MACMAHON HOLDINGS LIMITED — M&A Activity 2008

Sep 4, 2008

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5 September 2008

Company Announcements Office ASX Limited Exchange Centre Level 4, 20 Bridge Street SYDNEY NSW 2000

THIRD SUPPLEMENTARY TARGET’S STATEMENT

Ausdrill Limited encloses its Third Supplementary Target’s Statement dated 5 September 2008 in relation to the off-market takeover bid by Macmahon Holdings Limited.

A copy of this Third Supplementary Target’s Statement has been lodged with the Australian Securities and Investments Commission and given to Macmahon. This Third Supplementary Target’s Statement (which attaches a revised version of the Second Supplementary Target’s Statement) will shortly be despatched to Ausdrill shareholders in place of the Second Supplementary Target’s Statement lodged with the Australian Securities Exchange on 4 September 2008.

Yours faithfully

AUSDRILL LIMITED

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DOMENIC SANTINI

Company Secretary

5 September 2008

The Shareholders Ausdrill Limited

THIRD SUPPLEMENTARY TARGET’S STATEMENT

This Third Supplementary Target’s Statement is issued by Ausdrill Limited ABN 95 009 211 474 ( Ausdrill ) under section 644 of the Corporations Act and is the third supplementary target’s statement issued by Ausdrill in relation to the offer by Macmahon Holdings Limited ABN 93 007 634 406 ( Macmahon ).

This Third Supplementary Target’s Statement supplements, and is to be read together with, the Target’s Statement dated 20 June 2008, the Supplementary Target’s Statement dated 14 July 2008 and the Second Supplementary Target’s Statement dated 4 September 2008. This Third Supplementary Target’s Statement has been approved by a resolution of the Ausdrill Board and is dated 5 September 2008. A copy of this Third Supplementary Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers takes responsibility for the contents of this Third Supplementary Target’s Statement.

MINOR CORRECTIONS TO SECOND SUPPLEMENTARY TARGET’S STATEMENT

Ausdrill makes the following minor corrections to its Second Supplementary Target’s Statement dated 4 September 2008, and encloses a revised version of the Second Supplementary Target’s Statement incorporating these changes:

• in the second sub-bulletpoint under heading 5 (on page 9 of the enclosed version) it was stated that Macmahon’s EBIT margin for 2008 was down 5.3% from financial year 2007. It was in fact down 5.2% from financial year 2007 (and “5.3%” has been replaced with “5.2%” accordingly);

• the words “and interest income” have been deleted from footnotes 21 and 28 and the word “revenues” has been added to the end of footnotes 21 and 28;

• in the last sentence of the first paragraph of Ausdrill’s Response (on page 12 of the enclosed version), it was stated that if Ausdrill applied Macmahon’s current gearing levels, it would have at least $130 million in additional debt capacity. In fact Ausdrill would have net debt of approximately $136 million, which would mean additional debt capacity of at least $88 million (and “$130 million” has been replaced with “$88 million” accordingly); and

• in footnotes 26, 27 and 32, gearing figures were said to have been calculated based on gross debt, when they were in fact based on net debt (and the word “gross” has been replaced with “net” accordingly).

The revised Second Supplementary Target’s Statement sets out the full reasons supporting your Directors’ unanimous recommendation to REJECT Macmahon’s Revised Offer . Ausdrill again encourages you to carefully read all information contained in the revised Second Supplementary Target’s Statement and where appropriate seek independent advice or call our Shareholder Information Line on 1800 104 758 (within Australia) or +61 2 8268 3691 for callers outside Australia.

1

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4 September 2008 The Shareholders Ausdrill Limited

Second Supplementary Target’s Statement

This Second Supplementary Target’s Statement is issued by Ausdrill Limited ABN 95 009 211 474 ( Ausdrill ) under section 644 of the Corporations Act and is the second supplementary target’s statement issued by Ausdrill in relation to the offer by Macmahon Holdings Limited ABN 93 007 634 406 ( Macmahon ).

This Second Supplementary Target’s Statement supplements, and is to be read together with, the Target’s Statement dated 20 June 2008 and the Supplementary Target’s Statement dated 14 July 2008. This Second Supplementary Target’s Statement has been approved by a resolution of the Ausdrill Board and is dated 4 September 2008. A copy of this Second Supplementary Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its offi cers takes responsibility for the contents of this Second Supplementary Target’s Statement.

YOUR DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU REJECT MACMAHON’S REVISED AND FINAL OFFER

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Dear fellow shareholder,

On 20 August 2008, Macmahon announced a Revised Offer of 1.65 Macmahon shares for each of your Ausdrill shares. Macmahon stated its offer is fi nal in the absence of a competing proposal. The value of Macmahon’s offer will vary with Macmahon’s share price and the implied value on any given day will not necessarily be the value at which you could ultimately sell any Macmahon shares received pursuant to this offer.

Your Board of Directors unanimously recommends that Ausdrill shareholders REJECT Macmahon’s Revised Offer

1. Your Directors are concerned about the relative value of Macmahon’s shares being offered to Ausdrill shareholders and the sustainability of Macmahon’s current share price.

2. Macmahon’s Revised Offer continues to undervalue Ausdrill’s earnings and net tangible assets contribution.

3. Macmahon’s Revised Offer would dilute equivalent earnings per share (EPS) and dividends per share (DPS).

4. Macmahon’s Revised Offer will expose you to signifi cant risks and uncertainty.

5. Ausdrill operates a superior margin business with strong growth prospects.

Ausdrill has received written confi rmations from certain shareholders who have stated, on a ‘last and fi nal’ basis, that they will not accept Macmahon’s Revised Offer. Those shareholders, together with Ausdrill’s Directors, represent 28.1% of Ausdrill’s shares.

As a result:

• Macmahon WILL NOT be able to acquire 100% of Ausdrill

• Capital Gains Tax rollover relief WILL NOT be available

• Macmahon’s 50.1% minimum acceptance condition is unlikely to be satisfi ed

The Board is pleased that Macmahon’s Revised Offer is now fi nal so that shareholders can REJECT it and Ausdrill can continue to capitalise upon its outstanding growth opportunities in Australia and Africa for the benefi t of our shareholders.

• Ausdrill is in its best ever fi nancial and operational shape with record earnings and increasing margins which are well over double Macmahon’s margins

• Ausdrill has a record level of work in hand approaching $1 billion and is tendering on or negotiating contract extensions worth more than a further $1 billion

• Ausdrill is experiencing record demand for its services and is capitalising on unprecedented growth opportunities.

Ausdrill shareholders should simply IGNORE all documentation from Macmahon, take no action and allow the Revised Offer to lapse.

This Second Supplementary Target’s Statement sets out the full reasons supporting your Directors’ unanimous recommendation to REJECT Macmahon’s Revised Offer. I encourage you to read carefully all information contained in this Second Supplementary Target’s Statement and where appropriate seek independent advice or call our Shareholder Information Line on 1800 104 758 (within Australia) or +61 2 8268 3691 for callers outside Australia.

Yours sincerely,

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Terence O’Connor AM QC Chairman

A simple comparison of Ausdrill and Macmahon

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Ausdrill Macmahon
Share price at 2 September 2008 $2.50 $1.815
Market capitalisation $430.4m $979.2m
FY08 NPAT [1] $35.7m $48.8m
FY08 PE ratio 12.1x 20.1x
Relative fi nancial metrics
5-year EPS growth [2] 37.4% 27.1%
FY08 EBIT margin [3] 15.2% 6.0%
FY09 profi t growth guidance 20-30% [4] 20-30%
FY08 earnings contribution
Mining services 100% 49%
Construction 0% 51%
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Macmahon is offering you shares that are currently trading:

• Close to their highest price in the last 20 years[5]

• At a multiple of 20.1x fi nancial year 2008 earnings

One of Macmahon’s major shareholders, Acorn Capital Limited (Acorn), who has been a substantial shareholder since May 2003, has recently been selling down its position in Macmahon[6]

Macmahon is a lower return business with increased risks

Ausdrill has a track record of superior fi nancial performance relative to Macmahon

Ausdrill is in its best ever fi nancial and operational shape

REJECT Macmahon’s Revised Offer

[1] NPAT excluding takeover defence costs of $379,000

[2] EPS calculated from reported NPAT before non-recurring items and minority interests divided by the weighted average number of shares on issue for the respective fi nancial year

[3] EBIT margins for Ausdrill calculated by dividing reported EBIT by reported total revenue. EBIT margins for Macmahon are as reported in Macmahon’s 2008 Annual Report

[4] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

[5] The highest price at which Macmahon shares have traded in the last 20 years was $2.00 on 6 November 2007

[6] Based on Acorn’s substantial shareholder notice dated 27 August 2008

3

Second Supplementary Target’s Statement

Reasons to Reject Macmahon’s Revised Offer

1. Your Directors are concerned about the relative value of Macmahon’s shares being offered to Ausdrill shareholders and the sustainability of Macmahon’s share price

Macmahon is not offering you cash. Macmahon is offering you Macmahon shares, which have uncertain value.

• Macmahon’s share price and the implied value of its Revised Offer has been volatile

In the last 12 trading days, Macmahon shares have closed in the range of $1.49 to $1.83[7] . As a consequence, the implied value of Macmahon’s Revised Offer has varied signifi cantly between $2.46 and $3.02 per Ausdrill share, or 22.8% from its lowest to its highest value.

Mcmahon share price volatility since offer announcement[8]

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$1.85 Max 1.825
$1.80
$1.75
$1.70
$1.65
$1.60
$1.55
$1.50
Min 1.485
$1.45
21 May 28 May 4 Jun 11 Jun 18 Jun 25 Jun 2 Jul 9 Jul 16 Jul 23 Jul 30 Jul 6 Aug 13 Aug 20 Aug 27 Aug
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Over the same 12 trading days, the ASX All Ordinaries index has only varied by 6.5% from its low.

Given the volatility in Macmahon’s share price, the implied value of Macmahon’s Revised Offer is extremely uncertain.

• You should question the sustainability of Macmahon’s current trading multiple

Macmahon is currently trading at close to its highest share price in the last 20 years. Its share price has increased 19.0% in the last twelve months. Over that period, the All Ordinaries Index has decreased by 17.2%.

On 2 September 2008, Macmahon shares closed on an implied fi nancial year 2009 PE multiple of 16.1x[9] . This represents a 66% premium to Ausdrill’s current fi nancial year 2009 PE multiple of 9.7x[10] and a 49%[11] premium to the average of Macmahon’s peers.

• [7] Representing the 12 trading days between and including 18 August 2008 and 2 September 2008. Source: IRESS (who have not consented to the use of this trading data in this document)

• [8] Source IRESS (who have not consented to the use of this trading data in this document)

• [9] Based on Macmahon’s closing price of $1.815 on 2 September 2008. EPS estimates sourced from Bloomberg, prices from IRESS (who have not consented to the use of this trading data in this document)

• [10] Based on Ausdrill’s closing price of $2.50 on 2 September 2008. EPS estimates sourced from Bloomberg, prices from IRESS (who have not consented to the use of this trading data in this document).

• [11] Average of peers includes BDL, BLY, DOW, MND, NWH, SWK, VMG and WDS based on Bloomberg estimates as at 2 September 2008.

4

REASONS TO REJECT MACMAHON’S REVISED OFFER

Financial year 2009 forward price earnings multiples[12]

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18x 16.1%
16x
14x
10.8%
12x
9.7%
10x
8x
6x
4x
2x
0x
Ausdrill Peer Average (ex. ASI, MAH) Macmahon
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In the recent past, Macmahon and Ausdrill traded at similar forward earnings multiples, being 11.8x for Macmahon and 12.0x for Ausdrill[13] .

Macmahon now trades at a material premium to Ausdrill despite:

• Ausdrill delivering on average substantially higher EPS growth

• Macmahon being a lower margin business

• Both companies having similar fi nancial year 2009 profi t growth guidance of 20% to 30%[14] .

•

Long term Macmahon shareholder has been selling recently

Acorn has been a substantial shareholder of Macmahon since September 2003. Between September 2003 and March 2007, Acorn accumulated a 10.3% stake in Macmahon.[15]

Acorn has recently been selling down its interest in Macmahon between May 2008 and August 2008 at an average price of $1.70 per share. Acorn now holds a 5.9% interest in Macmahon.[16]

[12] Based on Bloomberg estimates as at 2 September 2008

[13] Based on all known published broker estimates for fi nancial year 2008 EPS as at 20 May 2007 using the average of four brokers for Ausdrill of between 21.8 cents to 22.6 cents from reports dated 25 February 2007 to 16 May 2007 and fi ve brokers for Macmahon of between 7.7 cents to 8.7 cents from reports dated 21 February 2007 to 10 May 2007. It should be noted that two of the reports for Ausdrill were released on or after 15 May 2007, the date that Ausdrill announced a confi dential approach from a third party regarding a takeover proposal

[14] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

• [15] Substantial shareholder notices dated 12 September 2003, 14 October 2003, 27 October 2003, 24 August 2004 and 14 March 2007

[16] Substantial shareholder notice dated 27 August 2008

Second Supplementary Target’s Statement 5

Reasons to Reject Macmahon’s Revised Offer

(continued)

• Macmahon shares may come under signifi cant selling pressure before Ausdrill shareholders can exit

If Macmahon’s Revised Offer was successful, Ausdrill shareholders would own up to 34% of the enlarged Macmahon or 284 million Macmahon shares. Many of these Ausdrill shareholders might not be long term holders of Macmahon and might look to sell those shares shortly after receiving them.

The amount of Macmahon shares being issued to Ausdrill shareholders is the equivalent of 134 days’ or approximately 6 months’ normal trading volume in Macmahon shares without any selling pressure.[17]

This stock overhang may cause signifi cant selling pressure on Macmahon. This is likely to decrease the cash proceeds that Ausdrill shareholders could realise for their Macmahon shares. This could have a material adverse impact on the realisable value of Macmahon’s Revised Offer to Ausdrill shareholders.

For these reasons, your Directors believe there is a material risk that Macmahon’s current trading multiple is not sustainable.

2. Macmahon’s Revised Offer continues to undervalue Ausdrill’s earnings and net tangible assets contribution

Macmahon is offering Ausdrill shareholders 1.65 Macmahon shares for every Ausdrill share or just 34% of the combined group.[18] This still fails to fairly refl ect Ausdrill’s fi nancial contribution of 56% of net tangible assets and at least 42% of combined earnings. This is before taking into account any potential synergy benefi ts or an appropriate premium for control for Ausdrill shareholders.

Relative ownership and contributions of Ausdrill

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34% 56% 44% 42%
Ausdrill Net Tangible EBITDA FY08 NPAT FY08
shareholders’ Assets
ownership under
Macmahon’s
Revised Offer Ausdrill Contribution
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[17] Based on the number of trading days prior to Macmahon’s offer on 21 May 2008. Trading volumes sourced from IRESS (who have not consented to the use of this trading data in this document)

[18] On a fully diluted basis assuming Macmahon acquires 100% of Ausdrill

6

REASONS TO REJECT MACMAHON’S REVISED OFFER

3. Macmahon’s Revised Offer would dilute equivalent EPS and DPS

Ausdrill recently reported EPS of 22.72 cents and DPS of 11.0 cents for the 2008 fi nancial year.

Under Macmahon’s Revised Offer, the pro forma EPS and DPS for the 2008 fi nancial year would be

• EPS of 17.65[19] cents per equivalent Ausdrill Share, a 22.3% reduction from Ausdrill’s reported EPS

• DPS of 9.08 cents per equivalent Ausdrill Share, a 17.5% reduction from Ausdrill’s reported DPS, notwithstanding Macmahon’s higher dividend payout ratio than Ausdrill.[20]

EPS Dilution

DPS Dilution

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25 12
22.72 11.00
22.3% reduction 17.5% reduction
20 10 9.08
17.65
8
15
6
10
4
5
2
0 0
Ausdrill Standalone Under Macmahon’s Ausdrill’s Actual Dividend Under Macmahon’s
EPS Revised Offer per Share Revised Offer
Cents per Share Cents per Share
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4. Acceptance of Macmahon’s Revised Offer will expose you to signifi cant risks and uncertainty

• Macmahon is unlikely to satisfy its 50.1% minimum acceptance condition

Directors and key shareholders have REJECTED Macmahon’s Revised Offer.

Ausdrill has received written confi rmations from a number of shareholders who have stated, on a ‘last and fi nal’ basis, that they will not accept Macmahon’s Revised Offer. These shareholders, together with Ausdrill’s Directors, represent 28.1% of Ausdrill’s shares.

As a result:

• Macmahon will not be able to acquire 90% to enable it to move to compulsory acquisition and acquire 100%

• Shareholders who accept Macmahon’s Revised Offer will not be eligible to receive Capital Gains Tax scrip-for-scrip rollover relief and may incur signifi cant tax liabilities, without receiving any cash from Macmahon to pay the tax

• Macmahon is unlikely to satisfy its 50.1% minimum acceptance condition

[19 ] Based on reported EPS for fi nancial year 2008. Equivalent EPS calculated by dividing the combined FY08 reported NPAT by the combined weighted average number of shares outstanding for fi nancial year 2008, and multiplying by 1.65 – the number of Macmahon shares offered for every Ausdrill share

[20 ] Based on 1.65 Macmahon shares for every Ausdrill share and assuming Macmahon maintains payment of the same level of dividends

7

Second Supplementary Target’s Statement

Reasons to Reject Macmahon’s Revised Offer

(continued)

• Macmahon may waive its minimum acceptance condition and become a minority shareholder in Ausdrill

Macmahon is unlikely to receive suffi cient acceptances to satisfy the 50.1% minimum acceptance condition under its Revised Offer. It may, however, elect to waive this condition and declare its Revised Offer unconditional. Macmahon would then become a minority shareholder in Ausdrill. Macmahon has made no disclosure in relation to the likely impact on the new Macmahon shares issued as consideration or Macmahon’s intentions in relation to Ausdrill under this scenario.

Ausdrill shareholders should be aware that if they accept Macmahon’s Revised Offer (including via the institutional acceptance facility) and the Revised Offer subsequently becomes unconditional they will receive Macmahon shares within fi ve business days and lose their direct exposure to Ausdrill.

•

Risks relating to the continuing management of Ausdrill’s business

Ausdrill is primarily a contracting business, which depends heavily for success on individual relationships between Ausdrill management and its clients. Ron Sayers and his team have built a number of personal relationships in Australia and Africa over a long period of time. These key relationships are invaluable and are an important factor behind Ausdrill’s signifi cant pipeline of new work and extensions to existing contracts.

If Macmahon’s Revised Offer was successful, Ausdrill would contribute 42% of earnings of the combined group based on fi nancial year 2008 reported NPAT. The continuing management of Ausdrill’s operations and the maintenance of existing client relationships should be a key consideration for Ausdrill shareholders in evaluating the Revised Offer.

Macmahon does not have operations in Africa or experience in managing African operations. In contrast, Ausdrill has been in Africa for 18 years and its management team is highly experienced in managing this business.

If Macmahon acquires control of Ausdrill, there is no certainty that the Ausdrill management team would remain employed by Macmahon.

Your Directors believe the existing Ausdrill management team is best placed to continue to manage the Ausdrill business, deliver signifi cant growth, and maximise value for Ausdrill shareholders. The potential impact of Macmahon managing this business, including the impact on key client relationships, is an important consideration for Ausdrill shareholders considering accepting Macmahon shares.

8

REASONS TO REJECT MACMAHON’S REVISED OFFER

5. Ausdrill operates a superior margin business with strong growth prospects

• Increasing margin superiority over Macmahon

Ausdrill and Macmahon both recently released their fi nancial year 2008 results. These results reinforce that Ausdrill’s margins are vastly superior to Macmahon’s margins:

• Ausdrill reported an EBIT margin for fi nancial year 2008 of 15.2%, up 26.7% from fi nancial year 2007. Conversely Macmahon reported an EBIT margin of 6.0% for fi nancial year 2008, down 3.2% from fi nancial year 2007 (6.2%)

• This differential is reinforced by the inferior and declining margins in Macmahon’s mining business, which reported an EBIT margin of 7.3% in fi nancial year 2008, down 5.2% from fi nancial year 2007[21]

• Your Directors believe these results illustrate that Macmahon is focused on top line growth at the expense of margins while Ausdrill is focused on profi table growth.

EBIT Margins[22]

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16% 15.2%
14%
12.0%
12% 10.6%
10%
7.4%
8%
6.1% 6.2% 6.0%
6% 5.4%
4.4% 4.3%
4%
2%
0%
FY04 FY05 FY06 FY07 FY08
Ausdrill Macmahon
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• Superior mining services business

Ausdrill is a superior mining services business predominantly exposed to the resources sector

• Ausdrill reported 35% EBIT growth with an EBIT margin of 15.2% in fi nancial year 2008. In contrast, in fi nancial year 2008, Macmahon’s mining services business reported only 5.3% EBIT growth and an EBIT margin of just 7.3%

• Only 11% of Macmahon’s total EBIT growth came from its mining services business in fi nancial year 2008, with the overwhelming majority of the growth from the civil construction business

• Given Macmahon’s inferior performance in managing its mining services business in fi nancial year 2008, Ausdrill shareholders should question whether Macmahon will be a better manager of Ausdrill’s mining services business.

• [21] Macmahon’s unallocated expenses allocated as a proportion of mining division revenue contribution to consolidated group revenues

• [22] EBIT margins for Ausdrill calculated by dividing EBIT before non-recurring items by reported total revenue for all years apart from fi nancial year 2008. EBIT margins for Macmahon are as reported in Macmahon’s Bidder’s Statement and Macmahon’s 2008 Annual Report

Second Supplementary Target’s Statement 9

Reasons to Reject Macmahon’s Revised Offer

(continued)

• Track record of superior earnings growth

Ausdrill has a track record of producing superior EPS growth for its shareholders. Over the past fi ve years, Ausdrill has produced compound annual EPS growth of 37.4% relative to Macmahon’s 27.1%[23] . This demonstrates that, on average, Ausdrill’s annual EPS growth is more than 10% higher than Macmahon’s and covers a suffi ciently long time period to normalise the impact of equity raisings by both Ausdrill and Macmahon.

Relative EPS[24]

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25 23.0
20.9
20
16.7
15
12.9
10 9.2
6.5 6.4
5.5
5 3.5 4.2
0
2004 2005 2006 2007 2008
Ausdrill Macmahon
Cents per Share
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23 EPS calculated from reported NPAT before non-recurring items and minority interests divided by the weighted average number of shares on issue for the respective fi nancial year

[24] EPS calculated from reported NPAT before non-recurring items and minority interests divided by the weighted average number of shares on issue for the respective fi nancial year

10

REASONS TO REJECT MACMAHON’S REVISED OFFER

• Strong growth prospects at least as good as Macmahon

Ausdrill expects to achieve 2009 fi nancial year net profi t growth at least equal to Macmahon’s 20-30% medium term organic profi t target growth[25]

Ausdrill is experiencing unprecedented demand for services in Australia and Africa

• Demand for Ausdrill’s Australian services are at an all-time high

• In Africa, Ausdrill has identifi ed approximately $2.4 billion of work for tender in the 18 months to the end of 2009.

Ausdrill has work in hand approaching $1 billion for its mining services business

• Ausdrill is not a civil construction company that measures all of its earnings based on its order book

• However, Ausdrill has record committed work in hand that will generate global revenues approaching $1 billion

• This work represents three years’ revenue for Ausdrill’s mining services businesses at current run rates.

Negotiating and tendering on more than $1 billion worth of contract extensions

• In the next two months Ausdrill will tender on or negotiate extensions to existing contracts representing more than $1 billion in further revenue

• Ausdrill has traditionally achieved a high success rate in extending contracts as the incumbent contractor.

Financial capacity to fund growth

• Conservative capital structure

• Ausdrill has signifi cantly less debt than Macmahon

• At 30 June 2008, Ausdrill was 17% geared relative to Macmahon with gearing of 48%[26]

• Ausdrill’s conservative fi nancial position provides capacity to fund further organic growth without raising further equity.

[25] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

26 Gearing fi gures have been calculated as net debt, including operating leases, divided by book equity as reported in Macmahon’s 2008 Annual Report and Ausdrill’s preliminary fi nal report dated 22 August 2008

Second Supplementary Target’s Statement 11

Reasons to Reject Macmahon’s Revised Offer

(continued)

Your Directors believe a number of assertions and statements in Macmahon’s Supplementary Bidder’s Statement criticising Ausdrill were selective and misleading. Your Directors believe it is important that these statements are responded to as follows:

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Macmahon’s Assertion / Statement Ausdrill’s Response
1. Ausdrill’s $98 million equity raising from At 30 June 2008, Ausdrill had $89 million in cash and
November 2007, the purpose of which was to the fi nancial capacity to fund growth. Ausdrill has
fund growth, appears to have already been fully signifi cantly less debt than Macmahon with Ausdrill’s
deployed. gearing at 30 June 2008 only 17% compared to
Macmahon’s 48% [27] . If Ausdrill applied Macmahon’s
current gearing levels, it would have at least
$88 million in additional debt capacity.
2 Despite Ausdrill’s signifi cant deployment of Ausdrill invested heavily in fi nancial year 2008 in future
capital, 2008 revenues grew by only $22.8 million, growth, with $119 million in capital expenditure on
and revenue from Africa actually decreased. new equipment with revenue and earnings fl owing in
fi nancial year 2009 and beyond.
The decline in Macmahon’s reported fi nancial year 2008
EBIT margins demonstrates that Macmahon is focused
on top line growth, often at the expense of margin.
Macmahon’s fi nancial year 2008 EBIT margin fell from
6.2% to 6.0% and the margin on its mining business
also fell from 7.7% to 7.3%. [28]
Ausdrill is focused on profi table growth, refl ected in the
growth of the company’s EBIT margin from 12.0% to
15.2% in fi nancial year 2008, while still growing overall
revenues by 6%.
3. Ausdrill’s 2008 EPS growth of 12.6% is Ausdrill believes Macmahon is being selective in
substantially less than Macmahon’s 2008 focusing on fi nancial year 2008 EPS growth.
EPS growth of 43.8%.
Ausdrill’s average annual EPS growth rate over the last
fi ve years has been 37.4% compared to Macmahon’s
rate of 27.1%. [29]
Ausdrill had growth in NPAT of 34% in fi nancial year
2008. However, EPS for the period was affected by
the capital raising in November 2007 and the issue of
31 million shares. The earnings benefi t from this capital
will be realised in fi nancial year 2009 and beyond.
Both Ausdrill and Macmahon have provided profi t
growth guidance for fi nancial year 2009 of 20% to
30% [30] .
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27 Gearing fi gures have been calculated as net debt, including operating leases, divided by book equity as reported in Macmahon’s 2008 Annual Report and Ausdrill’s preliminary fi nal report dated 22 August 2008

[28] Macmahon’s unallocated expenses allocated as a proportion of mining division revenue contribution to consolidated group revenues

[29] EPS calculated from reported NPAT before non-recurring items and minority interests divided by the weighted average number of shares on issue for the respective fi nancial year

[30] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

12

REASONS TO REJECT MACMAHON’S REVISED OFFER

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Macmahon’s Assertion / Statement Ausdrill’s Response
4. Macmahon queries Ausdrill management’s ability Macmahon has historically used more equity funding
to deliver sustained growth without continuing to for growth than Ausdrill. Macmahon has increased its
ask equity investors for more cash. issued share capital by 241% since 2000, compared to
Ausdrill’s increase of only 123%. [31]
Ausdrill has signifi cantly more debt funding capacity to
fund future growth than Macmahon. At 30 June 2008,
Ausdrill’s gearing was 17% compared to Macmahon’s
48% [32] , leaving Ausdrill with substantially greater funding
fl exibility.
5. Macmahon has suggested that Ausdrill’s share You should seriously question this statement.
price could fall to $1.62 or lower in the absence
Since Macmahon’s Revised Offer was announced,
of Macmahon’s bid.
Ausdrill has announced a number of positive
developments for its shareholders:
– Financial year 2008 NPAT growth of 34%
– Strong fi nancial year 2009 guidance of at least
20-30% growth in underlying NPAT [33]
– Recently being awarded contracts worth
approximately $225 million in additional revenue
– Identifying $2.4 billion worth of work in Africa that will
be tendered in the 18 months to the end of 2009
At $1.62, Ausdrill would be trading within a range
of only 5.5x to 5.9x fi nancial year 2009 earnings
guidance [34] , compared to Macmahon’s trading multiple
of 16.1x.
6. ‘Due to political instability African revenues are Ausdrill has been operating successfully in Africa for
inherently higher risk than those generated in 18 years, earning gross revenues of approximately
Australia and New Zealand’, which ‘are both $1.3 billion and more than $160 million in profi ts.
low sovereign risk economies’
In that time, Ausdrill has never had a bad debt, has
never been involved in litigation with a client nor had
any equipment damaged through a criminal act.
Ausdrill’s principal African operations are in Ghana
where there is a level of political stability and a common
law legal system. Ausdrill’s fi nanciers do not require
Ausdrill to take out civil risk insurance in Ghana.
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[31] Based on issued share capital as reported in Ausdrill and Macmahon’s respective annual fi lings from fi nancial year 2000 to fi nancial year 2008

[32] Gearing fi gures have been calculated as net debt, including operating leases, divided by book equity as reported in Macmahon’s 2008 Annual Report and Ausdrill’s preliminary fi nal report dated 22 August 2008

[33] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

[34] Range calculated by applying Ausdrill’s fi nancial year 2009 earnings guidance to fi nancial year 2008 reported EPS

Second Supplementary Target’s Statement 13

Reasons to Reject Macmahon’s Revised Offer

(continued)

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Macmahon’s Assertion / Statement Ausdrill’s Response
7. ‘Macmahon’s earnings have been consistently In the past fi ve years, Ausdrill’s and Macmahon’s share
valued by the market on a higher earnings prices have performed broadly in line until May 2007,
multiple than Ausdrill because Macmahon’s shortly before Leighton Holdings Ltd started acquiring
earnings stream is higher growth, less risky its 15.6% stake in Macmahon.
and of a higher quality than Ausdrill.’
Ausdrill has demonstrated higher historical earnings
growth. Ausdrill’s average annual EPS growth rate
over the last fi ve years has been 37.4% compared
to Macmahon’s average annual EPS growth rate of
27.1%. [35]
Ausdrill and Macmahon have both provided profi t
guidance for fi nancial year 2009 of 20% to 30%. [36]
Ausdrill’s Directors believe its business is exposed
to fewer risks than Macmahon. This is illustrated by
the varied performance of Macmahon’s construction
business which has reported EBIT margins of between
1.2% and 6.1% over the last four fi nancial years.
Ausdrill’s Directors also believe the Ausdrill business is
higher quality than Macmahon, as demonstrated by its
superior margins.
8. ‘Macmahon’s fi nancial dividend of 3.5 cents per Macmahon has been selective in focusing on its fi nal
share is equivalent to a dividend of 5.8 cents per dividend. Macmahon lifted its payout ratio for the
Ausdrill share which is comparable with Ausdrill’s second half of fi nancial year 2008 to 74%, compared to
fi nal dividend of 6 cents per share.’ Ausdrill’s 55%. [37]
Ausdrill reported a full year DPS of 11.0 cents for the
2008 fi nancial year and Macmahon reported 5.5 cents.
Macmahon’s Revised Offer equates to 9.08 cents
per equivalent Ausdrill Share, a 17.5% reduction from
Ausdrill’s reported DPS, notwithstanding Macmahon’s
higher payout ratio. [38]
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[35] EPS calculated from reported NPAT before non-recurring items and minority interests divided by the weighted average number of shares on issue for the respective fi nancial year

[36] Refer to Section Four of Ausdrill’s Target’s Statement dated 20 June 2008

[37] Payout ratios have been calculated as reported DPS divided by reported EPS for the second half of fi nancial year 2008

[38 ] Equivalent DPS have been calculated based on 1.65 Macmahon shares for every Ausdrill share and assuming Macmahon maintains payment of the same level of dividends

14

REASONS TO REJECT MACMAHON’S REVISED OFFER

Macmahon’s Assertion / Statement

Ausdrill’s Response

9. Macmahon referred to two separate statements by Ausdrill about the intentions of its Directors and a number of shareholders and suggested that a number of Ausdrill shareholders may have changed their mind. ‘On 6 June 2008, Ausdrill’s Chairman wrote to shareholders and claimed that shareholders controlling 39.1% of Ausdrill Shares ‘have conf rmed in writing to Ausdrill that they will not accept Macmahon’s offer’ Macmahon then made reference to a statement by Ausdrill on 20 August 2008 when it said: ‘Ausdrill’s Directors and other shareholders representing at least 25% of Ausdrill’s shares have again stated they will not accept the revised and f nal offer.’

When Ausdrill stated to the market that Directors and shareholders representing at least 25% of Ausdrill shares had announced they would not accept the Revised Offer, Ausdrill chose not to canvass the views of its institutional shareholders (as it had for the initial offer). Ausdrill has received written conf rmations from certain shareholders who have stated, on a ‘last and f nal’ basis, that they will not accept Macmahon’s Revised Offer. Those shareholders, together with Ausdrill’s Directors, represent 28.1% of Ausdrill’s shares. Accordingly Macmahon will not be able to acquire 90% to enable it to move to compulsory acquisition and acquire 100% and is unlikely to satisfy its 50.1% minimum acceptance condition. In addition, Capital Gains Tax rollover relief would not be available to Ausdrill shareholders under the Revised Offer.

YOUR DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU REJECT MACMAHON’S REVISED AND FINAL OFFER

15

Second Supplementary Target’s Statement

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16