trading position or prospects of Grange and its Related Bodies Corporate or the operations or assets of Grange and its Related Bodies Corporate which occurs between 1 July 2008 and Completion that has, or is reasonably likely to have, a material adverse effect on Grange or its Related Bodies Corporate, other than:
(i) a change resulting from financial market fluctuations (including the Grange share price), changes in interest rates and changes in tax, securities or other applicable laws;
(ii) a change resulting from the Merger Implementation Agreement, Share Sale Agreement or the confidentiality agreement dated 24 December 2007 between Shagang and Grange (together, the Transaction Agreements) or the Merger;
(iii) a change resulting from conditions affecting the iron ore industry, including changes affecting the iron ore pellet price, concentrate price and chip price (but not changes in steel prices);
(iv) a change to the key valuation assumptions in respect of the Southdown Project (Base Case Assumptions) regarding capital expenditure and operational expenditure where the magnitude of the change is an increase of less than 20% and 15% respectively from the Base Case Assumption level;
(v) a change regarding timing milestones where the magnitude of the change results in a delay of the Southdown production date of less than 6 months from 30 June 2013, assuming the Merger completes before 31 December 2008. The production date will be delayed by the same period as any delay in Completion post 31 December 2008;
(vi) a change which restricts the ability to develop the Kemaman Pellet Project.

A deterioration in the share price of Grange does not constitute a change to the business, financial or trading position or prospects of Grange and its Related Bodies Corporate or the operations or assets of Grange and its Related Bodies Corporate;

there being no change to the business, financial or trading position or prospects of

102

Ever Green or any of its subsidiaries or the operations or assets of Ever Green and any of its subsidiaries which occurs between 1 July 2008 and Completion that has, or is reasonably likely to have, a material adverse effect on Ever Green or any of its subsidiaries, other than a change resulting from:

(i) financial market fluctuations, changes in interest rates and changes in tax, securities or other applicable laws;
(ii) the Transaction Agreements or the Merger; or
(iii) conditions affecting the iron ore industry, including changes affecting the iron ore pellet price, concentrate price and chip price (but not changes in steel prices);
no Director recommending a superior proposal to Shareholders;
Grange obtaining any consent which is required by a third party under a material contract to which Grange or its Related Bodies Corporate is a party in a form reasonably satisfactory to the ABM Shareholders;
the ABM Shareholders obtaining any consent to the Merger which is required by a third party under a material contract to which an ABM Shareholder or any of their related bodies corporate or Ever Green or any of its subsidiaries is a party in a form reasonably satisfactory to Grange;
the ABM Shareholders obtaining a tax ruling from the Australian Tax Office in a form satisfactory to the ABM Shareholders in relation to roll-over relief implications of the Merger; and
Shagang and Grange entering into the Merger Implementation Agreement.

If the conditions set out above are not satisfied or waived on or before 31 December 2008 or such later date as the parties agree, any party may elect to terminate the Share Sale Agreement.

(b) Sale and purchase

The consideration payable by Grange to the ABM Shareholders for the Sale Shares is 380,025,554 fully paid ordinary shares in Grange, which are to be issued to the ABM Shareholders in the following proportions:

Shagang – 232,575,639 Consideration Shares;
RH – 68,404,600 Consideration Shares;
PI – 41,042,760 Consideration Shares; and
Stemcor – 38,002,555 Consideration Shares.

Completion of the sale and purchase of the Sale Shares is to occur at 9.00 am on the day that is 5 business days after satisfaction or waiver of the last of the conditions set out above or at such other date as the ABM Shareholders and Grange agree.

(c) Locked Box

The ABM Shareholders have agreed to ensure the following in respect of the period between 1 July 2008 and the completion of the Merger:

ABM’s working capital as at 30 June 2008 (including further cash generated by the ABM business) has been and will continue to be retained within the ABM business (and no distributions have been or will be made other than those approved by Grange);
The liabilities of the ABM business have been and will continue to be met through the earnings of the ABM business and will not materially increase beyond the liabilities as at 30 June 2008 (except in certain limited circumstances); and
All material assets of the ABM business as at 30 June 2008 have been and will continue to be retained within the business.

(d) Period before Completion

Grange and the ABM Shareholders are required to ensure that the businesses of Grange and its subsidiaries and Ever Green and its subsidiaries, respectively, are conducted materially in the ordinary course from the date of the Share Sale Agreement until Completion or termination of the Share Sale Agreement.

In particular, Grange must not and must procure that its subsidiaries do not issue securities in Grange or any of its Related Bodies Corporate, pay or declare any dividends, enter into material or unusual contracts, change any senior executive arrangements, sell or acquire any material assets, incur any unusual debt, alter its Constitution, incur any capital or operational expenditure inconsistent with its budgets and plans or delay or suspend any internal, environmental and governmental approval procedures or omit to do anything which may place any of the mining tenements or exploration licences held by it in jeopardy or render them liable to cancellation or failure. Similar restrictions apply in respect of Ever Green and its subsidiaries.

103

(e) Assignment of Shareholder loan agreements

On Completion, the Ever Green Sellers must assign to Grange, and Grange must accept the assignment of various loan agreements between Ever Green and the Ever Green Sellers and a loan agreement between Stemcor and SMAPL.

(f) Termination

The Share Sale Agreement may be terminated in the following circumstances:

if the conditions set out above are not satisfied or waived on or before 31 December 2008 or such later date as the parties agree;
the parties may terminate the Share Sale Agreement at any time before Completion if the other party is in breach (including any breach of warranties discussed below), in any material respect, of any of their obligations under the Share Sale Agreement, and that breach is not remedied within 5 business days of being informed in writing of the breach; and
the Share Sale Agreement terminates immediately upon the Merger Implementation Agreement being terminated in accordance with its terms.

(g) warranties

The Share Sale Agreement contains representations and warranties pertaining to Grange, the ABM Shareholders and Ever Green and its subsidiaries which are typical for an agreement of this nature. A brief summary of the key warranties is set out below.

Individual ABM Shareholder Warranties

Each ABM Shareholder provides general corporate warranties including that it is duly incorporated, has full authority and capacity to enter into and perform its respective obligations under the Share Sale Agreement and has full legal and beneficial ownership of the Sale Shares.

Ever Green Warranties

The Ever Green Sellers provide warranties in relation to Ever Green and each of its subsidiaries regarding conduct of business, accounting and record keeping, assets, liabilities and financing arrangements, contracts, property and environment, mining tenements, intellectual property and confidential information, systems, employees and superannuation, legal proceedings, insurance and tax. The Ever Green Sellers also warrant that they have provided all

information that a prospective party in Grange’s position would reasonably require for the purpose of making a decision whether to enter into the Merger.

Grange Warranties

Grange provides general corporate warranties including that it is duly incorporated, has full authority and capacity to enter into and perform its obligations under the Share Sale Agreement, is in compliance in all material respects with all applicable laws, it is not subject to any current, threatened or pending material proceedings, has no outstanding tax liability and has maintained proper and adequate records. Grange also warrants that it has provided all information that a prospective party in the ABM Shareholders’ position would reasonably require for the purpose of making a decision whether to enter into the Merger.

(h) Indemnities

The ABM Shareholders indemnify Grange against any loss suffered by Grange as a result of a breach of warranty.

Grange indemnifies the ABM Shareholders against any loss suffered by the ABM Shareholders as a result of a breach of a Grange warranty.

In addition to the ABM Shareholders’ indemnity for breach of warranty, the Ever Green Sellers have agreed that if Grange, the ABM Shareholders or the Transaction Entities are subject of any demand in relation to tax then, provided that amount is with respect to events occurring in the tax periods ending prior to Completion and is not in relation to any of the Transaction Entities ceasing to be members of the Australian Consolidated Group, the Ever Green Sellers will pay this amount to Grange.

Limitations

A warrantor is not liable under a claim for a breach of warranty under the Share Sale Agreement unless the amount finally agreed or adjudicated to be payable in respect of that claim:

exceeds $1,000,000; and
either alone or together with the amount finally agreed or adjudicated to be payable in respect of other claims exceeds $17,000,000.

The maximum aggregate amount that the warrantor is required to pay in respect of all claims (in respect of warranties given by the warrantor) whenever made is limited to $435,000,000.

104

A party is not liable under a claim for breach of a warranty unless notified within 5 years of Completion in the case of a tax warranty and 12 months in all other cases. A claim for breach of warranty notified must be agreed, compromised or settled within 6 months of notification or legal proceedings issued or served against the relevant party in respect of the claim.

(j) Guarantees

Shagang International (Hong Kong) Co., Ltd and RGL International Co., Ltd have agreed to guarantee to Grange, the due and punctual performance of all present and future obligations of their respective subsidiaries under each Transaction Agreement.

Stemcor Holdings Limited has agreed to guarantee to Grange, the due and punctual performance of Stemcor’s obligations under the Share Sale Agreement. Stemcor Holdings Limited’s liability in respect of a claim made under the Transaction Agreements shall not exceed Stemcor’s liability in respect of that claim and in any event $43,500,000.

(k) Escrow

During the 12 months from the date of the Share Sale Agreement, the Ever Green Sellers must not:

dispose of, sell, transfer, assign, mortgage, encumber or agree (or offer) to do any such acts in respect of, a Consideration Share or any legal, beneficial or economic interest in that Consideration Share;
create or agree to create any security interest in that Consideration Share or any legal, beneficial or economic interest in that Consideration Share; or
do, or omit to do, any act if that act or omission would have the effect of transferring effective ownership or control of that Consideration Share or any legal, beneficial or economic interest in that Consideration Share,

without the written consent of Grange.

105

Schedule 2 – Summary of the Merger Implementation Agreement

The Merger Implementation Agreement terminates immediately upon the Share Sale Agreement being terminated. A summary of termination events under the Share Sale Agreement is set out in Schedule 1.

(c) Exclusivity

On 24 September 2008, Grange and Shagang entered into the Merger Implementation Agreement.

The Merger Implementation Agreement sets out each party’s obligations in connection with the implementation of the Merger. A summary of the key terms and conditions of the Merger Implementation Agreement is set out below.

(a) Implementation

Under the Merger Implementation Agreement, Grange and Shagang have agreed together to develop a plan of actions and steps to assist in the implementation of the Merger following Completion.

Each party is required to take all necessary steps to implement the Merger as soon as reasonably practicable, including taking the following steps.

Grange was required to commission an Independent Expert’s Report and prepare and dispatch a notice of meeting and explanatory memorandum for the purposes of seeking Shareholder approval for the Merger and the existing arrangements (as at the date of the Merger Implementation Agreement) in respect of iron ore pellets and chips produced at ABM’s mining operations in Savage River, Tasmania between Shagang and ABM (off-take Resolutions).

Provided that the Independent Expert’s Report finds that the Merger is “fair and reasonable” to Shareholders not associated with the ABM Shareholders, Grange is required to procure that each Director recommends that Shareholders vote in favour of the Merger and Off-take Resolutions, in the absence of a superior proposal.

(b) Termination

Each party may terminate the Merger Implementation Agreement if the other party is in breach, in a material respect, of its obligations under the Merger Implementation Agreement and that breach is not remedied within 5 business days of the party being informed in writing of the breach.

The parties have mutually agreed that during the period from the date of the Merger Implementation Agreement and the earlier of the termination of the Merger Implementation Agreement and 31 December 2008 (no-Shop Period), neither party:

(i) will directly or indirectly solicit, invite, encourage or initiate any negotiations or discussions with any other party;
(ii) negotiate with or enter into or permit discussions with any other party; or
(iii) allow any other party to continue, commence or conduct any due diligence investigations in relation to Grange or any of its related bodies corporate or the Transaction Entities (as appropriate),

in relation to any proposal to acquire Shares or assets of Grange or any of the Transaction Entities (as appropriate). However, the restrictions in paragraphs (ii) and (iii) will not apply to Grange where there is an unsolicited proposal from a party other than Shagang (or a member of the Shagang Group) to acquire Shares or assets of Grange or any of the Transaction Entities (as appropriate) and the Board has determined (after taking legal advice) that failing to respond to this proposal would constitute a breach of the Directors’ fiduciary duties or statutory obligations.

During the No-Shop Period, in the event that Grange receives an approach in relation to any proposal to acquire Shares or assets of Grange or any of the Transaction Entities (as appropriate), it must give notice of this proposal to Shagang and allow Shagang to make an offer on terms no less favourable than the proposal to acquire Shares or assets of Grange or any of the Transaction Entities (as appropriate).

(d) Payment of costs

Grange and Shagang have agreed that the amount of $2,500,000 (Reimbursement Amount) will become payable in the following circumstances:

Grange will pay the Reimbursement Amount to Shagang if, between the date of the Merger Implementation Agreement and 31 December 2008:

106

(i) any Director:
A. fails to recommend that Shareholders vote in favour of the Merger or withdraws his recommendation; or
B. recommends, promotes or otherwise endorses a competing proposal or any other proposal,

and the Merger does not complete; or

(ii) a person other than Shagang (or an associate of Shagang) acquires control of Grange or any of its subsidiaries or acquires an interest in all or a substantial part of the assets of Grange and its subsidiaries (other than Sojitz’s existing rights under the Sojitz Joint Venture Agreement dated 1 June 2007 between Grange and Sojitz Australia Limited) and the Merger does not complete.

Grange and Shagang will pay the Reimbursement Amount to each other if they are in material breach of their obligations under the Transaction Agreements between the date of the Merger Implementation Agreement and 31 December 2008 and the Merger does not complete.

Grange is not required to pay the Reimbursement Amount where the Independent Expert’s Report concludes that the Merger is not fair and reasonable to Shareholders not associated with the ABM Shareholders, except in circumstances where the independent expert would have formed the view that the Merger was fair and reasonable but for a competing proposal to acquire Shares or assets of Grange or any of the Transaction Entities (as appropriate) or any other proposal (including an internal restructure).

Subject to certain exceptions, neither Grange nor Shagang will be required to pay the Reimbursement Amount if Completion does not occur as a result of any of the conditions precedent under the Share Sale Agreement not being satisfied or waived by 31 December 2008.

(e) Grange Board

On and from Completion, the Board will be comprised of 8 Directors, 6 of whom will be nominated by Shagang, 2 of which will be independent directors and 1 of which will be a non-executive Chairman, who will be nominated by Shagang after reasonable consultation with Grange. Grange and Shagang agree that following Completion there must be, at all times, at least 3 directors on the Board who are independent of Shagang.

(f)

As soon as practicable after Completion, Grange and Shagang will procure that the Board establishes protocols setting out the structures and procedures which will be put in place by the Board to ensure that the consideration by the Board and the management of Grange’s business is undertaken free from any actual or apparent conflict of interest.

Corporate Governance

On and from completion of the Merger, Shagang and Grange have agreed that they will procure that the Shagang nominees appointed to the Board, and the remaining Directors will, comply with all applicable laws and the Listing Rules in relation to any dealings between Shagang (or any of its Related Bodies Corporate) and Grange (or any of its Related Bodies Corporate), including:

(i) obtaining any Shareholder approvals for transactions between Shagang and Grange, where required by any applicable law or the Listing Rules;
(ii) any applicable laws relating to conflicts of interest for Directors and of Directors excluded from voting in relation to matters considered by the Board;
(iii) any applicable laws relating to ‘Related Party’ transactions, given that, on and from completion of the Merger, Shagang (and its Related Bodies Corporate) will be treated as Related Parties of Grange for these purposes; and
(iv) the legal obligations to act in good faith, in the best interests of Grange, and for the proper purposes, and to have regard to the interests of Shareholders and Grange as a whole.

Grange and Shagang have also agreed that each transaction (including any off-take) in which Shagang has an interest must either be:

(i) approved by independent Shareholders where required by legislation or the Listing Rules; or
(ii) approved by a majority of the independent Directors. For the avoidance of doubt, where there is an even number of independent Directors, a majority will be constituted by more than half of the number of independent Directors.

107

The interests of Grange regarding any claims arising out of, or matters relating to, the Merger, the Share Sale Agreement or the Merger Implementation Agreement (including claims in respect of warranties) must be dealt with, considered and determined by the independent Directors, acting in the best interests of Grange. As soon as practicable after completion of the Merger, Shagang and Grange have agreed that they will procure that the Board will establish protocols setting out:

(iii) the structures and procedures which will be put in place by the Board to ensure that the consideration by the Board and management of Grange’s business and the business of its subsidiaries is undertaken free from any actual or the appearance of any conflict of interest; and
(iv) the requirement for each Director of Grange to declare any interest he or she has in the matter being considered by the Board and appropriate measures to be taken upon that declaration.
(g) Southdown off-take

Shagang and Grange have agreed to negotiate in good faith a fair market price for the delivery of approximately 80% of the Available Southdown Off-Take to Shagang or its associates, having regard to following factors in relation to price:

(i) seaborne iron ore supply and demand conditions;
(ii) available published price benchmarks for iron ore;
(iii) product quality differentials; and
(iv) potential freight costs.

Negotiations must be for a period of 3 months, commencing on a date as nominated by Shagang but in any event before any agreement for the supply of Available Southdown Off-Take is entered into between Grange and any third party.

108

Schedule 3 – Associates of ABM Shareholders

(a) Associates of Shagang International holdings Ltd. Evergain International Corporation Ever Lucky Development Limited Fayuan Steel Burden Trade Co., Ltd Hade Union (Zhangjiagang City) Petrochemical Industry Co., Ltd Hongrun Real Estate Development Co., Ltd Iron-making of Jiangsu Shagang Group Co., Ltd Jiangsu Runzhong High-tech Corporation Jiangsu Shagang Group Co., Ltd Jiangsu Shagang Group Huaigang Special Steel Co., Ltd Jiangsu Shagang Group Xinrui Special Steel Co., Ltd Jiangsu Shagang Group Zhangjiagang Kaihua Press Co., Ltd Jiangsu Shagang International Trade Co., Ltd Jiangsu Yong Steel Group Co., Ltd Jiangyin City Runde Assets Co., Ltd Jinde Trade Co., Ltd Qianyuan Metal Trade Co., Ltd Rongde Trade Co., Ltd Runyuan Stainless Steel Co., Ltd Shagang (Singapore) Pte Ltd Shagang Group Living-service Co., Ltd Shagang International (Hong Kong) Co. Ltd. Shagang International Holdings Ltd. Shagang Mining (Australia) Pty Ltd Shagang Occupation-service & Human resource Development Co., Ltd Shagang Shipping Co., Ltd Shagang SouthAsia (Hong Kong) Trading Co., Ltd Shajing International Trade Co., Ltd Mr Wenrong Shen Zhangjiagang City Hongda Transportion Co., Ltd Zhangjiagang City Huadong Scrap steel Trade Co., Ltd

Zhangjiagang City Pharmaceutical Factory Zhangjiagang City Scrap Steel Processing & Supplying Company Zhangjiagang City Shagang Copper Co., Ltd Zhangjiagang City Yong’an Steel Co., Ltd Zhangjiagang East Gas-making Corporation Zhangjiagang Haili-wharf Co., Ltd Zhangjiagang Hengchang Neotype Tignum Co., Ltd

Zhangjiagang Hengchang Precision milling Co., Ltd Zhangjiagang Hengle Neotype Tignum Co., Ltd Zhangjiagang Hongchang Gas-making Co., Ltd Zhangjiagang Hongchang High-speed Wire Co., Ltd Zhangjiagang Hongchang Pelletzing Co., Ltd Zhangjiagang Hongchang Ship-tearing Co., Ltd

Zhangjiagang Hongchang Steel-bar Co., Ltd Zhangjiagang Hongchang Steel-plate Co., Ltd Zhangjiagang Hongfa Steel-making Co., Ltd Zhangjiagang Hongxing High-speed Wire Co., Ltd Zhangjiagang Huasha Auto-development Co., Ltd Zhangjiagang Huasheng Iron-making Co., Ltd Zhangjiagang Jingde Steel-plate Co., Ltd Zhangjiagang Posco Stainless Steel Co., Ltd Zhangjiagang Pusha-wharf Co., Ltd Zhangjiagang Rongde Stainless-steel Product Co., Ltd Zhangjiagang Rongsheng Steel-making Co., Ltd Zhangjiagang Runzhong Steel Co., Ltd Zhangjiagang Sanhe-Shagang High-temperature Technology Co., Ltd

Zhangjiagang Shagang Tongxin Galvanized – steel Co., Ltd Zhangjiagang Shajing Steel Co., Ltd Zhangjiagang Shajing Wide & heavy Plate Co., Ltd Zhangjiagang Shatai Steel Co., Ltd Zhangjiagang Xiaosha Steel Processing Co., Ltd Zhangjiagang Xingrong Coated Board Co., Ltd Zhangjiagang Xingrong Iron-making Co., Ltd Zhangjiagang Yongxin Steel Co., Ltd

(b) Associates of RGL holdings Co Ltd. Alasan Meng Huaxi Trading Co., Ltd. Alasan Meng Jinganglian Co., Ltd. Alasan Meng RGL Industry Development Co., Ltd. Beijing RGL Science Development Co., Ltd. Fujian RGL Trading Co.,Ltd. Fuzhou RL Steel Co.,Ltd. Fuzhou RL Trading Co.,Ltd. Jiaozuo Ruiwang Industry Co.,Ltd. RGL Group Co., Ltd RGL International Co., Ltd Shanghai Huaxi Industry Co., Ltd. Shanghai Jingxi Industry Co., Ltd. Shanghai Ruixilian Industry Co., Ltd. Shanghai Ruixilian Trading Co., Ltd. Shanghai Ruiyelian Industry Co., Ltd. Shenzhen RGL Industry Co., Ltd. Wuhan RGL Industry and Trade Co., Ltd. Yiyang Yifeng Road and Bridge Development Co., Ltd. Mr Zhenhua You (c) Associates of Pacific International Co Pty Ltd. Acefair Pacific Limited Eastchoice Pacific Limited Ever Green Resources Co., Limited (Formerly known as Shagang Mining Co., Ltd.) Fastlane Limousine Co., Ltd. (Acefair Pacific Ltd. is 60% shareholder) Mr Cheung (Clement) Ko Mainway Resources Limited Mineral Power Limited

109

Pacific International Business Limited Pacific International Co., Pty Ltd. Pacific Minerals Investment Limited Pacific Minerals Limited Pacific Minerals Trading Limited Pacific Shipping Limited Shanghai Pacific Minerals Limited Suzhou Metallurgical Resources (Hong Kong) Company Limited

(d) Associates of Stemcor Pellets Limited 2nd Steel Link Ltd Alphasteel Sales (Exports) Ltd Alphasteel Sales Ltd Ansteel Spain SL Aryan Mining & Trading Corporation Private Ltd B&M Steel Ltd Barclay & Mathieson Ltd Beviron Pty Ltd Brahmani River Pellets Ltd Clyde Corrosion Control Ltd Clydesdale Steel Fabrications Ltd Dominant Holdings AG Eric Uldry SA Eurometal Ltd Eurosteel (Portugal) Comercio Internacional Lda Eurosteel AG Eurosteel Espana S.A. Eurosteel Ltd Eurosteel Products Ltd Eurosteel UK Ltd Goldamere Pty Ltd Hindusian Tin Works Kenilworth Steel Co. Kilau Investments Ltd L.W. Lambourn Nigeria Ltd Liverpool Steel Services Ltd LW Lambourn & Co. Ltd Mideast Integrated Steel Ltd MTR Stemcor LLC OKS Otto Knauf GmbH Mr Ralph Oppenheimer Otto Knauf GmbH Phoenix Marine Ltd Plasmacut Ltd S&W Rohr Tech GmbH S+B Flachstahl GmbH Samac Agencies Ltd Samac Steel Supplies Plc Sathavahana Ispat Ltd Schmolz & Bickenbach Flachstahl GmbH SDG Ltd Sirnium Steel Trading d.o.o. SMR Steel (Pty) Ltd South Asia Steel Works Holdings Ltd South Asia Steel Works Pakistan (PVT) Ltd Steel Plate & Sections FZE Steel Plate & Sections Ltd Steel Plate & Sections Scotland Ltd

Stemcor (Guernsey) Ltd Stemcor (SEA) Pte Ltd Stemcor AG Stemcor Australia Proprietary Ltd Stemcor Cast Iron Investments Ltd Stemcor Cyprus Holdings Ltd Stemcor Deutschland Holding GmbH Stemcor do Brasil Representações e Serviços Ltda Stemcor Engineering Ltd Stemcor Europe AG Stemcor Europe Ltd Stemcor Ferro Alloys AG Stemcor Financial Services Ltd Stemcor France Holdings SAS Stemcor France SAS Stemcor Global Investments Ltd Stemcor GmbH Stemcor Hellas Trade Ltd Stemcor Holdings Limited Stemcor India Holdings Ltd Stemcor India Ptr Ltd Stemcor International Ltd Stemcor Investments Ltd Stemcor Iron Ore Holdings Ltd Stemcor Italia Srl Stemcor Japan Ltd Stemcor Ltd Stemcor MESA DMCC Stemcor Metals Ltd Stemcor Morocco SARL Stemcor Orissa Holdings Ltd Stemcor Pacific Ltd Stemcor Pellets Ltd Stemcor Plate Holdings Ltd Stemcor Plate Investments Ltd Stemcor Risk Management AG Stemcor SEA Pte Ltd Stemcor Shipping Ltd Stemcor South Africa Pty Ltd Stemcor South Asia Holdings Ltd Stemcor Steel Ltd Stemcor Steel SL Stemcor Trade Finance GmbH Stemcor Trade Finance Ltd Stemcor Trading Services Limited Stemcor UK Ltd Stemcor USA Incorporated Tatham Miller Ltd Tatham Steels Ltd The Link Steel Co Ltd The Steel Marketing Corporation Ltd Uldry do Brazil Acos Especials Ltda Uldry Trading SA Vanesco Ltd WSK GmbH WSK Stahlhandels GmbH Zhugang Ltd

110

Annexure A – Independent Expert’s Report

The Directors Grange Resources Limited Level 11 200 St Georges Terrace Perth WA 6000

ABN 53 095 445 560 AFS Licence No 246532 Level 27, 363 George Street Sydney NSW 2000 Australia GPO Box 1640, Sydney NSW 2001

Telephone: [61 2] 8235 7500 Facsimile: [61 2] 8235 7550 www.lonerganedwards.com.au

28 October 2008

Subject: Merger of Grange Resources Limited and Australian Bulk Minerals

Dear Directors

Introduction

1 On 25 September 2008 Grange Resources Limited (Grange) announced that it had entered into binding agreements to merge with Australian Bulk Minerals (ABM) (the Merger). Under the Merger, Grange will issue scrip to acquire all the shares of Ever Green Resources Co Ltd (Ever Green) from Shagang International Holdings Limited (Shagang), RGL Holdings Co Ltd (RH) and Pacific International Co. Pty Ltd (PI) (collectively, the Ever Green Sellers) and 10% of Shagang Mining (Australia) Pty Ltd (SMAPL) from Stemcor Pellets Limited (Stemcor). The other 90% of SMAPL is owned by Ever Green.
2 Grange will therefore obtain 100% ownership of Ever Green and all its subsidiaries, which we refer to collectively in this report as ABM (because the operating business of this group trades under the name Australian Bulk Minerals). The consideration for ABM will comprise approximately 380 million Grange shares. Post the Merger the combined group will have approximately 495 million shares on issue on an undiluted basis[1] .

Scope

3 If the Merger is approved and all conditions are satisfied, the proposed share issue will result in ABM’s shareholders owning approximately 77% of the undiluted shares in Grange. After the Merger the Ever Green Sellers in aggregate will hold Grange shares comprising some 69% of the issued capital of Grange on an undiluted basis. Because the Ever Green Sellers are associates under the Corporations Act 2001 (Cth) (Corporations Act), there is a regulatory requirement for Grange to commission an independent expert’s report (IER). Consequently, the Directors of Grange have engaged Lonergan Edwards & Associates Limited (LEA) to prepare an independent expert’s

1 On a fully diluted basis, including outstanding Grange options (that are currently out of the money) the number of shares on issue would be 505 million.

Liability limited by a scheme approved under Professional Standards Legislation

==> picture [152 x 38] intentionally omitted <==

report stating whether, in our opinion, the issue of shares to the Ever Green Sellers is “fair and reasonable” to the current shareholders in Grange.

4 As part of the Merger, Grange shareholders are also being asked to approve the continuation of the existing off-take agreements between ABM and companies associated with Shagang (the Shagang Off-take Agreements) as these contracts would be with substantial holders of Grange after the Merger. We have therefore also been asked to provide an opinion on whether the continuation of these contracts is fair and reasonable to non-associated Grange shareholders.

Profile of Grange

5 Grange Resources Limited (Grange) is an Australian Securities Exchange (ASX) listed company based in Western Australia. Its primary activity is the development of the Southdown Magnetite (Iron Ore) Project[2] (the Southdown Project). It is also involved in the development of the Bukit Ibam Iron Ore Project (Bukit Ibam Project) in Malaysia. In addition Grange is entitled to a mine royalty and carries out a number of small scale exploration projects.

Profile of ABM

6 ABM owns the Savage River Project, an operating magnetite mine and pellet plant located in Tasmania. The primary assets of the company encompass:
(a) a number of open pits, a concentrator and other requisite mining infrastructure
(b) an 83km slurry pipeline to Port Latta; and
(c) a pellet plant and dedicated port facilitates at Port Latta.

Summary of opinion

7 LEA has concluded that:
(a) the consideration that will be received for the shares that will be issued under the Merger is fair and reasonable
(b) the advantages of the Merger outweigh the disadvantages for the nonassociated Grange shareholders; and
(c) the continuation of the Shagang Off-take Agreements[3] is, in the context of the Merger, fair and reasonable to the non-associated

2 This project is planned to include a pellet plant to be located at Kemaman in Malaysia.

3 Which will be transactions with substantial holders of Grange after the Merger.

8 We have arrived at these conclusions for the reasons set out below.

==> picture [152 x 38] intentionally omitted <==

Grange shareholders.

Valuation of consideration

9 LEA have valued the net consideration to be received for the issue of the shares at between A$1.09 per share and A$1.21 per share that will be issued, as summarised below:

Consideration - Valuation
	Low A$m High A$m
DCF value of mining operations under base scenario Less value of deferred payments under base scenario Less other debt Market value of hedge position (after tax) Less ABM transaction costs Total equity value of ABM Less Grange additional transaction costs Total value of net consideration Share to be issued (millions) Value per share	827 874 (292) (292) (80) (80) (23) (23) (13) (13)
	419 466 (5) (5)
	414 461
	380 380 $1.09 $1.21

Valuation of Grange

10 LEA has valued 100% of the shares in Grange at between $0.64 and $0.81 per share, as summarised below:

Grange - Valuation
	Low A$m High A$m
Value of 70% interest in Southdown Project Value of 51% interest in Bukit Ibam Project Valuation of royalties and other net assets Total equity value Number of shares currently on issue (millions)(1) Value per share (A$)	50 70 5 5 18 18
	73 93
	115.3 115.3 $0.64 $0.81

Note:

1 There are outstanding options but there are out of the money and unlikely to be exercised at current prices.

==> picture [152 x 38] intentionally omitted <==

Assessment of fairness

11 Pursuant to ASIC Regulatory Guideline 111, an offer is “fair” if:

“the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer”.

12 LEA has valued 100% of the shares in Grange on a controlling interest basis at between A$0.64 and A$0.81 as summarised in Section VIII.
13 LEA has valued the net consideration, being the value of ABM less the additional transaction costs that will be incurred by Grange if the Merger is approved, at A$1.09 to A$1.21 per share to be issued, as summarised in Section VII.
14 As the consideration offered is greater than the value of the securities, we are of the opinion that the consideration offered for the securities to be issued is fair.

Assessment of reasonableness

15 Pursuant to ASIC Regulatory Guideline 111, an offer is “reasonable” if, it is fair.
16 We therefore conclude that the consideration that will be received for the securities to be issued is reasonable.

Advantages and disadvantages of the Merger

17 We have considered the advantages and disadvantages to non-associated Grange shareholders of approving or rejecting the Merger, including:

Advantages if the Merger is approved

(a) Increased value per share

Because the value of assets acquired per share issued (A$1.09 to A$1.21) is higher than the existing value per issued share (A$0.64 to A$0.81), the value per share will increase.

(b) Proposed Merger ratio is favourable under a wide range of scenarios

We have considered the relative value of Grange and ABM in a range of scenarios for future iron ore prices. The proposed ratio under the Merger (being roughly 23% / 77%) is more favourable to the nonassociated Grange shareholders than our calculated ratio in all cases except very high iron ore prices (more than 59% above best estimate

==> picture [152 x 38] intentionally omitted <==

prices for 2013).

Grange will become a current producer with cash flow and substantial tangible net assets. This will give it greater flexibility and may also lead to greater attention from analysts and investors.

(d) Increased ability to self-fund the Southdown Project

The cash flow and additional borrowing capacity from ABM assets will improve Grange’s ability to fund its share of the Southdown Project. It is likely that the dilution of existing shareholder interest in the Southdown Project will be less under the Merger than if Grange continued on a standalone basis.

(e)

Reduced downside risk from lower iron ore prices

ABM’s operating business is still profitable at iron ore prices well below the level at which the Southdown Project is uneconomic.

(f) Gain access to skills and knowledge

ABM has a long history of operating a magnetite mine, slurry pipeline and pellet plant. Therefore, the skills set and knowledge of its staff and management would be very useful in developing and operating the Southdown Project.

(g) Relationship with Shagang

Shagang (which will have some 47% of Grange post Merger) is part of a large steel making group, and will be a natural customer for Grange’s production. In addition, this relationship may provide Grange with access to funds and opportunities not otherwise available to it.

Disadvantages if the Merger is approved

(a) Impact on voting power and ownership

The Ever Green Sellers will own some 69% of Grange post Merger and hence will control Grange.

(b) Reduced possibility of receiving a future takeover offer

If the Merger is approved it is very unlikely that the non-associated shareholders will obtain the opportunity to share in a future takeover

==> picture [152 x 38] intentionally omitted <==

premium, because the Ever Green Sellers will already control Grange[4] .

Under the Merger, Grange will have in place off-take agreements with Shagang (or its subsidiaries) covering most of ABM’s production and provide Shagang a first right to negotiate for 80% of Southdown production. One of these agreements (signed in March 2005) is below current market prices, which is reflected in our calculation of value for ABM. The presence of these off-take arrangements further increases the difficulty faced by a party that might otherwise seek to gain access to iron ore supply by way of a takeover offer for Grange.

(d) Increased liabilities

Under the Merger, the enlarged Grange group will have additional liabilities including the deferred consideration payments and debt of ABM. While these will be covered by ABM’s cash flow in most circumstances, there is some increased risk.

(e) Transaction costs

If the Merger is approved there will be addition A$18.2 million of costs incurred (A$13 million by Ever Green and A$5.2 million by Grange). We have allowed for these in our valuation of the consideration to be received. However, there may be additional costs (eg transfer taxes) if current advice turns out to be incorrect.

Advantages if the Merger is rejected

(a) Existing shareholders retain control

Clearly, without the Merger existing shareholders will retain control of Grange and also retain the possibility that they may receive an opportunity to exit at a price including a control premium.

(b) Retain high upside exposure to very high iron ore prices

Due to its high capital costs to implement, the value of the Southdown Project increases rapidly as iron ore prices increase past the level at which the project has a nil NPV. However, this break-even price level is some 50% higher than current consensus iron ore price expectations for 2013 and later (ie when the Southdown Project would be

4 However, should the Ever Green Sellers decide to sell or receive an attractive offer for their interests it is possible that the non-associated Grange shareholders will have the opportunity to participate in a takeover premium being offered.

producing).

==> picture [152 x 38] intentionally omitted <==

Disadvantages if the Merger is rejected

(a) Largely reliant on one single project

Without the Merger, the value of Grange would be highly dependent on the value of a single project, ie the Southdown Project, with its consequent risks and uncertainties. This is particularly risky because the Southdown Project is only valuable under very high iron ore pries (mainly due to its high capital costs).

(b) Risk that capital to finance the Southdown Project may not be available

Current capital market conditions are very difficult and the ability of Grange to obtain all the funds needed to develop the Southdown Project is uncertain, even if the expectations for iron ore prices improved. We note that Grange has been actively searching for additional joint venture partners or other methods of funding this project for some time (including periods where iron ore price expectations were stronger than now) with limited success.

Grange would need a very large amount of capital to pay its share of the equity funding required to develop the Southdown Project[5] . On reasonable assumptions, the extent of dilution in the existing Grange shareholders’ interest in the Southdown Project would be very large and, in our opinion, likely to be greater than the dilution of the current Grange shareholders interest in Southdown under the Merger (and subsequent capital raisings).

(d) Potential fall in share price

In our opinion the current Grange share price reflects an expectation that the Merger adds value and will be approved. Rejection would therefore be very likely to cause a fall in the Grange share price, at least in the short-term, so that Grange’s share price would become more consistent with the market values of other prospective iron ore producers.

5 Capital expenditure of the Southdown Project is estimated at US$1.6 billion. Grange’s 70% share of this would be US$1.1 billion or A$1.6 billion, although some of this amount could be provided by project debt rather than equity funding.

==> picture [152 x 38] intentionally omitted <==

Conclusion

18 Overall we would consider that the advantages of the Merger outweigh the disadvantages for non-associated Grange shareholders.

Shagang Off-take Agreement

19 There are four off-take agreements between ABM and companies associated with Shagang. One of these agreements is at below current market prices and reduces the value of ABM by some A$46 million, which is included in our valuation of the consideration. One of the agreements has annual price negotiations, but post Merger each year’s price must be approved by the independent Grange directors. The other agreements have prices set by external benchmark prices.
20 Overall the contracts provide reasonable surety that most of ABM’s output will be sold, even in adverse market conditions.
21 In our opinion, the other advantages of the Merger fully compensate the nonassociated Grange shareholders for the disadvantages of these contracts. Shareholder approval of the continuation of these contracts is a condition for the Merger to proceed. We therefore conclude that the continuation of these contracts is, in the context of the Merger, fair and reasonable to the nonassociated shareholders.

Other matters

22 The ultimate decision whether to approve the Merger should be based on each shareholder’s assessment of their own circumstances, including their risk profile and expectations as to value and future market conditions. If shareholders are in doubt about the action they should take in relation to the Merger or matters dealt with in this report, shareholders should seek independent professional advice.
23 For our full opinion on the Offer, and the reasoning behind our opinion, we recommend that Grange shareholders read the remainder of our report.

Yours faithfully

Martin Hall Authorised Representative

Craig Edwards Authorised Representative

==> picture [152 x 38] intentionally omitted <==


Section		Paragraph
I Outline of the Offer 24 – 30 Conditions 31 II Scope of our report Purpose 32 – 35 Basis of assessment 36 – 40 Limitations and reliance on information 41 – 46 III Profile of Grange Overview 47 Current operations 48 – 69 Financial performance 70 – 71 Financial position 72 Share capital 73 – 75 Share price performance 76 – 78 IV Profile of ABM Overview 79 History 80 – 85 Current operations 86 – 100 Financial performance 101 – 105 Financial position 106 – 111 V Overview of the iron ore market 112 Overview 113 – 118 Hematite 119 Magnetite 120 – 123 Global steel production 124 – 127 The global iron ore market 128 – 132 The iron ore pellet market 133 – 135 Iron ore pricing 136 – 144 Outlook 145 – 157 VI Basis of valuation Valuation approach 158 – 162 Methodology selected 163 – 166 VII Valuation of net consideration 167 Saleable production 168 – 171 Future iron ore prices 172 –177 Other cash flows 178 – 186

==> picture [152 x 38] intentionally omitted <==

Section		Paragraph
Taxation 187 – 188 Discount rate 189 – 190 Conclusion 193 – 202 VIII Valuation of Grange 203 Southdown Project 204 – 225 Bukit Ibam Project 226 – 229 Valuation of royalties 230 – 232 Valuation of other assets and liabilities 233 Conclusion 234 – 235 IX The Shagang Off-Take Agreements 236 – 239 X Evaluation of the Merger Summary of opinion 240 –241 Assessment of fairness 242 – 245 Assessment of reasonableness 246 – 247 If the Merger is approved 249 – 268 If the Merger is rejected 272 – 280

Appendices
A	Financial Services Guide
B	Qualifications, declarations and consents
C	Comparable iron ore companies
D	Transaction information
E	Assessment of appropriate discount rate
F	Key elements of Mining One report
G	Key elements of Promet report
H	Glossary

==> picture [152 x 38] intentionally omitted <==

I Outline of the Offer

24 On 25 September 2008 Grange Resources Limited (Grange) announced that it had entered into binding agreements to merge with Australian Bulk Minerals (ABM) (the Merger). Under the Merger, Grange will issue scrip to acquire all the shares of Ever Green Resources Co Ltd (Ever Green) from Shagang International Holdings Limited (Shagang), RGL Holdings Co Ltd (RH) and Pacific International Co. Pty Ltd (PI) (collectively, the Ever Green Sellers) and 10% of Shagang Mining (Australia) Pty Ltd (SMAPL) from Stemcor Pellets Limited (Stemcor). The other 90% of SMAPL is owned by Ever Green.
25 Grange will therefore obtain 100% ownership of Ever Green and all its subsidiaries, which we refer to collectively in this report as ABM (because the operating business of this group trades under the name Australian Bulk Minerals). The consideration for ABM will comprise approximately 380 million Grange shares. Post the Merger the combined group will have approximately 495 million shares on issue on an undiluted basis[6] .
26 Ever Green is owned by Shagang (68.0%), RH (20.0%) and PI (12.0%). We understand that the Ever Green Sellers are independent of each other but have acted in concert historically. Further, as there are likely to be times when the Ever Green Sellers’ interests are aligned, they may continue to act jointly in respect of their investment. As a result the Ever Green Sellers are deemed to be associates under Section 606 of the Corporations Act.
27 If the Merger is approved, the Ever Green Sellers in aggregate will hold some 69% of the shares in Grange post the Merger. Shagang individually will hold some 47% of the issued shares of Grange post the Merger, and will therefore have effective control even without considering the other Ever Green shareholders.
28 The transaction will involve the issue of 380 million shares, to be allocated as follows:
(a) Shagang will receive 232.6 million shares (b) RH will receive 68.4 million shares (c) PI will receive 41.0 million shares; and (d) Stemcor will receive 38.0 million shares.

6 On a fully diluted basis including the total outstanding Grange options (that are currently out of the money) the number of shares on issue would be 505 million.

==> picture [152 x 38] intentionally omitted <==

29 Post the Merger the enlarged Grange will have approximately 495 million shares on issue on an undiluted basis[7] . The proportionate ownership of the existing Grange shareholders[8] will be 23.3%, as follows:

==> picture [327 x 195] intentionally omitted <==

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

Existing Grange New Grange
shareholders shareholders
23.3% 76.7%
Grange Resources
51.0% 70.0% 100.0%
Bukit Ibam Project Southdown Project Savage River Project
----- End of picture text -----

30 In addition post Merger the enlarged Grange group will take on the net debt and deferred consideration liabilities of ABM. The deferred consideration relates to the sale of 90% of ABM by the previous owners to SMAPL and included a mixture of fixed payments and royalty type arrangements totalling some A$350 million as at 30 June 2008.

Conditions

31 The Merger is subject to the following conditions (amongst others):
(a) approval by a simple majority of Grange shareholders at a General Meeting which is expected to take place in December 2008
(b) approval by a simple majority of Grange shareholders of the continuation of the Shagang Off-take Agreements
(c) an independent expert concluding that the transaction is “fair and reasonable” to the shareholders of Grange
(d) no superior offer being recommended by the Board of Grange
(e) both Grange and the Associated Shareholders obtaining Foreign Investment Review Board (FIRB) approval for the transaction

7 On a fully diluted basis, including outstanding Grange options (that are currently out of the money) the number of shares would be 505 million.

8 Including 0.2% owned by an associate of Shagang.

==> picture [152 x 38] intentionally omitted <==

(f) Shagang and RGL obtaining requisite approvals from relevant Chinese authorities
(g) there being no material adverse change in relation to either the ABM or Grange business
(h) other customary conditions for this type of transaction.

==> picture [152 x 38] intentionally omitted <==

II Scope of our report

Purpose

32 If the Merger is approved and all conditions are satisfied, the proposed share issue will result in ABM’s shareholders owning approximately 77% of the undiluted shares in Grange. After the Merger the Ever Green Sellers in aggregate will hold Grange shares comprising some 69% of the issued capital of Grange on an undiluted basis.
33 Section 606 of the Corporations Act generally prohibits the acquisition of a relevant interest in issued voting securities of an entity if the acquisition results in a person’s voting power in a company increasing from below 20% to more than 20%, or from a starting point between 20% and 90%, without making an offer to all securityholders of the entity[9] . An exception to this general prohibition is set out in Section 611(7), whereby such an acquisition is allowed where the acquisition is approved by a majority of securityholders of the entity at a general meeting and no votes are cast in respect of securities held by the acquirer or any of its associates.
34 Regulatory Guide 111 sets out the view of Australian Securities & Investments commission (ASIC) on the operation of Section 611(7) of the Corporations Act. Section 611(7) of the Corporations Act allows shareholders to waive the prohibition in Section 606. ASIC Regulatory Guide 111 requires that shareholders approving a resolution pursuant to this section be provided with all material information in relation to the proposed transaction including an IER.
35 It is possible that the Ever Green Sellers may be considered associates under the Corporations Act. The Directors of Grange have therefore engaged LEA to prepare an independent expert’s report stating whether, in our opinion, the issue of shares to the Ever Green Sellers is “fair and reasonable” to the nonassociated shareholders of Grange. We have also been requested to opine on the reasonableness of the continuation of the Shagang Off-take Agreement.

Basis of assessment

36 In preparing our report, we have given due consideration to ASIC Regulatory Guide 111 “Content of Expert Reports”. ASIC Regulatory Guide 111 states that an issue of shares requiring approval under item 7 of section 611 of the Corporations Act[10] should be analysed as if it were a takeover bid under Chapter 6[11] . Accordingly, the expert is required to assess the transaction in

9 Subject to the 3% every six months “creep provisions”.

10 In particular, the acquisition of an interest of greater than 20% in the acquiring entity by the vendor, by the issue of shares by the acquirer to the vendor.

11 RG111.21 provides an example of such an issue of shares that is comparable to a takeover bid, being where a company issues shares to a vendor of another entity or the vendor of a business and as a consequence, the vendor acquires over 20% of the company incorporating the merged business.

==> picture [152 x 38] intentionally omitted <==

terms of the convention established for takeovers pursuant to section 640 of the Corporations Act), being:

(a) is the offer “fair” and
(b) is it “reasonable”[12] .
37 When assessing takeovers, an offer is “fair” if the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer. Further, this comparison should be made assuming 100% ownership of the company and is irrespective of whether the offer is cash or scrip.
38 An offer is “reasonable” if it is fair. An offer may also be reasonable if, despite being “not fair”, there are sufficient reasons for securityholders to accept the offer in the absence of any higher bid before the close of the offer.
39 Specifically, for the purpose of assessing an issue of shares where the allottee acquires greater than 20%, Regulatory Guide 111 requires that the value of the consideration offered be assessed against the value of the shares issued to the allottee on a controlling interest basis (ie including a control premium).
40 Regulatory Guide 111 also states that the expert should identify the advantages and disadvantages of the proposal to the shareholders not associated with the transaction, and should provide an opinion on whether the advantages of the proposal outweigh the disadvantages[13] .

Limitations and reliance on information

41 Our opinion is based on the economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. In particular, at present markets globally are exhibiting unusually high volatility including large fluctuations in both share and commodity price levels, decreases in the availability of financing and also large changes in expectations about future economic conditions.
42 Our report is also based upon financial and other information provided by or on behalf of Grange and ABM. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld. The information provided was evaluated through analysis, enquiry and review for the purpose of forming an opinion as to whether the Merger and Shagang Off-take Agreements are fair and reasonable. However, in assignments such as this, time is limited and we do not warrant that our enquiries have identified or verified all of the matters which an audit, extensive examination or “due diligence” investigation might disclose. None of these additional tasks have been undertaken.

12 RG111.23 and RG111.9. 13 RG111.39.

==> picture [152 x 38] intentionally omitted <==

43 We understand the accounting and other financial information that was provided to us has been prepared in accordance with the Australian equivalent to International Financial Reporting Standards (AIFRS).
44 An important part of the information base used in forming an opinion of the kind expressed in this report is the opinions and judgement of management of the relevant companies. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation.
45 We in no way guarantee the achievability of budgets or forecasts of future profits. Budgets and forecasts are inherently uncertain. They are predictions by management of future events which cannot be assured and are necessarily based on assumptions of future events, many of which are beyond the control of management. Actual results may vary significantly from forecasts.
46 We have assumed that the forecasts have been prepared fairly and honestly, based on reasonable grounds and the information available to management at the time and within the practical constraints and limitations of such forecasts. We have assumed that management have reasonable grounds for the forecasts and the forecasts do not reflect any material bias. We have no reason to believe that these assumptions are inappropriate.

==> picture [152 x 38] intentionally omitted <==

III Profile of Grange

Overview

47 Grange Resources Limited (Grange) is an ASX listed company based in Western Australia. Its primary activity is the development of the Southdown Magnetite (Iron Ore) Project[14] (the Southdown Project). It is also involved in the development of the Bukit Ibam Iron Ore Project (the Bukit Ibam Project). In addition Grange is entitled to a gold mine royalty and carries out a number of small scale exploration projects.

Current operations

Southdown Project

48 The Southdown Project is Grange’s primary asset. The first three mining leases at the Southdown magnetite deposit were acquired in November 2003, and a scoping study shortly after confirmed the potential for economic development of the resource. A feasibility study commenced in January 2005 which progressed exploration and evaluation, metallurgical testing, infrastructure requirements, capital expenditure estimates, environmental impact, as well as preliminary plans for the site of a pellet plant.
49 In March 2006 Grange launched a global tender process for joint venture partners for the Southdown Project. The tender resulted in the signing of a joint venture implementation agreement with Sojitz Corporation (Sojitz) in June 2007. Sojitz agreed to pay Grange:
(a) US$4 million for an initial 10% stake in the Southdown Project
(b) a further US$10 million on pre-development expenditure for which it will earn a further 20% interest. This contribution was completed in April 2008
(c) a royalty on pellet sales produced from Sojitz’s proportionate share of the concentrate sourced from the Southdown tenements. The royalty will be payable where the average free on board (FOB) pellet price is at least US$60.00 per tonne, indexed from 2010 in line with the United States (US) consumer price index (CPI). The royalty will work on a sliding scale of up to 3.5%, subject to a cap equal to 50% of free cash flow.

14 This project is planned to include a pellet plant to be located at Kemaman in Malaysia.

==> picture [152 x 38] intentionally omitted <==

50 In September 2007 Grange purchased Exploration Licence E70/2512 covering the eastern 6km extension of the deposit from Rio Tinto. Grange recently announced the sale of a 30% stake in Exploration Licence E70/2512 to Sojitz for A$13.4 million, and a revenue based royalty of 0.3% payable on Sojitz’s share of the production from the existing mining leases. The royalty is in addition to Sojitz’s existing royalty, and increases total royalties payable by Sojitz to 3.8% of the value of its share of production (based on 2008 benchmark prices). As a result, Sojitz will have a 30% joint venture stake in the total Southdown Project.
51 Sojitz is one of Japan’s leading trading companies with annual revenue of A$52 billion and almost 100 offices world-wide. The company handles around 15 to 16 million tonnes of iron ore annually. It is the leading Japanese importer of iron ore pellets with more than a 50 year history, and has 35 years experience in the management of pellet plants.
52 The Project is advancing with construction and major equipment procurement for the Southdown mine expected to commence in 2009, with completion expected in 2011. Project design is forecast in 2010, with construction and commissioning of the Kemaman Pellet Plant beginning in 2012 and ramping up to full production rates in 2013. Mining is expected to commence in 2012 and first pellet production in 2013. Further details of the Southdown Project are set out below.

Southdown deposit location

53 The Southdown magnetite deposit is located 90km northeast of the port of Albany on the south coast of Western Australia. The deposit is approximately 12km in length and is the largest known premium quality magnetite deposit of its kind in southern Western Australia. It comprises:
(a) three granted mining leases covering the western 6km section of the deposit (M70/718, M70/433 and M70/719); and
(b) an Exploration Licence E70/2512 covering the eastern 6km extension of the deposit, acquired from Rio Tinto Exploration (a subsidiary of Rio Tinto Limited) in 2007, as set out below.

==> picture [152 x 38] intentionally omitted <==

==> picture [378 x 197] intentionally omitted <==

Resources and reserves

54 According to Grange’s annual report for the year ended 30 June 2008 the Southdown deposit contains a resource estimate of 479 million tonnes (Mt) containing 37.3% magnetite grading 69.2% iron (Fe) and an ore reserve of 388 Mt containing 35.5% magnetite grading 68.8% Fe, as set out below:

Grange - Mineral resource and reserves	Grange - Mineral resource and reserves
	Tonnes Mt Grade % DTR(1) Conc. Fe % Conc. SiO2 % Conc. AL2O3 % Conc. TiO2 % Conc. S % Conc. P %
Indicated Inferred Total resource Probable Total reserve	427.3 38.2 69.2 1.9 1.4 0.37 0.42 0.002 51.8 30.1 69.0 2.0 1.3 0.44 0.63 0.003
	479.1 37.3 69.2 1.9 1.3 0.37 0.44 0.002
	388.0 35.5 68.8 2.06 1.41 0.45 0.55 0.003
	388.0 35.5 68.8 2.06 1.41 0.45 0.55 0.003

Note:

1 Davis Tube Concentrate Mass Recovery.

55 Grange’s mineral resource and reserves are estimated to be sufficient to support planned production rates for approximately 20 years. Due to the high grade and low level of impurities present in Grange’s ore resources it is suitable for the production of direct reduction grade iron ore pellets.

==> picture [152 x 38] intentionally omitted <==

Southdown mine operations

56 The Southdown deposit is proposed to be mined using proven open pit mining methods, with the mineralisation being crushed, ground, screened and then magnetically separated to produce a magnetite concentrate at a planned production rate of up to 7 million tonnes per annum. Strip rates are expected to be relatively low at around 3.0 to 3.5 times ore mined.
57 The magnetite concentrate will be pumped via a 104km slurry pipeline to a filtration plant and storage facility at the Port of Albany, before being loaded onto capesize vessels and shipped to an iron ore pellet plant to be built at Kemaman, Malaysia.
58 The company is also in the process of obtaining necessary environmental approvals for the project. Production from the Southdown magnetite deposit is expected to start in 2012 (subject to necessary funding and environmental approvals etc).

Southdown infrastructure

59 Grange is currently working with third parties to arrange necessary infrastructure for the Southdown Project such as power supply, pipelines, water supply and adequate port access. Grange has contracted Western Power to secure the transmission line easement in readiness for construction. In addition, the Western Australian government has allocated A$180 million towards the construction of a new transmission line to the Southdown mine. The company is working closely with the Water Corporation and the Albany Port Authority with regard to sustainable water supply for the mine and port infrastructure requirements.

Kemaman Pellet plant

60 Grange plans to build a pellet plant at Kemaman in Malaysia. The proposed plant site is located on 60 hectares of industrial land 3km from the existing Kemaman Port. Grange retains a Heads of Agreement to secure the future use of the Kemaman Port for 50 years and to acquire the land site on which the pellet plant is to be built. Key terms of the original Heads of Agreements are as follows:
(a) Grange was granted an exclusive option (Land Option) to acquire a minimum of 35 hectares and up to a maximum of 60 hectares of land for a period of two years
(b) total consideration payable for the Land Option is US$228,000 to be paid in four instalments

==> picture [152 x 38] intentionally omitted <==

(c) the Land Option period may be extended by mutual agreement subject to a minimum period of six months, by a further payment of US$76,000 for each subsequent six month period
(d) the purchase price for the minimum 35 hectares of land is US$6.94 million. The purchase price for additional land over 35 hectares is payable at US$1.58 per square foot
(e) Grange was granted an option to acquire rights of priority access to the Kemaman Port for a period of two years at a consideration of 1.0 Malaysian Ringgit. The original Heads of Agreement was subsequently extended by one year by a further payment of US$76,000 for each subsequent six month period (ie US$152,000 for the year). In February 2008 the option was extended to 31 December 2008, by the payment of an additional US$322,368.
61 The plant site selected provides access to natural gas, electricity and deep water port infrastructure and is in close proximity to potential off-take parties and markets. Grange plans to sell its pellets to steel manufacturers in Asia and the Middle East. The plant’s location will also provide Grange with freight advantages over South American pellet producers.
62 The pellet plant is expected to have a capacity of 6.8 Mt per annum by the second year post plant commissioning. Grange has obtained substantial investment incentives from the Malaysian government including a 15 year tax free holiday.

Project funding

63 Grange estimates that the total capital expenditure for the Southdown Project is around US$1.6 billion. In June 2008, Grange and Sojitz appointed Standard Chartered Bank to assist the company in securing overall finance for the project.

Bukit Ibam Project

64 Grange holds a 51% interest in the Bukit Ibam Project through Grange Minerals Sdn Bhd, its wholly owned Malaysian subsidiary. The Bukit Ibam Project is located at the former Bukit Ibam iron ore mine in Pahang State, Malaysia which was in operation from 1962 to 1970. Following successful exploration work, Grange announced the approval to develop the Bukit Ibam magnetite mine in June 2008. A new processing plant is expected to be commissioned before the end of 2008 with an initial production rate of 100,000 tonnes of magnetite concentrate with a grade of approximately 60% Fe per year.

==> picture [152 x 38] intentionally omitted <==

65 The Bukit Ibam Project has a mineral resource of 831,000 tonnes grading 36.7% Fe which provides for a mine life of approximately three years. The project requires a capital expenditure of A$1 million and has an estimated operating cost per tonne of approximately A$50.00[15] .
66 The joint venture is also exploring the opportunity to process around 4 to 5 million tonnes of iron ore tailings generated during the 1962 to 1970 operation of the mine.

Other projects

67 Grange is entitled to royalty streams from the Freshwater Project, being a sliding scale royalty based on grade, tonnage and type of ore milled on all production. The Freshwater Project is located in Western Australia and is owned and operated by Barrick Gold of Australia Limited (Barrick Gold).
68 Grange previously also received a royalty from the Red Hill Project, a gold mine also owned by Barrick Gold. This royalty was terminated in December 2007. The total royalty income received for the financial year ended 30 June 2008 from the above two projects was less than A$1 million.
69 In addition, Grange has a number of small scale exploration projects including:
(a) Horseshoe Lights Project – Grange owns 79.2% of the project which is located in Western Australia, covering the Horseshoe Lights copper/ gold mine. The mine was operated by Grange until its cessation in 1994. The mine contains substantial resources of low-grade copper bearing material
(b) Wembley Project – the project, located in the Murchison district in Western Australia, comprises one granted mining lease and a mining lease application. The granted mining lease covers the Durack and Outback prospects which have a modest gold resource of 568,000 tonnes grading 2.3 g/t gold
(c) Mt Windsor Project – Grange has a 30% interest in the project which is located in North Queensland. The project area includes the Highway/Reward copper/gold mine which was operated until the cessation of mining activities in 2005. It remains prospective for gold and base metals mineralisation.

15 This was based on an A$ exchange rate of $0.92.

==> picture [152 x 38] intentionally omitted <==

Financial performance

70 A summary of Grange’s financial performance for the two years ended 30 June 2008 is set out below:

Grange –Financial performance
	30 June 2007 A$000 30 June 2008 A$000
Total revenue Other income Gain on sale of 30% interest in land relating to the Southdown Project Other expenses Profit (loss) before interest before tax Borrowing costs Income tax Profit (loss) after income tax	3,694 1,667 132 25 - 4,245 (4,599) (4,934)
	(773) 1,003 - (4) - - (773) 999

71 During the last two financial years, Grange has generated modest revenues from gold royalties, interest income and sale of iron ore from the Bukit Ibam Project in Malaysia. The company made a loss of A$0.77 million and a profit of A$1 million in FY07 and FY08 respectively, however this is before allowance for exploration and evaluation expenditures which have been capitalised rather than expensed. Exploration and evaluation costs of A$7 million and A$60 million were incurred over FY07 and FY08 respectively. A payment of A$10 million was received from Sojitz for some of this work in FY08. As such the actual amount capitalised on the balance sheet for FY08 was some A$10 million less than the actual expenditure incurred.

==> picture [152 x 38] intentionally omitted <==

Financial position

72 The financial position of Grange as at 30 June 2007 and 2008 is set out below:

Grange - Financial position
	30 June 2007 A$000 30 June 2008 A$000
Cash and cash equivalents Trade and other receivables Prepayments Total current assets Trade and other receivables Other financial assets Property, plant and equipment Exploration and evaluation expenditure Total non-current assets Total assets Trade and other payables Provisions Total current liabilities Provisions Total non-current liabilities Total liabilities Net assets	13,492 7,660 2,948 1,010 61 50
	16,501 8,720
	2,705 5,225 481 - 913 5,926 30,141 80,995
	34,230 92,146
	50,741 100,866
	1,354 1,325 3,661 388
	5,015 1,712
	- 4,039
	- 4,039
	5,015 5,751
	45,726 95,115

Share capital

73 As at the date of this report, there are 115,318,099 Grange shares on issue.

==> picture [152 x 38] intentionally omitted <==

Share options

74 In addition, Grange has the following unlisted options outstanding as at 24 October 2008:

Grange – Options outstanding
	Exercise price
Number of options	A$	Expiry date
9,000,000	1.50	28 September 2010
300,000	2.05	2 May 2012
300,000	3.00	2 May 2012
300,000	3.50	2 May 2012
175,000	2.05	30 June 2012

Substantial shareholders

75 The following table sets out the largest 10 shareholders and their shareholding as at 28 September 2008:

Grange - Top 10 shareholders
	Shares Held % interest
National Nominees Limited HSBC Custody Nominees ANZ Nominees Limited Hamersley Holdings Limited Citicorp Nominees Pty Zero Nominees Pty Ltd HSBC Custody Nominees Pan Australian Nominees Pty Ltd HSBC Custody Nominees Mr Hans-Rudolf Moser	34,602,698 30.01 25,665,744 22.26 13,205,408 11.45 9,000,000 7.80 3,739,401 3.24 3,213,460 2.79 2,987,487 2.59 1,262,200 1.09 1,015,640 0.88 860,450 0.75
	95,552,488 82.86

==> picture [152 x 38] intentionally omitted <==

Share price performance

76 The price of Grange’s shares from 1 January 2006 to 24 October 2008 is summarised in the table below:

Grange - Share price performance	Grange - Share price performance
				Monthly
	High	Low	Close	volume(1)
	A$	A$	A$	000
Quarter ended
Mar-06	1.52	0.92	1.42	3,825
Jun-06	1.89	1.17	1.31	3,130
Sep-06	1.60	1.30	1.45	1,162
Dec-06	1.62	1.39	1.52	1,718
Mar-07	1.60	1.35	1.53	1,365
Jun-07	2.29	1.48	2.00	10,988
Sep-07	3.00	1.76	2.82	8,434
Dec-07	2.89	2.29	2.70	4,216
Month
Jan-08	2.70	1.90	1.95	3,627
Feb-08	1.97	1.60	1.85	2,415
Mar-08	1.85	1.25	1.40	3,772
Apr-08	1.78	1.40	1.72	1,054
May-08	1.75	1.32	1.60	2,696
Jun-08	1.74	1.40	1.70	1,869
Jul-08	2.10	1.64	2.05	2,809
Aug-08	2.49	1.80	1.92	1,379
Sep-08	2.10	1.33	1.33	1,944
Oct-08(2)	1.26	0.38	0.55	3,562

Note:

1 Monthly volumes for the quarter ended represents average monthly volumes.

2 Share prices from 1 October 2008 to 24 October 2008 only.

77 The following graph illustrates the movement in Grange’s share prices over the period from 1 January 2006 to 24 October 2008:

==> picture [152 x 38] intentionally omitted <==

==> picture [388 x 209] intentionally omitted <==

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

��
��
&'(
!��
��
��
��
��
��
��
��"�� #$�"�� "�� "�� "�% #$�"�% ��"�% ��"�% ��"�� #$�"�� "�� "��
----- End of picture text -----

78 We note the following in respect of Grange’s recent share price movements:
(a) in March 2006 Grange announced the launch of an international tender process for joint venture partners for the Southdown Project
(b) during May 2007 Grange entered into a joint venture agreement with Sojitz. At the time the announcement was expected to provide a boost to the Southdown Project’s ability to obtain financing
(c) in August 2007 Grange announced that it had signed an agreement to acquire Rio Tinto’s Exploration Licence E70/2512, containing the eastern 6km extension of the Southdown deposit
(d) the sharp drop in Grange’s share price in January 2008 coincided with sharp falls in local and overseas share markets and fears of a possible economic recession in the US and global slowdown
(e) a further sharp fall in Grange’s share price occurred from late September 2008 and coincides with the deepening (and spreading) financial crisis in the US and Europe. The market concerns regarding the potential negative impact that the current financial crisis on global economic growth, investments and demand for commodities has put downward pressure on commodity prices and stock exchange listed miners generally
(f) since its peak in November 2007, the ASX 200 Index has lost some 42% of its value.

==> picture [152 x 38] intentionally omitted <==

IV Profile of ABM

Overview

79 ABM owns the Savage River Project, an operating magnetite mine and pellet plant located in Tasmania. The primary assets of the company encompass:
(a) a number of open pits, a concentrator and other requisite mining infrastructure
(b) an 83km slurry pipeline to Port Latta; and
(c) a pellet plant and dedicated port facilitates at Port Latta.

History

80 Magnetite mineralisation was discovered at Savage River in 1887 by the Tasmanian Government. Exploration of the prospect was carried out in 1956, including ground and air magnetometer surveys, with diamond drilling undertaken in 1957 and 1959.
81 Savage River Mines Limited, a consortium of Australian, Japanese and American interests, began construction of the magnetite mine and related infrastructure in 1965 under a 30 year lease from the Tasmanian Government. This included building an 83km slurry pipeline from the mine to the pelletising plant at Port Latta. At the time, the pipeline was the largest project of its type in the world.
82 Mining and production commenced in 1966, supplying a consortium of Japanese steel mills. During the lease period annual pellet production reached 2.4 million tonnes per annum (Mtpa).
83 Upon completion in 1997, the lease transferred to the Tasmanian Government. ABM (at the time, a wholly owned subsidiary of Ivanhoe Capital Corporation) purchased the Savage River Project that same year. ABM commenced site construction work with an ore conveyor constructed from the pits to the concentrator facility, eliminating a 3km up-hill truck haul. The crusher was removed from the plant site and reinstalled at the base of the conveyor system and a run-of-mine (ROM) stockpile area established.
84 A combination of factors including projected pellet prices, movements in exchange rates and geotechnical issues resulted in regular revisions to the life of mine plan and by 2004 mining was scheduled to be completed in 2007, with the processing of stockpiled ore continuing through to 2009.

==> picture [152 x 38] intentionally omitted <==

85 In February 2005 Stemcor Pellets Ltd (Stemcor), a subsidiary of international metals trader Stemcor, purchased 100% of the operation. Subsequently during 2005 additional shares were issued to Dacroft Pty Ltd (Dacroft) and Forlife Tasmania Pty Ltd (Forlife) Tasmania representing 13.3% of the issued capital. In August 2007 the operation was sold to Ever Green Resources Limited (Ever Green), with Stemcor retaining a 10% interest. While ABM was under Stemcor ownership a Mine Life Extension Plan (MLEP) was prepared that proposed to extend production by a further 14 years (post 2007), at a rate of 2.5 Mtpa.

Current operations

Savage River Project

86 The Savage River Mine is located in North West Tasmania at an elevation of 100 metres to 350 metres. The terrain is rugged and mountainous, and covered with dense rain forest. ABM’s operational headquarters are located at Burnie in North West Tasmania. The Savage River mine and concentrator plant are 100km south west from Burnie by road. The pelletising plant and dedicated port facilities at Port Latta are located 70km north west of Burnie.
87 The Savage River mine covers approximately 2,400 hectares and the Savage River and Port Latta operate continuously 24 hours per day, seven days per week.

Savage River Mine

88 The mine comprises three principal open pits, the North, Central and South Pits. Current development plans include expanding the North Pit, however there are also reserves available at the Central and South Pits. An exploration lease is also held over Long Plains, another magnetite mineralisation that lies south of the current mine.
89 The mine and concentrating plant are both in the Savage River valley, with the Savage River flowing through the mine site and ultimately discharging into the Pieman River.
90 Mining activities in the open pit involve the use of conventional off highway rear-dump trucks and hydraulic excavators, with drilling and blasting being used to prepare the ground ahead of mining. The ore is oriented north-south covering a 4km strike length and separated by unmined zones of thin or low grade material.

==> picture [152 x 38] intentionally omitted <==

Resources and reserves

91 As per ABM’s Reserve and Resource Statement as at March 2008, the Savage River deposit contains a resource estimate of 323 Mt containing 50.5% magnetite grading and ore reserve of 131 Mt containing 48.9% magnetite grading.
92 Additional mineralisation occurs at depth and in other deposits that are not a part of the mineral resource. Based on current plans ABM has a 15 year life, however ABM is considering increasing capacity of the existing process plants and the development of other parts of the resource (ie other pits) to extend the mine life beyond 2023.

Processing

93 Processing facilities at ABM’s Savage River and Port Latta locations consist of the primary crusher, concentrator, slurry pipeline, pelletising plant and dedicated port facilities.

Primary crusher

94 Ore from the northern section of the mine is tipped into a primary crusher located near the rim of the pit. When the iron ore has been crushed to a maximum size of 200 millimetres, it is transported to crushed ore stockpile at the concentrator via a 1.3km overland conveyor. Ore from the southern section is crushed before conveyance to the crushed ores stockpile.

Concentrator

95 Crushed ore from the stockpile is reclaimed via a tunnel system and fed into the concentrator. It is initially ground by two 9.75 metre x 3.66 metre autogenous grinding mills, then by two 8.84 metre x 3.96 metre ball mills. Magnetic separators then split the magnetite from the gangue and the gangue is pumped to the tailings dam.

Slurry pipeline

96 The concentrate slurry from the concentrator is pumped 83km through a 229 millimetre internal diameter slurry pipeline to the pellet plant at Port Latta. Transportation time is approximately 14 hours.

Pelletising plant

97 At Port Latta, filtered concentrate is formed into pellets (with bentonite as a binder) and fed to one of the five Midland-Ross vertical shaft pellet furnaces where they undergo approximately 4.5 hours of heat- induced processing.

==> picture [152 x 38] intentionally omitted <==

Finished pellets are screened to remove excess fine and coarse material then transferred by conveyor and a rail-mounted travelling / slewing stacker onto the finished product stockpile to cool and await shipment.

Port facilities

98 ABM’s pellets and concentrates are shipped from a loading facility at Port Latta, which is dedicated to the exclusive use of ABM. Ore is transported along a 1.8km conveyor belt to a twin boom ship loading facility located off shore. The port has capacity to load 2,800 tonnes per hour and the facilities can handle ships of up 110,000 tonnes.

Mine Life Extension Plan

99 The Savage River Project was due to finalise mining in 2007 and complete processing in 2009. ABM completed a feasibility study for the MLEP, based on continuing open pit mining operations and associated processing. The feasibility confirmed a viable continuation of production to 2021, based on production levels of approximately 2.5 Mtpa. Since the acquisition of ABM by Shagang Mining (Australia) Pty Ltd (SMAPL)[16] the new owners have spent approximately A$106 million on project improvements, including new infrastructure and capital works to support future mining operations.
100 ABM is currently finalising the feasibility study for a production expansion to 2.9 Mtpa of concentrate. Based on the initial work carried out the expansion plan has been assessed as economic and it is planned to begin the plant upgrades in early to mid 2009. This expansion targets additional mining of mineral resources and ore reserves from North Pit, Centre Pit South, South Deposit and Long Plains (current exploration target) as appropriate. The fifth furnace line at Port Latta will require upgrading[17] and increased filtering capacity of slurry will also be required. Other capital requirements at the concentrator and pipeline are being reviewed and/or refurbished.

16 SMAPL is 90% owned by Ever Green and 10% owned by Stemcor.

17 It is currently only used to cover the other furnaces during lengthy maintenance work on another kiln.

==> picture [152 x 38] intentionally omitted <==

Financial performance

101 The table below sets out ABM’s financial performance at the operational company level for the two years ended 31 December 2007 and six months to 30 June 2008:

ABM - Financial performance
	Year to Year to Half year to
	31-Dec-06 31-Dec-07 30-Jun-08
	A$m A$m A$m
Revenue EBITDA Depreciation and amortisation EBIT Net interest Net profit before tax Tax Net profit after tax	157.5 210.2 88.3
	60.0 70.1 37.0 (13.0) (5.2) (26.0)
	47.0 64.9 11.0 (6.0) (2.7) (9.4)
	41.0 62.2 1.6 (12.9) 57.3
	28.1 119.5

102 ABM has off-take arrangements in place with Shagang, the major shareholder in Ever Green, as well as BlueScope Steel Limited (BlueScope). BlueScope has been purchasing pellets from ABM for over 10 years due to the freight advantages over its other iron ore sources.
103 Pre-stripping costs are deducted for tax purposes in the year they are incurred. However, for accounting purposes the cost is capitalised in years where the stripping rate is above the long-term average and expensed when the stripping rate is below that average. Hence in the periods shown above there are varying levels of amortisation of capitalised pre-stripping costs.
104 As set out in Section V, benchmark annual iron ore prices have experienced strong price growth in recent times, most recently for the 2008 Japanese financial year (JFY), where all types of iron ore rose, with blast furnace pellet prices increasing some 80%. The price rise took effect from 1 April 2008 and has increased prospects for profitability for the year ending 31 December 2008.
105 Over 2007 and 2008 the A$ was generally increasing against the US$, which had the effect of lowering revenue on the unhedged proportion of ABM’s contracted sales. However, since July this year the A$ has reduced significantly from US$0.96 to approximately US$0.65 as at 24 October 2008 .

==> picture [152 x 38] intentionally omitted <==

Financial position

106 The financial position of ABM as at 30 June 2008[18] is set out below:

ABM - financial position
	30-Jun-08
	A$m
Cash Receivables Inventories Other Total current assets Property, plant and equipment Other Exploration and evaluation Total non-current assets Total assets Payables Borrowings Deferred consideration Derivative financial liabilities Provisions Other Total current liabilities Borrowings Net deferred tax liabilities Deferred consideration Provisions Total non-current liabilities Total liabilities Net assets	3.4 10.3 79.2 6.7
	99.6
	535.5 11.6 12.9
	560.0
	659.6
	51.3 118.2 48.4 35.6 4.9 1.1
	259.5
	55.9 49.5 299.5 10.8
	415.7
	675.2
	(15.6)

Net borrowings

107 Some A$81 million of the borrowings set out above will be reassigned to Grange subsequent to the Merger (refer to the Explanatory Memorandum for more information). As such the outstanding debt, net of this reassignment is

18 Based on Ever Green pro-forma financials.

==> picture [152 x 38] intentionally omitted <==

some A$93 million. On the basis of management accounts, we estimate some A$13 million of net cash since 30 June 2008 so that net borrowings reduce to some A$80 million for valuation purposes.

Deferred consideration

108 Under the Savage River Sale and Purchase Agreement dated 12 April 2007, SMAPL has outstanding liabilities to Stemcor, Dacroft and Forlife, totalling some A$350 million as at 30 June 2008. There are three parts to the deferred consideration:
(a) Deferred Consideration – SMAPL is liable to pay a “Deferred Consideration” (which is calculated pursuant to a formula based on pellet prices and sales). Where the Deferred Consideration calculated (based on the set formula) is a negative amount, no Deferred Consideration will be payable in respect of that Ore Year (year commencing on 1 April and ending on 31 March). The maximum period of the arrangement is to 2022. As at 30 June 2008 the Deferred Consideration totalled A$248 million.
(b) Fixed Consideration – SMAPL is liable to pay a fixed amount of consideration totalling US$116 million to Stemcor, Dacroft and Forlife. This amount is payable in five tranches. At the date of this report US$80 million had been paid by SMAPL and US$36 million was still outstanding, payable as follows:
- (i) subject to a situation discussed below (where the MLEP Production does not occur on or before 31 October 2009), on 31 October 2009 – US$18 million; and
- (ii) on the day 12 months after the due date for the payment described in paragraph (i) above – US$18 million.

Note that if production under the MLEP, dated September 2006, does not occur on or before 31 October 2009, the obligation to pay the amount in paragraph 108(b)(ii) is extended to the date that this production first commences

(c) Head Agreement Consideration – SMAPL is also liable to pay consideration under the Head Agreement into an escrow account. The amounts are then intended to be paid out, upon instructions from Stemcor, to the relevant parties in satisfaction of Stemcor’s obligations under the Head Agreement. This amount totalled A$60.5 million as at 30 June 2008.

==> picture [152 x 38] intentionally omitted <==

Hedging consideration

109 ABM’s sales are denominated in US$, while most of its costs are denominated in A$. Therefore ABM employs a hedging strategy, involving entering into collared foreign exchange contracts (comprising long call options and short put options) with a face value of around 50% of ABM’s monthly sales. The hedging strategy has reduced the impact of exchange rate fluctuations on ABM’s financial results.
110 As at 30 June 2008, ABM’s hedging position is set out below. At balance date the details of the outstanding contracts are:

ABM – hedging position
Weighted average rate
A$/US$ A$/US$	Jun-08 Dec-07
Options Maturity Jun-08 Dec-07	A$m A$m
US$ put options - bought < 1 year 0.8603 0.8934 1 - 5 years 0.8740 - US$ call options - sold < 1 year 0.9115 0.8615 1 - 5 years 0.9550 -	110.0 123.4 8.0 -
	118.0 123.4 110.0 123.5 8.0 -
	118.0 123.5

Share capital

111 Ever Green, the 90% owner of SMAPL, is itself owned by a Group of Chinese companies operating in the steel industry including Shagang (68.0%), RH (20.0%) and PI (12.0%). Stemcor is the other 10% shareholder in SMAPL.

==> picture [152 x 38] intentionally omitted <==

V Overview of the iron ore market

112 Grange plans to process magnetite ore from the Southdown Project into direct reduction pellets. ABM is currently producing blast furnace pellets from the Savage River Project. The section below details the global iron ore industry, with a particular emphasis on magnetite mining and pelletising.

Overview

113 Iron ore is the fundamental raw material in steelmaking, the world’s largest metal industry. Global steel production of 1.3 billion tonnes in 2007 generated a demand for 1.6 billion tonnes of iron ore. Notwithstanding that steel is one of the most recycled materials, scrap provides feed for only 40% of world output, the remainder coming directly or indirectly from newly-mined iron ore[19] .
114 Iron ores are composed of iron (Fe) and oxygen, with the common commercial types being:
(a) hematite, Fe2O3
(b) magnetite, Fe3O4; and
(c) hydrous iron ores such as goethite and limonite, which are generally formed by the weathering of hematite.
115 Magnetite often occurs with other minerals (eg quartz) and usually contains lower grades / concentrates of iron (good deposits are typically 30% to 40% iron) than hematite (good deposits are typically 60% to 64% iron).
116 To manufacture steel, iron ore is first converted to iron, generally by using a blast furnace, or less commonly via direct reduction. A blast furnace converts iron oxides into liquid slag and liquid iron which is then added to the steel making process. The direct reduction process produces iron directly from high-grade ore by removing the oxygen (reducing) through the use of a reducing gas (rich in hydrogen and carbon monoxide). The resulting direct reduced iron is particularly useful in electric arc furnace steelmaking to dilute the contaminants present in the scrap steel. However, this requires that the iron ore used in the direct reduction process is of the right quality.
117 Saleable iron ore products contain high concentrations of iron. Physically they fall into four main types:
(a) concentrates – particles less than 0.15 mm in diameter
(b) fines – particles between about 0.15 mm and 6.0 mm in diameter (c) lumps – from about 6.0 mm up to 30-35 mm in diameter; and

19 Source: Metalytics.

==> picture [152 x 38] intentionally omitted <==

(d) pellets – 6.0 mm to 18.0 mm balls.
118 Fines and lumps are derived from the crushing and screening process. Concentrates are the result of further crushing and separation processes to remove contaminants and unwanted minerals from low-grade ores. Pellets are round balls manufactured from concentrates or fines by mixing them with a binder and indurating (baking) them in a furnace.

Hematite

119 Hematite lumps can be fed directly into a blast furnace, subject to acceptable levels of impurities and iron content, whereas hematite fines may require processing or “sintering” prior to feeding into a blast furnace. Sintering involves heating a mixture of iron ore fines, limestone and coke in a sinter plant, to produce a coarser product suitable for feeding directly into the blast furnace. As a result lumps are priced at a premium to fines as they are less costly for the steel producer to process.

Magnetite

120 The typical grade of iron at which magnetite bearing ore formation becomes economic to process is roughly 25% iron, with grades capable of rising to 40%. As a result magnetite ores typically require the movement of large amounts of waste and a high level of processing to form a concentrate for use in steelmaking. Processing involves crushing, screening and grinding the ore into fine particles and then using magnetic separation techniques to extract the magnetite from the unwanted (gange) minerals. As the fine grain size is not directly usable to steel mills, the ore is pelletised, either at the steel plant itself or prior to shipment by iron ore pellet producers.
121 The consistent size and high-grade chemical composition of pellets makes them a premium blast furnace feedstock. The higher grade and lower gange content contribute to higher blast furnace productivity. Despite the cost of an extra processing step, magnetite is estimated to make up around one-third of global iron ore production and one-sixth of international iron ore trade is in this form.
122 The typical magnetite ore concentrate grade has a grading in excess of 64% iron by weight, less than 0.1% phosphorous, 3% to 7% silica and less than 3% alumina. As oxidation of the magnetite can provide 60% of the thermal energy needed for pelletisation, magnetite pellet feed has significant cost and environmental advantage over hematite for pelletisation. Super fine hematite ore is also pelletised in some instances, however magnetite has a cost advantage over hematite concentrate due to less use of energy in pelletising and is therefore the preferred type of pellet feed. Direct reduction pellets are capable of being used in a direct reduction process to supply electric arc furnace (EAF) steel making due to their higher quality (as opposed to blast furnace pellets).

==> picture [152 x 38] intentionally omitted <==

123 There are only two pelletising operations in Australia, ABM’s Latta plant and OneSteel Limited’s Whyalla plant. However, growth in iron ore demand, primarily from China, and its need to secure long-term supplies, has recently lead to a resurgence in interest in Australia’s magnetite ore deposits in the mid west and southern regions of Western Australia.

Global steel production

124 Some 98% of the world’s iron ore production is consumed in the manufacture of steel. World crude steel production has increased by approximately 85% over the last 15 years, equivalent to an average year-on-year growth rate of 8% per annum. The primary source of this growth has been demand for and production of steel in China, due to rapid industrialisation and urbanisation as shown the graph below:

==> picture [381 x 220] intentionally omitted <==

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

&4 �( ��
��
��
!��
��
��
�
)�� $� ��$�� + � ,�� -�.�� + 0�� 1��2�� 3��0��
��5 ��.��#�� /��
----- End of picture text -----*

125 China overtook Japan as the largest consumer and producer of steel in 1996, and has since increased production rapidly. In 2007 China accounted for approximately 36% of global steel production. By comparison, European countries[20] accounted for approximately 27% of global steel production in 2007 and North America approximately 10%[21] .
126 By process, basic oxygen furnaces (BOFs) produce about two-thirds of the world’s crude steel with the remainder done by EAFs. BOFs are normally found in integrated steelworks and are fed with hot metal (liquid pig iron) produced in blast furnaces from iron ore.

20 Including the Commonwealth of Independent States (CIS) – the former Soviet Republics. 21 Source: World Steel Association’s statistics.

==> picture [152 x 38] intentionally omitted <==

127 EAFs are generally run on scrap feed, but also have the ability to use direct reduction pellets (which are first processed into direct reduced iron). Direct reduction pellets act as a substitute for ferrous scrap in countries where scrap supplies are inadequate (ie developing countries) and also in EAFs producing higher-quality steels, which demand consistent low-impurity feed. Global production of direct reduction pellets has doubled since 1995, reaching close to an estimated 65 Mtpa in 2007[22] .

The global iron ore market

128 World iron ore production doubled over the 15 years from 1992 to 2007, but the expansion has been largely restricted to a few geographic regions. The two dominant exporting nations, Australia and Brazil, together contributed more than half the global increase. China’s output (adjusted for the lower iron content of its ore) is estimated at over 320 Mt, having expanded by 230 Mtpa over the past 15 years. India’s output has tripled, to reach an estimated 167 Mt in 2007.
129 For 2007, Australia’s production was approximately 300 Mt and Brazil’s more than 350 Mt, together representing some 40% of the total world iron ore production[23] . China’s output is generally all consumed domestically, while close to half of India’s production now goes to meet rapidly growing local demand.
130 Vale, Rio Tinto and BHP Billiton currently supply a majority of seaborne iron ore trade, jointly accounting for approximately 69% in 2007. BHP Billiton and Rio Tinto export the majority of their iron ore from the Pilbara region in Australia, while Vale exports iron ore from Brazil[24] .
131 From 1998 to 2007, total seaborne trade volumes increased by 75% from 415 Mt to 756 Mt, equivalent to average year-on-year growth of 7.3% per annum. Historical (2000 to 2007) and forecast (2008) seaborne iron ore trade is set out in the following graph:

22 Source: World Steel Association: World Steel in Figures 2008. 23 Source: Metalytics.

24 Source: Metalytics.

==> picture [152 x 38] intentionally omitted <==

==> picture [390 x 231] intentionally omitted <==

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

��
&4 �(
��
��
��
��
��
�
��# ��# ��# ��!# ��# �� # ��# ��%# ��6
��4 �� -��3��.� 7��8�,��3��.�1��1��
----- End of picture text -----

132 In 2007, approximately 61% of the global iron ore export market was represented by sinter fines, with lump ore at 16%, and pellets or pellet feed (concentrate) at 23%. Direct reduction pellets are a subset of the pellet market and hence included in the section of the market represented by pellets.

The iron ore pellet market

133 The graph below sets out the historical (2000 to 2007) and forecast (2008) iron ore pellet production worldwide.

��

==> picture [383 x 216] intentionally omitted <==

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

&4 �(
��
! �
!��
� �
��
��# ��# ��# ��!# ��# �� # ��# ��%# ��6
��4 ��
----- End of picture text -----

==> picture [152 x 38] intentionally omitted <==

134 Pellet production has also experienced strong growth with output increasing 29% per annum over the last five years. The majority of this growth was from China, and to a lesser extent Russia and Brazil.
135 In export terms, Brazil is the largest iron ore pellet exporter. In 2007 Brazil accounted for 34% of global iron ore pellet export trade, followed by the Commonwealth of Independent States (CIS) (22%), Canada (12%) and India (7%)[25] . China is the primary recipient of pellet feed, accounting for 63% of global imports in 2007. In addition, demand for direct reduction pellets from the South East Asian and the Gulf regions is also expected to grow over the next five years.

Iron ore pricing

136 The majority of iron ore is sold under contract, the price of which is determined annually by negotiation between steel makers and iron ore producers. There are two pricing regions, Europe and Asia Pacific (ie China, Japan, Korea etc). In general the first major contract settlement for the year determines the iron ore price and other industry participants follow the price set, having regard to ore type and quality[26] . For many years the Japanese steel companies led negotiations on price with the major mining companies. However, reflective of the rise of the Chinese steel industry, steel companies in China have taken a more active role in recent annual negotiations.
137 Contract prices are usually settled between January and April each year, with delivery in the subsequent JFY, which runs from 1 April to 31 March. Pricing is based on dry metric tonne iron units (dmtu’s), which is 1% of iron content. Dmtu’s equate different iron ore grades.
138 The most representative Australian benchmark price in the iron ore industry is the Hamersley fines price and the associated Hamersley lump price. These prices, as with all iron markets, are generally quoted on the basis of FOB[27] . Ores of different quality or iron content will trade at a premium or discount to the benchmark price. Global pellet benchmark prices are generally based on the Brazilian Tubaroa pellet prices.
139 Since 2003, global demand for iron has increased significantly as the Chinese steel industry has expanded and world growth was strong. A slow response by the major producers limited supply and resulted in iron ore prices reaching record levels. We set out below a number of benchmark iron ore (FOB) prices for fines, lump and pellets from JFY 1986 to 2008:

25 Source: Metalytics.

26 However for the current 1 April 2008 to 31 March 2009 contract year the major Australian producers were able to negotiate a freight premium on top of the price negotiated by Vale.

27 In the Asian seaborne market, the price of iron ore sold under contract is typically stated on a FOB basis, meaning that the price is payable for the iron ore at its port of origin, regardless of its proximity to the end user. The freight expense is therefore a burden to the purchaser.

==> picture [152 x 38] intentionally omitted <==

==> picture [409 x 218] intentionally omitted <==

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

�� !��"#��
&+ �':��(
��
Brazil - Tubarao
Pellets
Australia - Lumps
��
Australia - Fines
Brazil - Standard
Sinter Feed Fines
��
��
�
�9�� 9�� 99� �99� �99� �99� �99� ��
��4 ��
----- End of picture text -----

140 As is apparent from the above, iron ore prices have experienced large price increases, most notably for the 2005 and 2008 benchmark prices. This is reflective of iron ore demand significantly exceeding expectations, and corresponds with strong world growth and the rise of the Chinese steel industry. The negotiations in 2008 were the first where Australian producers were able to obtain a freight premium over Brazilian iron ore exports.
141 Pellets sell at a premium to fines (or even lumps) because their more consistent size and composition means that blast furnaces operate more efficiently using pellets. However the differential between fines and pellets is also necessarily related to the costs associated with the pelletising process. Fines can be converted into pellets though this process is more expensive for hematite fines, which get less oxidising energy than magnetite fines. Due to their higher quality (consistent size and composition) direct reduction pellets receive a further premium to blast furnace pellets.
142 Lump ore generally sells at a premium to fines, as it can be directly fed into a blast furnace without the need for sintering. Pellets (made from iron ore concentrate) also generally trade at a significant premium to fines, for the same reason.
143 Prices of other products (eg pellets in Europe) tend to be closely linked to movements in benchmark prices, although different price movements may be driven by the demand mix for the various iron ore products. The price received for the sale of iron ore may also be impacted by its proximity to the end-user, whereby the seller will receive a higher price for iron ore which need only be shipped a short distance to the buyer. For instance, Australian producers were able to capture a portion of the freight differential between Australia-China freight rates versus Brazil-China freight rates in the prices received for the 1 April 2008 to 31 March 2009 contract year.

==> picture [152 x 38] intentionally omitted <==

144 Given the increased focus on “environmental footprint” of products, shorter transportation distances should convert into lower CO2 emissions per Mt iron ore delivered. Consequently, iron ore producers in Europe supplying European markets generally enjoy a substantial price advantage over more freight-intensive imported iron ore. Generally, the European price is 3% higher than the equivalent Asia Pacific benchmark price.

Outlook

145 Current events on the world stage are anything but encouraging. World stock markets (including the ASX) have plummeted following the worst financial crisis since the great depression of the 1930’s. Global property prices (particularly in parts of Europe and the US) are also following this trend. The global banking system is severely distressed (on the back of massive write downs of asset values) and has so far failed to respond to any significant extent to concerted efforts by central bankers to create market stability and liquidity. In this environment access to capital is severely constrained, with some banks even reluctant to lend to each other.
146 Panic and forced selling has also impacted commodities, with prices reducing significantly in recent weeks as confidence in the outlook for the global economy and hence the outlook for commodities wanes. Mining company share prices have also fallen significantly.
147 The Tangshan spot market price for Indian iron ore imported into China has fallen significantly from its peak of around US$200 per tonne in March 2008 to well below US$100 per tonne in October 2008, as shown below:

==> picture [392 x 225] intentionally omitted <==

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

��
&+ �':�( &-�.��$$�.�)6,��)��$��(
� �
��
� �
��
�
�
��"�� "� ��"� ��"�� "�� "�% ��"�% ��"��
��1��1��;�
----- End of picture text -----

==> picture [152 x 38] intentionally omitted <==

148 The current weakness in the iron ore spot market in China is a negative signal for the likely outcome of the next round of contract price negotiations. In previous years when large increases were obtained, it was in situations where spot prices substantially exceeded the existing contract prices plus freight costs. In the converse situation of weaker demand relative to supply, lower growth, or even falls in iron ore prices are a natural outcome.
149 The price of Indian 63.5% Fe iron ore fines sold on the spot market in China has fallen to around US$95 to US$100 per tonne cfr (cost plus spot freight), which is below the benchmark contract price for similar quality Brazilian and Australian ore. However, the typical quality of Indian iron ore is lower than Australian and Brazilian ores. We would therefore expect the price of Indian ore to be lower than similar grades (ie fines).
150 A number of recent events have substantially impacted the outlook for iron ore:
(a) the world’s largest steel maker, ArcelorMittal recently cut steel production in Ukraine and Kazakhastan by 15% to 20%, and plans to cut production in the USA by up to 15% due to falling global demand[28]
(b) four of China’s largest state owned steel producers with a combined total capacity of 100 Mt (Shougang Group, Hebei Iron & Steel Group, Anyang Iron & Steel and Shandong Iron & Steel) have recently agreed to cut output by 10% to 20%
(c) Posco, Asia’s largest stainless steel producer has reduced output by 20% over recent months due to slowing demand
(d) Rio Tinto announced that there had been reduced demand for commodities recently due to a weaker market environment. The company remained positive about the long-term outlook for metals demand. However, given the current market conditions, it was reviewing its near-term capital expenditure programme[29]
(e) Australian iron ore miner Mount Gibson Iron Limited announced that many of its Chinese steel mill customers have requested to delay ore shipments because of a decline in demand in China[30]
(f) a number of analysts have recently forecast a decline in iron ore prices by some 20% in 2009 which are significantly lower than the forecasts prepared only one month earlier

28 Source: Reuters 18 September 2008.

29 Source: Rio Tinto press release 15 October 2008.

30 Source: Steel Business Briefing, www.steelbb.com accessed 10 October 2008.

==> picture [152 x 38] intentionally omitted <==

(g) freight rates for shipping iron ore from Australia to China have fallen from $US50 per tonne to about US$13 per tonne over June-September 2008, a 75% decline, while the three year forward freight market has fallen even further, to as low as US$8 per tonne. These rates reflect concerns about the economic slowdown and an imminent increase in the number of ships available, after two years of booming ship construction. The Baltic Freight Rate Index for large bulk-carrying capesize vessels on major sea routes has fallen 80% over the same period.
151 While iron ore pricing is down from its high, the Australian Dollar exchange rate has declined significantly as shown in the graph below:

==> picture [399 x 224] intentionally omitted <==

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

$ ��%�&�#' ("' �(�)�%��+�
��"��
AUD/USD
��
��9�
��
��%�
��
��
��
��"�� "�� "�� "�� "�! ��"�! ��"�� "�� "� ��"� ��"�� "�� "�% ��"�% ��"�� "��
Source: RBA.
----- End of picture text -----*

152 So far, much of the recent decline in commodity prices has been offset by the lower Australian dollar exchange rate. One year forward rates are also indicating a lower Australian dollar to the US dollar for some time[31] .
153 Looking further ahead, the outlook for iron ore prices depends on several factors, including:
(a) general economic growth
(b) the continued industrialisation of key economies, especially China and India
(c) supply response from iron ore producers.

31 Given the current turmoil on global markets, reliable information on forward foreign exchange prices past one year is difficult to obtain .

==> picture [152 x 38] intentionally omitted <==

154 The outlook for general economic growth is quite uncertain due to the disruptions in the financial markets, uncertainty as to how long and how severe these disruptions will be, as well as how large their effect will be on the underlying economies. The major economies of US and Europe affect steel consumption directly and also indirectly through their effect on other economies such as China which supply their markets.
155 The industrialisation of China and other developing nations is expected to continue (albeit at a slower rate), further increasing their use of steel, but the pace of growth could alter significantly depending on the situation in their export markets (mainly US and Europe) as well as government initiatives. To the extent that governments such as China start to give greater weight to environmental issues (eg pollution), this may also affect the medium to longterm outlook for heavily polluting industries such as steel-making.
156 The supply response by iron ore miners to high iron ore prices has been substantial and is expected to continue for some time. The major producers (BHP Billiton, Rio Tinto and Vale) have committed to very major expansions and have plans for further developments. In addition, there is an expanding array of smaller miners providing additional supply, eg Fortescue Metals Group. The ability of smaller miners to obtain the necessary capital for development may however be in the short to medium term constrained due to the current state of the financial markets.
157 Thus, there are a wide range of possible outcomes, depending on what view is taken with respect to various key factors.

==> picture [152 x 38] intentionally omitted <==

VI Basis of valuation

Valuation approach

158 ASIC Regulatory Guide 111 “Content of Expert’s Reports” outlines the appropriate methodologies that a valuer should consider when valuing assets or securities for the purposes of, amongst other things, share buy-backs, selective capital reductions, schemes of arrangement, takeovers and prospectuses. These include:
(a) the discounted cash flow (DCF) methodology
(b) the application of earnings multiples appropriate to the businesses or industries in which the company or its profit centres are engaged, to the estimated future maintainable earnings or cash flows of the company, added to the estimated realisable value of any surplus assets
(c) the amount that an alternative acquirer might be willing to offer if all the securities in the target company were available for purchase
(d) the amount that would be distributed to shareholders in an orderly realisation of assets
(e) the most recent quoted price of listed securities
(f) the current market value of the assets, securities or company.
159 Under the DCF methodology the value of the business is equal to the net present value (NPV) of the estimated future cash flows including a terminal value. In order to arrive at the NPV the future cash flows are discounted using a discount rate which reflects the risks associated with the cash flow stream.
160 Methodologies using capitalisation multiples of earnings or cash flows are commonly applied when valuing businesses where a future “maintainable” earnings stream can be established with a degree of confidence. Generally, this applies in circumstances where the business is relatively mature, has a proven track record and expectations of future profitability and has relatively steady growth prospects. Such a methodology is generally not applicable where a business is in a start up phase, has a finite life, or is likely to experience a significant change in growth prospects and risks in the future.
161 Capitalisation multiples can be applied to either estimates of future maintainable operating cash flow, earnings before interest, tax, depreciation and amortisation (EBITDA), earnings before interest and tax (EBIT) or net profit after tax. The appropriate multiple to be applied to such earnings is usually derived from stock market trading in shares in companies that are considered to be comparable and from precedent transactions within the industry. The multiples derived from these sources need to be reviewed in the

==> picture [152 x 38] intentionally omitted <==

context of the differing profiles and growth prospects between the company being valued and those considered comparable. When valuing controlling interests in a business an adjustment is also required to incorporate a premium for control. The earnings from any non-trading or surplus assets are excluded from the estimate of the maintainable earnings and the value of such assets is separately added to the value of the business in order to derive the total value of the company.

162 An asset based methodology is applicable in circumstances where neither a capitalisation of earnings nor a DCF methodology is appropriate. It can also be applied where a business is no longer a going concern or where an orderly realisation of assets and distribution of the proceeds is proposed. Using this methodology, the value of the net assets of the company would be adjusted for the time, cost and taxation consequences of realising the company’s assets.

Methodology selected

163 We have adopted the DCF methodology as our primary valuation method for ABM, supplemented by consideration of other methods. However, applying the DCF methodology by valuing a single (best estimate) set of future cash flows implicitly assumes that the cash flows vary more or less continuously across scenarios. In situations where this is not an appropriate assumption adjustments need to be made.
164 The valuation of the Southdown Project is an example, because depending on the outlook for iron ore prices (and other key elements) Grange could decide to proceed with this project or elect to defer it until circumstances were more favourable. Because management actions would differ greatly depending on circumstances, valuation by considering only a single set of management actions (eg in a single best estimate scenario) will significantly undervalue the project.
165 We have therefore considered the value of the Southdown Project (and hence Grange) in a range of iron ore scenarios on the basis that the Project will proceed under those scenarios where it has positive NPV and not proceed otherwise. We have considered relative value between Grange and ABM under each scenario.
166 We have also calculated an overall value for the Southdown Project by considering the implied scenario probabilities consistent with other evidence, in particular, alternative offers received for a portion of the project. Accordingly, our valuation for the Southdown Project is ultimately based on the alternative offer value.

==> picture [152 x 38] intentionally omitted <==

VII Valuation of net consideration

167 We have used the DCF valuation method as our primary valuation method for valuing ABM, which is the primary element of the net consideration (the balance being the additional transaction costs that incurred by Grange if the Merger is approved). The key elements of our DCF valuation of ABM are:
(a) saleable production and cash costs
(b) capital expenditure
(c) selling prices per tonne
(d) other cash flows
(e) tax payable
(f) discount rate.

Each of these is discussed below.

Saleable production

168 We have projected production volumes, cash costs and capital expenditure on the basis of life of mine (LoM) plans developed by ABM, and reviewed and modified by Mining One and ProMet, who were employed by Grange to review ABM’s mining operations and are experts in mining and mine processing. The reports provided to us by Mining One and ProMet can be viewed on Grange’s website; the key elements of these reports are set out in Appendices F and G.
169 In projecting ABM’s saleable production volumes and costs we have adopted the following assumptions:
(a) ore mining will follow ABM’s 2008 operating plan (including Extension 4 of the North Pit) as outlined in Mining One’s report on ABM. We understand from discussions with Mining One and ABM management that this is consistent with current operations and expectations[32]
(b) ore processing and pellet production will be upgraded in line with the 2.9 Mtpa plan developed by ProMet[33] . We understand from discussions with ABM management that they are currently in the process of completing the fully detailed plan for formal approval of this capacity expansion, but they consider approval to be virtually certain given the strong economic value added of the expansion.

32 There has been a delay in commissioning the new mine fleet, however, it is the opinion of Mining One that, once this new mine fleet has been fully commissioned, it will have the capacity to deliver the 2008 Operating Plan.

33 Current production is some 2.3 Mtpa.

==> picture [152 x 38] intentionally omitted <==

170 In our opinion, the inclusion of these elements in the valuation of ABM is appropriate (even though some elements are not yet formally in place at ABM) because this is the most likely way ABM will be operated and hence the best measure of the cash flow it will generate. More information on this expansion is set out in Section 3.8 of the Explanatory Memorandum.
171 On this basis, and relying on advice from Mining One and ProMet, the volumes and costs adopted are set out below:

ABM – volumes and costs
	Saleable		Capital
	production	Cash costs	expenditure
Year ended 31 December	000 DMT	A$m	A$m
3 months to 31 December 2008	640	(56)	(11)
2009	2,474	(219)	(91)
2010	2,980	(244)	(36)
2011	2,738	(234)	(11)
2012	3,050	(273)	(26)
2013	3,026	(228)	(19)
2014	2,856	(231)	(11)
2015	2,955	(243)	(12)
2016	3,022	(311)	(3)
2017	2,906	(283)	(8)
2018	2,983	(256)	(3)
2019	2,897	(189)	(1)
2020	2,908	(207)	(2)
2021	3,014	(244)	-
2022	3,194	(238)	-
2023	2,952	(226)	-
2024	2,939	(153)	-

Future iron ore prices

172 As discussed in the industry section, future iron ore prices are subject to considerable uncertainty, being the outcome of shifts in supply and demand. At present there are a large number of new and prospective suppliers/sources of iron ore either recently entering the market (eg Fortescue) or planning to do so soon (such as the expansion projects of BHP Billiton, Rio Tinto and Vale as well as smaller producers). Demand growth had been very strong until recently, when the effects of the current global financial crisis adversely affected conditions for steelmakers and hence for iron ore demand.

==> picture [152 x 38] intentionally omitted <==

173 In these circumstances, the range of possible outcomes for future iron ore prices is quite wide. We have therefore calculated our central value based on current best estimate iron ore prices, but we have also considered the value of ABM under other price scenarios. In determining our best estimate price scenario we have considered current analysts’ forecasts as set out below[34] :

Iron ore forecast prices
	JFY08 JFY09 JFY10 JFY11 JFY12 JFY13
Date	USc/ dmtu USc/ dmtu USc/ dmtu USc/ dmtu USc/ dmtu USc/ dmtu
Australian iron ore - Fines Broker 1 20-Oct-08 Broker 2 17-Oct-08 Broker 3 17-Oct-08 Broker 4 17-Oct-08 Broker 5 10-Oct-08 Broker 6 10-Oct-08 Broker 7 01-Oct-08 Best estimate Blast furnace - Tubarao Broker 1 21-Oct-08 Broker 2 20-Oct-08 Broker 3 17-Oct-08 Broker 4 01-Oct-08 Best estimate	144.7 144.7 151.9 177.7 179.5 177.7 144.7 123.0 104.5 94.1 84.7 - 144.7 123.0 116.8 116.8 114.4 - 144.7 133.8 120.4 - - - 144.7 144.7 134.6 - - - 144.7 144.7 144.7 139.2 - - 144.7 159.2 159.2 143.2 114.6 103.1
	144.7 130.2 117.2 111.3 100.2 90.2 224.4 233.9 222.8 204.3 185.8 - 220.2 220.2 231.2 270.5 273.2 270.5 230.5 195.9 166.5 149.9 134.9 - 220.2 242.2 218.0 174.4 139.5 -
	220.2 198.2 178.4 162.2 145.9 131.3

174 Although ABM primarily produces blast furnace pellets, the analyst coverage for future fines prices is significantly larger than for blast furnace pellets. Accordingly, we have considered both fines and pellets forecasts in adopting our best estimate blast furnace pellet prices.

34 While we have considered more analyst forecasts than that shown in the table, in the current environment analysts have been revising estimates downwards and as such some of the older forecasts obtained have become outdated.

==> picture [152 x 38] intentionally omitted <==

175 We have also considered some other scenarios for prices:

Valuation scenarios	Valuation scenarios
Scenario	Source	Rationale	Probability
Supercycle	Highest analyst	Current financial crisis	Very unlikely
	forecasts	has minimal impact on
		underlying economy and
		demand continues to
		outpace supply leading
		to higher prices for
		longer
Price downturn	Based on average	Continuing strong	Moderate
	analyst forecasts for	demand but supply
	April to July 2008	catches up, weakening
	period	prices
Market slowdown	Our best estimate,	Demand growth much	High
	based on current	slower due to overall
	analyst forecasts ie	economic weakness, still
	from October 2008	considerable expansion
	after impact of crisis	in supply from projects
	on spot iron ore prices	already underway, prices
	was observed	fall significantly
Market stagnation	Based on current low	Demand is weak	Moderate
	analyst forecasts	(possibly nil growth for
		some time) still some
		additional supply from
		current mine
		developments, prices fall
		even quicker and further

==> picture [152 x 38] intentionally omitted <==

176 The US dollar denominated iron ore prices utilised in our scenarios are as follows:

Prices assumed
	31-Mar-09	31-Mar-10	31-Mar-11	31-Mar-12	31-Mar-13	31-Mar-14	31-Mar-15
	Actual	Forecast	Forecast	Forecast	Forecast	Forecast	Forecast
	US$/	US$/	US$/	US$/	US$/	US$/	US$/
	DMTU	DMTU	DMTU	DMTU	DMTU	DMTU	DMTU
Blast furnace pellet prices - Tubarao
Supercycle	220.20	220.20	231.21	270.53	273.23	270.53	251.38
Price downturn	220.20	220.20	221.30	200.60	164.90	144.50	128.90
Market slowdown(1)	220.20	198.18	178.36	162.15	145.94	131.34	118.21
Market stagnation	220.20	187.17	159.09	143.19	128.87	105.07	94.57
Australia iron ore – Fines
Supercycle	144.70	148.70	152.90	177.72	179.50	177.70	165.15
Price downturn	144.70	148.40	152.90	139.50	110.80	99.10	87.10
Market slowdown(1)	144.70	130.23	117.21	111.35	100.21	90.19	81.17
Market stagnation	144.70	123.00	104.55	94.09	84.68	72.15	64.94

Note:

1 Also referred to as the best estimate scenario.

177 We have also considered the value effects of adjusting the market slowdown price scenario by a percentage of the gap between market slowdown and Supercycle prices, which we refer to as “Slowdown plus x%” (where x is the percentage movement towards Supercycle) scenarios.

Other cash flows

Freight premium

178 ABM is physically closer to Asian customers than the Brazilian source of the benchmark pellet price. Accordingly, it is reasonable to expect that ABM may be able to capture a freight premium on its sales. We have assumed a US$5 per tonne margin on pellet sales (excluding contract sales which do not have an allowance for this).

==> picture [152 x 38] intentionally omitted <==

Contracts

179 We consider the Shagang Off-take Agreements in more detail in Section IX. For the purposes of our valuation we have had regard to the current ABM customer contracts that specify the price paid, or how it is determined. We have explicitly modelled these contracts in our valuation.

ABM - customer contracts	ABM - customer contracts
	Annual
	volume
Contract	000 DMT	Details
BlueScope Steel	1,350	To June 2009 benchmark FoB price
	800	July 2009 to June 2012 – commercially confidential
		terms
Evergain(1)	500	US$50 to 31 March 2009, US$43 to 31 March 2010
		(ABM expects it will be fulfilled before June 2009)
Shagang Chip	90	BHPB Newman fines benchmark
Shagang Pellets	491	To June 2009 Benchmark price
Stemcor	80	Benchmark price less pellet production costs +
Concentrate(2)		A$4.61

Note:

1 Iron ore pellet prices were significantly lower in 2005 when this contract commenced, the Evergain International Corporation (Evergain) contract is now significantly below current market prices and is discussed further in Section IX.
2 Stemcor contract is for 80,000 wet metric tonnes of concentrates.
180 ABM also has another off-take agreement (with Shagang for pellets from 1 July 2009) which we have treated as having no explicit impact on our valuation because it specifies that the price will be set at fair market price having regard to:
(a) seaborne iron ore supply and demand conditions
(b) available published price benchmarks for iron ore
(c) product quality differentials
(d) potential freight costs.

==> picture [152 x 38] intentionally omitted <==

Foreign exchange rates

181 Because iron ore is traded in US$, there is a requirement to convert sales prices to A$ for our valuation. We have considered the current exchange rate (being some US$0.65 per A$1 on 24 October 2008), as well as current analysts forecasts and available foreign exchange market information[35] .
182 In our view, the appropriate valuation basis is the market-consistent forward rates (being approximately a per annum change corresponding to the interest rate differentials between US$ and A$ bonds). This also produces consistency between
(a) valuing future US$ cash flows by discounting at a US$ discount rate then converting to A$ at current spot rate and
(b) valuing future US$ cash flows by converting to A$ at forward forex rate and discounting at A$ discount rate.
183 However, there is considerable market volatility in exchange rates and we have adopted a rate of A$0.70 (being the average exchange rate over 1 October 2008 to 24 October 2008) with sensitivities for A$0.60, A$0.65 and A$0.75.

Other non-tax cash flows

184 We have allowed for other cash flows being:
(a) deferred consideration payments due from SMAPL as part of the 2007 purchase agreement
(b) cash flows arising from ABM’s foreign exchange hedge book.
185 The payments due are a series of fixed payments and payments which are a proportion of the excess of benchmark pellet prices over US$47.50 each year.
186 ABM’s hedge book consists of several put and call contracts having the effect of stabilising the exchange rate on part of ABM’s anticipated sales revenue. Because we have adopted forward exchange rates consistent with current market prices, we have allowed for the hedge book effect by including its estimated mark to market value (at our adopted $0.70 exchange rate) of negative A$32.3 million[36] (before tax) which we valued at negative A$22.6 million allowing for the tax offset. We have varied this value correspondingly when considering sensitivities under alternative foreign exchange rates.

35 We note that, due to the financial crisis, and consequent disruptions to the inter-bank lending market, it is difficult to obtain reliable data or forward forex market rates.

36 The mark-to-market value at 17 October 2008 of $35.6 million was calculated at an exchange rate of $0.6875.

==> picture [152 x 38] intentionally omitted <==

Taxation

187 We have calculated tax on ABM earnings at the 30% Australian company tax rate allowing for:
(a) tax deductions for depreciation of tangible assets, including those arising from capital expenditure during the projection period
(b) tax deductions available on part of the purchase related payments
(c) tax deductions under current depreciation rates for the mining-related assets, which are based on the acquisition price in 2007.
188 We note that under the Merger, ABM will be acquired by Grange and it may be possible for Grange to obtain higher mining-related asset depreciation tax deductions based on the price paid for ABM in the current transaction. However, this is dependent on several factors[37] which are not yet certain. Accordingly, we have based our valuation on the current depreciation entitlements and related amounts.

Discount rate

189 We have assessed the appropriate valuation discount rate for ABM to be between 11.5% and 12.5%. The detail of our reasoning is set out in Appendix E, but in summary our rate is based on the weighted average cost of capital (WACC) as below:

ABM – Discount rate
	Low	High
	%	%
Risk-free rate	5.2	5.2
Market risk premium	7.0	7.0
Equity beta	1.3	1.5
Cost of equity	14.3	15.7
Tax rate	30.0	30.0
Debt to value	33.0	33.0
Cost of debt	8.2	8.2
WACC – post-tax	11.5	12.5

190 We have used lower discount rate of 10% for the deferred payments because they have significantly lower risk (being royalties rather than net profit elements).

37 Including particularly, whether the changes to tax consolidation regime announced by the Government by way of a press release on 13 May 2008 are enacted.

==> picture [152 x 38] intentionally omitted <==

Transaction costs

191 As disclosed in the Explanatory Memorandum, Ever Green estimates it will incur A$13 million of costs associated with the Merger and Grange estimates it will incur A$7.2 million of costs associated with the Merger, of which we are advised some A$2 million will have been already spent by the time of the shareholders’ meeting. Accordingly, the value of ABM is reduced by $13 million and the value of net consideration received after costs under the Merger will be reduced by some A$18.2 million in total. We have assumed for valuation purposes that these costs will be treated as capital expenses and not be tax deductible.
192 It should be noted that this does not include any allowance for transfer taxes or similar taxes that may be payable on the acquisition, because current advice is that no such amounts will be due.

Conclusion

193 Under our base (market slowdown) scenario, using the valuation basis outlined above, we have determined the value of the net consideration as A$414 million to A$461 million, calculated as follows:

Consideration – valuation
	Low A$m High A$m
DCF value of mining operations under base scenario Less value of deferred payments under base scenario Less other debt Market value of hedge position (after tax) Less ABM transaction costs Total equity value of ABM Less Grange additional transaction costs Total value of net consideration	827 874 (292) (292) (80) (80) (23) (23) (13) (13)
	419 466
	(5) (5)
	414 461

194 Under the Merger, 380,025,554 Grange shares will be issued to the current owners of ABM. This corresponds to a value acquired per share issued of some A$1.09 to A$1.21.

==> picture [152 x 38] intentionally omitted <==

Sensitivities

195 We have also considered the value of ABM under a range of other scenarios:

ABM – Valuation sensitivities
	Low	High
	A$m	A$m
Supercycle	1,417	1,564
Price downturn	605	663
Market slowdown(1)	414	461
Market stagnation	203	231
Market slowdown:
At $0.60 exchange rate	687	752
At $0.65 exchange rate	539	594
At $0.75 exchange rate	302	342

Note:

1 Base scenario used for DCF valuation.

Cross-checks

196 We have reviewed our valuation for ABM by considering some cross-checks on value, including values of other listed iron ore companies and transactions involving iron ore companies.
197 We have had regard to the share prices and associated trading multiples of the listed iron ore companies set out in Appendix C. Recent market volatility has impacted the share prices and hence value of these companies with stock prices reducing over 65% in the last six months and over 40% in the last month alone. This market volatility makes it difficult to use this information to reliably determine values on a 100% control basis, which is generally determined by investors with a longer term view than the portfolio investors who set minority trading prices. Furthermore, the rapid and substantial changes in outlook for iron ore prices and availability and cost of financing makes it difficult to determine which (if any) iron ore developments will actually proceed and on what terms.
198 Our valuation of ABM’s mining operations, expressed as an EBITDA multiple on historical and projects earnings is as follows:

ABM – Implied EBITDA multiples
Year to 31 December	Low	High
2007 (actual)	9.9	10.4
2008 (actual / budget)	8.3	8.7
2009 (projected)	4.5	4.7

==> picture [152 x 38] intentionally omitted <==

199 While EBITDA multiples are not a reliable comparison metric for mining companies, the multiples do not seem unreasonable compared to the producing mine operators (given that, other than Portman, they are minority interest).
200 The value of the mining operations for ABM divided by the reserves and resources are as follows:

ABM – Implied value per tonne
Year to 31 December	Value/Mt(1)
Mining operation value / Mt Resources	2.0
Mining operation value / Mt Reserves	8.6

Note:

1 Multiples are calculated using value divided by resources and reserves at the date of transaction.
201 Having regard to the above and based on the evidence set out in Appendices C and D we believe our valuation range is appropriate.

Purchase of ABM in 2007

202 We have reviewed the terms on which a 90% interest in ABM was acquired by the Ever Green Sellers in 2007 and consider that the price paid was reasonably consistent with our valuation after allowing for:
(a) the large unanticipated increase in iron ore prices for contract year 1 April 2008 to 31 Mar 2009
(b) the substantial investment in capital works to enhance the mine since purchase
(c) the reduction in A$/US$ exchange rate and hence increase in A$ value of prices received
(d) the recent global financial crisis.

==> picture [152 x 38] intentionally omitted <==

VIII Valuation of Grange

203 We have valued Grange on a 100% control basis, by considering the value of its assets and liabilities. The most significant asset of Grange is the Southdown Project, which we have treated as a single integrated project even though it is currently, planned to comprise a mine, pipeline and wharf in Australia and a pellet processing plant at Kemaman in Malaysia. In addition we have also had consideration for the Bukit Ibam Project and Grange’s other assets.

Southdown Project

204 We have valued this project as a linked system, with concentrate from Southdown supplying the pellet plant at Kemaman. We have considered DCF valuations of this project. However, because of the high capital costs (some US$1.6 billion) required to develop the Southdown Project, the NPV is negative under our best estimate scenario. Accordingly, we have considered a range of iron ore price scenarios. We have relied on other indications of value (in particular offers received for pro-rata shares in the project) to supplement and calibrate our valuation.

Production volumes and costs

205 We have based our projected volumes and costs on internal Grange projections. We note that because Grange is not yet in operation there is significant uncertainty on several elements, such as:
(a) operating parameters for Southdown
(b) operating parameters for Kemaman, especially the gas price
(c) capital costs
(d) cost of freight between Albany and Kemaman.
206 We have reviewed the material provided by Grange and consider the values to be acceptable parameters. However, as noted below, the project only has positive NPV at iron ore prices significantly above current market expectations. It is quite possible that such conditions (and the resulting demand for mining capacity) would cause further increases in costs (both operating and capital), but we have not made any adjustments to allow for this.

Prices

207 We have used the same iron ore price scenarios as for ABM (refer paragraphs 172 to 177). The Southdown iron ore is relatively low in impurities and the Kemaman pellets could therefore be sold as direct reduction pellets, which generally command a price premium when bought by EAF steelmakers (though not when bought by blast furnace operators).

==> picture [152 x 38] intentionally omitted <==

208 Based on historical experience and analyst forecasts, we have assumed a price premium for direct reduction pellets equal to a 10% margin over blast furnace pellets. Partly offsetting this however is that the direct reduction pellet buyers are generally in the Middle East not East Asia, so the freight premium advantage from Malaysia (relative to Brazil) will be somewhat less. We have assumed a freight premium margin of US$3 per tonne for direct reduction pellets compared to US$5 per tonne for blast furnace pellets.
209 We have conducted the Grange valuation projection in US$ and converted the present value to A$ at an exchange rate of 0.70 A$/US$ being approximately the average exchange rate over the period 1 October 2008 to 24 October 2008 (so no forward currency rates are needed).

Tax

210 We have projected tax on profits arising in Australia at 30%, assuming a concentrate transfer price equal to the fines benchmark price, and allowing for:
(a) tax deductions for depreciation of tangible assets, including those arising from capex in the projection period
(b) tax losses carried forward.
211 We have taken into account the 15 year tax holiday in Malaysia and assumed a 28% tax rate thereafter.

Discount rate

212 We have assessed the appropriate valuation discount rate for Grange to be between 14.5% and 15.5%. The detail of our reasoning is set out in Appendix E, but in summary our rate is based on the WACC inputs below:

Grange – Discount rate
	Low	High
	%	%
Risk-free rate	4.2	4.2
Market risk premium	7.0	7.0
Equity beta	1.8	2.0
Cost of equity	16.8	18.2
Debt to value	30.0	30.0
Cost of debt	9.0	9.0
WACC – rounded	14.5	15.5

==> picture [152 x 38] intentionally omitted <==

213 We have used US$ risk-free rates to be consistent with a projection in US$, and have used average rates over the period 1 October 2008 to 24 October 2008 because of market volatility.

Value of interest in Southdown Project

214 Under our base (market slowdown) scenario, using the valuation basis outlined above, the Southdown Project has negative present value and we have therefore assigned a nil value in this scenario.
215 We have also considered the value under our other scenarios and only the Supercycle scenario produces a positive net present value. Under the Supercycle scenario, Grange’s interest in the Southdown Project (being 70% of net cash flows plus 3.8% royalty on Sojitz’s 30% of revenue) has a DCF value of some A$1.0 billion to A$1.2 billion.
216 The breakeven price level is roughly half way between the Supercycle forecast and the consensus forecast, reflecting iron ore prices for 2013 some 50% higher than our best estimate forecast.
217 In our view, the value assigned to the Southdown Project, and hence Grange’s interest in the Southdown Project, depends on what probability is assigned to the chance that iron ore prices remain at very high levels over the long-term. Roughly speaking each 1% increase in probability assigned to our Supercycle scenario adds about A$11 million to the value of Grange.

Alternative valuations

218 Sojitz has recently agreed to purchase 30% of the exploration licence portion of the Southdown Project (the EL) for A$13.4 million cash plus an additional 0.3% royalty on its share of production. This indicates a value for Grange’s share of the EL of A$31.3 million[38] before allowing for the value of the royalty stream. Since the EL represents a relatively small part of the Southdown Project by value (ie it has none of the confirmed reserves), the corresponding value for the Southdown Project would be quite large.
219 Grange have advised us that the price paid by Sojitz was agreed on the basis of 30% of the price paid by Grange to Rio Tinto, which was recorded in Grange’s accounts at A$51.8 million (including the fair market value of shares and options issued). Accordingly, the price is more indicative of value when the deal with Rio Tinto was agreed (in September 2007) rather than current market conditions. We therefore do not consider this to be a reliable indicator of value.
220 Grange have also advised us that they were in discussions with several parties recently regarding the sale of a 30% share in the Southdown joint venture in September 2008, just prior to the agreement with Shagang being reached.

38 Calculated as: 7/3 x A$13.4 = A$31 million.

==> picture [152 x 38] intentionally omitted <==

221 One of those discussions resulted in an offer that was not fully developed (nor necessarily acceptable to Grange), that provides a rough indication of value. The offer would have involved the purchase of a 30% interest in the Southdown Project by payments comprising of upfront cash plus deferred / royalty based consideration, the value of which would have depended on the successful financing of the project and future iron ore prices.
222 This indicative offer implied a value of Grange’s 70% of the Southdown Project of between US$70 million or roughly A$100 million at $0.70 exchange rate, and US$90 million (A$127 million) if the success dependent payments are included, adjusted for probability[39] . Allowing for the value of the other assets of Grange, this is broadly consistent with Grange’s share price at that time.
223 Market expectations for iron ore since mid-September have fallen substantially, which has been reflected in the market prices of iron ore producers and developers, which have fallen more than 40% over the period.
224 The value of the Southdown Project would be more affected by adverse market conditions than existing producers due to the large capital expenditure required. Accordingly, we have adopted a value for Grange’s interest in the Southdown Project of between A$50 million and A$70 million.
225 While the implied probability of very high iron ore price outcomes reflected in this valuation range is greater than our expectation, it appears that many buyers of such assets have a different view. This may be because steel makers are exposed to considerable loss of profits if they cannot obtain sufficient raw materials during times of high steel prices, hence they have a preference for locking in iron ore supplies.

Bukit Ibam Project

226 As set out in Section III, Grange holds 51% of the Bukit Ibam Project, a previous Malaysian iron ore mine that was in operation in the 1960’s. Production is forecast to commence in December this year and based on current resources the project has an estimated life of three years, with concentrate production peaking at 300,000 tonnes per year.
227 In valuing the Bukit Ibam Project we have had regard to the following:
(a) while the mine is relatively small, capital and operating costs are low (b) at current prices and currency rates the project derives high cash margins
(c) the project has a 3 to 4 year life based on current reserves

39 At 11.5% chance of the Supercycle scenario the value of the payment is 30 + 11.5% x 70 = US$38 million which is A$54 million, which corresponds to A$127 million for Grange’s 70% and matches our value of 11.5% x 1,100 = A$127 million.

==> picture [152 x 38] intentionally omitted <==

(d) there is additional upside from the possible processing of the ore tailings on site from previous mining activities. We understand that the processing of the tailings is currently under review and as such is not included in our valuation.
228 We have valued Grange’s 51% share of the project using the DCF methodology and a discount rate of 13.5% which we have derived consistent with the methodology set out in Appendix E. The rationale for using this rate is that the operation is relatively low risk given its minimal capital requirements with low operating leverage. As such we believe this discount rate is appropriate.
229 On this basis the value of Grange’s 51% interest in the Bukit Ibam Project is A$5 million.

Valuation of royalties

230 Grange is also entitled to royalty streams from the Freshwater Project. The royalty is based on a sliding scale based on grade, tonnage and type of ore milled on all production from the Freshwater leases. The historical royalties received by year are set out below:

Grange – Royalties received
	Open Cut Underground Total
Year to	A$000 A$000 A$000
30-Jun-97 30-Jun-98 30-Jun-99 30-Jun-00 30-Jun-01 30-Jun-02 30-Jun-03 30-Jun-04 30-Jun-05 30-Jun-06 30-Jun-07 30-Jun-08	271 - 271 545 - 545 355 - 355 538 - 538 375 - 375 276 - 276 85 252 337 70 144 214 457 347 804 - 328 328 - 223 223 - 64 64
	2,972 1,358 4,330

231 Assessing a future royalty stream with a high level of accuracy is difficult as historical production levels and grades are not necessarily indicative of future rates. Further, there is limited available information about planned production levels. In placing a value on Grange’s royalty we have therefore considered:
(a) as at 31 December 2006 (ie the latest information available) the Freshwater Project had reserves and resources of 34,200 ounces and

==> picture [152 x 38] intentionally omitted <==

474,600 ounces of gold respectively. Ore has been mined since that date and in the absence of additional ores being added these reserves and resources would have reduced

(b) open pit mining has now ceased and this has been the source of most of Grange’s royalty payments
(c) royalty payments have reduced over the past three years from some A$328,000 to some A$64,000.
232 Given the above we have therefore valued the royalties from the Freshwater Project stream at a nominal amount, ranging from nil to A$0.4 million.

Valuation of other assets and liabilities

233 We have estimated the net value of other assets and liabilities[40] at A$18.2 million. This includes a deduction of some A$2 million for transaction costs which Grange have estimated will have already been incurred by the time of the meeting.

Conclusion

234 On the valuation basis outlined above, we have determined the value of Grange as A$73 million to A$93 million, calculated follows:

Grange – Equity value
	Low A$m High A$m
Southdown Project Bukit Ibam Royalties and other net assets Total equity value Number of shares currently on issue (million shares) Value per share (A$)	50 70 5 5 18 18
	73 93
	115 115 $0.64 $0.81

235 This represents a value per current issued share of A$0.64 to A$0.81.

40 Cash, receivable from Sojitz, etc.

==> picture [152 x 38] intentionally omitted <==

IX The Shagang Off-take Agreements

236 There are currently four off-take agreements between ABM and companies associated with Shagang:
(a) Iron Ore Pellet Sales Agreement with Evergain International Corporation (Evergain) – 2005 to 2010

Under a Sales Agreement dated 15 March 2005, ABM will sell and Evergain will purchase 485,000 dry metric tonnes (DMT) of pellet in 2005 and 500,000 DMT of pellets per annum for the remaining years. The term of the agreement is five years from 1 April 2005 to 31 March 2010 and ABM expects this contract will be fulfilled before June 2009. The price for the pellet was US$50 per DMT from 1 April 2008 to 31 March 2009 and will be US$43 per DMT from 1 April 2009 to 31 March 2010.

Evergain is not a subsidiary of Shagang Group but is associated.

(b) Iron Ore Pellet Sales and Purchase Agreement with Jiangsu Shagang International Trading Co. Ltd (SI) – 2008/2009

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase 490,713 DMT of pellet. The term of the agreement is from 1 September 2008 to 30 June 2009. The price for the pellet will be the Vale Asian Tubarao Blast Furnace Pellet price for the corresponding financial year ending 31 March (this year’s price has been fixed at US$139 per DMT). Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. If ABM elects to permanently cease operations ABM may terminate the agreement with 12 months notice.

SI is a subsidiary of Shagang’s ultimate parent

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase 27,390,185 DMT, with an annual average of 2,106,937 DMT, of pellets per annum. The term of the agreement is 13 years from 1 July 2009 to 30 June 2022. The price for the pellet will be the fair market value as agreed by the parties, having regard to:

seaborne iron ore supply and demand conditions
available published price benchmarks for iron ore; and

==> picture [152 x 38] intentionally omitted <==

product quality differentials and potential freight costs.

(d) Iron Ore Chip Sales and Purchase Agreement with SI – 2008 to 2022

Under a Sales and Purchase Agreement dated 24 September 2008, ABM will sell and SI will purchase approximately 90,000 DMT of chip annually. The term of the agreement is 14 years from 1 October 2008 to 31 December 2022. The price for the chip will be the BHP Billiton Newman Fines price for the corresponding financial year ending 31 March. Either party may terminate the agreement with 14 days notice if the other party does not remedy a breach of a material term within 14 days of notice of such breach being given. If ABM elects to permanently cease operations ABM may terminate the agreement with 12 months notice.

237 We have reviewed these contracts and note that:
(a) they provide reasonable surety that most of ABM’s output will be sold, even in an adverse market
(b) except for the Evergain contract, the contracts set prices either by reference to a market price benchmark or by negotiation to reach a fair market price. Accordingly these contracts do not adversely affect value for ABM, provided price negotiations are appropriate
(c) the Evergain contract is significantly below current market prices, but only affects some of the output (500,000 DMT) and expires on 31 March 2010. The value effect of this contract depends on future iron ore prices, but we estimate its impact on value to be a reduction of some A$46 million which is reflected in our valuation of ABM
(d) Shagang have agreed (and ASX listing rules require) that each transaction between Shagang and Grange (including these off-take agreements) will be either:
- (i) approved by non-associated shareholders; or (ii) approved by independent directors
(e) we understand that it is the intention that (in accordance with Merger Implementation Deed requirements) the annual price negotiations will

==> picture [152 x 38] intentionally omitted <==

be subject to final approval by the independent directors.

238 In our opinion:
(a) the Evergain contract is below current market prices and reduces the value of ABM (this has been fully reflected in our ABM valuation)
(b) the annual price negotiations under the main Shagang pellet contract are a potential source of disadvantage for non-associated Grange shareholders, but this risk is reduced by the requirement for approval of each year’s price by the independent Grange directors (in line with the Merger Implementation Agreement)
(c) the other advantages of the Merger more than outweigh the disadvantages of these contracts.
239 Shareholder approval of the continuation of these contracts is a condition for the Merger to proceed. We therefore conclude that, in the context of the Merger, the continuation of these contracts is fair and reasonable to nonassociated Grange shareholders.

==> picture [152 x 38] intentionally omitted <==

X Evaluation of the Merger

Summary of opinion

240 LEA has concluded that the consideration offered for the securities to be issued under the Merger is fair and reasonable, and that the advantages of the Merger outweigh the disadvantages. We have also concluded that continuation of the Shagang Off-take Agreements is, in the context of the Merger, in the best interests of the non-associated Grange shareholders.
241 We summarised below the reasons for these opinions.

Assessment of fairness

242 Pursuant to ASIC Regulatory Guideline 111, an offer is “fair” if:

“the value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer”.

243 LEA has valued 100% of the shares in Grange on a controlling interest basis at between A$0.64 and A$0.81 as summarised in Section VIII.
244 LEA has valued the consideration, being the value of ABM less the additional transaction costs that will be incurred by Grange if the Merger is approved, at A$1.09 to A$1.21 per share to be issued, as summarised in Section VII.
245 As the consideration offered is greater than the value of the securities, we are of the opinion that the consideration offered for the securities to be issued is fair.

Assessment of reasonableness

246 Pursuant to ASIC Regulatory Guideline 111, an offer is “reasonable” if, it is fair.
247 We therefore conclude that the consideration offered for the securities to be issued is reasonable.

Advantages and disadvantages of the Merger

248 We set out below the advantages and disadvantages of the Merger to Grange shareholders not associated with the transaction and other related matters.

==> picture [152 x 38] intentionally omitted <==

Advantages if the Merger is approved

Increased value per share

249 As set out in Section VII, we have calculated the value of the net assets acquired to be in the range of A$414 million to A$461 million which is some A$1.09 to A$1.21 per share to be issued.
250 As set out in Section VIII, we have also calculated the value of Grange on a 100% control basis to be in the range of A$73 million to A$93 million which is some A$0.64 per share to A$0.81 per share currently issued.
251 Since the value received per share issued significantly exceeds the current value of net assets per share, the Merger will increase the value of assets per Grange share.

Proposed Merger ratio is favourable under a wide range of scenarios

252 In a scrip for scrip deal like the Merger, in our opinion the most important consideration is relative value. We have considered the relative value of Grange and ABM (adjusted for transaction costs) under a range of scenarios:

ABM - Scenarios
	Grange /
	(Grange
	+ ABM)
	%
Supercycle	46
Price downturn	4
Market slowdown	5
Market stagnation	10
Market slowdown plus 56%	23

Note:

Because the Southdown Project is uneconomic in most scenarios the value of Grange does not vary in many scenarios. Hence, observed variation in ratio between scenarios without very high iron ore prices is due to variation in ABM value.

253 In our opinion, the Merger is clearly advantageous to Grange shareholders in almost all circumstances. In some iron ore price scenarios the DCF value of the Southdown Project is sufficient to justify the proposed ratio. This occurs when prices are some 56% of the way from best estimate to Supercycle expectations (or more) which means 2013 prices are 59% or more above our best estimate.

==> picture [152 x 38] intentionally omitted <==

254 However, even in these scenarios, the additional access to finance and the avoidance of dilution at minority equity prices means that the Merger has significant other benefits. In our opinion the relative value proposed under the Merger, being roughly 23% / 77%, significantly favours the existing Grange shareholders.

Grange will become a more substantial company

255 Under the Merger, Grange will gain substantial additional assets which are generating cash flow and earnings. These will transform Grange from a potential developer with negative cash flows and limited tangible net assets to a current producer with significant positive cash flows and substantial tangible net assets.
256 This will provide Grange with additional capacity to undertake other activities, and will also free it from nearly-complete dependence on the Southdown Project to generate substantial future earnings.
257 As a larger entity, it is reasonable to expect that Grange would receive greater attention from analysts and investors, which may cause a re-rating of the stock and might also contribute to an increase in stock liquidity.

Increased ability to self-fund the Southdown Project

258 The future cash flow and earnings of ABM (and the associated additional debt capacity) would enable Grange to fund a much higher proportion of its share of the equity funds required to implement the Southdown Project[41] . The effect of this would be to significantly reduce the further dilution of the equity interest of Grange shareholders in this project. In our view, it is very likely that the aggregate dilution of the exposure of existing Grange shareholders to the Southdown Project will be less under the Merger than on a standalone basis.

Reduced downside risk from lower iron ore prices

259 At present the value of Grange is highly dependent on future iron ore prices. In particular, below a certain price level the Southdown Project would become uneconomic (due to the high capital cost required to implement this project).
260 By comparison, the impact of lower iron ore prices on the value of ABM is less geared, because the operating business will still be profitable down to a significantly lower price.
261 Accordingly, if the Merger is implemented Grange shares should be less sensitive to expectations about future iron ore prices.

41 ABM’s enterprise cash flow (before interest or debt repayments but allowing for deferred consideration payments) between now and 31 December 2012 varies by scenario between some $100 million and some $700 million, with best estimate of some $300 million.

==> picture [152 x 38] intentionally omitted <==

Gain access to skills and knowledge

262 ABM has a long history of operating a magnetite mine, slurry pipeline and pellet plant. Therefore, the skills set and knowledge of its staff and management would be very useful in developing and operating the Southdown Project.

Relationship with Shagang

263 Under the Merger, Grange would gain a close relationship with Shagang which is part of a large steel making group. In addition, Shagang may provide Grange with sources of funds and deal opportunities not otherwise available to it. Shagang would have a large equity stake (some 47%) in Grange and would have off-take agreements in place for most of ABM’s output and a first right to negotiate for 80% of Grange’s share of Southdown output. This may be an advantage in ensuring sales in adverse market conditions.

Disadvantages if Merger is approved

Impact on voting power and ownership

264 If the Merger is approved by non-associated Grange shareholders and regulatory approvals are received, the Ever Green Sellers will own some 69% of the shares in Grange and will be Grange’s largest shareholder group. Existing Grange shareholders will therefore cede control of Grange to the Ever Green Sellers.
265 The Grange board post Merger will comprise Mr Anthony Bohnenn plus two other independent directors (nominated by Shagang after reasonable consultation with Grange), three nominees of Shagang, Mr Dave Sandy (the current Managing Director of ABM, who is due to retire and would become a non-executive director) and Mr Russell Clark as Managing Director of Grange.
266 Grange shareholders should also note that, if the Merger is approved, the Ever Green Sellers have the ability to acquire additional shares every six months under the 3% “creep” provisions (without making a takeover offer).

Reduced possibility of receiving a future takeover offer

267 If the Merger is approved it is very unlikely that the non-associated shareholders will obtain the opportunity to share in a future takeover premium, because the Ever Green Sellers will already control Grange[42] .

42 However, should the Ever Green Sellers decide to sell or receive an attractive offer for their interests it is possible that the non-associated Grange shareholders will have the opportunity to participate in a takeover premium being offered.

==> picture [152 x 38] intentionally omitted <==

Locked into Shagang Off-take Agreements

268 Under the Merger, Grange will have in place off-take agreements with Shagang (or its subsidiaries) covering most of ABM’s production and provide Shagang a first right to negotiate for 80% of Southdown production. One of these agreements (signed in March 2005) is below current market prices, which is reflected in our calculation of value for ABM. The presence of these off-take arrangements further increases the difficulty faced by a party that might otherwise seek to gain access to iron ore supply by way of a takeover offer for Grange.

Increased liabilities

269 Under the Merger, the enlarged Grange group will have additional liabilities including the deferred consideration payments and debt of ABM. While these will be covered by ABM’s cash flow in most circumstances, there is some increased risk.

Transaction costs

270 Under the Merger, Grange estimates it will incur A$7.2 million of transaction costs, of which some A$2 million will already have been incurred by the date of the shareholders meeting.
271 We have allowed for the additional A$5.2 million of costs (and the A$13 million of costs to be incurred by Ever Green) in our valuation of the consideration. There is, however, a risk of additional transfer taxes, if the advice that no such amount will be payable is incorrect.

Advantages if the Merger is rejected

Existing shareholders retain control

272 Clearly, without the Merger existing shareholders will retain control of Grange and also retain the possibility that they may receive an opportunity to exit at a price including a control premium.

Retain high upside exposure to very high iron ore prices

273 Due to its high capital costs to implement, the value of the Southdown Project increases rapidly as iron ore prices increase past the level at which the project has a nil NPV. However, this break-even price level is some 50% higher than current consensus iron ore price expectations for 2013 and later (ie when the Southdown Project would be producing).

==> picture [152 x 38] intentionally omitted <==

Disadvantages if the Merger is rejected

Reliant on one single project

274 Without the Merger, the value of Grange would be highly dependent on the value of a single project, ie the Southdown Project, with its consequent risks and uncertainties. This is particularly risky because the Southdown Project is only valuable under very high iron ore pries (mainly due to its high capital costs).

Risk that capital to finance the Southdown Project may not be available

275 Current capital market conditions are very difficult and the ability of Grange to obtain all the funds needed to develop the Southdown Project is uncertain, even if the expectations for iron ore prices improved. We note that Grange has been actively searching for additional joint venture partners or other methods of funding this project for some time (including periods where iron ore price expectations were stronger than now) with limited success.

Dilution of interest in order to finance the Southdown Project

276 Grange would need a very large amount of capital to pay its share of the equity funding required to develop the Southdown Project[43] . On reasonable assumptions, the extent of dilution in the existing Grange shareholders’ interest in the Southdown Project would be very large and, in our opinion, likely to be greater than the dilution of the current Grange shareholders interest in Southdown under the Merger (and subsequent capital raisings).

Potential fall in share price

277 In our opinion the current Grange share price reflects an expectation that the Merger adds value and will be approved. Rejection would therefore be very likely to cause a fall in the Grange share price, at least in the short-term, so that Grange’s share price would become more consistent with the market values of other prospective iron ore producers.

Conclusion

278 On balance, having regard to the above, in our opinion, the advantages of the Merger outweigh the disadvantages from the perspective of Grange shareholders not associated with the Merger.

43 Capital expenditure of the Southdown Project is estimated at US$1.6 billion. Grange’s 70% share of this would be US$1.1 billion or A$1.6 billion, although some of this amount could be provided by project debt rather than equity funding.

==> picture [152 x 38] intentionally omitted <==

279 Furthermore, in our opinion, there is no apparent incentive or benefit to be gained by Grange shareholders by voting against the Merger.
280 We therefore recommend that Grange shareholders approve the Merger.

Appendix A

==> picture [152 x 38] intentionally omitted <==

Financial Services Guide

Lonergan Edwards & Associates Limited

1 Lonergan Edwards & Associates Limited (LEA) (ABN 53 095 445 560) is a specialist valuation firm which provides valuation advice, valuation reports and Independent Expert’s Reports (IER) in relation to takeovers and mergers, commercial litigation, tax and stamp duty matters, assessments of economic loss, commercial and regulatory disputes.
2 LEA holds Australian Financial Services Licence No 246532.

Financial Services Guide

3 The Corporations Act 2001 authorises LEA to provide this Financial Services Guide (FSG) in connection with its preparation of an IER to accompany the Explanatory Memorandum to be sent to Grange shareholders in connection with the Merger.
4 This FSG is designed to assist retail clients in their use of any general financial product advice contained in the IER. This FSG contains information about LEA generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the IER, and if complaints against us ever arise how they will be dealt with.

Financial services we are licensed to provide

5 Our Australian financial services licence allows us to provide a broad range of services to retail and wholesale clients, including providing financial product advice in relation to various financial products such as securities, derivatives, interests in managed investment schemes, superannuation products, debentures, stocks and bonds.

General financial product advice

6 The IER contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs.
7 You should consider your own objectives, financial situation and needs when assessing the suitability of the IER to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment.

Appendix A

==> picture [152 x 38] intentionally omitted <==

Fees, commissions and other benefits we may receive

8 LEA charges fees to produce reports, including this IER. These fees are negotiated and agreed with the entity who engages LEA to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the person who engages us. In the preparation of this IER our fees are based on a time cost basis using agreed hourly rates.
9 Neither LEA nor its directors and officers receive any commissions or other benefits, except for the fees for services referred to above.
10 All of our employees receive a salary. Our employees are eligible for bonuses based on overall performance and the firm’s profitability, and do not receive any commissions or other benefits arising directly from services provided to our clients. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits arising directly from services provided to our clients.
11 We do not pay commissions or provide other benefits to other parties for referring prospective clients to us.

Complaints

12 If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner.
13 If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Ombudsman Services Limited (FOSL), an external complaints resolution service. You will not be charged for using the FOSL service.

Contact details

14 LEA can be contacted by sending a letter to the following address:

Level 27 363 George Street Sydney NSW 2000 (or GPO Box 1640, Sydney NSW 2001)

Appendix B

==> picture [152 x 38] intentionally omitted <==

Qualifications, declarations and consents

Qualifications

1 LEA is a licensed investment adviser under the Corporations Act. LEA’s authorised representatives have extensive experience in the field of corporate finance, particularly in relation to the valuation of shares and businesses and have prepared more than 100 Independent Expert’s Reports.
2 This report was prepared by Mr Craig Edwards and Mr Martin Hall, who are each authorised representatives of LEA. Mr Edwards and Mr Hall have over 15 years and 20 years experience respectively in the provision of valuation advice.

Declarations

3 This report has been prepared at the request of the Directors of Grange to accompany the Explanatory Memorandum to be sent to Grange shareholders. It is not intended that this report should serve any purpose other than as an expression of our opinion as to whether the advantages of the Merger outweigh the disadvantages from the perspective of Grange shareholders not associated with the Merger.

Interests

4 At the date of this report, neither LEA, Mr Edwards nor Mr Hall have any interest in the outcome of the Merger. LEA is entitled to receive a fee for the preparation of this report based on time expended at our standard hourly professional rates. With the exception of the above fee, LEA will not receive any other benefits, either directly or indirectly, for or in connection with the preparation of this report.

Indemnification

5 As a condition of LEA’s agreement to prepare this report, Grange agrees to indemnify LEA in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of Grange which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.

Consents

6 LEA consents to the inclusion of this report in the form and context in which it is included in Grange’s Explanatory Memorandum.

Appendix C

==> picture [152 x 38] intentionally omitted <==

Comparable iron ore companies

1 Global iron ore supply is primarily represented by the world’s largest diversified miners (ie BHP Billiton, Vale and Rio Tinto). Consequently, there are not many other stock exchange listed iron ore producing companies. A summary of the EBITDA multiples, enterprise value (EV) / reserve and resource multiples and a brief company description of the available Australian and international iron ore producing companies are set out below (excluding Vale, Rio Tinto and BHP Billiton due to their diversified portfolio of assets):

	Trading multiples of listed companies
	Enterprise EBITDA multiple
	Company Value A$m FY08 Actual FY09 Forecast FY10 Forecast Resources EV/Mt(1) Reserves EV/Mt(1)
	Australian
	Fortescue Metals Group 14,157 46.7 5.4 3.7 3.4 8.7
	Portman 3,749(2) 24.2(2) 7.9(2) 7.1(2) 13.9(2) 39.3(2)
	Mount Gibson Iron 435 2.3 1.0 0.7 4.1 7.7
	Murchison Metals 194 n/a n/a n/a 0.8 n/a
	Territory Resources 103 n/a 1.3 0.8 10.3 18.3
	Atlas Iron 62 n/a 6.9 0.4 1.6 4.2

	International
	Cliffs Natural Resources 8,973 12.6(3) 4.6(3) 2.6(3) n/a(4) n/a(4)
	Kumba Iron Ore 5,628 6.9(3) 3.0(3) 2.3(3) 1.8 4.7

Note:

1 Multiples are calculated using each company’s EV (EV for international companies has been converted to A$) divided by the company’s resources and reserves at the time of transaction.
2 Currently under a takeover offer from Cliffs Natural Resources.
3 Historical year for the international companies is to 31 December 2007, with forecasts to 31 December 2008 and 2009.

4 Cliffs Natural Resources has substantial coal assets in addition to iron-ore assets.

n/a not available.

Appendix C

==> picture [152 x 38] intentionally omitted <==

Australian iron ore companies

Fortescue Metals Group Ltd

2 Fortescue Metals Group is an Australian hematite miner and developer of integrated iron ore, rail and port operations in the Pilbara region of Western Australia. The company commenced its first shipping in May 2008 and is in the process of ramping up production to 45 Mtpa. Fortescue has approximately 4.5 billion tonnes of resources, including 1.1 billion tonnes of reserves.

Portman Ltd

3 Portman is a Western Australian based iron ore mining and exploration company supplying iron ore to the Chinese and Japanese markets. Portman’s principal asset is its 100% owned Koolyanobbing while it also owns the Cockatoo Island mine. In 2005, Portman was acquired by Cliffs Natural Resources (formerly Cleveland Cliffs), a US based second tier iron ore producer. In September, 2008, Cleveland Natural Resources made an offer to acquire the remaining minority shareholders.

Mount Gibson Iron Ltd

4 Mount Gibson Iron is a hematite miner based in Western Australia. Its operations include the 3 Mtpa Tallering Peak iron ore mine, the 4 Mtpa Koolan Island iron ore mine, and the Extension Hill Hematite Project, currently in development. The company successfully acquired Aztec Resources Ltd in February 2007.

Murchison Metals Ltd

5 Murchison Metals is focused on development of the Jack Hills iron ore project in a joint venture arrangement with Mitsubishi Corp. Mitsubishi Corp purchased its share of the Jack Hills Project mid 2008. The project commenced small scale production in 2007 and is expected to reach targeted Stage 1 production capacity of 1.8 Mtpa during the first quarter of 2009.

Territory Resources Ltd

6 Territory Resources is an iron ore development company with four main projects located in the Northern Territory. The company’s immediate focus is on ramping up the Frances Creek Iron Ore Project, which has targeted production of an annualised rate of 2 Mtpa for 2008.

Appendix C

==> picture [152 x 38] intentionally omitted <==

Atlas Iron Ltd

7 Atlas Iron is an iron ore development company with projects located in Pilbara, Western Australia, with a focus on the Pardoo project. Atlas Iron is due to start exporting hematite iron ore in December 2008 and is targeting an initial rate of 1 Mtpa during its first year of operation of the Pardoo project. Atlas also proposes to develop magnetite resources at the Pardoo project.

International iron ore companies

Cliffs Natural Resources Inc

8 Cliffs Natural Resources (formerly Cleveland-Cliffs Inc), is a producer of iron ore pellets and a supplier of metallurgical coal to the global steelmaking industry. It operates six iron ore mines and three coking coal mines in the USA. It also has a 94% interest in Portman Ltd, a 30% interest in the Amapa Brazilian iron ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project.

Kumba Iron Ore Ltd

9 Kumba Iron Ore is the world's fourth largest supplier of sea-borne iron ore. It exports more than 70% of production which is over 32 Mtpa. The company’s principle assets are the Sishen and Thabazimbi mines in South Africa, with a combined resource exceeding 2 billion tonnes of iron ore. Anglo American Plc currently owns 63.4% of Kumba Iron Ore.

==> picture [152 x 38] intentionally omitted <==

Appendix D

Transaction information

1 There have been a number of transactions in the Australian and international mining industry recently. These transactions can be targeted at a company or project level and provide some guidance as to the prices that potential acquirers might be willing to pay for a controlling interest in iron ore companies and projects in general. However, caution should be taken when having regard to this evidence as recent increases in annual benchmark prices has resulted in an inconsistent data set. The transaction multiples are provided below:

Transaction multiples	Transaction multiples	Transaction multiples
						Multiples
Date				Acquired	Consideration	Resource	Reserve
announced	Target		Acquirer	%	A$m	EV/Mt(1)	EV/Mt(1)
Australian
11-Sep-08	Portman		Cliffs Natural Resources	14.8	559.5	27.7(8)	39.7(8)
11-Sep-08	AusQuest		Cliffs Natural Resources	30.0	26.7(2)	2.2	n/a
14-Mar-08	Midwest Corp		Sinosteel Corp	80.1	1,182.6(3)	2.4	178.2(8)
26-Feb-08	Cape Lambert
	(project)		China Metallurgical	100.0	400.0	0.3	n/a
18-Jun-07	Murchison Metals		Mitsubishi Corp.	50.0	150.0	4.5	35.3
04-Jun-07	Gindalbie Metals		Anshen Iron & Steel	12.9	39.0	0.2	n/a
24-Jul-06	Aztec Resources		Mount Gibson Iron	100.0	295.2	5.2	11.2
07-Jun-06	Asia Iron Holdings		Sinom Investments	73.0	52.5	0.3	n/a
31-Mar-06	Mineralogy (2		CITIC Pacific
	projects)			100.0	589.2(4)	0.3	n/a
17-Jun-05	Midwest Corp JV		Sinosteel Corp	50.0	750.0(5)	1.3	n/a
12-Jan-05	Portman		Cleveland-Cliffs	80.4	543.7	4.3	6.9
International
20-Aug-08	Minas Itatiaiucu		ArcelorMittal	100.0	880.1(4)	0.9	n/a
14-Jul-08	United Taconite		Cliffs Natural Resources	30.0(6)	285.6(4)	n/a	7.2
23-May-08	African Iron Ore
	Group		OAO Severstal	61.5	67.6(4)	0.1	n/a
17-Jan-08	IronX		Anglo American	63.6	3,971.4(4)	1.6	n/a
13-Dec-07	Lapwing		Aricom	29.3	133.0(4)	0.2	1.2
31-Jul-07	Guelb El Aouj		Qatar Steel
	(project)			49.9	440.5(4)	1.0	1.9
08-May-07	Minas Itatiaiucu		London Mining	100.0	107.9(4) (7)	0.4	n/a
24-Apr-07	Sesa Goa		Vedanta Resources	51.0	1,175.6(4)	n/a	11.1
23-Apr-07	MMX Minas-Rio		Anglo American	49.0	1,372.2(4)	8.0	n/a
29-Mar-07	Lapwing		Aricom	70.2	33.5(4)	0.0(8)	0.1(8)
Average						3.2	29.3
Median						1.0	9.1
Average (excluding		outliers)				2.0	10.7
Median (excluding outliers)						1.0	7.2

Appendix D

==> picture [152 x 38] intentionally omitted <==

Note:

1 Multiples are calculated using each company’s EV divided by resources and reserves at the date of transaction. 2 Consideration excludes the issue of 29 million additional options.
3 Consideration is for 80.11% of Midwest shares it did not already own.
4 Consideration converted to A$ at the prevailing spot rate on the date of announcement.
5 Based on the project value of $1.5 billion and a Joint Venture split of 50:50.
6 Cleveland-Cliffs previously owned a 70% interest in the joint venture.
7 Consideration consists of US$65 million and 16 payments of US$1.5 million semi-annually.
8 Outliers.

n/a not available.

Appendix E

==> picture [152 x 38] intentionally omitted <==

Assessment of appropriate discount rate

1 The determination of the discount rate or cost of capital for an asset requires identification and consideration of the factors that affect the returns and risks of that asset, together with the application of widely accepted methodologies for determining the returns demanded by the debt and equity providers of the capital employed in the asset.
2 The discount rate applied to the projected cash flows from an asset represents the financial return that will be demanded before an investor would be prepared to acquire (or invest in) the asset.
3 A mix of debt and equity normally funds investments. In order to calculate a “representative” rate of return required by different classes of investors, the weighted average cost of capital (WACC) is usually calculated. The required rate of return for equity type investments is frequently evaluated using the capital asset pricing model (CAPM) while the required rate of return for debt funding is usually determined having regard to the borrower’s credit ratings and its historical and current borrowing costs. Combining the CAPM results with the cost of debt funding will determine the WACC of an asset.
4 Consequently, we set out below an explanation of:
(a) the key elements of the WACC (including the cost of equity and CAPM, gearing and the cost of debt)
(b) our assessment of the appropriate discount rate to apply when valuing the exploration and mining operations of Grange and ABM.

Weighted average cost of capital

5 There are a number of formulae for the WACC. The differences between the formulae are in the definition of the cash flows (pre-tax or post-tax), the treatment of the tax benefit arising through the deductibility of interest expenses (included in either the cash flow or the discount rate), and the manner and extent to which they adjust for the effects of dividend imputation.

==> picture [152 x 38] intentionally omitted <==

Appendix E

6 The generally accepted WACC formula is the post-tax WACC, without adjustment for imputation[44] :

WACC	formula
WACC	V E R e =	+	R	d	( 1	−	t	) V D

Where: Re = cost of equity capital Rd = cost of debt capital (pre-tax) t = corporate tax rate E = market value of equity D = market value of debt V = market value of debt plus equity

7 We explain below the inputs required to determine WACC.

Cost of equity and CAPM

8 The CAPM stems from the theory that a prudent investor would price an investment so that the expected return is equal to the risk-free rate of return plus an appropriate premium for risk. The CAPM assumes that there is a positive relationship between risk and return. That is, investors are risk adverse and demand higher returns for accepting higher levels of risk.
9 The CAPM is based on the concept of non-diversifiable risk and calculates the cost of equity as follows:

Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation	Cost of equity calculation
e R =	R	f	+	e β	~~[~~ E	(	m R	)	~~]~~ f R −
Where:
_Re _							=		expected equity investment return or cost of equity in nominal
									terms
_Rf _							=		risk-free rate of return
_E (Rm) _							=		expected market return
E (Rm)	- Rf						=		market risk premium MRP)
β_e_							=		equity beta

44 In our opinion, given free capital flows between developed countries and the small size of the Australian stock market (as a percentage of global markets) the cost of capital should be assessed in a global context ignoring Australian imputation.

Appendix E

==> picture [152 x 38] intentionally omitted <==

10 The individual components of the CAPM are discussed below.

Risk-free rate

11 The risk-free rate is normally approximated by reference to a long-term government bond with a maturity equivalent to the timeframe over which the returns from the assets are expected to be received. Typically in the Australian context, the yield on 10-year Commonwealth Government Bonds is used as a proxy for the risk-free rate.
12 Because of market volatility, we have used the average of recent rates to avoid unwarranted volatility in calculated values.
13 For the purpose of our valuation of ABM, we have adopted the average yield on 10-year Commonwealth Government Bonds at over the period 1 October 2008 to 24 October 2008 of 5.2% per annum, which has been valued in Australian dollars.
14 As the Grange valuation was conducted in US$, we have adopted the average 30-year US treasury security yield over the period 1 October 2008 to 24 October 2008 of 4.2% per annum as a proxy for the risk-free rate.

Market risk premium

15 The market risk premium [E(Rm)-Rf] represents the additional return above the risk-free rate that investors require in order to invest in equity securities as a whole.
16 Strictly speaking, the market risk premium is equal to the expected return from holding shares over and above the return from holding risk-free government securities. Since expected returns are generally not observable, a common method of estimating the market risk premium is based on average realised (ex-post) returns.
17 Because realised rates of return, especially for shares, are highly volatile over short periods, short-term average realised rates of return are unlikely to be a reliable estimate of the expected rate of return or market risk premium. Consequently the market risk premium should be measured over a long period of time. It should also be noted that the standard error of the estimate of the mean for longer period is typically lower than the standard of error of the mean where shorter period is used. This suggests that more reliance should be placed on the average market risk premium calculated over the longest term.
18 A number of studies on historical market risk premiums have been carried out using long periods of historical data from the Australian as well as overseas markets.

==> picture [152 x 38] intentionally omitted <==

Appendix E

19 The following table summarises the empirical evidence on the market risk premium in the United States:

Market risk premium – empirical evidence	Market risk premium – empirical evidence
	Period over which	Market risk premium
US studies	MRP measured	%
Siegel	1802 – 1992	5.0
Pastor and Stanbaugh	1834 – 1999	5.8
Fama and French	1872 – 2000	5.6
Ibbotson Associates	1926 – 2000	7.7
Fama and French	1951 – 2000	7.4

Source:

Siegel J., 1992, The Equity Premium: Stock and Bond Returns Since 1802, Financial Analysts Journal, pp. 28-38.

Pastor L. and R. Stambaugh, 2001, The Equity Premium and Structural Breaks, Journal of Finance, 56(4), pp. 1207-1239.

Ibbotson Associates, 2001, Stocks, Bonds, Bills, and Inflation.

Fama E. and K. French, 2002, The Equity Premium, Journal of Finance, 57(2), pp. 637659.

20 Dimson, Marsh and Staunton (2003) collected data of 16 developed countries over a period of 103 years and estimated the historical market risk premiums. As shown below, the market risk premiums vary significantly across these developed markets while the world market risk premium is in the range from 4% to 6%.

Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	to 2002
	Relative to bills				Relative to bonds
	Geometric	Arithmetic	Standard		Geometric	Arithmetic	Standard
	mean	mean	deviation		mean	mean	deviation
	%	%		%	%	%	%
Australia	6.8	8.3		17.2	6.0	7.6	19.0
Belgium	2.2	4.4		23.1	2.1	3.9	20.2
Canada	4.2	5.5		16.8	4.0	5.5	18.2
Denmark	2.2	3.8		19.6	1.5	2.7	16.0
France	6.4	8.9		24.0	3.6	5.8	22.1
Germany	3.9	9.4		35.5	5.7	9.0	28.8
Ireland	3.6	5.5		20.4	3.2	4.8	18.5
Italy	6.3	10.3		32.5	4.1	7.6	30.2
Japan	6.1	9.3		28.0	5.4	9.5	33.3
The Netherlands	4.3	6.4		22.6	3.8	5.9	21.9
South Africa	5.9	7.9		22.2	5.2	6.8	19.4
Spain	2.8	4.9		21.5	1.9	3.8	20.3
Sweden	5.2	7.5		22.2	4.8	7.2	22.5

==> picture [152 x 38] intentionally omitted <==

Appendix E

Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	Equity risk premium around the world – 1900	to 2002
	Relative to bills				Relative to bonds
	Geometric	Arithmetic	Standard		Geometric	Arithmetic	Standard
	mean	mean	deviation		mean	mean	deviation
	%	%		%	%	%	%
Switzerland	3.2	4.8		18.8	1.4	2.9	17.5
United Kingdom	4.2	5.9		20.1	3.8	5.1	17.0
United States	5.3	7.2		19.8	4.4	6.4	20.3
Average	4.5	6.9		22.8	3.8	5.9	21.6
World	4.4	5.7		16.5	3.8	4.9	15.0

Source : Dimson E., P. Marsh and M. Staunton, 2003, Global evidence on the equity risk premium, Journal of Applied Corporate Finance, 15(4), pp. 27-38.

21 The most recent study in Australia on the market risk premium was by Brailsford, Handley and Maheswaran (2008) who analysed data for the period from 1883 to 2005 (inclusive). The following table reports the market risk premium in nominal terms as measured by this data set, updated to the end of 2005, for different time periods.

Historical Australian market risk premium - 1883 to 2005	Historical Australian market risk premium - 1883 to 2005	Historical Australian market risk premium - 1883 to 2005
Arithmetic		Geometric Standard
Time period(1)	mean	mean deviation
From	To Years %	% %
Relative to bills 1883 - 2005 123 6.6 5.3 16.0 1937 - 2005 69 6.4 4.6 19.1 1958 - 2005 48 6.8 4.5 22.1 1980 - 2005 26 6.2 3.9 21.9 1988 - 2005 18 5.2 4.2 15.2 1983 - 1987 105 6.8 5.5 16.2 Relative to bonds 1883 - 2005 123 6.2 4.9 16.0 1937 - 2005 69 5.8 4.0 19.1 1958 - 2005 48 6.3 4.0 22.0 1980 - 2005 26 6.0 3.8 21.7 1988 - 2005 18 5.1 4.0 15.0 1983 - 1987 105 6.4 5.1 16.2

Note:

1 The first four periods have increasing data quality but decreasing sample size. The fifth period begins from the introduction of the imputation tax system in Australia.

Source: Brailsford, T., J. Handley, and K. Maheswaran, 2008, Re-examination of the historical equity risk premium in Australia, Accounting and Finance, 48(1), pp. 73-97.

Appendix E

==> picture [152 x 38] intentionally omitted <==

22 The historical market risk premium of the Australian equity market is in the range from around 4% to 7% depending on the historical period chosen, whether the market risk premium is measured relative to bills or bonds, and whether arithmetic or geometric mean is used.
23 In summary, Australian and overseas empirical evidence shows that the historical market risk premiums vary significantly across markets and generally have large estimation errors. Historical market risk premiums for the Australian market are generally in line with the overall range of the market risk premiums of developed countries but appear to be higher than the world average.
24 Generally, current market practice in Australia is to adopt a market risk premium of between 6% to 7% per annum. Regulatory authorities in Australia (for example, the Australian Competition and Consumer Commission, Queensland Competition Authority and Australian Energy Regulator) consistently adopt a rate of 6%. The current market conditions and observed values of share prices generally, relative to risk-free interest rates indicates that the market risk premium should be at the high end of the range. Having regard to the above, we have adopted a market risk premium of 7% per annum for both Australian and US denominated discount rates.

Equity beta

Description

25 Beta is a measure of the expected correlation of an investment’s returns relative to the return on the market as a whole. The CAPM assumes that beta is the only reason expected returns on an asset differ from the expected return on the market as a whole. A beta of greater than one suggests that an investment’s returns are expected to be more responsive to events that affect the whole market than average (and accordingly a higher return is required). A beta of less than one suggests that future returns will be less responsive than average to market changes and hence less risky.
26 Similar to market risk premiums, expected equity betas are not observable and they are normally calculated from historical data. These historical betas are then used as a reference to determine the appropriate forward-looking betas. The determination of the appropriate beta to apply, therefore, is ultimately a matter of judgment. As a result, there is no “correct” equity beta and it is important not to simply apply the historical equity beta of the business being valued or historical equity betas calculated from comparable listed companies when calculating the cost of equity for the investment project. Instead, the risk factors which make the operating risk of the investment project greater or less risky than comparable listed companies should be considered. In addition, beta should be determined having regard to the expected level of future systematic risk of the investment being valued in the long run.

Appendix E

==> picture [152 x 38] intentionally omitted <==

27 Accordingly, in determining the appropriate equity betas for Grange and ABM, we have considered:
(a) the risks faced by Australian iron ore mining companies generally (b) the risks associated with the exploration and mining operations of Grange and ABM; and
(c) the beta estimates for Grange, other listed iron ore companies and companies operating in the broad metals and mining sector.

Risk of iron ore operations in Australia

28 In assessing the appropriate betas attributable to iron ore operations in Australia, the following factors[45] , inter alia, have been taken into consideration:
(a) the Australian iron ore mining industry is highly concentrated and dominated by the two largest players, Rio Tinto and BHP Billiton, which have a combined share of around 90% of industry output. A successful merger between Rio Tinto and BHP Billiton will further increase the level of concentration in the industry. Barriers to entry in the industry is high primarily due to the large amount of initial capital required
(b) Australia generally ranks in the top four iron ore producers in the world, however, given Australia’s relatively small ferrous processing industry, more than 95% of Australia’s iron is exported to steel manufacturers overseas. The industry’s activities, therefore, are more sensitive to the volatility of the overseas markets’ demand rather than that of the domestic market
(c) demand for iron ore depends on the level of steel production worldwide which, in turn, is determined by the level of global economic growth. As such, there is a high level of correlation between demand for iron ore and growth in the global economy, particularly the rate of industrialisation in a number of developing economies in Asia
(d) Australia’s major iron ore export markets include: (i) China – 53% (ii) Japan – 29 % (iii) South Korea – 11% (iv) Taiwan – 4% (v) the EU – 3%.

45 Source: IBISWorld Industry Report, 16 July 2008.

==> picture [152 x 38] intentionally omitted <==

Appendix E

China has only recently become a major importer of Australian iron ore and given the size of its steel industry it is the primary driver of growth in the iron ore mining industry. Accordingly, the outlook of the industry is highly dependent upon the growth prospect of China and other Asian economies

(e) in addition, there are a number of systematic risk factors associated with general mining operations. These include:
- (i) the risk of abnormal stoppages in production or delivery due to factors such as industrial disruption, key infrastructure capacity constraints
- (ii) the risk of increases in capital expenditure requirements and operating costs
- (iii) the risk of customers and counter parties failing to meet their obligations under sales contracts and/or financial arrangements
- (iv) the risk of poor weather conditions over a prolonged period adversely impacting mining and exploration operations and the timing of earning of revenues
- (v) the risk of unforeseen failures, breakdowns or repairs required to key mining equipment or mine structure resulting in significant delays
- (vi) the risk of changes in government policy and regulation of the mining industry including conditions imposed on the extension to or the granting of mine leases
- (vii) the risk of changes in taxation laws including increases in imposts such as royalties, freight, charges or taxes affecting the level of mining or exploration activities.
29 In summary, considering the high level of correlation between demand for iron ore products and global economic growth, the cyclical nature of the iron ore industry and the risk characteristics of mining operations, we believe the level of systematic risk of iron ore operations in Australia is at or above the level of the systematic risk of the general market as a whole.

Risk factors of Grange’s business

30 In the case of the exploration and mining operations of Grange, it should be noted that:

Appendix E

==> picture [152 x 38] intentionally omitted <==

(a) as the Southdown magnetite deposit is Grange’s only significant asset, the company’s future performance depends highly upon the success of the Southdown Project which, at this stage, has considerable development risk
(b) the Southdown Project is at an advanced stage with a detailed feasibility study completed, infrastructure requirements being arranged and a pellet plant to be located at a favourable distance from key markets. However, the scale of the project requires substantial capital investment which may be difficult to obtain in the current market conditions. Any delay in securing sufficient funding will impact upon the project’s development plan and progress
(c) the financial viability of the Southdown Project depends on the ability of Grange and its joint venture partner, Sojitz, to secure off-take sales agreements at favourable terms as well as the ability to effectively manage operating costs. Given the current international economic outlook, there is a high level of uncertainty with iron ore demand and consequently prices
(d) as the project is still at the development stage, there is a risk of a considerable increase in capital costs and operating costs
(e) as the majority of Grange’s operational costs will be denominated in Australian dollars while its sales revenue will largely be in US dollars, Grange’s future financial performance will be subject to foreign currency fluctuations
(f) as an historical copper producer, Grange lacks the operational expertise in the iron ore industry. However, this should be partly compensated by the joint venture partner’s substantial experience in the management of pellet plants and its excellent long-term relationships with pellet consumers in Asia and the Middle East
(g) as the mine deposit and the pellet plant will be separately located, this will create additional operational complexities. The pellet plant planned to be built in Malaysia also brings in additional sovereign risks although this provides Grange with freight advantages over other more distant iron ore producers.

Risk factors of ABM’s business

31 In the case of the iron ore production activities of ABM, it should be noted that:

==> picture [152 x 38] intentionally omitted <==

Appendix E

(a) ABM has an established operation with more than 30 years of operating history. The company has an experienced and competent management team which has a proven track record, evident in its strong historical financial performance
(b) ABM’s plants are in excellent condition, its workforce are highly motivated and it has excellent safety records
(c) ABM’s current reserve of 131 Mt is sufficient for a potential 25 year mine life and its current MLEP expects to use 70 Mt of the above estimated reserve over a 14 year period. However, given the age of the plants (built in 1967) unexpected failures and disruptions to productions may occur. The level of operational complexities is expected to also increase as the mine life extends
(d) operating costs per tonne for the remaining mine life is expected to be high, as a result, ABM’s financial performance is highly sensitive to the fluctuation of iron ore prices. A sharp drop in the iron ore prices will have the impact of eroding the company’s profit margin significantly
(e) ABM’s sales to BlueScope Steel enjoy a freight advantage over more distant iron ore suppliers
(f) given the location of ABM, and its proximity to BlueScope Steel, ABM has a freight advantage over other iron ore suppliers. As a result ABM has a long-term relationship with BlueScope Steel
(g) similar to Grange, ABM’s revenues are in US$ while its expenses are in A$, the company is therefore exposed to the fluctuation of the US$/A$ exchange rate. ABM, however, employs an ongoing hedging programme to reduce its foreign currency exposure.

==> picture [152 x 38] intentionally omitted <==

Appendix E

Betas of comparable companies

32 We have had regard to the equity betas of iron ore companies listed on the ASX as well as those listed overseas, as shown in the table below:

		Market
		cap(1)	Gearing(2)		R-square
Company name	Status	A$m	%	Beta(3)	%
Australian companies
Fortescue Metals Group	Producer	8,000	15.5	2.8	17
Portman Limited	Producer	3,739	0.3	1.5	18
Mount Gibson Iron	Producer / Developer	326	4.2	1.9	13
Murchison Metals	Developer	241	-	2.1	19
Atlas Iron	Developer	205	-	2.3	18
Sundance Resources	Developer	198	-	3.2	19
United Minerals	Developer	185	-	2.1	10
Gindalbie Metals	Developer	180	-	3.2	22
Sphere Investments	Developer	77	-	3.1	23
Giralia Resources	Explorer	72	-	3.1	21
Cape Lambert Iron	Developer	66	-	0.6	1
Territory Resources	Developer	65	12.7	2.1	22
Golden West Resources	Explorer	61	-	2.0	8
Australasian Resources	Explorer	51	-	1.1	3
Brockman Resources	Developer	50	-	1.4	8
Strike Resources	Developer	38	-	3.1	8
Ferraus	Explorer	38	-	2.1	12
Aurox Resources	Explorer	32	-	0.9	3
Western Plains Resources	Explorer	26	-	3.1	21
International companies
BHP Billiton	Diversified miner	136,843	4.5	1.6	n/a
Rio Tinto	Diversified miner	80,391	32.2	1.6	n/a
Cliffs Natural	Producer	9,313	5.0	2.7	n/a
Resources
Kumba Iron Ore	Producer	5,418	5.6	n/a	n/a

Note:

1 Market capitalisation as at 24 October 2008.

2 Gearing is calculated as the amount of net debt taken from the latest financial statements available divided by the market capitalisation as at 30 June 2008 plus net debt.

3 Australian companies’ AGSM betas are estimated using four years of monthly stock and market returns. International companies’ betas are obtained from Reuters which are estimated using five year monthly stock and market returns.

Source: Reuters, AGSM, Financial Analysis and company annual reports.

==> picture [152 x 38] intentionally omitted <==

Appendix E

33 The above betas vary widely, which in part reflects their different size, stage of development (eg producers versus explorers etc) and differences in leverage and operational risks. Some companies’ betas also have low R-square (RSQ)[46] value indicating a low level of reliability.
34 The majority of the above betas are in the range from 1.5 to 3. However, we note that the above beta estimates incorporate return data of a period of abnormal volatility in the financial market (from the middle of 2007 to the present) as well as the return data of an unprecedented resource boom period in Australia. Nevertheless, taking into account historical beta estimates, the betas of the iron ore producers are in the range from 1.5 to 2.5 while the betas of developers are in the range from 2.0 to 3.0.
35 It should be noted that as the equity beta is a function of both business risk and financial risk (being the level of financial leverage or gearing), the above equity betas are levered betas for companies with borrowings and must be adjusted to reflect the different levels of gearing. However, this adjustment is subject to considerable estimation error. For example, gearing ratios are normally calculated at a point in time and therefore may not reflect the target or optimal capital structures of comparable companies in the long run. Further, the practice of adjusting the equity betas for the difference in financial leverage also gives a misleading impression that the process provides precise comparable beta estimates. Nevertheless, we have considered the impact of the difference in gearing levels of comparable companies in determining the appropriate equity beta for Grange and ABM.

Metals and mining sector’s beta

36 There is no separate beta estimate for companies operating in the iron ore mining industry in Australia. The historical betas of the broad metals and mining sector over the period from 2005 up to June 2008 are set out below:

46 RSQ values range between 0% and 100%. The closer to 100% the more reliable the beta estimate.

==> picture [152 x 38] intentionally omitted <==

Appendix E

Metals and mining sector beta
Quarter ended	Beta RSQ %
Jun-08 Mar-08 Dec-07 Sep-07 Jun-07 Mar-07 Dec-06 Sep-06 Jun-06 Mar-06 Dec-05 Sep-05 Jun-05 Mar-05 Average Min Max Median Source:AGSM.	1.21 52 1.35 55 1.68 58 1.78 60 1.85 61 1.85 61 1.65 57 1.62 55 1.56 58 1.61 60 1.50 58 1.39 52 1.19 49 1.13 44 1.53 1.13 1.85 1.59

37 The average beta of the broad metals and mining sector is 1.5 over the period from March 2005 to June 2008. During the period, most of the sector’s betas are in the range of 1.3 to 1.8. We note that the sector betas also have significantly higher RSQ indicating that they are more reliable than the beta estimates of the individual comparable companies.

Appendix E

==> picture [152 x 38] intentionally omitted <==

Grange’s historical beta

38 As shown in the graph below, Grange beta was very volatile reflecting the transformation of the company’s underlying business from copper mining to iron ore mining and from a producer to an explorer status. Therefore, Grange’s historical beta is unlikely to be a good indicator of the company’s future systematic risk. Further, we note that Grange’s beta estimates generally have a very low level of reliability (most RSQs are below 5% and only two recent beta estimates in March 2008 and June 2008 have RSQs above 10%). In contrast, the beta of the broad metals and mining sector appears relatively stable although it has increased slightly in recent years reflecting the high growth rate of the sector.

==> picture [407 x 238] intentionally omitted <==

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

��,��+��-��$ ��$ ��
4 ��
!��
��
��
��
��
��
"
4 ��"�� $"�� 4 ��"�! ��$"�! 4 ��"�� $"�� 4 ��"� ��$"� 4 ��"�� $"�� 4 ��"�% ��$"�% 4 ��"��
< ��;��,�� 4 ��= �4 ��;
----- End of picture text -----

Conclusion

39 In summary, the following factors are important considerations in the determination of the appropriate equity betas to apply for Grange and ABM:
(a) betas of iron ore producers are generally in the range from 1.5 to 2.5 and betas of iron ore explorers / developers are in the range from 2.0 to 3.0. However, individual companies’ betas generally have large estimation errors and a low level of reliability
(b) in the long run, betas of individual stocks tend to revert to the beta of the respective sectors which are relatively more stable and are estimated with a higher level of accuracy. The historical beta of the broad metals and mining sector is in the range from 1.30 to 1.80

==> picture [152 x 38] intentionally omitted <==

Appendix E

(c) Grange remains exposed to development and funding risk for the medium term. Once its Southdown mine is developed, given the competitive nature of the industry, as a price taker, Grange’s future financial performance is subject to the volatility of iron ore demand and price as well as exchange rate fluctuation
(d) ABM has an established operation with experienced and competent management team. However, the age of its plants presents the company with an element of operational risk. Similar to Grange, ABM is also subject to iron ore price volatility and foreign currency fluctuation
(e) overall, in the long run, both Grange and ABM’s future financial performance is likely to correlate with the global economic growth, especially the economic growth of developing countries which largely drive demand for iron ore and its price.
40 In conclusion, considering the above, we believe the equity beta for Grange is in the range from 1.8 to 2.0 and the equity beta for ABM is in the range from 1.3 to 1.5.

Gearing

41 The gearing level adopted should represent the level of debt that the asset can reasonably sustain and is not necessarily equivalent to the gearing level of the entity owning the asset. The factors that affect the “optimum” level of gearing will differ between assets. Generally, the major issues to address in determining this optimum level will include:
(a) the variability in earnings stream
(b) working capital requirements
(c) the level of investment in tangible assets
(d) the nature and risk profile of the tangible assets.
42 In general, the higher the expected volatility of cash flows (ie risk), the lower the debt levels which can be supported. When assessing the appropriate gearing level it is appropriate to consider the gearing levels of the comparable listed companies over the period over which the beta estimates were calculated.

==> picture [152 x 38] intentionally omitted <==

Appendix E

43 As can be seen in paragraph 32, most comparable companies have little or no debt. Explorers / developers generally have no debt given the substantial development risk that these companies face. However, all explorers or developers have to take on considerable debt to finance the development of their resources into an operating mine. The current debt level of iron ore producers varies but is generally low. This is to a considerable degree the result of very strong cash flows experienced by these producers due to the very high iron ore prices, which has pushed down debt levels (and raised equity valuations) of these producers. In the longer term, we therefore consider a debt to equity ratio of 33% : 67% as appropriate for ABM and 30% : 70% for Grange.

Cost of debt

44 The rapid deterioration of the credit markets in the context of the current global financial crisis results in a huge increase in borrowing costs for businesses. The five year credit spread to SWAP rate for BBB+ rating bond has increased from 43 basis points in June 2007 (prior to the deepening of the US sub-prime credit crisis) to 306 basis points in September 2008[47] . Therefore, the current market borrowing cost is unlikely to reflect the longterm borrowing cost.
45 Taking into account the level of gearing assumed for Grange and ABM and historical credit spreads and advice from Grange and ABM on anticipated spreads over swap rates, we consider the long-term borrowing spread over risk-free of 4% to 4.5% for Grange and 2.75% to 3.25% for ABM to be appropriate. We have adopted borrowing rates of 8.5% (US$) for Grange and 8.2% (A$) for ABM.

Calculation of nominal WACC

46 As noted in paragraph 5, there are a number of formulae for calculating the WACC and number of corresponding definitions of the cash flows. The most popular WACC formula adopted by practitioners is the post-tax WACC shown in paragraph 6 above. The corresponding cash flow definition for this WACC formula is the after-tax net cash flows to debt and equity holders. We note that the tax rate in the WACC formula is the effective tax rate and not the statutory tax rate.
47 In the case of Grange, the Kemaman Pellet Plant has a 15 year tax-free period with the Malaysian Government. As the majority of profits are likely to be derived in Malaysia, due to the price differential between concentrate and pellet sales, the long-term effective tax rate for Grange should substantially be below the current company tax rate of 30%. As it is difficult to arrive at an average effective tax rate for the entire life of the company with a reasonable level of accuracy, in our opinion, it is appropriate to use a WACC formula,

47 Source: Commonwealth Research, Month In Review, June 2007 and September 2008.

==> picture [152 x 38] intentionally omitted <==

Appendix E

which does not include the interest tax shield adjustment in it, often referred to as the “vanilla” WACC.

48 The corresponding cash flow definition for the vanilla WACC is the net cash flows after tax to equity holders plus interest expenses or cash flows before tax to debt holders.
49 The application of this WACC formula allows for any adjustments for taxes to be carried out in the projected cash flows and avoid the problem of having to estimate the average effective tax rate.
50 We adopt the post-tax WACC formula for ABM.
51 Based on the above, in our opinion, the discount rates for Grange and ABM are estimated as follows:

WACC estimates
Parameters		Low	High
Grange’s WACC (US$)
Risk-free rate	Rf(US 30 year Govn. bond)	4.2%	4.2%
Cost of debt	Rd	8.5%	8.5%
Market risk premium	MRP	7.0%	7.0%
Equity beta	�e	1.8	2.0
Cost of equity	Re= Rf+�eMRP	16.8%	18.2%
Gearing	D/V	30.0%	30.0%
Nominal vanilla WACC	Re E/V + Rd D/V	14.5%	15.5%
(rounded)
ABM’s WACC (A$)
Risk-free rate	Rf(Aust. 10 year Govn. bond)	5.2%	5.2%
Cost of debt	Rd	8.2%	8.2%
Equity beta	�e	1.3	1.5
Market risk premium	MRP	7.0%	7.0%
Cost of equity	Re= Rf+�eMRP	14.3%	15.7%
Gearing	D/V	33.0%	33.0%
Nominal post-tax WACC	Re E/V + Rd (1-tc)D/V	11.5%	12.5%
(rounded)

100

Appendix F

==> picture [152 x 38] intentionally omitted <==

Key elements of Mining One report

From 1.1 Terms of reference

“This Expert Report is limited to Mining One’s independent assessment of resources and reserves, mine operating plan and mine capital and operating costs for the Savage River Magnetite Mine operated by ABM.”

“Except for the reporting of Mineral Resources, the conclusions expressed in this report are appropriate at the date of the report which is 23 October 2008. The report is, therefore, only valid at that date and Mining One’s conclusions and opinions may change with time in response to variations in economic, market, legal or political factors, in addition to ongoing mining and exploration results. The valid date for the reporting of Mineral Resources by ABM was March 2008.”

From 2.1.5 Development and mining history

“ABM has mined out two extensions of North Pit since 1997 and is now mining Extension 3. ABM had planned to cease operations in 2009 at the end of Extension 3 at an elevation of about +50m RL. However, a feasibility study known as the MLEP, completed in September 2006 demonstrated potential for extending the mine life by mining ore exclusively from Extension 4 of North Pit until 2018 and milling ore until 2021.

The MLEP was used as the basis to develop an operating plan to prevent the anticipated closure in 2009 and extend the mine life to 2029; this plan is known as the Savage River 2008 Operating Plan. A lateral enlargement of Extension 4 of North Pit has been included in the most recent versions of the Savage River 2008 Operating Plan; this enlargement is referred to in this report as Extension 4+ and has extended the mine life to 2029.

ABM recently updated the 2008 Operating Plan with a 2008 Operating Forecast presented in a spreadsheet named 2008_June_Forecast_2.xls.”

From 2.1.7.1 Mining operations

“Mining at Savage River Mine is by open cut and the process of mining is straightforward: drilling and blasting, loading by face shovels and excavators and hauling by diesel powered trucks.

The mining fleet is owner operated and the load and haul fleet is new, most equipment having been commissioned in the last year.

101

==> picture [152 x 38] intentionally omitted <==

Appendix F

One important key to a profitable operation at Savage River Mine is the capacity of a new mining fleet to move material quickly and efficiently. The new mining fleet has only been fully operational from June 2008 due to delays associated with the delivery of the face shovels but the shortfall in total material movement, attributed to these delays, has been addressed by ABM.

Since there is no history of operating costs for this new fleet, mine unit operating costs and the productivities have been built up from first principles using the respective manufacturer’s databases for availabilities, maintenance requirements, consumable items and labour costs. Other mine related costs have been sourced from the database of an extensive mining history at the Savage River Mine. Mining One considers that the operating costs are reasonable.”

From 2.1.7.3 Mining schedule

“Ore and total material schedules are shown in Tables 2 and 3. Successful achievement of the material movements required has dictated a change in the mining fleet which has undergone a size shift from 160 tonne to 225 tonne trucks, and from hydraulic excavators to face shovels.

Arriving at realistic performances for inclusion in the schedule relied on the experience from the manufacturers regarding their trucks and face shovels, the application of sophisticated software to optimise haulage routes, and a comprehensive understanding of the distribution of ore and waste within the designed open cuts.

Some conservatism was introduced into the mining schedule to allow for any unplanned events or circumstances. For example, the mining schedule has assumed only 80% of the digging capacity of the face shovels as designated by the manufacturer. In addition, some trucks from the old mining fleet have been retained to alleviate a shortfall in material movement which developed in early 2008 principally due to the late commissioning of new equipment.

The process that ABM used in developing the schedule for material movement was from first principles using the best available data and Mining One considers that the results are in line with standard industry practice.

The operation has the flexibility of being able to off-set any production shortfall by utilising ore from existing stockpiles. Concentrate production can be maintained by augmenting run-of-mine ore with ore from existing low and high grade stockpiles. At present, the grade of ore from the low grade stockpile is higher than anticipated and concentrate production for 2008 will meet the requirements of the 2008 Operating Plan.

102

==> picture [152 x 38] intentionally omitted <==

Appendix F

ABM recently updated the 2008 Operating Plan with a 2008 Operating Forecast presented in a spreadsheet named 2008_June_Forecast_2.xls. This forecast indicates that there will be a shortfall in total material movement during 2008. The 2008 Operating Plan called for total material movement of 26,348,000 bcm, however, the current forecast is for movement of only 12,167,000 bcm. The shortfall is due to delayed successful commissioning of the new mine fleet. It is the opinion of Mining One that, once the new mine fleet has been fully commissioned, it will have the capacity to deliver the 2008 Operating Plan.

Table 4 shows mining sources and their respective mining unit costs to the end of mining in 2029; production of concentrate continues for nine years after mining ends using stockpiled ore.”

Table 2

	North Pit Ext 4	North Pit Ext 4	North Pit Ext 4+	North Pit Ext 4+	South deposit	South deposit	Centre Pit South	Centre Pit South	All sources	All sources
Year	Tonnes	%DTR	Tonnes	%DTR	Tonnes	%DTR	Tonnes	%DTR	Tonnes	%DTR
2008	4,097,000	47.5							4,097,000	47.5
2009	11,140,000	43.0							11,140,000	43.0
2010	2,995,000	51.8							2,995,000	51.8
2011	8,672,000	42.2							8,672,000	42.2
2012	1,066,000	57.8							1,066,000	57.8
2013	9,978,000	54.0							9,978,000	54.0
2014	280,000	38.8							280,000	38.8
2015	8,298,000	49.3							8,298,000	49.3
2016	14,531,000	57.4							14,531,000	57.4
2017	8,470,000	47.0	4,249,000	47.0					12,720,000	47.0
2018			527,000	47.0					527,000	47.0
2019			2,348,000	47.0					2,348,000	47.0
2020			2,348,000	47.0					2,348,000	43.7
2021					700,000	43.9	350,000	43.4	1,050,000	43.7
2022					3,850,000	43.9	2,450,000	43.4	6,300,000	43.7
2023					3,899,000	43.9	5,600,000	43.4	9,449,000	43.6
2024							2,569,000	43.4	2,569,000	43.4
Total	69,527,000	49.0	9,473,000	47.0	8,449,000	43.9	10,969,000	43.4	98,418,000	48.2

103

==> picture [152 x 38] intentionally omitted <==

Appendix F

Table 4

Table 4
All material		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
Material
volumes
South deposit	000 bcm												5,500
Central Pit	000 bcm
South
Extension 4	000 bcm	18,700	23,842	24,622	20,291	20,202	20,202	20,202	17,420	11,141	5,591
Extension 4+	000 bcm									8,736	8,736	7,839	3,514
Total	000 bcm	18,700	23,842	24,622	20,291	20,202	20,202	20,202	17,420	19,877	14,327	7,839	9,014
Unit costs
South deposit	$/bcm												5.32
Central Pit	$/bcm
South
Extension 4	$/bcm	5.71	4.93	3.67	5.78	6.49	5.06	4.91	5.65	7.62	8.70
Extension 4+	$/bcm									7.62	8.70	12.80	6.30
All material		2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030	- 2033
Material
volumes
South deposit	000 bcm	5,500	5,500	5,600	1,614
Central Pit	000 bcm	4,400	8,900	8,700	8,700	1,934
South
Extension 4	000 bcm
Extension 4+	000 bcm	671
Total	000 bcm	10,571	14,400	14,300	10,314	1,934
Unit costs
South deposit	$/bcm	5.39	5.39	5.36	6.41
Central Pit	$/bcm	5.84	5.72	5.81	5.81	5.81
South
Extension 4	$/bcm
Extension 4+	$/bcm	6.30

104

Appendix F

==> picture [152 x 38] intentionally omitted <==

From 2.1.7.4 Ore reserves

“In 2008, ABM released an Ore Reserve Statement as at March 2008 (Table 6). For that statement, Ore Reserves at North Pit were estimated within Extension 4 and a further planned extension known as Extension 5. Mining One estimated revenues from, and costs of, mining and processing the mineralisation within the Extension 5 design and concluded that not all the mineralisation within Extension 5 could be mined at a profit using those revenues and costs. Consequently, in Mining One’s opinion it was not considered appropriate, according to the JORC code, to classify all the mineralisation within the Extension 5 design as Ore Reserves.

Appropriately, the Ore Schedule described in section 2.1.7.3 Mining Schedule matches ABM’s 2008 Ore Reserve estimates for South Deposit and Centre Pit South.

The Ore Schedule calls for 69 million tonnes to be mined from Extension 4 of North Pit and this matches ABM’s 2007 Ore Reserve estimate; this is appropriate. In addition, just over 9 million tonnes of ore are to be mined from Extension 4+ of North Pit and, although Mining One considers that ABM’s 2008 Ore Reserve requires re-estimation, Mining One considers there is a reasonable expectation that that 9 million tonnes of ore can be mined beyond Extension 4.”

Table 6

Ore Reserve – March 2008
		Grade %
Category	Tonnes	DTR
North Pit
Proved	37,430,000	52.5
Probable	70,300,000	49.4
Sub-total	107,730,000	50.5
South Deposit
Proved	7,380,000	43.6
Probable	1,070,000	45.7
Sub-total	8,450,000	43.9
Centre Pit South
Proved	8,220,000	44.8
Probable	2,740,000	39.1
Sub-total	10,970,000	43.4
Stockpiles
Proved	3,880,000	30.4

105

==> picture [152 x 38] intentionally omitted <==

Appendix F

All Sources
Proved	56,920,000	48.7
Probable	74,110,000	49.0
Total	131,020,000	48.9

From 2.1.7.5 Capital costs

“A total of A$180.7 million has been allocated in the MLEP as capital costs for ABM’s operations in the period from 2007 to 2021; of this, A$29.2 million has been allocated to mining in the following way:

pre-stripping of clay (A$24.2 million)
construction of near pit maintenance facilities, workshops and offices (A$8.3 million)
provisions for cable bolting, diamond drilling and insurance spares (A$18.5 million).

The mining fleet is financed on a lease-purchase arrangement and is not included in the above amounts.

Mining One considers that the capital costs allocated for mining works are reasonable.”

106

Appendix G

==> picture [152 x 38] intentionally omitted <==

Key elements of Promet report

From Executive Summary

“ABM (Australian Bulk Minerals) operates a magnetite mine and beneficiation plant at the Savage River site and a pellet plant at Port Latta, both in the North West corner of Tasmania. (the Project)

Lonergan Edwards & Associates Limited (Client) has requested ProMet Engineers Pty Ltd (ProMet) prepare a due diligence technical review of the operating and logistics aspects of the Project based on a recent visit to the Project and previous studies ProMet has made for ABM over the last several years. The report has been prepared specifically:

(a) For use in assessing the value of the ABM assets
(b) For use in connection with an assessment of the processing and logistical risks of the Project.
(c) To include in the risk assessment section, where possible, appropriate mitigating and ameliorating factors.
(d) To advise on the potential and costs for increasing annual production

Prior, to this commission ProMet had had the opportunity of acquainting itself with the up-to-date state of the ABM operation by sending a six man team to make site inspections at both the mine site and pellet/ship load-out plants during the period 22nd to 24th April 2008. Three of the team had previous operational experience with the ABM facilities.

The overall impression of the Savage River operations, management and workforce was that they were all of a surprisingly good quality. When members of the ProMet team were in the employment of Savage River there had been a great divide between the two parts of the operation – the two parts being the mining/concentration site at Savage River and the pelletising/load out site at Port Latta. This was obviously now not the case and the benefits of the vastly more integrated method of operation were very apparent.”

“Financial forecasts for the present production case based on the MLEP data and for the 2.9Mt/y potential up-grade have been reviewed by ProMet. These are known to be based on actual operating cost information and as such there is a sound basis for the generation of such forecasts. The forecasts are consistent with the experience gained by ProMet in the course of developing similar projects.

Currently, ABM is producing around 2.33 Mt/y of pellets at an average grade of 66.7% Fe. ABM has spare pelletising capability and various studies have been undertaken in the past reviewing the possibilities and costs for making use of this spare capacity by increasing the in-plant concentrate production and pipeline capacity. An overview of this possibility is presented within the

107

Appendix G

==> picture [152 x 38] intentionally omitted <==

report. In ProMet’s opinion the plant capacity can be readily increased to 2.9Mt/y pellets without major modifications to the pipeline system. The cost of this was assessed as $52M in 2007. This gives a capital outlay of under $100/annual t of pellets compared to a new facility which would be expected to cost between $280-$370/annual t.”

From 12.4 Review of Budget for Production at 2.9Mt/y

“The amended financial forecast for the higher production case at 2.9Mt/y has similarly been reviewed by ProMet. In ProMet’s view this new forecast is properly based on the present known cost structure of the ABM operation, and while the comments from Section 12.3 still apply, ProMet believes this forecast is again consistent with the expected costs numbers.

There is a possibility that the production costs for the new tonnage may be marginally better than for the existing output since it is planned to use a more efficient milling system. However, any such improvement would not significantly alter the results of the financial model and since the development of the up-grading project is not so advanced as to allow an accurate prediction of the improvement we consider this can be ignored for the review.

The new financial forecast includes a capital allowance for the necessary equipment to allow the extra production to be realised of A$62M. In ProMet’s view this allowance is adequate for the up-grade project.”

108

Appendix H

Glossary
Acronym	Definition
ABM	100% of Ever Greed and all its subsidiaries, trading as
	Australian Bulk Minerals
Al2O3	Aluminium Oxide
AIFRS	Australian equivalent to International Financial Reporting
	Standards
ASIC	Australian Securities & Investments Commission
ASX	Australian Securities Exchange
Barrack Gold	Barrick Gold of Australia Limited
BF	Blast furnaces
BlueScope	BlueScope Steel Limited
BOFs	basic oxygen furnaces
Bukit Ibam Project	The Bukit Ibam Iron Ore Project in Malaysia – 51% owned
	by Grange
CAPM	Capital asset pricing model
cfr	cost plus spot freight
Corporations Act	Corporations Act 2001 (Cth)
CPI	Consumer price index
Dacroft	Dacroft Pty Ltd
DCF	Discounted cash flow
DMT	Dry metric tonne
Dmtu	dry metric tonne iron units
DR	Direct reduction
DTR	Davis tube concentrate mass recovery
EAF	Electric arc furnace
EBITA	Earnings before interest, tax and amortisation
EBITDA	Earnings before interest, tax, depreciation and amortisation
EL	Exploration licence (E70/2512)
EV	Enterprise value
Evergain	Evergain International Corporation
Ever Green	Ever Green Resources Co Limited
Ever Green Sellers	Shagang, RH and PI, collectively the sellers of 100% of the
	shares in Ever Green
Fe	Iron ore
FIRB	Foreign Investment Review Board
FOB	Free on board
Forlife	Forlife Tasmania Pty Ltd
FOSL	Financial Ombudsman Services Limited
FSG	Financial Services Guide
FY	Financial year
Grange	Grange Resources Limited
IER	Independent expert’s report
JFY	Japanese Financial Year
Land Option	The option to acquire land at the proposed Kemaman pellet
	plant site
LEA	Lonergan Edwards & Associates Limited

109

Appendix H

Glossary
Acronym	Definition
LoM	Life of mine
Merger	The issue of shares in Grange to purchase 100% of the
	shares in Ever Green and 10% of the shares of SMAPL not
	owned by Ever Green
MLEP	Mine Life Extension Plan
Mt	Metric tonnes
Mtpa	Metric tonnes per annum
NPV	Net present value
P	Phosphorus
PI	Pacific International Co Pty Ltd
RG	Regulatory Guide
RH	RGL Holdings Co Ltd
ROM	Run-of-mine
RSQ	R-square
S	Sulphur
Savage River	Savage River Mines Limited
Shagang	Shagang International Holdings Limited
Shagang Off-take	Four off-take agreements in place between ABM and
Agreement	associates of Shagang
SI	Shagang International Trading Co. Ltd
SiO2	Silicon dioxide
SMAPL	Shagang Mining (Australia) Pty Ltd
Sojitz	Sojitz Corporation
Southdown Project	The Southdown Magnetite (Iron Ore) Project, including
	mine near Albany, Western Australia and planned to include
	a slurry pipeline, wharf at Albany and pellet plant at
	Kemaman, Malaysia
Stemcor	Stemcor Pellets Limited
TiO2	Titanium Oxide
WACC	Weighted average cost of capital

110

This page has been left blank intentionally

www.grangeresources.com.au

==> picture [114 x 45] intentionally omitted <==

AI assistant

GRANGE RESOURCES LIMITED. — Proxy Solicitation & Information Statement 2008

65014_rns_2008-11-04_b67b0f09-4357-42da-856a-9f25aaf0ff66.pdf

GRANGE RESOURCES LIMITED

ACN 009 132 405

NOTICE OF GENERAL MEETING

GRANGE RESOURCES LIMITED ACN 009 132 405

NOTICE OF GENERAL MEETING

AGENDA

Item 1 - Resolution 1 - Proposed issue of Shares to the Ever Green Sellers

Item 2 - Resolution 2 - Proposed issue of Shares to Stemcor

Item 3 - Resolution 3 - Approval of off-take agreements

Item 4 - Resolution 4 - Change in scale of activities

Item 5 - Resolution 5 - Remuneration of Directors

DATED 4[th] DAY OF NOVEMBER 2008

BY ORDER OF THE BOARD

Proxy instructions

Corporate representative

Voting entitlement

Lodge your vote:

By Mail:

For all enquiries call:

Proxy Form

For your vote to be effective it must be received by 10.00am (WDT) Wednesday 10 December 2008

How to Vote on Items of Business

Signing Instructions

Appointment of Proxy

Attending the Meeting

Turn over to complete the form

www.investorcentre.com

Review your securityholding

Proxy Form

Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Grange Resources Limited hereby appoint

Items of Business

Signature of Securityholder(s) This section must be completed.

Explanatory Memorandum

Important Notices

Purpose of this Explanatory Memorandum

Forward looking statements

Notice to persons outside Australia

Disclaimer

Privacy

ASX involvement

Responsibility for Information

Definitions

Highlights of the merger

Contents

Letter from Chairman of Grange Resources Limited

Dear Shareholder

How to Vote

Vote in person

Vote by proxy

Vote by corporate representative or power of attorney

If you are an overseas Shareholder and hold your Shares through a broker or nominee holder

Independent Expert’s Opinion

Directors Recommendation

Frequently asked questions (FAQs)

Why did I receive this document?

Who is ABM and what does it do?

What is the Merger?

Why should I vote to approve the Merger?

How does the Grange Board recommend that I vote?

The Grange Board unanimously recommends that Grange Shareholders vote to approve the Merger in the absence of a superior proposal.

What is the opinion of the Independent Expert?

If the Merger is approved what will happen?

When will the Merger take place?

What does this dilution mean to me?

Frequently asked questions (FAQs) continued

Who will sit on the Grange Board post completion of the Merger?

Who will manage Grange post Merger?

What will Grange’s asset portfolio look like if the Merger proceeds?

Will the Company still be named Grange after the Merger is completed?

Where will the Company be headquartered post completion of the Merger?

What am I being asked to vote on?

Why is my approval required?

When and where will the Meeting be held?

Who can vote?

What will happen if Shareholders do not approve the resolutions relating to the Merger?

GRANGE RESOURCES LIMITED. Proxy Solicitation & Information Statement 2008