MAGONTEC LIMITED — Capital/Financing Update 2010

May 26, 2010

==> picture [144 x 69] intentionally omitted <==

Suite 5 Level 4 350 George St Sydney NSW 2000 Australia Ph: 61 2 9221 3274 Fax: 61 2 9233 7265

Company Announcements Office Australian Stock Exchange Limited 20 Bridge Street Sydney, NSW 2000

27 May 2010

Advanced Magnesium Limited

ASX Code: ANM

Investor Update and Securities Purchase Plan

In June 2009 Advanced Magnesium Limited (AML) entered into a joint venture with local Chinese investors to develop a magnesium alloy manufacturing business in China - Henan Keweier Alloy Materials Co., Ltd (HNKWE).

Over the last 10 months HNKWE has made significant progress and is now producing generic magnesium alloys at a rate of 6,500 metric tonnes per annum (mtpa). The company has developed markets for this production in China through our own domestic sales force and internationally through a marketing agreement with Arrandene MFG.

Fig 1. Progress over the last 10 months

AML’s ambition was to become a low-cost producer of magnesium alloys selling to Chinese and international magnesium die cast customers. We have realised our early goals and are now in a position to expand the business horizons and build on our successes.

Construction of a second alloy production module, due for completion in mid-July 2010, will enable us to further reduce average production costs, raise general plant efficiencies and increase production to 13,000 mtpa. At the same time a small capacity plant will be installed to produce trial quantities of AML’s proprietary alloys.

==> picture [86 x 26] intentionally omitted <==

Fig 2. Installed capacity (metric tonnes per annum)

AML is also developing revenues from electroplating activities in China. Sales of chemicals to electroplating companies using AML’s proprietary AM Coat technologies are rising from a low base. This business unit is already self-funding and is expected to make a modest profit in the current financial year. We believe that there are significant market opportunities for this technology and there are a number of projects reviewing AM Coat processes in China and Europe.

AML’s other technologies are benefitting from a renewed enthusiasm for magnesium alloy among auto manufacturers in Europe and North America. Government environment policies, designed to increase fuel efficiency, are encouraging major automotive firms to further examine the virtues of lightweight magnesium alloys in automotive applications.

In addition to automotive ‘lightweighting’, AML’s other licensed technologies are also in trials in countries around the World.

Fig 3, Current magnesium alloy technology projects

AML has developed a revised business plan that now seeks to take advantage of the many opportunities presented by the magnesium alloy industry. The commercialisation of AML’s suite of Australian magnesium technologies developed by our technology partner, CAST, and by AML’s own technology teams in Australia and China, remains the longer-term focus of the company.

==> picture [86 x 26] intentionally omitted <==

Fig 4, Business Outlook

Funding proposal

To fund its business plan AML will launch a Securities Purchase Plan (SPP) in the next few weeks. A Business Plan will be outlined to shareholders in documentation in respect of the SPP.

It is intended that the SPP give existing small shareholders an opportunity to increase their holdings to a marketable parcel and offer larger shareholders an opportunity to participate through the purchase of new shares in various parcel sizes of up to $15,000.

This SPP has the support of the company's major shareholders. Following the SPP, AML proposes to launch a placement of new shares to professional shareholders so that the major institutional shareholder is able to maintain their current percentage shareholding.

==> picture [128 x 49] intentionally omitted <==

John Talbot Company Secretary Advanced Magnesium Limited