MAGNETITE MINES LIMITED. — M&A Activity 2017

Apr 6, 2017

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ASX Announcement

7 April 2017

Framework Agreement for proposed merger with Lodestone Equities Limited

• The Framework Agreement sets out the basis for negotiation of the purchase of 100% of Lodestone Equities Limited and its subsidiaries.

• The acquisition would include Lodestone’s flagship project - the railway based Olary high grade magnetite Project.

• Also included is 100% of the South Australian infrastructure solutions being developed by Braemar Infrastructure Pty Ltd.

• This acquisition positions Magnetite Mines Limited as potentially one of the most significant sources of high quality magnetite concentrates for the global steel industry.

The Board of Magnetite Mines Limited (ASX: MGT) ( Company ) is very pleased to announce the signing of a Framework Agreement (the FA ) between the Company, Coffee House Group Limited ( CHG ) and Lodestone Equities Limited ( Lodestone ), as the basis for the negotiation and execution of a formal Share Sale and Purchase Agreement (and associated documents) (the SSPA ) for the proposed acquisition of Lodestone (a private Isle of Man company) by the Company (the Transaction ).

CHG is currently the sole shareholder of Lodestone, and is a related party of the Company - being indirectly owned equally by Heather Toll and the Company’s Chairman and Chief Executive Officer, Gordon Toll. CHG is also a substantial shareholder in the Company, currently owning 16.94% of the Company’s shares.

Whilst the FA is legally binding on the Company, CHG and Lodestone, the FA does not create any legally binding obligation on any party to acquire or sell Lodestone until the SSPA is executed by the parties and certain conditions precedent are satisfied (as summarised below).

Magnetite Mines Limited | ABN: 34 108 102 432 | 118B Glen Osmond Road, Parkside, SA 5063 | email: info@magnetitemines.com | www.magnetitemines.com | Tel: +61 8 8427 0516 | Fax: +61 8 8427 0515

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Framework Agreement

The FA gives the Company a binding exclusive period to negotiate the SSPA to purchase Lodestone for the issue of scrip through to 31 December 2017, but it is expected that completion of the Transaction will occur in the third quarter of this year (subject to satisfying all the conditions summarised below, including shareholder approval). The FA will terminate at the end of the exclusivity period.

Until the earlier of completion under the SSPA or the termination or expiry of the FA, the Company has agreed (subject to having sufficient working capital) to provide geological and management services in relation to all exploration licences held by Lodestone (through its subsidiaries) necessary to maintain those exploration licences in good standing, plus all additional costs incurred by Braemar Infrastructure Pty Ltd ( BIPL ) to continue the development of the infrastructure solutions. The Company has also agreed to pay CHG’s and Lodestone’s costs and expenses in relation to the Transaction, incurred prior to completion of the Transaction.

Under the FA, the parties have agreed the following key terms in respect of the Transaction:

• a) Consideration: Should the SSPA be executed, the SSPA will provide that the Company will offer to all Lodestone shareholders scrip as consideration for their Lodestone shares so that on completion of the Transaction the aggregate shareholdings of CHG and each other Lodestone shareholder will equal 51.5% of the Company (on a non-diluted basis).

• b) Conditions precedent: The FA itself is subject to conditions precedent relating to board approval of each of the parties, as well as the Company completing (and being satisfied with the results of) the due diligence on Lodestone and its subsidiaries. In addition, the parties have agreed that the SSPA will be subject to conditions precedent including the parties obtaining all required shareholder and regulatory approvals.

• c) Board representation: From completion of the Transaction, CHG will have the right to nominate up to 2 additional directors to the board of the Company (in addition to Gordon Toll).

About Lodestone

Lodestone Equities Limited is an Isle of Man registered company. As mentioned above, CHG is the major owner of Lodestone. Lodestone, through its wholly owned subsidiaries, Fe Mines Limited (FML) (previously Braemar Iron Pty Ltd) and Olary Magnetite Pty Ltd (Olary), own outright or have exclusive iron rights to prospective tenements containing Braemar Iron Formation to the east of the Company’s exploration licences (see figure 1 below). The ground that Lodestone holds, or has exclusive rights to, has over 80 km of Braemar Iron Formation prospective strike length. Together with the Company’s ground, this comprises over 200 km of Braemar Iron Formation prospective strike length. The Braemar Region is one of the largest unexploited magnetite provinces in the world.

Lodestone also owns Braemar Infrastructure Pty Ltd (BIPL), which is developing cost effective methods of transporting and shipping magnetite concentrate in and from South Australia. The South Australian Government has granted the infrastructure being developed by BIPL “Major Project” status. A task force and case officer from the Department of State Development has been assigned to the infrastructure project.

Magnetite Mines Limited

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Figure 1 – Aeromagnetic image showing the Company’s and Lodestone’s tenements.

Executive Director, Mr. Peter Schubert said "On behalf of the Board I am very pleased we bring to market this merger proposal as foreshadowed in prior ASX releases. The Braemar region contains possibly the largest body of unexploited magnetite in the world. Post-merger, the Company will have, by any measure, the dominant tenement position over this exciting (sovereign risk free) development opportunity, allowing for development scale, longevity and product diversity. With the approval of the Company’s shareholders this merger transaction allows the Company to move aggressively toward achieving its goal of becoming the next major iron ore producer. It is indeed a very exciting time to be a Magnetite Mines shareholder and we thank you for your ongoing support.”.

Indicative capital structure

As mentioned above, the consideration for the acquisition of 100% of the issued capital of Lodestone will be the number of the Company’s shares that is required so that the Lodestone vendors (CHG and other Lodestone shareholders) hold 51.5% of the issued capital of the Company (on a non-diluted basis) at completion of the Transaction.

As part of negotiating and executing the SSPA, details in relation to the exact number of the Company’s shares that will be issued as consideration to the Lodestone shareholders will be finalised and announced to the ASX.

Magnetite Mines Limited

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Next Steps

The Company will now complete a due diligence process in relation to Lodestone, its subsidiaries and its assets, and work towards negotiating the SSPA with CHG and Lodestone.

If the SSPA is entered into, a Notice of General Meeting and accompanying Explanatory Memorandum will be prepared and despatched to shareholders in preparation for the shareholder to vote on the Transaction at the General Meeting.

For further information, contact:

Peter Schubert Executive Director – Investor Relations & Capital Development +61 416 375 346

Frank DeMarte Executive Director & Company Secretary +61 419 908 795

Magnetite Mines Limited

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