MAGONTEC LIMITED — Capital/Financing Update 2012

Nov 25, 2012

Office 10 Level 8 139 Macquarie St Sydney NSW 2000 Australia Ph: 61 2 8231 7085 Fax: 61 2 9252 8960

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

Dear Sirs,

26 November 2012

Magontec Limited – Partially Underwritten Renounceable Rights Issue Announced 23 November 2012

The letter from the Executive Chairman of Magontec Limited attached to this header will shortly be received in the mail by all shareholders eligible to participate in the renounceable right issue announced on 23 November 2012.

Yours sincerely,

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Mr John Talbot Company Secretary MAGONTEC LIMITED

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Office 10 Level 8 139 Macquarie St Sydney NSW 2000 Australia Ph: 61 2 8231 7085 Fax: 61 2 9252 8960

26 November 2012

Magontec Limited (Company) – Renounceable Rights Issue

Dear Shareholder

I write this letter to you as an introduction to the renounceable Rights Issue announced 23 November 2012 and on which you will shortly receive a detailed prospectus and application form. The prospectus has been lodged with both the Australian Securities and Investments Commission and the Australian Securities Exchange (ASX). The prospectus can be accessed electronically at both the ASX and Company web sites.

There are also two attachments to this letter.

• Attachment 1 – shows a timetable by which the Rights Issue will be implemented.

• Attachment 2 – shows the detail of the Rights Issue

As a Shareholder in Magontec Limited ( Magontec or the Company ) your Directors are pleased to invite you to participate in a Renounceable Rights Issue to raise up to $11.8 million (before costs) on the basis of 5 New Shares at an issue price of $0.05 per New Share for every 9 Existing Shares held. Each New Share will come with 2 free attaching options. The options will be convertible into shares at an exercise price of 2 cents and will have a life of 12 months from issue.

Two of Magontec’s largest shareholders have agreed to provide significant support to this rights issue. The Qinghai Salt Lake Magnesium Company (QSLM), currently a 13% shareholder, will sub-underwrite to the value of $6.225 million. Allan Gray Australia, currently a 15.7% shareholder will also support the issue and have agreed to participate to the value $2.385 million. I will also participate in a personal capacity and subunderwriter to the extent of $197,849 in the rights issue. Neither QSLM, Allan Gray Australia nor myself will be taking a fee for supporting the issue.

The Directors chose to structure the rights issue so that the company could maximise the underwriting available from its two cornerstone investors, QSLM and Allan Gray Australia. The issue of 5 new shares for every 9 existing shares at a price of 5 cents with two free attaching options, exercisable at 2 cents, provides investors with a discounted average entry price (of 3 cents excluding the theoretical value of the option) and reduces overall levels of dilution. It also allows investors to provide further financial support to the company as its requirement for new capital arises.

Based on

• the unaudited balance sheet of the Company as at 30 September 2012;

• pro forma adjustments as shown in the Prospectus; and

• not adjusting for potential dilution (arising from options and convertible notes)

the net tangible assets per share immediately after completion of the rights issue is shown in the table below.

	Rights Issue Fully Subscribed	Rights Issue Subscribed As To Underwritten Amount
Net tangible assets $’000	20,559	17,658
Number of shares on issue after completion of rights issue	661,123,048	601,764,653
Net tangible assets per share	3.11 cents	2.93 cents

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The funds raised will be used by the Company primarily to invest in a new magnesium alloy cast house in Qinghai Province, PRC. Proceeds of the Rights Issue will also facilitate a reduction of $6.6m (of which $4.6m is debt forgiven) in the debt owing to Straits Mine Management Pty Limited. The Rights Issue is partially underwritten by Paterson Securities Limited, who is also lead manager to the Rights Issue.

Magontec management and its Board have worked hard over the last 12 months to restructure and revitalise the Company through the creation of new alliances and relationships. The Company is now positioned to benefit from these efforts and finds the magnesium industry and itself on the cusp of a new era as our strategic partner, QSLM, bring on-line the largest pure magnesium production facility in the world. The investment in the facility that the Company seeks to make over the next 6 months in China will enable Magontec to play a leading role in the future of this exciting project and to fully leverage its skills and technology portfolio to promote the use of magnesium alloys among the major consumer industries for the Company’s products.

Magontec is an Australian company with strong links into the European and Chinese magnesium sectors. The Company has been involved in the magnesium industry since its foundation in 1953 and has been manufacturing in and exporting product from China since 2002. QSLM chose to form a strategic alliance with Magontec in this exciting project because the Company represents a bridge between China and the international consumer companies in Europe and the Americas. QSLM also value our wealth of experience, our longstanding relationships with global automotive organisations and breadth of skills possessed by our employees. In addition to a relevant and commercial technology portfolio, we believe our Company has the sales, marketing and logistics skills to fully exploit the opportunity presented by this new venture. In this regard Magontec is unique among magnesium alloy manufacturing companies.

While the Qinghai project is central to our Company’s future ambitions, the fortunes of the organisation do not rely entirely on this facility. In the last 12 months Magontec has invested considerable sums in a new magnesium alloy recycling facility in Romania, restructured its anode business in Europe and China and moved aggressively to curb costs and close underperforming operations. Over the coming 18 months we expect our more streamlined organisation to deliver steadily improving results from these assets in addition to strong growth from our new venture with QSLM.

Under the Prospectus there is a provision for existing Shareholders to apply for New Shares in addition to their rights Entitlement. The Company has a large number of Shareholders who hold parcels of Shares that are deemed unmarketable. The Board of Magontec would like to give those Shareholders the opportunity to increase their shareholding to a marketable parcel. Shareholders who have an unmarketable parcel and seek to increase their shareholding to a marketable size will be given preference in the allocation process.

On behalf of the Board, I invite you to consider the contents of the Prospectus carefully. An investment in Magontec contains specific risks that you should consider before making that decision. If there is any matter on which you require further information, you should consult your stockbroker, accountant or other professional advisor

Your support of this fundraising is important and the Board encourages you to participate in the Rights Issue. We believe the proceeds of the Rights Issue will assist the Company to be successful in the future as it pursues its new and re-focused strategies.

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Yours sincerely, Mr Nicholas Andrews EXECUTIVE CHAIRMAN MAGONTEC LIMITED

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Attachment 1 Rights Issue Timetable

The indicative timetable for the Rights Issue is as follows:

EVENT	BUSINESS DAY	DATE
Announce rights issue. Securities quoted on “cum” basis.	0	23 November 2012
If option holders cannot participate in the Issue without first exercising their options, notify option holders of the Issue.	0	23 November 2012
Lodge Appendix 3B with ASX.	0	23 November 2012
Lodge Prospectus with ASIC and ASX.	0	23 November 2012
Send notice to shareholders containing information required by Appendix 3B.	1	26 November 2012
Securities are quoted on an “ex” basis and rights trading starts.	2	27 November 2012
Record Date to determine security holders entitled to participate in the issue.	6	3 December 2012
Despatch Prospectus and serially numbered entitlement and acceptance forms to persons entitled and announce despatch has been completed.	10	7 December 2012
Latest date to extend closing date.	14	13 December 2012
Rights trading ends.	15	14 December 2012
Securities quoted on a deferred settlement basis.	16	17 December 2012
Acceptances close at 5pm. At least 6 business days notice must be given to extend the date.	20	21 December 2012
Notify ASX of under subscriptions.	23	28 December 2012
Despatch/Allotment date (advise ASX that despatch/allotment of shareholding statement following allocation has occurred by noon)	26	3 January 2013
Last day for securities to be entered into holders’ security holdings. Last date for entity to confirm to ASX all information required by Appendix 3B.	26	3 January 2013
Normal trading starts.	27	4 January 2013

This timetable is indicative only and subject to change. The Company reserves the right to vary the above dates, subject to the ASX Listing Rules and Corporations Act, without further notice and with the consent of the Underwriter.

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Attachment 2 Rights Issue Detail

1 Class of securities to be issued 2 Number of securities to be issued or maximum number which may be issued 3 Principal terms of the securities 4 Do the securities rank equally in all respects from the date of allotment with an existing class of quoted securities? 5 Issue price or consideration 6 Purpose of the issue 7 Dates of entering securities into uncertificated holdings or despatch of certificates 8 Number and class of all securities quoted on ASX (including_the securities in 2) 9 Number and class of all securities not quoted on ASX (_including the securities in clause 2) 10 Dividend policy on the increased capital	•Fully paid up ordinary shares and •Options to acquire fully paid up ordinary shares	•Fully paid up ordinary shares and •Options to acquire fully paid up ordinary shares
	236,115,374 ordinary shares 472,230,748 options
	Ordinary shares and options will be issued pursuant to a renounceable Rights Issue Prospectus dated 23 November 2012 and lodged with ASX and ASIC on the same date. •Options Issue Date – date of issue of rights shares under above Prospectus •Options exercise price - $0.02 •Options exercise date – any time in the period from the Issue Date to the Maturity Date. •Options Maturity Date – 12 months after the IssueDate
	Yes
	Ordinary shares - $0.05 per share Options – Nil
	Proceeds of issue of ordinary shares will be applied as described in the Prospectus dated 23 November 2012
	Estimated to be 3 January 2013 in accordance with the timetable
	Number	Class
	661,123,048 472,230,748	Fully paid up ordinary shares Options
	Number	Class
	1,300,000	Options having an exercise price of $0.10 expiring on 16 August 2013
	No policy exists