MGX RESOURCES LIMITED — M&A Activity 2006

Sep 24, 2006

Aztec Resources Limited ABN: 45 078 548 562 Suite 4, Level 5, South Shore Plazza 85 The Esplanade, South Perth WA 6151 $T: R1 R 9423 R 0800$ F: 61 8 9423 0801 E: azr@aztecresources.com.au W: www.aztecresources.com.au

This document is a supplementary target's statement under section 644 of the Corporations Act 2001 (Cth). It is the first supplementary target's statement (First Supplementary Target's Statement) issued by Aztec Resources Limited ABN 45 078 548 562 (Aztec) in relation to the off-market takeover bid made by Mount Gibson Iron Limited ABN 87 008 670 817 for all of the fully paid ordinary shares in Aztec.

This First Supplementary Target's Statement supplements, and should be read together with, Aztec's target's statement dated 12 September 2006. A copy of this First Supplementary Target's Statement has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for its contents. Terms in this First Supplementary Target's Statement have the same meaning as the definitions in the Target's Statement.

25 September 2006

Dear Shareholder

Takeover Update

Set out below is a discussion of matters arising out of correspondence from Mount Gibson. In addition, in the appendix to this letter, we have set out further information in response to issues raised by Mount Gibson in a recent application to the Takeovers Panel. Aztec's Directors urge you to read this letter and the appendix carefully.

You will have now received Aztec's Target's Statement dated 12 September 2006 containing important information from Aztec's Directors and the recommendation that Aztec Shareholders REJECT Mount Gibson's takeover Offer.

Following action taken by your Directors seeking greater disclosure for Aztec Shareholders. Mount Gibson has recently released two supplementary Bidder's Statements containing additional information about Mount Gibson's operations, financial performance and prospects.

Aztec Shareholders will also have received a letter dated 18 September 2006 from Mount Gibson's Managing Director, Luke Tonkin. There is no basis provided for his comments that "the Aztec directors are unnecessarily placing your money at risk" or that "In the absence of Mount Gibson's Offer, the Aztec share price is likely to fall".

Aztec Directors have stated on numerous occasions that they support industry consolidation. However, if Aztec is to be involved in this consolidation, then any transaction needs to be completed on terms that do not disadvantage Aztec shareholders. Aztec's Directors believe the Mount Gibson Offer does not adequately compensate Aztec Shareholders for the contribution that the Koolan Island Project would make to Mount Gibson. On this basis Aztec Directors recommended, and continue to recommend, that you REJECT the Mount Gibson offer.

Recent Correspondence from Mount Gibson

Aztec Directors have reviewed the recent correspondence from Mount Gibson. These documents contain certain statements and opinions which Aztec Directors feel it is necessary to clarify as they have the potential to mislead Aztec shareholders. In particular:

Independent Expert's Report (IER)

Aztec is under no obligation to provide an IER.

Under an Offer where Aztec Shareholders will receive Mount Gibson scrip as consideration, the primary concerns for Aztec Directors are the level of ownership that Aztec Shareholders will receive in the Combined Group and issues associated with accepting Mount Gibson scrip. Both of these issues are addressed in detail in the Target's Statement.

Aztec Directors are very concerned that Mount Gibson has been very selective and therefore misleading with its disclosure when it states in its letter of 18 September 2006 that "In every single non-recommended takeover since 2003, the target Board has provided its shareholders with a valuation". In the fine print, Mount Gibson discloses that this statement only refers to public takeovers above A\$200 million. There have in fact been a number of other transactions which have involved a non recommended takeover where the Board has not provided an IER. Since July 2005, the target Boards of Andean Resources Limited, Sydney Gas Limited and Tethyan Copper Company Limited have not included an IER in their respective target's statements to non-recommended takeover offers.

The performance of Mount Gibson management

In its letter of 18 September 2006, Mount Gibson suggested that its current management team is delivering on its undertakings. The facts suggest otherwise.

In addition to the record of underperformance outlined in the Target's Statement, this underperformance appears destined to continue.

Mount Gibson claims in its first Supplementary Bidder's Statement released on 6 September 2006 (less than 3 weeks ago) that "It is anticipated that the cost per tonne sold will decrease as the mine has achieved 3Mtpa rates". Mount Gibson also points out in this same Supplementary Bidder's Statement that "Based on Mount Gibson's operational results for the months of July and August 2006... Mount Gibson has achieved this scheduled mining rate of 3Mtpa".

Based on a review of the forecast to 31 December 2006 as provided by Mount Gibson in its second Supplementary Bidder's Statement released on 18 September 2006, it would appear:

Contrary to its claims that costs will fall, Mount Gibson's costs are forecast to increase. Based on its forecast costs of between A\$43 and A\$45 per tonne of ore sold, this represents an increase of between 33% and 39% per tonne of ore sold on the corresponding period in 2005 and between 17% and 23% over the costs per tonne of ore sold incurred for the year ended 30 June 2006.

• In addition, despite a 21% to 43% increase in forecast ore shipments (compared to the corresponding period in 2005), together with a 19% increase in benchmark iron ore prices over the six month forecast period, Mount Gibson's forecast profit range is between 19% and 32% lower than its actual results in the corresponding period in 2005.
• Finally, there is a significant discrepancy between ore mined and ore shipped which is not addressed by Mount Gibson. While Mount Gibson states that it will mine 3 million tonnes per year, the relevant fact for Aztec Shareholders is what that company will sell and therefore generate returns for shareholders. Mount Gibson has disclosed that while it is forecasting ore mined between 1.8 and 1.9 million tonnes in the six months to 31 December 2006, it is forecasting that it will only sell between 1.1 and 1.3 million tonnes (an annualised figure of 2.2 to 2.6 million tonnes).

Mount Gibson becomes a shareholder of Aztec.

The Board of Aztec notes that Mount Gibson has become a shareholder of Aztec.

Should Mount Gibson now waive the condition to its Offer (including its 90% minimum acceptance condition), it would have a total shareholding in Aztec of 31.91%. Should it not waive these conditions, its interest would be limited to the shares acquired under the option arrangement with Cambrian Mining plc, namely 15.24%.

Aztec Directors note that the presence of a major shareholder has been a feature of the Aztec share register since the emergence of Cambrian in 2005. Despite the substitution of Mount Gibson for Cambrian as Aztec's major shareholder. Aztec Directors remain focused on bringing the Koolan Island Project into production with first shipments forecast for early 2007 for the benefit of all Shareholders.

At this time, other than the acceptances by Cambrian, acceptances by other Aztec Shareholders are less than 0.4%.

Aztec's Directors continue to recommend that Aztec Shareholders REJECT the Mount Gibson Offer. We will keep shareholders informed of developments as they arise and encourage shareholders, should they have any questions, to call the Aztec Shareholder Information Line on 1800 602 244 (Australian callers) or +61 8 6218 4220 (International callers).

Yours faithfully

Peter Bilbe Managing Director

APPENDIX

The following is provided by Aztec in relation to certain items in the Target's Statement issued on behalf of Aztec Resources Limited (Aztec) and dispatched to shareholders on 12 September 2006 (Target's Statement).

The Mount Gibson Offer is Opportunistically Timed

Aztec submitted in the Target's Statement that Aztec's Directors believe that Mount Gibson has identified the quality of the Koolan Island Project and is attempting to secure the benefits of the Project for its own shareholders before the Project commences production and the market attributes full value to Aztec's Koolan Island Project.

The charts below¹ outline the share price history of Oxiana and Kingsgate compared to the AGC/Macquarie Gold index, the ASX 200 index and the spot gold price (in US and Australian dollars) during the period covered by the charts for those 2 companies contained in pages 13 and 14 of the Target's Statement. The Oxiana share price is also compared to the ASX 300 materials index.

• Sepon commenced gold production in 2002 with copper production following in 2005
• Oxiana's share price has increased significantly after production from Sepon commenced

The share price performance of both Oxiana and Kingsgate is influenced by many other variables in addition to the commencement of production. See text in the section entitled "The Mount Gibson Offer is Opportunistically Timed" for further cautionary statements.

These charts demonstrate that these two companies, which moved from being mine developers to mineral producers during the relevant period, both had a share price which substantially outperformed both the gold price and relevant stock indices. Aztec's Directors reiterate that these two companies are examples of the general market observation that the value of shares of companies, such as Aztec, whose principal assets are development projects (such as the Koolan Island Project), increase as development risks are mitigated and production commences.

Shareholders should note that the Aztec Directors cannot give any assurance that the Aztec Share price will replicate that of Oxiana and Kingsgate following commencement of production at the Koolan Island Project. You should refer to section 5.7 of the Target's Statement for a description of the key risks in respect of both the development and ongoing operations of the Project that may impact Aztec's Share price performance or indeed cause the Share price to fall. Most of these risks are common to other companies developing mining projects in Australia.

Aztec is Exploring Alternative Options to Maximise Shareholder Value

Aztec, on page 20 of its Target's Statement, noted that the Directors are exploring alternatives to maximise value for shareholders. Aztec continues to be engaged in discussions with third parties in relation to such alternative opportunities. At this stage none of these discussions have resulted in any other opportunity being presented to Aztec. Your directors will continue to update Aztec Shareholders about these options in accordance with its obligations.

On 11 September 2006, Mount Gibson announced to ASX that it had exercised its call option in respect of 159,031,192 Aztec shares previously held by Cambrian Mining plc (Cambrian). As a result, Mount Gibson acquired a 15.24% shareholding in Aztec.

Mount Gibson has the ability to vote its holding and potentially influence the outcome of any proposal if such a proposal requires a vote from Shareholders.

In addition, Aztec notes that Cambrian accepted Mount Gibson's Offer for the remainder of its holding on 19 September 2006. If Mount Gibson waives all of the conditions attached to its bid (including its 90% minimum acceptance condition), Cambrian will cease to be an Aztec Shareholder and Mount Gibson will, given other acceptances to date, have a shareholding of 31.91% in Aztec. This is likely to limit the number and nature of alternative opportunities available to Aztec's shareholders.

Even if none of these alternative opportunities becomes a firm proposal, the Directors still recommend that you REJECT the Mount Gibson Offer for the reasons described in the Target's Statement.

Construction and Exploration Update at Koolan Island

On 8 September 2006, Aztec provided an update on the progress of construction and exploration at Koolan Island. Since that time, construction has continued and remains on target for commencement of production in December 2006 and first ore shipment in early 2007.

The exploration activity at Koolan Island is ongoing. During the September 2006 quarter, drilling at the Mangrove prospect marked the recommencement of exploration on Koolan Island. The drilling results to date reconfirm the Aztec Board's confidence that additional iron ore will be found on the island.

The Mangrove prospect is located 1km southeast of the Main deposit on Koolan Island and in close proximity to the process plant. Aztec confirms that drilling in 24 holes has been completed within an 850m long section of the Mangrove prospect. Drilling to date has intersected hematite mineralisation over a 750m strike length (not 850m as stated on page 39 of the Target's Statement).

For the avoidance of any doubt, the reference in the table on page 34 of the Target's Statement to full production expected (shipments of 4 million tonnes per annum) in 2008/2009 should be replaced with: "Production is forecast to ramp up to full rates in the December 2008 Ouarter when monthly ore shipments at an annualised rate of 4 million tonnes per annum are forecast to commence".

Mount Gibson's Management Team have Continued to Underperform their Own Operational and Financial Projections

The Target's Statement points out that Mount Gibson's management team has underperformed on a number of assertions they have made in the past.

As noted in the last row of the table appearing on page 17 of the Target's Statement, one of Mount Gibson's assertions made in January 2005 was that the Extension Hill Magnetite Project bankable feasibility study was forecast to be completed by August 2005.

In the table on page 17 of the Target's Statement, Aztec stated that "only a desktop feasibility study was completed in February 2006" in respect of Mount Gibson's Extension Hill Magnetite project. Mount Gibson has completed a full feasibility study (rather than a desktop feasibility study) on this project although it was not completed to a bankable level as was originally stated by Mount Gibson in its January 2005 ASX release: refer to its December 2005 Ouarterly Report released to ASX in January 2006. Mount Gibson has subsequently entered into agreements to sell its entire interest in the Extension Hill Magnetite project.

Update on Bid Conditions

Mount Gibson's Offer remains subject to a number of conditions which are summarised on page 50 of the Target's Statement. In particular, it remains subject to Mount Gibson acquiring at least 90% of Aztec's shares.

Aztec notes that, on 8 September 2006, Mount Gibson announced that one of its numerous conditions was satisfied when it received notification of approval for (or no objection to) the Offer from the Foreign Investment Review Board.

Other

In the last section of the table appearing on pages 22 and 23 of the Target's Statement, Aztec made a statement relating to the intentions of Cambrian announced prior to the Offer being made. Although Aztec believes this statement is correct, and its accuracy has not been disputed by Mount Gibson, the consent of Cambrian was not obtained prior to its inclusion in the Target's Statement. Therefore, that statement should be disregarded and considered to be deleted from the Target's Statement. As noted above, on 19 September 2006 Cambrian accepted the Offer for the remainder of its shareholding in Aztec.